Stocks First Down Day In 10, Overall Outlook Still Bullish

The S&P closed 6.50 handles lower in E-mini futures contract (CME:ESM14) yesterday, sold off down to 1940.50 and chopped between the 1942-1943 level for the first three hours of the day.

The gap down had all the looks of a further decline, but like many days over the last two months the selloff led to a bounce. After the bounce the ESM14 went “dead quiet,” as some traders put it. After chopping around in the afternoon and touching the day’s low of 1938.50, the premiums widened out and in came a small index arb buy program which pushed the ESM14 back above the 1944 level late in the day, just one tick shy of the opening range high.

While the overall tone of the markets may not have changed very much, yesterday’s selloff was the first time in over two weeks that we saw some significant sell programs and sell stops. What can you say except, it was about time?

Think Ahead

Over the last few days I have talked about buying cheap S&P puts. There are other strategies, like bear put spreads and selling naked calls above the market, but as we explained in yesterday’s view, this is what we call an option lottery ticket. With a cheap out-of-the-money put, if the S&P continues higher you will not lose a lot.

That was our suggestion, but then I saw the June S&P cash expiration study, which looks very bullish. Buying puts is still a good strategy in the longer term, but bullish stats combined with low volumes could make for a rally that’s hard to fight. We’re looking to bid low and wait to get as high a strike price as possible and we are also looking further out in time, beyond the July expiration on the September underlying futures.

As you can see below, in the period from this Friday to next, every day is up except next Wednesday.  While I do not recommend the study as your sole reason to buy or sell, these stats are big. You rarely find such odds and if nothing else, it should make short sellers cautious.

PitBull’s Thursday/Friday low

Yes, the S&P (CME:SPM14) bounced late in the day, but when you take out yesterday’s Globex volumes and the spreads (mostly from the June to September rollover), overall volume was low again.

When you look at the next few weeks it’s hard to find the negatives. With fewer people trading, the summer starting, the June Quad Witch and the June end of the quarter rebalance, it may be hard to be a seller. As we go into the end of the week we are back to looking at the PitBull’s Thursday / Friday low before the expiration, and our S&P cash study backs that idea.

The Asian markets closed modestly lower and in Europe 8 of 12 markets are trading modestly higher. Today’s economic and earning schedule starts with jobless claims, retail sales, import and export prices, business inventories, EIA natural gas report, 30-year bond auction, Fed balance sheet, money supply and earnings from Finisar (NASDAQ: FNSR) and Lululemon  (NASDAQ: LULU).

#CYRUS : In one corner, we have Pitbull’s Thurs/Fri before OpEx week low … and in the opposite corner, Pitbull’s mid-month bulge … wondering what a survey would say …

Our View

Let’s face it: You have to make what you can. While the VIX is flashing warning lights it’s possible the VIX keeps going down and the S&P keeps going up. Some signals we used to use don’t work now. Whenever there is a consensus the markets go the other way. Nothing stays the same.

Our view is not to go overboard with the downside puts, there are just too many bullish scenarios in the next 2 weeks. As for today, we lean to selling the early rallies and buying weakness. Thin to win is in and with the rollover starting today there will be even less volume in the outrights as traders focus on the roll.

In Asia, 8 of 11 markets closed lower: Shanghai Comp. -0.16%, Hang Seng -0.35%, Nikkei -0.64%. In Europe, 8 of 12 markets are trading higher: DAX +0.07%, FTSE +0.13% Morning headline: “S&P 500 futures seen higher ahead of US retail sales” Fair value: S&P -9.08 , NASDAQ -9.82, Dow Jones 87.72 Total volume: 1.67 MIL ESM and 41.4 K SPM traded (mostly spreads) Economic calendar: Jobless claims, retail sales, import and export prices, business inventories, EIA natural gas report, 30-year bond auction, Fed balance sheet, money supply and earnings from Finisar (NASDAQ: FNSR) and Lululemon  (NASDAQ: LULU). E-mini S&P 5001940.25-3.75 - -0.19% Crude102.15+0.02 - +0.02% Shanghai Composite0.00N/A - N/A Hang Seng23175.02-82.27 - -0.35% Nikkei 22514973.53-95.95 - -0.64% DAX9938.12-11.689 - -0.12% FTSE 1006846.67+7.80 - +0.11% Euro1.3541

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Futures Markets

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Gas Prices Fall to Lowest Level in Nearly 4 Years

Daniel Acker/Bloomberg via Getty Images NEW YORK -- The average price of a gallon of gasoline in the United States dropped 13 cents in the past two weeks to its cheapest in nearly four years, according to the latest Lundberg survey released Sunday. Gasoline prices fell to $2.94 a gallon of regular grade gasoline, its lowest level since December 2010, according to the survey conducted on Nov. 7. The decline in price is largely driven by lower crude oil prices, which declined further during the period, said Trilby Lundberg, publisher of the survey. "Crude oil dominates what gasoline prices are and what gasoline prices will do," Lundberg said, noting that the direction of crude oil prices in the coming weeks and months will dictate whether gasoline prices will continue to fall further or begin trending upward. "If they don't decline further, then this will be the end or nearly the end of this very steep price drop," she said. The gasoline price is down about 28 cents from a year ago, and has dropped 78 cents from a 2014 peak of $3.72 in May. The highest price within the survey area was recorded in San Francisco at $3.27 a gallon, with the lowest in Memphis at $2.65.

Altria May Boost Investors’ Portfolio

Altria Group (MO) is engaged in the manufacture and sale of cigarettes and certain smokeless products in the U.S. With 50% market share in the U.S. tobacco industry, the company dominates the market. Altria owns UST, the world's largest moist smokeless tobacco manufacturer by sales. UST provides Altria with the leading smokeless tobacco brands, Skoal and Copenhagen. The company's diversification into smokeless tobacco is crucial to promoting its growth due to the declining market for smokers in the U.S.

Altria, whose brands include top-selling Marlboro cigarettes, Skoal smokeless tobacco and Black & Mild cigars, also reaffirmed its 2013 full-year adjusted earnings forecast of between $2.35 and $2.41 per share. The company also owns a wine business, holds a voting stake in brewer SABMiller, and has a financial services division. Philip Morris USA (PM USA) is Altria's domestic cigarette manufacturing company. Philip Morris remains the largest tobacco company in the U.S. by both revenue and volume.

Altria has been a huge winner over the past half-century, having survived countless regulatory threats, lawsuits, and public campaigns to reduce tobacco use and cut into its core business. Even though cigarette smoking has become less popular over that span, Altria and its peers have managed to keep profiting from the industry.

Performance Analysis

Altria manages product pricing to offset the low single digit decline in sales. Marlboro's brand loyalty allows Altria to steadily increase prices. The net price of a pack of Marlboro has increased from $4.27 in 2009 to the current $5.86. So while cigarette use declined by approximately 23% over the last five years, cigarette prices increased by approximately 37%. The Marlboro premium price is 35% higher than the lowest-priced brand.

Earnings per share increased from $1.48 in 2008 to $2.26 by 2013. The company expects to earn $2.57/share by 2014 and $2.76/share by 2015.

Currently, this dividend champion sells for 16.10 times earnings, yields 5.30%, and has a high payout ratio. Given the economics of the business, and the expectation for future earnings growth in the mid single digits, I find it attractively valued today.

Altria's plan to keep revenue and earnings per share going in the right direction is fairly straightforward: Keep expenses down and prices going up. Remember that tobacco companies are essentially banned from advertising. And, due to the low manufacturing costs inherent in the production of cigarettes, it's fairly easy for Altria to keep a lid on expenses.

The growth potential of the electronic-cigarette industry as well as Altria's flagship Marlboro and other brands gave management confidence to reiterate its 2014 forecast of generating approximately 8% earnings growth. This would fall right in-line with the company's long-term target of 7%-9% earnings growth and allow Altria to continue increasing its dividend.

Altria has a very transparent dividend policy. The company pledges to distribute approximately 80% of its diluted earnings to investors via its dividend. Therefore, it's reasonable to forecast around 8% annual dividend growth over the long term, which is about what Altria has delivered over the past several years.

Investors are also encouraged by the company's attempt to strengthen its presence in the growing e-cigarette category. In April, 2014 Altria's subsidiary Nu Mark LLC acquired the e-vapor business of Green Smoke Inc. and its affiliates.

The acquisition is a strategic fit for Altria's e-cigarette business. Moreover, the expertise, experience, supply chain, product lines and customer service of Green Smoke are expected to strengthen Altria's presence in the category.

Machine-Made Cigars

Altria competes in the machine-made cigar category with the Middleton brand. Recent competition from cheaper foreign machine-made cigars has reduced Middleton's retail share from 31.7% in 2009 to the current 29.4% share. Altria has focused on growing income from the cigar business by controlling costs while maintaining margins.

The smokeable products category (cigarettes and cigars) has grown income at a compounded annual growth rate (CAGR) of 4.2%. In 2013, income from smokeable products was $6.4 billion, up from $5.2 billion in 2008.

Entry into E-Cigarette Market Philip Morris is planning to enter into the e-cigarette market in the second half of 2014. According to Philip Morris International CEO André Calantzopoulos, Philip Morris would attempt to absolve some of the current issues with the development of its own e-cigarette technology. The company noted that there is strong consumer demand for a less-harmful cigarette alternative, and that through positive results in its own consumer tests as well as broader consumer interest, Philip Morris would begin the development of its own e-cigarette. However, the company did note that current e-cigarettes often have a slower delivery of nicotine when compared to conventional cigarettes, and often have weaker tastes, which result in "limited user satisfaction and reduced adoption rates."

To End

Governments need tobacco companies, because it provides them with a healthy stream of revenues through excise taxes for example. Furthermore, it is much more popular to tax the evil tobacco conglomerates, rather than increase taxes on middle class voters, or reduce education expenditures for high-schools The positives behind companies like Altria includes strong brand loyalty, the fact that consumers are addicted to the product, efficiencies of scale and strong pricing power. It would be almost impossible to start a competing tobacco company today, because of the ban on advertising. Altria has a reputation as an income investor's staple. It has been inculcating in shareholder-friendly policies and is expected to provide value for investors. It has a record of healthy operating cash flows. The venture of the company into e-cigarettes will support growth in the near future.

Altria continues to show great potential and still has several relative advantages over its competitors, including its dominance in cigarette market share, high dividend yield and diversification with other assets.

Altria's tobacco companies are well-positioned in the U.S. tobacco space. They have the leading positions in the largest and most profitable tobacco product categories. And in each of these categories, Altria competes with premium brands that enjoy strong equity and higher margins than most of their competitors. For decades, the company has pumped out steady profit growth and returned a great deal to shareholders

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4 Tech and Telecom Stocks to Trade for Gains

BALTIMORE (Stockpickr) – The broad market is kicking off November in "bounce mode", with the big S&P 500 Index nearly 8% higher than today than it was just two weeks ago. To put that in perspective, more than three quarters of 2014's year-to-date gains have gotten put back onto the S&P within just the last two weeks.

Must Read: Warren Buffett's Top 10 Dividend Stocks

And the tech and telecom sectors are leading the way higher.

So, as the big market indices test new all-time highs to start November, it makes sense to focus on the strongest stocks within the sectors that are already outperforming. To do that, we're taking a technical look at four technology and telecom sector trades to grab for gains this week.

For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.

Without further ado, let's take a look at four technical setups worth trading now.

Must Read: Sell These 5 Stocks Before It's Too Late

Gogo Inc.

Up first is in-flight Wi-Fi provider Gogo Inc. GOGO. There's no two ways about it – Gogo had a rough start to the year, tumbling more than 33% since the calendar flipped to January. But buyers could soon have their patience rewarded. That's because GOGO looks close to a major breakout this fall...

Gogo is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares at $20, and uptrending support to the downside. Basically, as GOGO bounces in between those two technically-significant price levels, it's getting squeezed closer and closer to a breakout above out $20 price ceiling. When that happens, we've got a buy signal.

If you decide to be a buyer on the $20 breakout, I'd recommend putting a protective stop on the other side of shares' most recent swing low at $14. Don't be early on this trade – it doesn't trigger until shares can catch a bid above that $20 level.

Must Read: 5 Stocks Insiders Love Right Now

China Telecom Corp.

You don't have to be an expert technical analyst to figure out what's going on in shares of $50 billion telco name China Telecom Corp. CHA -- the setup in this stock is about as straightforward as they get. CHA has been bouncing its way higher in a well-defined uptrending channel since the middle of March, ratcheting more than 53% higher along the way. But don't worry if you missed the move; there's still time to buy the bounce in CHA.

The price channel in China Telecom is formed by a pair of parallel trendline support and resistance levels that identify the high-probability range for shares to stay within. Put simply, every touch of trendline support has been a low-risk opportunity to get into shares. So, with CHA testing that support line for the seventh time this year, it makes sense to buy the next bounce.

The 50-day moving average has been a good proxy for support on the way up – it's a logical spot to park a protective stop below. Don't get thrown off by the abundance of gaps on China Telecom's chart right now. Those gaps, called suspension gaps, are caused by overnight trading on the Hong Kong Stock Exchange. They can be ignored for trading purposes.

Must Read: 5 Big Stocks to Trade for Gains as QE3 Ends

Wipro Limited

$22 billion tech name Wipro Limited (WIT) is another foreign stock that's been bouncing its way higher in an uptrend for most of 2014. Like with China Telecom, the buy signal in Wipro comes on the next bounce higher off of trendline support. That means it pays to be patient if you're looking for a low-risk buying opportunity in WIT this fall.

Waiting for a bounce off of support is a critical test for two big reasons: it's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring WIT can actually still catch a bid along that line before you put your money on shares.

LG Display Co Ltd.

Last, but certainly not least, is Korean tech manufacturer LG Display Co Ltd. (LPL). LPL has been correcting since the last week of August, failing to participate in the broad market rally that's propelled stocks higher in recent weeks. But that could be about to change, thanks to a classic technical setup that's been forming in shares of LPL for the last month. LG Display is starting to look "bottomy" in the short-term.

LPL is currently forming an inverse head and shoulders pattern, a bullish setup that indicates exhaustion among sellers. You can spot the inverse head and shoulders by looking for two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern's "neckline" level (that's the $16 price level in LPL).

Lest you think that the invesrse head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's good reason to keep a very close eye on LPL this week.

To see this week's trades in action, check out the Technical Setups portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

Must Read: 10 Stocks Billionaire John Paulson Loves in 2014

Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in the names mentioned.

Follow Jonas on Twitter @JonasElmerraji

General Motors & Ford: Falling Yen Not Getting ‘Near Enough Investor Attention,’ Morgan Stanley Says

Yesterday, automakers reported strong U.S. sales–but that doesn’t mean life is going to get any easier for U.S. manufacturers like General motors (GM) and Ford Motor (F).

Nick King for the Wall Street Journal

One of the bigger issues: The falling yen, which Morgan Stanley’s Adam Jonas and team don’t think its getting its due from investors.

We expect the US auto industry will continue to find new ways to attract incremental consumers into the market, pushing SAAR to higher and higher levels while sacrificing pricing, quality and sustainability of volume. With the Japanese Yen now at 114, the stakes are even higher…as it has effectively placed an extra $3k of profit per unit into Japanese hands versus levels from just 2-3 years ago. We expect this will help Japanese manufacturers bring to market attractively designed and engineered vehicles at great prices, helping to expand their 40% share of the of the US market, pressuring rivals. We don’t believe the Yen is getting anywhere near enough investor attention despite it likely being the #1 macroeconomic factor keeping US auto industry executives up at night.

Shares of Ford Motor have dropped 1% to $30.85 at 10:51 a.m., while General Motors has fallen 0.6% to $13.90.

Time To Sell? Twitter Falls To New Post-IPO Lows After Lockup Expires

For some insiders, now may be the perfect moment to exit the Twitter-verse.

On Tuesday morning, after Twitter's 6 month share lockup expired, the social network's stock tumbled to new post-IPO lows. Trading volume was up by over three times average as shares sank nearly 12% to prices near $34 per share.

Billionaire Twitter co-founders Evan Williams and Jack Dorsey, along with CEO Dick Costolo, all previously agreed to keep their shares after the lockup expired. Twitter shares had previously ticked up 3% after that announcement.

But other holders of freed shares (accounting for about 83% of those outstanding) may not be so patient. Despite the falling stock price, insiders who have held share since the IPO are sitting on unrealized gains they may want to cash out.

The reaction for Twitter shares is the opposite of what happened to Facebook when its lockup expired in November 2012. At that point, Facebook shares were already significantly down from their IPO price, and the expected sell-off didn't occur — causing the stock price to rise 13%.

Before Tuesday, Twitter shares were already down nearly 40% year to date.

Follow Brian on Facebook and Twitter.

Who Will Get Rich From The Twitter IPO?