Filed under: Bad news, Merck and Co (MRK), Options, Technical Analysis

Merck & Co (NYSE: MRK) shares are falling today after the company reported that FDA approval its new cholesterol drug will likely be delayed until 2013. The FDA first rejected regulatory approval of the drug in April, and requested more information from company studies. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MRK.

After hitting a one-year high of $61.62 in December, the stock hit a one-year low of $34.49 earlier last month. This morning, MRK opened at $35.40. So far today the stock has hit a low of $35.00 and a high of $35.83. As of 12:25, MRK is trading at $35.03, down 57 cents (-1.6%). The chart for MRK looks bearish and steady, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $42.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in four months as long as MRK is below $42.50 at October expiration. Merck would have to rise by more than 21% before we would start to lose money.

MRK hasn’t been above $42.50 since March and has shown resistance around $39 recently. This trade could be risky if the company’s earnings (due out in mid-July) are a positive surprise, but even if that happens, this position could be protected by resistance MRK might find at its 50 day moving average, which is currently around $38 and falling.

Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in MRK.

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Filed under: Gannett Co (GCI)

Like the rest of the newspaper operators in the US, Gannett Co., Inc. (NYSE: GCI) has had a steep drop in its stock price. Basically, to stabilize things, the company needs to find new growth opportunities.

And, of course, this is likely to come from the Net. So this week, Gannett announced a strategic investment in Cozi, which is a scheduler for families (the amount was not disclosed).

In the deal, Gannet will leverage Cozi’s service across its large distribution platform, which includes 85 daily newspapers, 23 television stations and hundreds of websites.

Cozi is a neat service. For example, you can track shopping and to-do lists, family chores and so on. There is also calendar and photo sharing. Launched in late 2006, Cozi now has more than 600,000 registered users.

All in all, this looks like a smart deal for Gannett. Basically, the company can enhance its relationship with its customers. At the same time, Cozi could be a vehicle for local and classified ads, which are under pressure. Moreover, there is likely to be a boost in membership as Gannett has coverage of about 20 million households.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

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Filed under: Forecasts, Consumer experience, China, Economic data, Oil

China decided to raise the prices of gas and diesel by 18% last week. The theory is that this will cut into demand and help drive down the global price of oil. It will also save China money. The central government underwrites that cost of fuel by buying crude at high prices and selling the refined products below market.

Keeping fuel costs low is part of what allows the GDP in China to keep growing quickly. The country needs to move goods from the interior of the country ,where they are made, to the port cities for shipping. China’s export success has some base in a low cost of shipping.

The China plan might work in the U.S., although it would risk harming many of the lower and middle class. The federal government has the opportunity to raise the taxes on gas and diesel enough to move the price of a gallon of “regular” to over $6. That would certainly cut consumption.

Or, the government can do nothing because gas may get to $6 all on its own.

Douglas A. McIntyre is an editor at 247wallst.com.

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UCLA’s Anderson school of business reported that they see the first ‘dim flicker’ of light at the end of the housing collapse in California, citing year-over-year transaction increases in areas like Riverside (one of the hardest hit by the bubble).  To me this just smacks of analysts wanting to be the first to call bottom without consideration to the underlying fundamentals of the California market.

The two most important of which are the fact that a majority of the loans in the more expensive markets were made with a combination of stated (a/k/a fake) income and exotic loan products like option arms and interest only loans that have yet to recast or adjust.  How can anyone call for a bottom and say that foreclosures will ease in 2009 with a clear wave of resets looming on the horizon for 2009-2012 that are actually more severe in nature than ARM resets?  That’s irresponsible.

An option ARM reset can increase the monthly payment requirement of a borrower 4-5 fold.  With no equity to refinance these homes are going to go cascading in to foreclosure further hurting the market.  Any one that does not take this eventuality as a serious threat to the market is just plain ignorant.  It’s going to be messy.

See the graph and you tell me if we’re out of the woods yet.

Courtesy of Calculated Risk.

From Bloomberg:

“The combination of steep price declines, lower interest rates, and an easing of the credit crunch may now be bringing bargain hunting buyers back into the market,” for California homes, Ryan Ratcliff, an Anderson Forecast economist, wrote in the report. Riverside County posted a year-on-year increase in the number of homes sold, he wrote.

Foreclosures likely will continue to hurt California’s housing market for the rest of this year and then start to moderate in 2009, the Anderson Forecast said. While a “normal” housing market “is still a long way off,” according to the report, the increase in home sales in some parts of the state is a positive sign.

`Dim Flicker’

“This is the very dim flicker of the light at the end of the tunnel,” Ratcliff said in an interview. “I can’t say that I see an unambiguous sign of a turnaround, because by the time it’s unambiguous, it’s already been happening three or four months.”

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Source [blownmortgage]

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Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

Microsoft (NASDAQ: MSFT) is losing the online ad battle to Google (NASDAQ: GOOG) so why not get into the TV advertising business?

According to The Wall Street Journal, Redmond will buy “Navic Systems Inc., an eight-year-old company that helps advertisers place ads on television programs.”

Whatever Microsoft paid is too much. Small M&A deals are not going to do anything to help the world’s largest software company, especially if they are in slow growing part of the advertising market like TV. Navic may be good at targeting messages to consumers using demographic data and user information from set-top boxes, but over time, TV will have a smaller and smaller piece of the total marketing pie.

Microsoft appears to have lost its battle to buy Yahoo! (NASDAQ: YHOO), but the online ad business is still the only part of the industry that is still growing in double digits. The company needs to put its acquisition money there and stop fooling around with old media.

Douglas A. McIntyre is an editor at 247wallst.com.

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Try for a second to flash back to 1992. What were you doing back then? Like many during this time, you may have been feeling some of the pinch from the 1990-91 recession. Even though recessions may have exact dates, their impact is powerful years before and after the official dates. […]
Related Posts:
■New Century Financial Now Has A Market Cap of $92 Million and Owes $8 Billion. Now That is Leverage Baby!
■I Am Facing Foreclosure: Response to Casey
■Two Faces of Housing Panic: Schadenfreude and the Lender of Last Resort.
■Housing Bloggers Unite: The Housing Blogger Network (HBN) has Started.
■About

Try for a second to flash back to 1992. What were you doing back then? Like many during this time, you may have been feeling some of the pinch from the 1990-91 recession. Even though recessions may have exact dates, their impact is powerful years before and after the official dates. Look at our current situation. Technically we are not in a recession according to government data but many would disagree with this assessment.

You also may recall the first gulf war which lasted from August of 1990 through February of 1991. The similarities between the early 1990s and today are striking. You may also recall that a unique Texas oil Electronic Data Systems founder and  billionaire named Ross Perot entered into the presidential race of 1992. Not only did this character enter the race but he ran on a platform talking about the national debt and deficits of all things. At one point in June, late in race if you put that into 2008 context, Perot was up in the polls against Bush and Clinton.

You may also recall his zany charts and old school presentations:

*Pre-PowerPoint era

Sadly at this time my interest in economics and business was not present. I recall thinking, “man, this guy is nuts but he does make sense! What is up with all these charts?” Now, 16 years later as I look at my own writing and efforts to “spread the truth” I realize that I have taken techniques that Ross Perot once employed. That is, using charts, graphs, and hard numbers to drive the point home. Incredibly, that is one of the reasons many housing and finance blogs online have done so well and have siphoned off a good amount of traffic and readership from mainstream media outlets.

Many of the points that Perot argued about during the campaign really didn’t come home to roost until this decade. He wasn’t wrong. Just early in his predictions. Yet his arguments during this time did ensure that the key factor determining the election was the economy. As we look at the current candidates, I am a bit unsatisfied at the discussion over the economy. The majority of polls tell us that the economy is the number one pressing issue on the minds of voters. Yet here we are arguing about the candidates wives or trying to figure out why someone didn’t wear a lapel pin. It is absurd.

Well fear not my friends! Ross Perot is back on the scene. He isn’t running for President but he is bringing those charts back in his Perot Charts website launched this week:

*Click on picture to go to website

When I first heard of the site I must admit that I found it hilarious. My first reaction was that he was going to try to jump back into the fray of things. The site essentially is an argument of why if we continue down our current path, the United States is going to face a harsh economic winter. He does am amazing job with his charts highlighting the deficit, government spending, and explaining what would otherwise be very complicated themes in an easy format. I tip my hat to him for putting this up. If you have about an hour to peruse the charts and read some of the information, you will have a better grasp of the economy.

He reaches a fact based conclusion at the end that some hard choices will be made in order to combat this economic tipping point. Either taxes will need to be raised, spending cuts made, or a combination of both. Politically it seems like we will see a mixture of both. Some of the charts are downright scary like the ballooning mandatory expenses of Social Security, Medicare, and Medicaid given our massive booming in retirees. From his Monday press release we are told:

“The economic crisis facing America today is far greater than anything since the Great Depression,” said Perot. “Our federal government continues to spend us deeper into debt. The American people must get directly involved and demand an end to deficit spending. This website will provide information for citizens to do just that.”

Like the economic charts Perot employed in his 1992 and 1996 presidential campaigns, which served as snapshots of complex economic issues presented in simple terms, PerotCharts.com features the latest official government figures about the real conditions of our economy for everyone to see and consider. The site is designed to be a reservoir of information about the economy, and provides an accurate look at where the money comes from and where it goes.”

Oh no! I’ve become Ross Perot. Bwahahaha! In all seriousness, the site is a very useful tool to look at important charts that will impact our country’s future. He makes a point in the site that some of the information simply doesn’t go well in our nano-second media culture. He is absolutely right. It’ll take you at least 30 minutes or so to read through some of the charts and for you to arrive at your own conclusions. Can you imagine McCain or Obama using charts in their campaigns? I just don’t see it happening.

Hopefully with third party candidates getting some exposure and highlighting major issues such as the Federal Reserve, budget deficits, and other major economic themes the two primary candidates will take heed of this in the upcoming months. The public is demanding something be done about the economy. This is the time to enact a solid foundation to protect our future. Whatever your thoughts may be about Ross Perot, the issues in 1992 are here and nothing has been done in 16 long years. We’ve gone through a technology bubble and a housing bubble. Now we are confronted with major government debt and mandatory expenses that will only balloon in the next few years. This time, we can’t push it off until tomorrow.

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Related Posts:
■New Century Financial Now Has A Market Cap of $92 Million and Owes $8 Billion. Now That is Leverage Baby!
■I Am Facing Foreclosure: Response to Casey
■Two Faces of Housing Panic: Schadenfreude and the Lender of Last Resort.
■Housing Bloggers Unite: The Housing Blogger Network (HBN) has Started.
■About

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Home builders continue to dial back the production of new homes, with new housing starts reaching a 17-year low in May.  Further, the data points to future declines in starts as the market continues to correct.

From Calculated Risk:

Building permits decreased:

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 969,000.
This is 1.3 percent below the revised April rate of 982,000 and is 36.3 percent below the revised May 2007 estimate
of 1,522,000.

Single-family authorizations in May were at a rate of 623,000; this is 4.0 percent below the April figure of 649,000.

The declines in permits suggest further declines in starts next month.

On housing starts:

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 975,000. This is 3.3 percent below the
revised April estimate of 1,008,000 and is 32.1 percent below the revised May 2007 rate of 1,436,000.

Single-family housing starts in May were at a rate of 674,000; this is 1.0 percent (±9.9%)* below the April figure of 681,000.

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Source [blownmortgage]

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Filed under: International markets, Technical Analysis, Commodities, Oil

Oil’s most-recent minor decline - - there have been several during the past five years - - was short-circuited Friday, this time by the falling dollar and geopolitical events. (Oil rose $2.88 to $134.81 per barrel in Friday afternoon trading.)

Investors (and oil users, for that matter) may be asking: Is there anything in oil’s chart that would have provided a clue to this latest and other abrupt ends to the brief pull-backs? Technical analysts believe there is.

Although they represent only one segment of the financial analysis / market analysis spectrum, technical analysts argue that certain indicators provide clues regarding price movement. And one long-term trend indicator is the moving average.

A tough average to break is the 50-day moving average: strong companies, or commodities, consistently remain above the 50-day moving average; weak ones, the reverse.

An even tougher average to break? The 200-day moving average. Given the typical time horizons for many traders, the 200-day moving average, or 200-day MA, is considered the toughest average to break.

The significance for oil? This week, oil’s 200-day moving average rose above $100, to $100.67.

Continue reading Another bullish milestone for oil: 200-day moving average is now $100

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

As anticipated, Yahoo! Inc. (NASDAQ: YHOO) and Google (NASDAQ: GOOG) announced a deal. The Wall Street Journal reports it’s worth between $250 million and $450 million in additional cash flow to Yahoo.

The deal will be delayed a few months for regulatory approval. Under its terms, Yahoo will select which search term queries it offers Google paid search results for, the number and placement of Google results and how they are blended with its own results and those of other providers. Yahoo said either party can end the agreement in the event of a change in control. If control of Yahoo changes hands in the next 24 months, Yahoo must pay a termination fee of $250 million.

Poor Carl Icahn. He could have had a $33 a share deal from Microsoft Corp. (NASDAQ: MSFT), now all he has is 33 cents a share from Google. Cover your ears before his moaning and groaning begins. Yahoo shares are up 1% after hours after losing 10% during regular trading.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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