-- Posted Wednesday, 23 April 2003 | Digg This Article

When we alleged here yesterday that eBay’s recent, fleeting weakness was orchestrated by “Da Boyz” to shake loose some stock at lower prices, we hadn’t expected the perpetrators to confirm our accusation so swiftly -- or so brazenly. But eBay shares, after getting knocked for a loop on Tuesday -- a day when most other stocks moved higher -- came roaring back on Wednesday with a spectacular $5+ gain.  We weren’t altogether surprised by this, although our suspicions of manipulation had been aroused before we were even aware of a Wall Street Journal hatchet job on eBay that was played prominently in Tuesday’s edition.

We don’t have the article handy just now, but a separate item from The Daily Reckoning will give you the flavor of it: “EBay sells for 81 times earnings. TheStreet.com calculates that earnings would have to rise 40% per year for the next 5 years to justify the price. How likely is that?” Although we don’t recall The WSJ’s having cited James Cramer’s TheStreet.com as a source of information for its cautionary feature on eBay, Cramer is just the kind of guy we have in mind when we speak of “Da Boyz” – an insider who can make stocks dance, sing and jump through fiery hoops at the opportune moment. Sometimes all it takes is a phone call to a high-profile business reporter, and Cramer undoubtedly has a Rolodex filled with their names.

Cramer vs. Cramer

Not that we should necessarily infer that Cramer was personally short eBay, or that he wanted to drive the stock lower in order to cover such a position profitably. But as we know, he has been accused of far worse shenanigans by a former employee who wrote a tell-all book alleging, among other things, that Cramer used an unwitting Maria Bartiromo as a mouthpiece when he wanted to drive a particular stock up or down. One assumes that the effects of this blow to Bartiromo’s credibility have since fallen by the wayside, since the “Cramer vs. Kudlow” dog-and-pony show on CNBC emanates from the same studio as Bartiromo’s daily spots. Cramer acknowledges having had regular chats with Bartiromo, but his denial as to their effect on the news is unpersuasive: “…did I try to figure out the so-called Maria effect? Give me a break. I'm trying to make hundreds of millions of dollars. And you don't make hundreds of millions of dollars trying to guess what Maria is going to talk about on TV.”

We think Cramer is a far more astute guesser than he allows. But to return to his warning about eBay, the question nags as to why a street-savvy guy like Cramer would purport to tell the world that a stock’s price-earnings multiple matters. Clearly it did not matter to the investors who practically trampled each other trying to buy eBay shares on Wednesday, following a rare day’s weakness in the sto ck. Or maybe we’re wrong -- perhaps an 81 PE multiple does matter – that in this case it screams “BARGAIN!!!” to any investor searching out the very small handful companies that conceivably could prosper if the U.S. economy goes Japanese. But if Cramer and The Wall Street Journal are deigning to suggest that investors are crazed to want eBay shares at 80 times earnings, we can think of quite a few other companies that never made a dime whose shares were pushed to much greater extremes – often by investors acting on the sensationally bullish recommendations of…James Cramer.

America’s Newspaper of Record

DJIA (8515.66):  No change. A potentially important top at 9035 lies in prospect over the next 3-4 weeks. Between here and there lie two hidden pivots that could stop the rally cold:  8641.72; or if any higher, 8736.46.

$   JUN E-MINI S&Ps (917.50):  Our minimum upside target remains 948.50, and it looks as though it will take about two weeks to get there.  A hidden-pivot resistance point along the way lies just above, at 926.75 (although 923.00 might also cause a stumble). Day traders can plan on shorting the higher target, stop 927.25, if and when the time comes.

JUN BONDS (112.04):  The futures continue to consolidate in the range 110-113, as predicted here quite a while back. A strong sign that the bonds are recharged for a run higher would come on a close above a hidden-pivot resistance at 113.17.

$   OEX (467.316):  The OEX ran out of steam just shy of the hidden pivot we’d flagged at 468.91, but we expect it to give way today, allowing the index to reach the 471.41 pivot that has served as our minimum upside projection. We’ll no longer suggest that you try to short the lower resistance, but you can attempt it at 471.41 provided you don’t risk more than pocket change on the initial stop.

$   QQQ  (27.63): Our minimum upside projection remains 29.04. Let’s try to leverage this forecast by legging into the June 30 – May 30 call spread. First, today only, bid 0.40 for four June 30 calls, contingent on the QQQs trading 27.50 or higher.

JUN NASDAQ E-MINI (1112.00):  Our minimum upside projection is still 1169.50, a hidden-pivot target. Yesterday’s decisive penetration intraday of a less important pivot at 1114.50 is a mildly bullish sign going forward.

***

$ +  IBM (85.75): We hold fifty July 105 calls for 0.15 and are bidding 0.10 for thirty more. A few subscribers have written to apprise me of fills at 0.10, so continue to bid them at that price while they are still available. We will also continue to offer 50 June 105 calls for 0.10, g-t-c. You should raise the offer to 0.15 if the stock should touch 87.50.

$   INTC (19.48):  Intel continues to make painstaking headway toward a 19.68 hidden pivot that has served as our minimum upside target for a while.  Again, let’s offer two round lots short there, stop 19.71. Make it good in the first 90 minutes only.

$ +  C  (40.29): We hold eight May 42.50 calls for 0.10 but were unable to buy any more of them at that price yesterday. Let’s try to lock in a vertical spread with no possible loss and a potential gain of $250 per spread (i.e., $2,000 for our entire position). Accordingly, you should offer eight May 45 calls short for 0.10, contingent on the stock trading 40.80 or lower; if higher, raise the offer to 0.15. This is a day order.

$ +  XOM (35.34): We hold ten July 40 calls for 0.20 and are offering ten May 40 calls short for 0.10, g-t-c. The May 40s are still not yet trading, suggesting the stock will need to go reach 37 or slightly higher before crazed speculators start nibbling on the May 40s for a nickel.

-- Posted Wednesday, 23 April 2003 | Digg This Article

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