Thursday, March 16, 2006

Mexican Jumping Beans & Overpriced Stock exchanges....

Okay, first I'm going to talk about a company that makes something near and dear to my heart...tacos! Namely, Chipotle tacos (of the barbacoa variety). A distinct product of value that is created by hand and sold at a reasonable price. People are required to eat and tend to buy more of their products and form lines out the door due to the high quality and reasonable prices....

All that being said, Chipotle trounced analyst earnings estimates and managed to earn only $.16/share (implying $.64/yr, or approximately 80x earnings). Unfortunately, that $.64/year will probably go down next year by at least 20% (even if they grow earnings 40%), due to the fact that the current year earnings do not reflect corporate income taxes that the company is not yet paying (due to prior year tax losses). While the company is impressive and actually had insiders buy stock in the low 40s after their IPO, I'm going to save my money for the tacos they are the only thing cheap enough for me here.

Now onto part 2, I've compiled a list of stock exchange charts....much like the aggregate market indexes (Russell 2000 at all time highs) brokerages and stock exchanges are experiencing strong growth and record profits. However, stock trading is shifting from phone orders to a highly fragmented system of smaller, low-cost orders, with better execution spread across multiple exchanges. As an example, on the day the NYX (NY Stock exchange) officially IPO'd its own stock on its own exchange, they handled only 60% of the orders in the stock! That is pretty embarrassing and shows the extreme level of competition and technological innovation occurring in this space. LOOKING TO SHORT NYX, ISE, and maybe ICE...watching also BOT, CME

The chart with the most compelling reversal is ISE, with a strong bearish engulfing that sucked away several weeks worth of hard-earned gains on very strong volume. This might be ripe for a short on an upward retracement.

BOT also had a nice gravestone doji (around its prior peak-point during the IPO hoopla) that was followed up by some weak performance. It looks like it may weaken further from here.

NYX is owned primarily by former exchange seat-holders, who may begin to sell their holdings towards the end of this month (initial lockup expiring). Its interesting that NYX is finding such strong resistance towards the end of that dark cloud formed several weeks ago. I am probably speculating too much because these guys are horridly overvalued, but this (and other stock-oriented trading outfits) would seem to be ridiculously overvalued. Instinet and Archipelago were valued like dogshit not even 1 year ago.... so unless they are abusing their monopoly position to increase exchange fees, I fail to see why these companies should be trading so highly.

Other publicly traded exchanges.... given the craze, I'm probably way too early in this speculative BS to be will be usign TIGHT STOPS! Note, ICE and CME are highly cyclical and exposed to the commodity cycle, but would appear to have much better control of those markets than the stock-exchange outfits listed above. They are probably too expensive as well, but the commodity floors are likely to be less exposed (still exposed) than the stock-based exchanges.

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