May 14 NYSE: Stocks rally on diminishing inflation fears, Yahoo acquisiton still in play??

As I stated in my last blog that this week will be all about economic numbers and we could expect a small rally on good news. The S&P Futures and DOW were both up with the futures hitting a high of 1,421 range before sliding back to 1,408.66 at the close. Consumer prices reported better than expected despite worries in the market at the affect of higher fuel prices on food prices.

The Financials such as Citigroup (C) and Bank of America (BAC) were all good plays with decent volume and volatility which allowed great entry and exit positions. Fake sizes and Pushers were also very evident on many Big Cap stocks which provided unique opportunities and at the same time increased the risk factor today. EMC Corporation (EMC) was a very good long early in the day with a good bid size near the open. The stock pretty much went up the entire day.  Nabors Industries Ltd. (NBR) had a pretty big level for its volume at $40.00 which allowed big short positions to be taken and for those with lower share sizes, scalping between the ranges throughout the lunch and afternoon session. Honeywell International, Inc. (HON) was another good candidate today which broke key levels and allowed some great punches (Hitting the Ask Side) and hold positions to be taken.  Overall the market was not clear on a direction and will be analyzing the numbers coming out this week to determine the direction of the economy. Expect similar market activity during the next two days.

Yahoo had some interesting developments today as Billionaire investor Carl Icahn (who owns significant shares of Yahoo) is attempting a proxy slate to change the Yahoo board of Directors. This is definitely a key development as it might lead to a potential Yahoo acquisition depending on who Ichan brings on board. Rumors are running around of Microsoft’s covert backing of Ichan and an attempt to acquire Yahoo through proxy means (i.e via the shareholders).  The proxy slate is to be announced tomorrow which should give us a good idea on the players behind the scenes. The decisions of two other key shareholders namely Gordon Crawford who has a history of influencing Yahoo’s board, and Bill Miller (their combined holdings total to a 23% stake in Yahoo!) will play a major role in the future shake up of Yahoo and whether Microsoft will be coming in again.

From a business point of view it is important to ask whether this deal is a solid proposition to both companies. Yahoo which had been in dire straits since last year clearly needs to redefine itself and its core business (something which it has failed to do for a long time). It’s competitor Google knows its core business which is search and has ensured its entire focus on search and search related products. Yahoo on the other hand views itself as a Web Portal rather than a search engine but has yet to define itself on what exactly it needs to focus on and what are its core areas of revenue generation. The DNA of the company is also very different from Google (which is a more chaotic business model) and does not motivate innovation which is a key element of web businesses. The same problem also exists in Microsoft’s DNA (i.e innovation) and it is one of the reasons why it is simply unable to compete with Google on the Internet domain. Microsoft if anything needs this deal badly so it can seek to have a presence in cyberspace which is increasingly being viewed as the next evolution for software (i.e Cloud computing etc.). Just like IBM was killed by Apple and Microsoft in the late 80’s the process of creative destruction seems to be re-occurring once again and MIcrosoft knows it needs to have a greater presence in cyberspace to ensure its future survival and dominance over the Software and IT market. I will be keeping a close eye on this deal and it should be interesting to see what efforts Microsoft undertakes in order to pose a serious challenge to Google’s dominance over the Internet…

-Danial Jameel (www.daytraderlog.com)