Annelena Lobb reports:

IAC/InterActive Corp. today began to streamline, after years as a collection of eclectic Internet companies focused on tasks from matchmaking to selling concert tickets. The conglomerate spun off four of its big brands to trade as individual public companies. HSN Inc., or the Home Shopping Network, recently gained 18%. Ticketmaster rose 14%, Interval Leisure Group was flat, and Tree.com fell 1.2%.

The company’s old business mix had made it “difficult for investors to focus on real investable themes,” wrote analyst Ross Sandler, of RBC Capital Markets, in a report at the end of July. But the character of its business portfolio “changed dramatically” with the spinoffs, wrote George Askew, analyst at Stifel Nicolaus, today. “IAC’s revenue model is simplified, focused on online advertising, subscription and lead generation,” he wrote.

“[Its] capital structure has also changed, with cash and equivalents of $1.3 billion, and long-term debt of just $80 million.” There’s still something for everyone, though - it remains a group of more than 35 Internet companies, including Match.com, Ask.com and ShoeBuy.com.

What’s CEO Barry Diller planning to do with all that money? Alan Gould, senior analyst at Natixis Bleichroeder, said management planned to make smaller acquisitions of less than $100 million. “I assume these acquisitions will be a little more tied together thematically,” he said. He says he wouldn’t be surprised to see IAC buy back shares if targets are very expensive. (Natixis makes a market in shares of IAC.)

Still, investors recently sent down shares of IAC today by almost 8%. The new kids on the block, meanwhile, seem to vary in their appeal to investors.

HSN has turnaround potential, said Mr. Gould, and there’s still a possibility of a deal with QVC. Ticketmaster also looks relatively cheap, though a difficult economy could hurt ticket sales, he said, and it loses Live Nation at the end of the year. Interval Leisure Group, which offers time-share vacation services, looks priciest to him, and Tree.com, which owns LendingTree.com, HomeLoanCenter.com and others of their ilk, is trading below its cash value — “which isn’t a shock, given the mortgage market,” he said.

Analyst disclosures: Natixis Bleichroeder Inc. and/or its affiliates make an over-the-counter market in the stock of this company:

Keep it for a while, and then throw it back. (Nebraskawildlife.org)

Freddie Mac and Fannie Mae are the current Rorschach tests in the equity market. If the stocks fall 20% on a given day, it can be explained by worries about bankruptcy. The stocks turn around? A government-led bailout is on the way, but not one that will wipe out stockholders. Whatever works.

“I think Fannie Mae and Freddie Mac have become trading sardines. You have a lot of day-traders looking at $3 and $4 stocks and trading them back and forth for no apparent reason…waiting for some kind of news on a government rescue,” says Douglas Kass of hedge fund Seabreeze Partners Management Inc., who is short both companies.

After a brief dip at Thursday’s open, the stocks rebounded through the early part of the afternoon before weakening. Still, shares of Fannie Mae rose nearly 9% to $4.79 a share after hitting a high of $4.89 on the day. Freddie was barely changed, lately at $3.24 a share, after hitting $3.50 earlier in the session.

“There are a lot of guys with short bets in the names, and after being given a nice downward move at the open, they had the opportunity to cover the stock,” says Mike O’Rourke, chief market strategist at BTIG.

There are few companies with as many variables in play as these two government-sponsored agencies. It’s expected, at some point, that the government will get involved, perhaps by nationalizing the agencies, or by buying vast quantities of preferred stock at a favorable rate for the GSEs in order to recapitalize them. Most of these scenarios suggest unfavorable outlooks for the shares, although nobody still knows when something will happen.

Activity in the options market this week have been concentrated in September and January options, which suggests that investors believe something will either happen in the next few weeks, or not until some point after elections in November. Options activity was heaviest on the call side Thursday. Nearly 30,000 Fannie Mae call options changed hands Thursday, most active at the $10 strike price.

“That’s the out-of-the-money ‘let’s take some disaster insurance’ if you’re short,” says Mike McCarty, options strategist at Meridian Equity Partners. “That’s a conclusion by many that this is going to be a next-year recapitalization, in which case they don’t want to have this ruin a good year if it were to rally between here and the end of the year.”

Shares of bedraggled Lehman Brothers Holdings Inc. have gotten a boost from an upgrade from Ladenburg Thalmann analyst Richard Bove, who now recommends buying shares of the brokerage in part due to expectations of some kind of takeover.

The stock, which hit a low of $12.54 a share earlier in the day, was lately at $13.28, still down 3.3% for the session. The company’s credit-default swaps, a measure of the cost of insuring against default, widened this week on more concerns about the company’s capital base and the possibility of asset sales.

Lehman shares rebounded after an upgrade.

This issue was alluded to by Mr. Bove to in his previous report on Lehman on Aug. 6, when he said he sensed that “Lehman feels a need to take action now to stop, for once and, hopefully, for all, the constant stories and rumors swirling around the company.” If that was the case then, whatever Lehman has done is not enough, as those concerns have not dissipated.

“He can say it’s a takeover candidate, but why? I don’t see why you’d buy this company,” says Bennett Sedacca, president of Atlantic Advisors.

Mr. Bove has been active in shifting his rating on the company in the past, this being the fifth time in 2008 he has changed his recommendation on Lehman. He held a “neutral” rating since June 17, when shares were at $25.14. That followed a short-lived sell rating put on Lehman on May 22 with shares at $38.50, after casting aside a neutral rating on May 5.

JDSU has been a puppet, a poet, a pirate, a pauper, a pawn and a king.

Years removed from the Internet-led frenzy in the market, some things haven’t changed: JDS Uniphase Corp. is still a volatile, unpredictable stock, as likely to gain 15% in one day as it is to lose 15%.

The fiber-optic equipment maker was slumping Thursday, down 16% after reporting a quarterly loss resulting from charges related to acquisitions and litigation. The company lost 13 cents a share; on a non-GAAP basis, it earned seven cents a share, short of analyst expectations, which analysts at RBC Capital Markets say was the result of lower margins.

The stock has vacillated between a 52-week high of $16.05, reached in October 2007, and a 52-week low of $9.49 a share, reached in January, nearly reaching both of those extremes in the last five months. With shares struggling of late, the market had begun to take an optimistic stance in the options market, and that’s burned some Thursday.

According to Schaeffer’s Investment Research, the open-interest put-to-call ratio in the options market was lower than 84% of the readings taken in the last 52 weeks, which means lower put activity and greater call-option activity.

Schaeffer’s notes that the average target price among Wall Street analysts was $16.50 a share, implying a 40%-plus move in the stock at a time when it has been struggling, having been steadily weakening for several months.

The rebound in oil, which has carried crude past $121 a barrel, can no longer be dismissed as a “blip” after crude fell within $110 last week. But that still does not mean oil has re-established the trend that saw it peak around $145 in mid-July.

The factors driving oil higher of late probably don’t mean much when viewed individually, so they add up to more than the sum of their parts. Worries about Russia’s response to a U.S.-Poland missile defense pact, news of the planned StatoilHydro ASA refinery shutdown in Mongstad, Norway, for two months, and an ongoing eye on Tropical Storm Fay have all contributed to the increased interest among buyers.

On balance, the recent rise in oil does not look like much.

With varying fundamental issues in play, traders are also looking at the price action. “We were technically oversold and we did see a bounce coming,” notes Gene McGillian, analyst at brokerage TFS Energy in Stamford, Conn.

In part, those expecting further declines in the price of oil have been caught as the market turned. “You had too many bears down around $110 thinking oil was going back to $100 a barrel, and that caught a lot of people on the wrong side of the oil market. Now we’re bouncing out of there pretty aggressively,” says Tom Bentz, director and senior energy analyst at BNP Paribas Commodity Futures.

Mr. McGillian says this rally will have to push through around $124 or so before he believes the uptrend has been temporarily re-established, because the economic outlook currently favors lower prices.

Shares of Burger King Holdings Inc. have all the appeal of cold french fries after the company’s earnings report, which was praised by analysts after it reported strong traffic due to longer store hours and new product offerings.

Still, the stock has dipped by 6% Thursday, pushing it to lows reached in early July, before a mid-August bounce. The company reported earnings of 37 cents a share, but analysts point out that it exceeded the 34-cent consensus (reported by Thomson Reuters) in part because of a lower tax rate than anticipated.

Analysts have been critical of Burger King’s decline in margins. Buckingham Research analysts estimated a 0.94 percentage-point decline in profit margins, but they fell 1.61 percentage point to 13.1%.

Fast-food giants, on the whole, have outperformed the broad market in 2008 as consumers “trade down” by frequenting cheaper establishments such as Burger King, which, headed into Thursday trading, was down 3.7% on the year, compared with a 13.2% decline in the Standard & Poor’s 500 stock index.

If it’s Thursday, there must be a brokerage analyst out there taking down competitors in scathing commentary.

The subjects are Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., and Morgan Stanley, and the shooter is Citigroup’s Prashant Bhatia, who lowered earnings estimates on all three due to the “difficult operating environment, characterized by lower client-related trading volumes and losses on hard-to-sell assets.”

The note is taking a toll in premarket action. Shares of Lehman have been hit the hardest, losing 5.3%, while Goldman is off by 1.4% and Morgan has declined by 1.3%. Mr. Bhatia projects another round of billion-dollar write-downs for all three companies when they report earnings in September.

Of the three, he is most critical of Lehman, which has been dropping more sharply than its rivals in recent days due to liquidity concerns and chatter about asset sales. Mr. Bhatia expects a $2.9 billion write-down at Lehman, and rates the company as a speculative investment, but adds that Lehman’s price “is discounting more erosion in book value than we anticipate.” Still, the firm has the largest amount of what he calls “hard to sell” assets, at $75.6 billion.

Goldman’s write-down estimate is $1.8 billion, and Morgan’s write-downs are pegged at $1.7 billion.

Rob Curran of Dow Jones Newswires reports:

The recovery since mid-July on the Standard & Poor’s 500 is in jeopardy, according to the charts.

Wednesday, the pros’ favorite gauge of U.S. stocks was trading at 1264, more or less flat on the session, but down 2.5% on the week. More importantly, market technicians say, it was close to the pivotal midway point between its July 15 intraday low of 1200 and its Aug. 11 peak of 1313. In the symmetrical world of technical analysis, whether the S&P 500 holds that 1257 line would be key.

“There was enough damage done in the two previous sessions to argue that a meaningful extension of the rally off the July 15 lows is unlikely,” said Phil Roth, chief technical market analyst at Miller Tabak. “I still think it’s unclear whether we go straight down and break them.”

Below the 1257 level, Mr. Roth puts “intervening support” around 1230, where the market bounced July 28. “If you take that out, clearly the market has had it, but I’m inclined to think we’ll try to make a stand and rally again,” he said.

One reason for that: The market rarely makes a major turn in the quiet, low-volume sessions of August.

To Bill Strazzullo, market strategist at BellCurve Trading, a drop below 1257 would set the table for another big drop for stocks. “The 1250, 1260 level (for the S&P) has to hold to keep this rally,” Mr. Strazzullo said. “The midrange of the July upmove is around 1257. That, to us, is the most important level.”

Should the market break below that level, Mr. Strazzullo would brace for another big dip and a takeout of the 1200 level.

Annelena Lobb reports:

You can’t help but look. Short interest in shares of Freddie Mac and Fannie Mae, as measured by percentage of market cap on loan, is on the rise again.

As of Monday, 24.5% of Freddie shares and 17.7% of Fannie shares were in borrowers’ hands, according to Data Explorers, a London-based firm that surveys institutional shareholders and tracks the extent to which they’re loaning shares, a good proxy for short interest. (See charts below.)

In the last three months, both Freddie and Fannie have had their tottering balance sheets scrutinized and been hit by bailout rumors.

A set of temporary SEC rules intended to curb improper short selling of their shares and those of several other financial firms came and went.

Over the course of the summer, the percentage of Freddie and Fannie’s market caps on loan has jumped around, peaking at more than 40% for Freddie, and about 30% for Fannie. Monday wasn’t as extreme, but as the two government-sponsored enterprises’ share prices veer toward zero, bearish bets have headed unmistakably higher.

Fannie Mae shares on loan have spiked this week. (Data Explorers)

And Freddie Mac shares have seen an uptick in borrowing as well. (Data Explorers)

When it comes to bear-market rallies, the U.S. has nothing on China.

Shares in Shanghai roared overnight, gaining 7.6% to 2523.28, the largest one-day percentage gain in four months. Unless the gains are related to the surprising performance by Chinese athletes at the Beijing Olympics, the rally was founded on little more than chatter revolving around potential stimulus packages and steps by the government to shore up the stock market, which has fallen 60% since peaking at an intraday high of 6124.04 on Oct. 16, 2007.

Fluctuations in developing markets are often greater than in developed markets such as the U.S., and investors, by and large, suggest treading lightly around volatile moves such as the one experienced in China. The index is still lower for the month of August, and the low volume suggests this rally isn’t likely to have staying power.

“Maybe this thing goes up another 10% to 15%, but I’d still call it a dead-cat bounce,” says Ken Winans, president of Winans International in San Francisco. “The market was oversold, but it’s very bearish.”

Besides, the reasoning behind the rally strains credulity. Chinese officials had notably been focused on slowing the torrid pace of economic growth in the country to head off domestic inflation, so such a turnaround in policy “doesn’t make a whole lot of sense on the surface,” says Malcolm Polley, chief investment officer at Stewart Capital Advisors.

The lack of confidence that such a program will get underway was underscored by the mild selloffs in Japan and Korea, which would presumably benefit from increased economic growth in China.

Furthermore, in developing economies, particularly one such as China, which is slowly becoming more liberalized, bear markets have a way of producing more intervention from the government. Mr. Winans fears that could come in the form of capital controls, limits on short-selling, or other investment restrictions that could dampen investor interest in the country, at least for a time.

“This government has not seen a serious bear market before,” he says. “Will they let it act normally or are they going to try to interfere with it?”

The two-day slump in Hewlett-Packard Co. shares prior to its earnings release has been made up Wednesday, after the computer giant reported results that bested analyst expectations.

The Dow component, headed into today’s session, has been one of the more lackluster performers, falling 13.5% on the year. Shares have gained 5% today, bolstered by the earnings report, which shows the company continues to rely on its international presence to offset slack demand in the U.S.

International divisions accounted for 68% of revenue at HPQ — just off the 70% figure recorded in the previous quarter, which was a record. The key, according to Kim Caughey, senior investment analyst at Fort Pitt Capital Group in Pittsburgh, who holds shares of the company, is the increasing “annuity-like” revenues the company is trying to garner.

Hewlett-Packard has rebounded from a brief selloff.

“Software used to be one of the more wildly vacillating revenue stories out there; service companies usually have longer-term contracts that aren’t really discontinued whenever capital expenditures go bad,” she says. “They’ve got more of this than five years ago.”

The company is in the midst of integrating Electronic Data Systems (expected to close later in the month), which should further that trend, according to analysts at American Technology Research.

However, the costs associated with that merger, along with the slowing growth in international markets, is a source of caution, according to Pacific Crest Securities. “Upside in HPQ shares is somewhat limited and it has few near-term catalysts to justify multiple expansion,” they write.

Monday’s 20% declines in Fannie Mae and Freddie Mac on a critical Barron’s article proves it doesn’t take much to push the stocks of the flailing mortgage guarantors. The Wednesday morning selloff suggests it doesn’t take any news at all.

Shares of Freddie Mac are down 21% to $3.31 a share and Fannie Mae has fallen 17% to $4.98 a share, and both companies have hit intraday lows not seen since George H.W. Bush’s administration.

But on what news? The Wall Street Journal reported today that Freddie Mac executives are set to meet with Treasury officials, and Bloomberg said the possibility of a federal bailout hinges on whether they can pay $223 billion in bonds by the end of the quarter. Somehow, this causes a 20% crack-up in the shares.

In the options market, the majority of activity is concentrated among those hedging against an outright takeover. The most actively traded contract in Fannie Mae is the September put option with a $2.50 strike price. That trades at 40 cents each, so the stock would have to fall to $2.10 a share for the trade to break even. “This is really some disaster insurance, is what these options are,” says Fred Ruffy of Whatstrading.net.

Shares of Freddie hit an intraday low of $2.95 a share, lowest since Nov. 2, 1990. Fannie fell to a low of $4.74 earlier in the session, lowest since Jan. 24, 1989.

Ultimately, the trading seems to rest on the market’s perception of the ability of these companies to survive. They say they have capital necessary, but nobody seems to believe it anymore. “The Treasury and Fed have basically said they’re there if they need help but with cost, and that will be nearly 100% dilution, in my view, of current shareholders,” says Doug Kass of Seabreeze Partners Management Inc., who is short the shares.