|Buzz on the Street: The Fiscal Cliffhanger Puts a Stranglehold on Stocks|
By Minyanville Staff NOV 30, 2012 12:57 PM
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.
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Monday, November 26, 2012
Bank Index Hanging Out Under Resistance Band
The Bank Index (INDEXDJX:BKX) is closing in on an important confluence of resistance: 1) Trend break 2) 50% fib retrace 3) 50 day moving average
Keep an eye on the action should price hop into this resistance band -- the action should be telling.
Click to enlarge
Taking Some Profits on Facebook
When Minyanville Professors put forth their updated thoughts on Facebook (Nasdaq:FB) near $19, I said the company had several issues to address, but that sentiment around the stock was absolute dreadful and I suggested being long vs. the recent lows.
This move isn't a surprise. Advertising accounted for 85% of Facebook's total 2011 revenue. During the 3rd quarter Facebook said 14% of ad revenue was from mobile. Mobile users grew 67 percent to 543 million.
On the earnings call, Zuckerberg said that users accessing Facebook on mobile device have a 70% likelihood of visiting daily, compared with 40% via desktop. The large issue with the company is that the site wasn't built with mobile in mind. Zuckerberg's solution was to become the largest mobile ad platform in less than 8 months after launching its first mobile ad. I took 1/3 of my position off today into $26. There is a gap fill near $26.75, but I want to reduce risk as it has had a nice run as of late. This is a core position and not a trader.
NYSE internals are 2:1 negative and the financials are under-performing (^BKX -1%). It's all relative (above BKX 47) but it's worth a mention nonetheless. I would also call your attention to Barclays (NYSE:BCS), which is getting whacked to the tune of 5%.
In terms of the "lower highs," check the chart below, which is providing an enticing defined risk set-up for the bears. I may dip a toe, so you know, with a stop on the other side of that line as we can do anything as long as we're disciplined.
As always, I hope this finds you well.
Click to enlarge
Tuesday, November 27, 2012
Bond Bid Concerns
I have been turning more bullish in my writings as of Monday last week before the jump in stocks, and our ATAC models used for managing our mutual fund and separate accounts are indeed close to a full move back into equities with enough confirmation.
In my latest Lead-Lag Report I put together for Minyanville, I highlighted the breakdown in the bear trade and strength in international stocks which is bullish. However, as I noted on CNBC last night, what bothers me is the behavior of the bond market. Yields are stubborn, even though one would think there should be some selling off of safety particularly now given the deal reached over Greece. The move may very well be delayed, but the longer it takes for yields to rise, the more suspect the stock rally last week becomes.
It is hard to get overly bearish regardless given the Bear Paradox and favorable seasonality. Behaviorally, if we are in a true "buy the dip" environment, equities should intraday see pulses of upwards moves on every intraday decline. This happened yesterday, but keep watching this week to see if that becomes a pattern rather than a one-off event.
Black Friday -- Some Interesting Mobile Data
IBM released its full Digital Analytics Benchmark Report for Black Friday and there's some interesting stuff going on.
In the interest of giving credit where credit is due, Asymco seems to be the first out highlighting a big issue -- weak engagement among Google (Nasdaq:GOOG) Android users relative to Apple (Nasdaq:AAPL) iOS users.
To make a long story short, essentially, Google Android engagement is much weaker than market share numbers would logically imply.
For example, according to Gartner, Android held 72% global market share in Q3. That's different than installed base (from which you would measure engagement), but still, it's hard to reconcile that number with the fact that the iPhone generated significantly more shopping traffic.
The iPhone was responsible 8.7% of traffic vs. 5.5% for Android -- that's a 160% difference in favor of Apple.
Within the tablet category, Apple's iPad generated 88% of traffic, though that shouldn't be a surprise given the fact that it skews towards higher-income consumers.
But why is there such a big disparity in smartphones? Why is Android doing so much weaker there even though it is clobbering Apple in terms of sales volumes?
The likely explanation is Android's sheer diversity of models.
While high-priced products like the Samsung Galaxy S3 and HTC One X are regularly in the news, there are also an awful lot of free or nearly-free Android phones on the market that appeal to lower-income consumers that are 1) probably less likely to shop online and/or 2) have less money to spend.
Now going forward, what this means is that developers will continue to favor the iPhone and iPad when it comes to developing apps. It's already well documented that Apple users spend more money on apps and content. And now that Android's been on the market for a while, there's enough data to determine that Android users also spend less money on general merchandise online.
Looking further, I wonder what this may mean for development of apps for say, Microsoft (Nasdaq:MSFT) Windows Phone.
If the payoff on an Android app is so-so even with huge market share, what can possibly made on smaller platforms like Windows?
And of course, that turns into a chicken and egg problem.
Apps are required to build market share, but who wants to build apps for platforms without market share?
More Upside, or a Peak, for the S&P?
At mid-session, let's examine the pattern that is unfolding, as we notice that the e-SPZ (e-mini S&P 500) could have broken down earlier this morning but managed to hold key support right at 1398, from where it has pivoted to the upside into positive territory.
The fact that the index held 1398 might be a clue that it isn't be ready to break down just yet. All of the action since last Friday's high could be taking the form of a high-level coil or consolidation pattern.
The vast majority of the time, a consolidation at the high side of a developed trend represents a continuation pattern that breaks out to the upside into marginal new high territory to complete the entire advance. If that is the case here, then the e-SPZ will thrust to an optimal target zone of 1411/15 prior to reversing hard to the downside.
Otherwise, failure to hurdle 1407.50/75 followed by a break of 1397.75 will confirm the post Nov 16 upleg is over, and that a correction already is in progress.
Click to enlarge
Wednesday, November 28, 2012
Afternoon T: Up, Down, and All Around
I can't believe it's only Wednesday. It has been a whirlwind week, in fact a whirlwind two weeks.
With all that is going on, I figured I should clarify where I stand, as it's been hectic. This note is more fun to write because I managed to do the opposite of getting whipsawed - I don't know if there is a word for that since it happens pretty infrequently.
I had got bullish last week and progressively more bullish.
Then the Greek "deal" came out Monday. I didn't like it. I recommended getting out of risk overnight.
Then in the better lucky than smart category I mentioned the possibility of some negative posturing for the fiscal cliff.
In the end, the markets sold off because of the cliff comments from Reid and the other guy.
Then Europe continued the weakness and some more people spotted the problems with the Greek deal.
I remained less positive and was waiting for 1,390 to consider adding.
Just after the housing data I sent a note to sell IG19 at 104.5. That was my first add to risk. Then I came away thinking Obama was very positive (or less obnoxious than before) and got fully back into risk mode. I still think Greece deal is weak, but we can motor through to 1,430 (the overnight election highs) on fiscal cliff, QE, seasonality, and the "chase for yield".
I had really thought the politicians would leave us dangling for a few more days, but as soon as I heard Obama, I shifted back to full risk on as it was a changer.
Maybe it's bad to change views so quickly, but I think these are big issues, particularly fiscal cliff and it's just as bad not to adapt to new information.
On another note, I want to trademark 6.5 beer. The beer will be 6.5% alcohol, will be marketed to the American Pie, and will be the brew of choice that lament what the Fed is doing to the country by continuing to ease and grow the balance sheet until we hit 6.5% unemployment. Deep down I think the only way we get to that level is is by redefining employment.
I think credit is going to do well. Stocks too. The one big doubt I have domestically is that Apple (Nasdaq:AAPL) seems up against resistance here and it is hard for the market to go up much without it - which is why I like S&P (^GSPC) more than Nasdaq (^IXIC). With the weak Greek deal it is hard to like Spain or Italy, which leaves me with China.
Come on and dry your Chevy, the levy is dry and raise a bottle of 6.5.
Dark Side of the Month?
A 10 minute S&P (INDEXSP:.INX) from Tuesday shows a first-hour high and test failure on a Pinocchio of the opening high.
Tuesday’s last-hour knife down may have been a sign of a spike in volatility that could accompany today’s lunar eclipse which coincides with the open.
While the rebound off the recent lows was impressive, sharp rallies are often the hallmark of bear phases.
The bulls are hoping that the rebound off the mid-November low will mirror the momentum off the June low and that a pullback off the 50% retrace of the entire decline will be the normal pause that refreshes.
The T-Rex in the ointment is that the current pattern is still analogous to the crash pattern from 1987 when a rebound following an initial sell-off was defined by an eclipse and the vast majority on the Street at that time bought into the idea that the market had carved out another pullback like that year’s May low.
See the 10 minute S&P chart from this morning’s Daily Morning Report below.
A stab below 1384 and the 200dma could set up pressure into month end on Friday.
Click to enlarge
Answers I Really Wanna Know
If I wasn't in a presentation until 11AM, would I have covered any of my short exposure when the S&P (INDEXSP:.INX) retested the 200-day at 1384 and the BKX (^BKX) probed 47 and change? (yep)
Why don't all iPhone chargers work on iPads? Is this some sort of elaborate scheme dreamed up by Apple (Nasdaq:AAPL) to make customers buy additional supplies?
If the market trades lower in the coming days, will we look back at gold with a knowing nod?
Are too many people watching the Three Peaks and a Domed House pattern (which would 'work' to S&P 1150)?
Given I'll be on a plane this evening--and out of pocket tomorrow and Friday--would it be irresponsible to leave my (smallish and right-sized) S&P February out-of-the-money puts on my sheets?
Only if it's profitable?
Thursday, November 29, 2012
Fiscal Cliff Wrangling
We're getting some mixed messages on the Fiscal Cliff today, courtesy of our friends in Washington.
House Speaker Boehner said that President Obama must 'get serious' about spending cuts in order for a deal to be worked out.
Senate Republican Leader Mitch McConnell insists that tax rates must stay where they are.
Senate Majority Leader Harry Reid said that he's been waiting for a serious proposal from the GOP.
I suspect there's some pro-wrestling style posturing here, where politicians either want to go down as martyrs fighting for their respective positions, but I suspect that before year-end, we'll see all these politicians promoting themselves as having courage to reach across the aisle to make a compromise.
Politicians have taken a beating in recent years in terms of public perception (though when did people really love them?), and I doubt the current cast of characters is going to let the ship go down out of pride. That would create a lot of disillusionment among the public that they can't afford right now.
I even think a failure on the fiscal cliff could catalyze a movement for a real third party, which would be disastrous for the establishment.
Skyworks: Finally Breaking the $22 Resistance
Well Mr. Market is reacting pretty well from the fiscal cliff ugliness and Skyworks (Nasdaq:SWKS) is picking today of all days to break through the $22 area. I still view this as key level and after this there is another pretty stout resistance area in the low $24's. Time will tell, but the fact that SWKS is acting well with notable outperformance of the SOX is encouraging as this turn has seemingly been like watching paint dry.
So my next target in the interim is the low $24's, especially if we close in the mid $22's today. I may be a buyer here on the close, or into any market fades in the coming days.
Also, just as a quick note -- I am starting to look for some names to trim a bit. But I will be focusing on names that I don't think have been unjustly lagging. Names like SWKS, Intel (Nasdaq:INTC), Microsoft (Nasdaq:MSFT), Google (Nasdaq:GOOG) and Broadcom (Nasdaq:BRCM) could easily keep rising (or bounce off lows) even if the market experiences a bout or two of selling. Plus, raising cash is always better into 5-7% market lifts than drops of that magnitude. That said, I won't be selling material amounts until we get closer to SPX 1475-1500.
Markets continue to act as if we are in a V-like formation independent of continued Fiscal Cliff bickering, and confirmation appears to be gradually creeping in within the bond market which I have noted all week is key.
Our ATAC models used for managing our mutual fund and separate accounts are on edge for a potential full allocation back into stocks, as the reflationary behavior of risk assets returns. The mini-correction seems to be over, and we may be set up for another June melt-up like move given the similarity of the last two months to the April/May mini-correction as I stated in an interview earlier today.
This looks more and more real - continued market healing and intermarket trends suggest the Fall Catalyst of new all-time highs is back in the spotlight for end of year. Near-term resolution in the Middle East and Europe leaves only the U.S. left on the macro headwinds front. Given the countdown clocks on the Fiscal Cliff, its time to start thinking bullishly about the fear that exists, and prepare for a better environment for risk assets to come.
Friday, November 30, 2012
It's only 32 days to "the cliff" and gridlock still reigns inside the D.C. Beltway. Even the Fed is becoming worried, punctuated by Dallas Fed Head Richard Fisher's comments this week. To wit: "The Fed has done all it can in terms of liquidity after carrying the load in absence of fiscal action by the government, which is a dangerous predicament." He also opined that "[We have] refueled the gas tank with liquidity, but it will sit on the sidelines unless people are given incentives to use it. A fiscal fix is required and the regulatory set-up needs to be rebooted." As readers of these missives should know, I think "the cliff" will be avoided, or at least partially avoided with a staged-in solution. For example, the Bush tax cuts foot to $265 billion with $55 billion of those cuts going to the wealthy and $210 billion going to the middle class. It is conceivable that the "wealthy cuts" go away, but the middle class cuts remain. Additionally, the payroll tax comes back and the mandated spending cuts get postponed. And, that seemed to be the view the stock market anticipated yesterday despite negative comments from a number of our elected leaders.
Indeed, yesterday's market action extended the upside breakouts above the downtrend lines in both the NASDAQ 100 (INDEXNASDAQ:NDX) (2680.03) and the Russell 2000 (INDEXRUSSELL:RUT) (823.20), which is the kind of leadership you want to see (tech and beta), because it is the leadership of a "bull move" (see chart). Now the question becomes, "What is going to happen around the energy level of our 'old friend' in the 1420 - 1422 level often referenced in these comments?" When we were approaching it on the downside, recall how many times that level was "key;" now it becomes a "key" level on the upside. Nevertheless, over the past 27 years, the first week of December has been a downer only 5 times, so stay optimistic.
A synonym for the word ‘cliff’ is bluff. I can’t help but wonder if the current political gamesmanship/bluffing capturing current sentiment won’t somehow prove amorphous like the hype over Y2K that captured market participants imaginations in late 1999.
I’m not saying that the Cliff isn’t a real concern. What I’m saying is that like Greece and Europe, when it comes to making bets on the market, it’s all a matter of timing and it could be a matter of pay me now or pay me later based on how long Wile E. Capitalism can dance naked over the Financial Gulch.
That said, we’ve seen this cartoon before. Perhaps Mr. Market and market participants have become anesthetized to it and complacency is ruling the roost.
I can’t help but think that with there being substantial talk amongst many market watchers that the Cliff will be avoided, that it is a dangerous game to overestimate politicians.
Someone said the road to perdition is paved with good intentions.
After all, policy makers have had a 1 ½ years to address the issue and took a 3 month vacation to campaign and have brought us to the brink. Again.
What is this? Cramming for finals with Bluto and the Budgeteers?
The emperors have no togas...
The Presidential Cycle
We've talked about the Presidential cycle before, and with the cycle about to turn highly negative, it is worth going back to. My dad was a big believer in this cycle, so much of what I've learned about it came from him. The basic gist of the cycle, developed by Pepperdine, is that when a President reaches the end of his term there is special government spending done to boos growth because:
A) What every first-term President wants is a second term.
B) What every second-term President wants is his party to be re-elected, or go out with a great legacy.
So the abnormal boost in government spending yesterday for 3rd quarter GDP completely embraces this concept. In the prior 5 quarters, government spending had declined on quarterly basis, but this time it magically turned! The average decline for the prior 5 quarters was 1.9%, but this quarter it increased to 3.5%-3.7%. Coincidence? I think not.
The overall principle behind the cycle is that, as these stimulus measures begin to wear off, the market begins to fall as growth declines. This cycle was thrown out of whack with Obama's term, because he was elected at a market bottom, but one can make the case that the market troughed in late 2010 (during the second year).
Just some food for thought.