|Buzz on the Street: The Bears Have Apple for Breakfast, Lunch, Dinner, and Breakfast the Next Day, Too|
By Minyanville Staff JAN 25, 2013 2:30 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, January 21, 2013
Markets closed in observance of Martin Luther King, Jr. Day.
Tuesday, January 22, 2013
Movin' On Up!
Good morning Minyans -- just a quick heads up on US Credit Default Swaps. While the corporate and sovereign credit markets as a whole continue en fuego, US CDS have crept up about 10 bps since the beginning of the year. Over the last few years, when macro bears want to start stirring things up, they usually start off in the US CDS space. I'm offering this more as a measure to watch than any kind of actionable indicator.
Financials vs. Utilities: FIGHT!
As of this buzz, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down modestly (about 0.2%), and the only two green sectors are Financials (NYSEARCA:XLF) and Utilities (NYSEARCA:XLU). This is a rather curious thing to have happen given that the two key off totally different economic factors.
Financials tend to outperform when growth/lending are expected to increase, coinciding with a steepening yield curve as longer-dated Treasuries fall in price.
Utilities, on the other hand, tend to outperform when growth/inflation are expected to fall in the near-term, coinciding with a flattening yield curve.
The fact that the two are getting attention today shows that we may be at the start of a real bull-bear fight now following 2013's strong start for risk assets. One day does not make a trend, but I do think it is important to focus on the behavior of bear trade sectors in the coming days for signs of any real deterioration within the investable landscape. We'll find out soon enough if the Rocky Balboa stock market is vulnerable to a surprise hit from the bears.
Has SLW Broken Out?
Silver Wheaton Corp. (NYSE:SLW) held support at 36.00 into this morning's weakness.
It then pivoted to the upside, and has climbed above key near-term resistance at 36.70/75, and should be on the way to challenge the Jan 2 rally high at 34.58.
Only a sudden downside reversal and break of 35.95 will compromise the current constructive set-up that projects SLW to revisit last Nov's high at 41.30.
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Wednesday, January 23, 2013
SOX Setting Up?
The SOX made low at 350 on November 16.
This put in a 3rd higher low on the weeklies counting from the October 2011 low.
360 degrees up in price from 350 gives 428/429.
The SOX may be magnetized to 429, signaling a breakout in the process, but if so, as the chart shows, a move to 429 may simply carve out another lower high on the weeklies measuring from the big February 2011 top.
A breakout over the weekly declining trendline around 420 should see a quick extension to 429 but the key will be the subsequent behavior on any pullback.
A bullish backtest should hold the 420 level, otherwise, a failure back below the line suggests a false breakout 720 degrees in time from the February top here in early February 2013.
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Google Earnings: Me Likey!
While the Google (NASDAQ:GOOG) earnings report on the surface doesn't look like a barn burner, two very important things happened in the minds of those who are paid to evaluate and invest in the GOOG.
1. Mobile dominance -- The CPC concerns have been overdone. Specifically, I think the financial luminati now see the power of the mobile monetization thesis that I've been harping on for nearly two years, or around the time I penned on the Buzz that Android would exceed 50% global share from the then 3-4% share. If CPC rates actually start to ebb higher, EPS is set to materially accelerate again.
2. MAPS monetization -- They see that Maps isn't an experiment but could actually be a key if not THE driver of digital advertising for many years to come. I've talked at length on the TechStrat report about GOOG's dominate position in the next big growth area of digital ad spend -- which is realtime GEO/locate mobile ad targeting. GOOG is and will be the world's number 1 purveyor here and I've talked a lot about Facebook (NASDAQ:FB) being number 2. I've also talked about that this leaves very little room for anyone else here.
And last night Larry Page stated, "Google says in early stages of monetizing maps." In my view, this was the key statement from another very solid conference call.
I'd add a bonus number three as well.
3. It also seems that GOOG is starting to get credit for some very compelling R&D advancements. I heard a significant change in tone related to Google Glasses, Driverless cars and the like. From first seeing the Glasses, I've thought "this is going to be huge" and written as much. The tone around these was good for the first time and I do believe this will be the next really big commercial product for the company. I also heard a much more positive tone around driverless Auto's, vs. in the past hearing literal skepticism related to this and other similar products.
Bottom line, while the financial metrics were not barn burner delivering, I think more are starting to see that GOOG is much more like a BRKA and a company that will deliver significant ROI on R&D and investments an annual basis while not always delivering a big beat every quarter. I also think we could be at the early stages of another significant growth leg for the GOOG.
The stock is going to see a $1000 handle on the shares.
The JPM Treasury client survey was VERY interesting this morning. For possibly the first time (I don't have confirmation), there were ZERO longs in the active clients survey, and longs in the all clients survey dropped to 7 from 21, the lowest point since August 2011. This is very bullish for Treasuries and coincides with the big drop we've seen in long positioning in Treasury futures. From a technical perspective, this pattern is looking a lot like the bottom we saw in early April for bonds.
That being said, including today, the long bond has traded up 11 of the last 14 sessions. I'm still long bonds and lovin it even more.
Again today, the Portuguese 5-year TAP was said to be 6x oversubscribed and now 15bps tighter than the initial guidance. Yesterday we saw a similar occurrence when the Spanish 10-year note was 3.5x oversubscribed. This really displays how the markets are truly built on confidence, as these yields now reflect the confidence of the banks with the unlimited support of the ECB and EZ.
The Bank of Canada doesn't want to be left out of the currency devaluation party and its rate decision this morning was less hawkish than it had been in the previous two months. The central bank noted more deterioration in global markets and Canadian growth slowing to 2% in 2013 from its earlier estimate of 2.3%.
IMF made some broad cuts to global GDP forecasts, but these were overdue. Recall that the World Bank lowered global forecasts to 2.4% from 3% for 2013 last Wednesday. Global 2013 forecasts were lowered to 3.5% from 3.6% and US forecasts to 2.0% from 2.1%. Eurozone growth was lowered to -0.2% from +0.3% as recovery was seen to be delayed. The EURUSD fell off a cliff on this news.
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Thursday, January 24, 2013
Comments on Apple Earnings
Apple (NASDAQ:AAPL) reported largely inline December quarter results. Revenues of $54.5 billion were barely shy of consensus and EPS of $13.81 were barely above consensus. Gross margins exceeded guidance and were close to the most optimistic street estimates. Product sales were about as expected except for Macs, which missed by lot.
Guidance was below the street as usual. There was hope that guidance would be closer to the analyst estimates, which would have eased concerns about demand for iPhones and iPads, gross margins, and negative datapoints from the supply chain.
The actual earnings and guidance were greeted by a quick 6% drop in the shares. I'd call that fair as essentially the quarter and guidance left the recent controversies intact and provided no relief for the bulls. The way the street works that gets the stock back to the low end of the recent range. Not great but not a disaster if you believe as I do that underlying product demand is growing.
On the call, the company explained its new approach to guidance. Here is the exact quote:
“In recent years our guidance reflected a conservative point estimate for results every quarter that we have reasonable confidence in achieving. Going forward, we plan to provide a range of guidance that reflect our belief of what we are likely to achieve. While we cannot forecast with complete accuracy, we believe we are likely to report within the range of guidance we provided.”"
This comment dropped the stock another 6% to about where it trades now, $459, down 11% from yesterday's close. The issue here is that management seems to be saying that previously guidance was "conservative" and now it is "what we are likely to achieve." Management denied to expand on this quote when given a couple of opportunities in Q&A to admit that the shift still leaves guidance as "conservative." I do think the second attempt by an analyst left open the possibility that guidance is conservative.
The reason this matters is that low-balling guidance meant that this quarter's guidance disappointment probably wasn't that bad as the actual report would be close to analyst estimates. If this quarter's guidance is real, then analyst estimates are going to have come down sharply. Current FY13 consensus is $48. That would imply $24 in second half earnings if guidance is taken at face value, a 33% gain year over year.
However, with a just reported flat quarter, guidance for -20% quarter, and ongoing worries about demand due to the supply chain datapoints and production cuts, analysts and investors are never going to believe a quick rebound to 33% growth.
If this year ends up with EPS in the low $40 range, down 5%, the shares look pretty cheap as long as growth resumes. With $144 in cash, call it $120 after-taxes, the stock is trading at $340 against $40 in operating EPS. Very cheap if growth resumes. But we aren't going to know whether growth resumes for a few months.
I believe growth will resume. I also believe that guidance is going to prove conservative again. Underlying product demand looks a lot better than the stock price to me. Until I am proven right, however, the stock is in the penalty box with minimal upside. I think it is worth holding on but expect the bumpy ride to continue and when growth does resume think $500s not $700s.
NASDAQ's Languishing Tape Action is a Concern
Other than politicians apparently delaying the prospect of default by delaying the debt ceiling, the main backdrop that Wall Street participants were dealing with yesterday surrounded the fact that 33 components of the S&P 500 reported earnings. Speaking of the S&P 500 (INDEXSP:.INX) (1494.81), at the close yesterday the SPX is fractionally below resistance at approximately 1502, defined by the upper end of a trading channel. A second channel line exists at approximately 1517.
The results of yesterday's earnings reports were such that the DJIA (INDEXDJX:.DJI) and the NASDAQ (INDEXNASDAQ:.IXIC) were major beneficiaries, predominately due to earnings from Google (NASDAQ: GOOG) and IBM (NYSE:IBM), up 5.5% and 4.4%, respectively. Since GOOG carries a 4% weighting in the NASDAQ (3153.67), the index gained 10.50 points. Due to the DJIA divisor being 0.13, IBM alone accounted for just over 66 points in the overall gain of 67 points by the DJIA.
Speaking to earnings and within the context of my belief that reaction to news is more telling than the news itself, short-term, Thomson Reuters data through Wednesday showed that of the 100 or so S&P 500 companies that have reported earnings so far, 67.7% have topped expectations, above the 65% average beat over the past four quarters. Overall, S&P 500 fourth-quarter earnings rose 2.8%, according to Thomson Reuters data and above the 1.9% forecast at the start of earnings season.
In peeling back the layers of yesterday's tape, breadth was actually negative on the NYSE. Said another way, declining issues and declining volume edged their counterparts, meaning there were more declining issues then advancing issues and declining volume edged advancing volume - the stock market narrowed yesterday, a trend we don't want to see continue. One guidepost is the NASDAQ. The DJIA violated its September 2012 high; NASDAQ has failed to get above its September 2012 peak of 3197 (resistance), a negative non-confirmation (see chart at right). This non-confirmation needs to be resolved. Until it is, traders should ramp up their stop-loss points and rebalance winning positions that have become over-weighted.
Friday, January 25, 2013
The date of the prior September 14 high is 90 degrees square 1505.
1503 satisfies a measured move from the mid-November low to the mid-December high and projecting from the late December pullback pivot low.
What could possibly go wrong when there are multiple square-outs and measured moves and a slew of cycles working out?
If the most-loved and largest cap company in the world can crash, uncorrelated to the weakness in the market at large, anything, anything can happen.
I hear chatter that yesterday someone slapped at 20,000 target on the DJIA here. Is that a like the 1111 target pinned Apple (NASDAQ:AAPL) last fall like a scarlet ‘A’?
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The Conventional Wisdom Convention!
"We are in this era where financial innovation and product structuring, particularly in the debt markets, has been very stimulative," says Henry H. McVey, chief US investment strategist at Morgan Stanley (NYSE:MS).
"VIX Doomsayers Are Out of Data; options markets are confirming the recent strength in stocks, and to such an extent that we may be looking at a new, calmer volatility environment for quite some time" says Jared Woodard of TheStreet.com
“We will not have any more crashes in our time,” said John Maynard Keynes in 1927, as highlighted in our Question Conventional Wisdom series on Minyanville.
Peter Atwater -- and Bob Prechter, for that matter -- have written extensively on the notion that social mood and risk appetites shape financial markets, not the other way around. Through their lens, the stock market crash didn't cause the Great Depression -- the Great Depression caused the stock market to crash. It's a subtle, yet critical distinction.
I'm in their camp, as evidenced by recent work that includes The Devolution of Social Mood. In fact, I'll be joining like-minded individuals at The Socionomics Institute Social Mood Conference in Atlanta on April 13th. I find this school of thought fascinating, in part because most of the world is trained to think in a completely different way.
The headlines above are consistent with what we have come to expect at five-year highs. Fear has morphed to greed--at least in the institutional realm--and the denial-migration-panic continuum that has been tried, true and tested, remains very much in play. We touched on this yesterday in The Three Phases of Leave and would be wise to respect the unexpected despite headlines and highlights to the contrary.
While the bulls are quick to point to the earnings in Google (NASDAQ:GOOG), IBM (NYSE:IBM), Netflix (NASDAQ:NFLX), CSX Corp (NYSE:CSX), and McDonald's (NYSE:MCD) as validation of the recent ramp -- while dismissing the Apple (NASDAQ:AAPL) miss as company specific -- I would offer a few words of caution.
First, the market is a leading indicator, so much of this news is baked into the tape.
Second, social mood is bifurcated at best and the disparity between a stock market rally and legitimate economic recover is palpable.
Third, as flagged back in December when the S&P (INDEXSP:.INX) was at 1420, the technical pattern "worked" to S&P 1520 and we're a kitten's whisker away from that level.
In short, the easy trade for the bulls is in the rear-view; that doesn't mean we can't climb higher, it simply means you should see both sides before risking your hard earned coin.
I enter today's trade with some pared situations, a tight and defined trading short in Goldman Sachs (NYSE:GS) and some tertiary risk that I've been IN-N-OUT of like a double-double with cheese.
More to come, but take this now -- and YOU have a profitable day!
Some Perspective on the VIX Relative to the Last Bull Market
Since the subject of sustained low volatility is part of today's investment discourse, I put together a chart showing the VIX from the 2002 and 2009 bottoms on the S&P 500 (INDEXSP:.INX).
Note that I put the VIX on a scale of 100 starting from the 2002 and 2009 /
If the last market cycle is any indication, the VIX could be at or nearing a bottom as we approach the possible Death of Bubble X in the summer of 2014.
Something's gotta break sooner or later, right?
What's it gonna be? Corporate bonds? Treasuries? Student loans? Subprime auto loans?
Or the whole darned bond market?
Click to enlarge