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.
Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, January 13, 2014
Stay Long US Dollar
Excerpted from January 13 Market Report
Combined dollar positioning here is short (sentiment is bearish). Note below in the first chart the "Other Reportables" category in yellow. Four vertical yellow lines show where they have been similarly short in the last four years, all within important bottoms for the dollar. In green, large-asset managers, who are smart money, long-term asset allocators, are long on the dollar for the fourth time in two years (vertical dotted green lines). Hedge funds (red) are short the long-term history shows that as a group, they tend to turn short right when rallies begin. Only when they turn significantly short in aggregate are they usually right. This process should take several weeks to unfold. The chart is unquestionably bullish the Dollar Index, in aggregate, against its five main components (EUR, JPY, GBP, CAD, CHF). However, as we will later explore, USDJPY and USDCAD do not look like they will contribute much to a broad dollar rally and may in fact be dead money or reverse lower.
Further, while a drop in Treasury Yields could be dollar-bearish, the 120-day correlation between DXY and the 10-Year is at record positive levels (over 64%). This doesn't have to turn negative, and it may remain positive for years to come. But any drop from these extreme levels would necessarily require a less positively correlated intermediate time frame (three to six months):
Dollar Index (blue), U.S. 10-Year Treasury Yield (red), 120-day correlation (bottom panel):
Click to enlarge
Similarly, the US Economic Surprise Index is forming another high, suggesting a round of disappointing ECO data approaching. As US equities rallied non-stop throughout 2013 and the CESI continued to mean-revert as usual, the one-year correlation between the two has now reached a record negative 14% reading. In 2006, the last time anything close to this happened, markets recoupled with economic data soon after. At the time, the consensus was also a mixture of "Goldilocks" with "bad ECO data is good because the Fed will just come in." In any event, it seems reasonable here to expect a temporary mean-reversion/increase in correlation between equities and ECO data, mathematically speaking, and perhaps also because no one believes this is how markets work anymore:
(INDEXSP:.INX) (black), Citigroup
US Economic Surprise Index (blue), 1-year correlation (bottom panel):
Tuesday, January 14, 2014
Pay attention to UPS
(NYSE:UPS) today; it's back under its 50 EMA, now resistance at 100.75. The stock has been weak the entire month, and the retail sales downward revisions are not helping today. Bulls need this stock to perform before trusting any rally.
Click to enlarge
Wednesday, January 15, 2014
Mortgage Insurers Getting Hit
Mortgage insurers MBIA
(NYSE:MBI) and Assured Guaranty
(NYSE:AGO) are taking a hit today on an increasing likelihood that Puerto Rico is going to default on its debt, despite its effort to reduce its budget deficits.
Munis, on the other hand, are actually tightening today, so it speaks to what is already priced into that market, generally speaking. The Puerto Rican bonds that I can get quotes on are actually up a point or two today and have been hanging around $0.60 on the dollar for awhile. More broadly, 5-year rev munis pre-tax yields remain 60bps cheap to their 20-year average and 10-year munis are 84bps cheap. Even with all of the problems in the municipal world, that seems way more appealing to me than HG/HY corporates that are at or near record tights. And munis have even tightened by 20-25bps over the past two months.
Also, I'm hearing that a notable left-coast money manager is now entering a 5/30 Treasury flattener (with associated eurodollar positioning). Last week
, we heard that they were unwinding existing positions that had been put on with the idea of the Fed holding rates near 0 into 2016. So, at least the chatter and flow indicate they are moving away from that call.
IMF Chief Christine Lagarde just gave a speech in Washington, with the headline being that global policymakers should fight the rising risk of deflation decisively. Additionally, she urged emerging markets to be wary of financial excess (linked to current account deficits I'd imagine) and urged that the US must avoid early withdrawal of Fed support. Lastly, she still sees global growth stuck in low gear. She reiterates that the IMF's global growth outlook should be upgraded in the next three weeks.
Chicago Fed President Chuckie Evans (super dove, 2014 non-voter, speech link
) spoke a little earlier in Iowa. Notably, he also echoes yesterday's comments from Lockhart to ignore the poor December NFP report because payroll growth has been strong on average over the last few months. He is still worried about low inflation and has been a vocal proponent of caution on pulling back too soon while that part of the economy remains low. He calls it "puzzling and worrisome." He thinks this will cause the Fed to leave interest rates at zero for quite some time. Notably, I see that he mentioned that they are not seeing any unexpectedly large surge in lending, and at the moment, they don't even see anything "smoldering."
Thursday, January 16, 2014
Put This Picture in Your Memory Bank
The pattern in Verint Systems
(NASDAQ:VRNT) is exactly what you want to see following pullbacks after strong impulses.
Verint Systems pivoted up from a pullback yesterday, leaving a 180-buy setup following a little A-B-C pullback on the dailies and exploded higher this morning.
I would put this picture in your memory bank: First pullbacks following strong momentum offer good risk-to-reward continuation setups.
Note that Verint Systems may have seemed extended on its spike to kick off 2014, but it had the benefit of a 3-month base.
Below, see a daily Verint Systems chart from October.
In the interest of fair disclosure, subscribers of the Daily Market Report
have a long swing position in VRNT from yesterday morning.
Friday, January 17, 2014
Nintendo Guides Down, Brings Gaming Industry Growth Into Question
(OTCMKTS:NTDOY) made a huge guide down this morning. It now expects full year (ending March 31, 2014) sales of 590 billlion yen, down from 920 billion. Operating income is now expected to be -35 billion yen, a big drop from the last +100 billion expectation.
Nintendo just isn't moving hardware. The company now expects to sell 2.8 million Wii U units for the full year, which is an enormous drop from its original forecast of 9 million units. Also, at that rate, it would constitute a year-over-year decline
. Its 3DS outlook also took a hit as the company now expects to move 13.5 million units, down from 18 million.
That's pretty perilous when you consider that demand for the Microsoft
(NASDAQ:MSFT) Xbox One and the Sony
(NYSE:SNE) PlayStation 4 has been quite strong.
From a big-picture perspective, this is troubling for the console gaming industry. Last cycle, the Nintendo Wii played a huge role in expanding the size of the gaming market. It's now obvious that the casual crowd that was captivated by the Wii just isn't coming back -- if they're still playing games, they're doing it on smartphones, tablets, and online platforms.
So, I'm still very wary of the sector. I'd look at going long Take-Two Interactive
(NASDAQ:TTWO) during troughs in its product cycles, and I'm also keeping my eye out for another cultural phenomena like Guitar Hero
-- doesn't look like it's coming just yet.