Buzz on the Street: Bulls on Parade!
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 28, 2013
Apple Attempts to Carve Out a Near-Term Bottom
Let's notice that Apple (NASDAQ:AAPL) has carved out a triple-bottom print at 436.00, from where the price structure has pivoted to the upside to an intraday-high print of 448.
The 448 level just happens to be the coordinate of the lower-support line of the price channel that AAPL violated last week at 456 (at the time).
Now the extension of the lower-support line cuts across the price axis at 448, which, if hurdled and sustained, should trigger upside continuation towards 466, and then 480-484.
At this juncture, only a failure of AAPL to sustain above 448, followed by a decline that breaks the triple-low print at 436 will point the stock towards 428-424 next.
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Good Risk/Reward in Lamar Advertising
I started a new long in Lamar Advertising (NASDAQ:LAMR) this morning. I expect IRS approval of the company's conversion to a REIT within the next few months. Based on REIT comparable valuations, I think the stock can trade up at least 20%. Beyond analyst commentary, I think the announcement from CBS of using a REIT for its Outdoor business is another vote of confidence for IRS approval.
Should the IRS block approval (billboards as REITs is very new and there are issues with digital billboards), the downside could be severe. LAMR was trading in the low $30s and on my list of stocks that I shorted prior to the initial REIT speculation. Since then, conditions in outdoor advertising have improved, which should limit the downside. The December quarter probably saw very modest positive growth, but that is an improvement over trends for the past few years. The CBS announcement also could create M&A speculation in the outdoor business as some investors feel CBS really would prefer to sell its US Outdoor business rather than convert it to a REIT. I think LAMR would hold in the mid-$30s, down 20%, if the IRS turns them down.
With a symmetrical risk-reward trade-off, but likelihood of approval high, I think LAMR is good event-driven long.
The Most Crowded Trade... Ever?
Right now, you would be hard pressed to find a single pundit that has not predicted the end of the bond bull. Just like last year, and the year before, they spring up whenever we get a January equity rally, forgetting the context stocks are rallying in, which is a secular bear market. It could very well be the most crowded trade ever in that space, while in fact technically nothing has changed. The yield on the ten year note tagged 2.06% this morning, right under the key 20.14%, 61.8% Fib retracements from 2002 (chart 1) and has promptly pulled back right under 2%.
While the DOW (INDEXDJX:.DJI) and SPX (INDEXSP:.INX) make new multi-year highs, the ten year yield can't even come close to last year's highs of 2.4%. ZN, ten year note futures (inverse to yields) hit a flush of almost 300k contracts on the hourly, which is usually an end of trend move if coming after a strong decline. It's the process of short covering and flipping long (chart 2). It also occurred right at weekly S1 and if that holds (130'310), we could see a solid bid this week in bonds.
As for equities, the DOW came right under a milestone level, 13930, which is the October 2007 close. Pay attention to that old index went we get to extremes.
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Tuesday, January 29, 2013
Fasten Your Seat-Belts: Turnaround Tuesday Turbulence?
It's the end of January and the "off-to-the-races" theme is in full effect again. Similar to last year, the S&P 500 (INDEXSP:.INX) has exploded higher and left in its wake of a stream of bears and assorted market chasers and followers. On the same hand, however, it is good to note that the S&P 500 has been running higher for almost a month now without a dip beyond 1 percent. And although I respect the mo-mo push higher, I have moved into the near-term cautious camp.
Looking at the daily chart of the S&P 500 (below), it's easy to see that the index is overbought and vertical of late. I'm not as concerned about the overbought status, as I am the vertical nature of the market. If the market doesn't begin to consolidate and pull in over the next few days, the index will run the risk of a more ominous blow-off and retracement. The S&P 500 may be targeting channel resistance around 1520 near-term on the upside, while lower support levels come into play around 1480, then the 1460-1470 consolidation area, and finally the 50 day moving average and uptrend line around 1435-1440 (and rising).
Another reason for caution is the DeMark weekly sell setup 9 that recorded on the Russell 2000 (INDEXRUSSELL:RUT) last week. This should mute the high beta brother and bring some consolidation (at a minimum) and more likely a pullback during the coming weeks (see chart below). But will this recharge the major indices for another run later on in Feb/March?
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Cloudy With a Chance of Moving Averages
The clouds are doing a sympathy plunge with VMware (NYSE;VMW).
Citrix Systems (NASDAQ:CTXS) left a large gap below its 20 dma and tailed back up following an approach to its 50 dma.
Note the double tops just below the 200 dma just prior to this morning's gapola.
CTXS should find initial resistance on a backtest of its overhead 20 dma, possibly followed by a full test of its 50 in coming sessions.
See daily CTXS from September here:
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What the Zuck?
Minyanville was pretty bearish on Facebook (NASDAQ:FB) on the IPO. Conversely, I warmed up to the stock when it reached the 50% retracement of it's entire corporate life-cycle at $19. The stock has since rallied more than 70% (without me, mind you) and yesterday, when I mentioned that the upside would begin to get more difficult as the IPO price ($38) edged closer, I came thisclose to putting on a starter put position. I didn't.
I am now bidding on some Facebook puts for a trade with defined risk on the other side of the recent highs at $33. The thinking is, if Facebook continues lower, we're looking at a double top. If it reverses to the upside, I've got über-tight defined risk...and you can do anything as long as you're disciplined.
So you know and if you care--and remember to define your risk before you put your hard-earned capital at risk.
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Wednesday, January 30, 2013
Bonds! Get Ya Bonds!
Even without the final numbers, January will record one of the - if not the highest - amount of new corporate issuance. . . ever. Against that backdrop, high yield spreads have DROPPED 37 bps in the same month, a 6% tightening, and at 591bps are at the lowest level 1997, as far back as the Merrill Lynch HY Index goes. The spreads on Credit Default Swaps of large US financials have also continued their shrinkage. I keep my own index and its disappearing act has taken it from 420bps to 330bps. If you want to explain the 6.1% monthly rise in the SPDR Financials (NYSEARCA:XLF), you probably need not look any further.
In the sovereign realm, spreads on US CDS attempted to perk up during the first 3 weeks of the month (up about 10bps), only to be unceremoniously dumped on its tail in the past week (down 5bps). The same can be said for Italy's and Spain's CDS spreads, despite the mounting economic problems we hear about on a daily basis. Lastly, the 2yr swap spread has risen 2bps this month, after dropping to 10bps from 40bps in the last 6 months of 2012.
Bottom line? The credit world remains a firehose of money for anyone who asks for it, and with companies doing most of the asking and flipping that cash into dividends and buybacks, going short for more than a trade seems like a colossal waste of time, money and energy.
Speaking of "trades" however, the 3-day RSI on the S&P 500 (INDEXSP:.INX) touched 99.35 (out of 100) on Jan 25. I could not find a higher reading ever, but note that after recording similarly overbought readings in the past (95 +) the history of pullbacks immediately thereafter has been uneven. Momentum can be a very powerful force.
Why is Amazon Up on a Lousy Quarter?
Here's the thing.
It's very easy to imagine Amazon (NASDAQ:AMZN) at $1 trillion in revenues because it has a relatively predictable business with an obvious secular growth story.
More and more people are shopping online, and Amazon's obviously best-in-breed in ecommerce. It's a growth story that can logically go on for decades.
Meanwhile, look at the tumultuous history of the tech landscape.
In the 1990s, Dell (NASDAQ:DELL) was absolutely killing it in terms of growth, Microsoft was the biggest bully on the block, and Apple (NASDAQ:AAPL) was on the verge of going out of business.
Now, the PC industry's been turned upside down because of the iPad, and Microsoft is actually an underdog to Apple -- a company it actually rescued in 1997!
There was a time when companies like Polaroid, Kodak, and Xerox (NYSE:XRX) were world-class innovators with seemingly unlimited growth potential.
Or how about IBM (NYSE:IBM)? It went from being a dominant superpower in the 1980's to a bloated mess in the early 1990's, before being ressurrected in one of the greatest corporate turnarounds of all-time -- quite a rollercoaster for what is now considered a 'steady as she goes' type of profit machine.
And then there's Research In Motion (NASDAQ:RIMM). Six months ago, the Blackberry-maker was left for dead on the side of the road. Today, people are pumped for BlackBerry 10's release -- a turn of events that was inconceivable in mid-2012. And the stock's up 166% off the lows.
We are in a bear market in certainty, which largely explains Apple's depressed valuation in the face of huge revenue growth and mobile-device dominance.
And what does Amazon bring? A dead-simple business model intensely focused on growing revenues into the stratosphere that can easily be extrapolated decades into the future. It's just plain easy to imagine an Amazon that in 2030 is ten or twenty times the size it is today.
Thursday, January 31, 2013
Soup Nazis to the Left, Soup Nazis to the Right
In this morning's Daily Market Report, walked through the Soup Nazi (+1) sell set up in Facebook (NASDAQ:FB) ahead of earnings.
Wednesday's retrace was shortable because Tuesday FB left a Soup Nazi (+1) sell signal. Why? Monday FB Pinocchioed the prior little swing high and stabbed back below that prior high on Tuesday.
Why didn't I use it? I don't like to assume the risk of earnings. Some of you do. In the future I will look at these setups, such as Amazon (NASDAQ:AMZN), and may suggest an options play."
Energizer (NYSE:ENR) was another Soup Nazi in front of this morning's report.
I played neither.
1) I don't like to assume the risk in front of earnings as to FB
2) I didn't see the ENR setup nor did I know they were due to report.
I will be utilizing options to play these kind of earnings setups/Soup Nazis going forward.
See daily FB and ENR charts for the month here:
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At the end of 2004, Microsoft (NASDAQ:MSFT) issued a special dividend of $3/share. That equated to a $32 billion special dividend. That month, personal income jumped to a 3.2% monthly rate because of the huge influx of dividend money, which equated to a $301.7b annualized jump. Much of the same story this past December. So the big question is, what does it mean, if anything?
Consumer confidence as measured by the Bloomberg consumer comfort index and its subindexes fell sharply into 2005, but I would be hard pressed to attribute this directly to the dividend income. Personal spending also dropped from 0.7% in December 04 to 0.2% January 05, and dropped further into the 2Q. Still the same argument, but this dragged down the major indices to an April low, before making new highs by the end of the year.
Now, consumer confidence is also dropping from a double whammy effect. The 2% payroll tax increase and the loss of their Christmas present from the private sector. Does that mean that every person went out and spent the extra money they got? My guess is no, the majority of this money was saved, after looking at the data. Personal spending only rose 0.2% compared to a roughly 2.3% jump in disposable income from special dividends. It makes the personal spending data next month very important as it will begin to factor in a 2% cut in disposable income from taxes, and it will represent also represent whether or not this money was spent or found its way into stocks/bonds/funds.
I still think the bigger question is whether or not this is a long-term drag on companies as in a number of situations they have had to raise debt to pay for these special dividends.
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Friday, February 1, 2013
Everyone knows how to win; but, few know how to lose. Yet the secret to making money in the market is knowing how to lose or how to control your losses. Listen to the pros: "I'm always thinking about losing money. Don't focus on making money; focus on protecting what you have" - Paul Tudor Jones. Or, "The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly" - William O'Neil. Then there is, "One investor's two rules of investing: 1) Never Lose Money; 2) Never forget rule No. 1" - Warren Buffett. All of those pros have different market philosophies. They have contradictory strategies for making money. But their message is clear - Learning how not to lose money is more important than learning how to make money! And in learning how not to lose money, you have to evaluate risk.
Clearly, I have been doing that recently by perusing my indicators in an attempt to evaluate risk. The conclusion has been that the S&P 500 (INDEXSP:.INX) was likely going to develop fifteenaphobia. And sure enough, the SPX has been bumping its "head" against 1500 for the past six sessions (see chart). Yesterday, the "head bashing" left that index back below 1500 and resting near its 10-DMA (1496.02). Failing that moving average could lead to a pullback towards the often mentioned support zone (1465 - 1475). Yesterday's action followed Wednesday's one-day downside reversal whereby the SPX made a new rally high and then closed below the previous day's closing price. However, those two events may only stall the market, so I still would not look for any big pullback and would continue to use weakness to buy fundamentally strong stocks. Of course, the final arbiter of short-term direction will be this morning's employment figures where non-farm payrolls are expected to be +165 with an unemployment rate of 7.8%. Yet whatever the number, I think the 1465 - 1475 support level holds.
Today's NFP is getting a lot of backlash, but frankly the bulls want to run the tape and inline is just fine. Bears can make numerous arguments for "so much for QE", as we have 7.9% unemployment and 150k monthly job creation which essentially mirrors September's prints. Sentiment has been running hot, although the two day pullback has worked some of that off. Bulls want to press this tape, it has a distinct feeling of Q1 2012 and 2011.
Tops are a process and euphoria, which has been lagging in price, appears to be entering the stadium. Why do I suggest this? High yield junk bonds have been getting hit like Mike Tyson in the glory days. See both sides. I continue to stress that traders and investors need to manage positions and not chase stocks here. I am a continued seller, into strength only, and will manage a SPY hedge. Above SPX 1512 and we can look for 1523 to 1530.
Gap 'N Go or Gap 'N Crap
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