Buzz on the Street: Mr. Market Goes Bear Hunting
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.
Here is a small sampling of this week's activity in the Buzz.
Monday, March 11, 2013
Happy Fourth Birthday!
Last week the market celebrated its fourth birthday. That makes the current "bull" one of eight, in the last 80 years, that has lasted for more than four years. Of those other bull markets lasting more than four years, the average duration has extended to about six years; so those suggesting a "bull move" can't last more than four years should be apprised. While the official "closing low price" date was March 9, 2009, the S&P 500 (INDEXSP:.INX) (1551.18) actually bottomed on March 6, 2009, at the "mark of the devil" price of 666.79. Since then, the SPX is up ~133%, but a few of the sectors are up more than that. Indeed, the Consumer Discretionary sector is better by ~230%, the Financials by ~193%, and the Industrials by 172%. Speaking to the Financials, in last Thursday's Morning Tack I wrote about the negative divergence between the Financials and the Bank/Broker CDS Index. Adding to that cautionary note, the KBW Banking Index (INDEXDJX:BKX) (56.59), a capitalization-weighted composite of 24 large banks, is as far above its 200-day moving average (see chart) as it was in mid-March 2012 prior to another pullback in the overall stock market.
Going into this week, 12 of the 14 economic releases last week were above expectations. On the earnings front, 507 stocks in the S&P 1500 saw their estimates raised upward, while 615 were lowered. Meanwhile, lost in the shuffle is the fact the SPX's trailing P/E ratio is currently at 15.25, which is a new 52-week high. While valuations can expand in a bull market, we are currently near the median P/E valuation of most normalized stock markets. Moreover, today is session 49 in the current "buying stampede," with the longest stampede chronicled in my notes of some 50 years ending at 53 sessions. Therefore, pressing the "long side" from here, on a trading basis, has negative odds. That said, Buying Power has moved to a new high while Selling Pressure is at a new reaction low. Moreover, the Buying Power index is about to cross over the Selling Pressure index. According to Lowry's, "Throughout the 75 year history of Lowry's Analysis, such positive crossings has always been viewed as an important sign of strength." Therefore, any pullback should be viewed as a buying opportunity.
It's a brand new day for the flickering ticks as we embark on a fresh five-session set. Following yet another record-setting week, the weekend headlines were as one might expect. And while John Q Public has been more engaged of late, the question remains whether the mainstream will again buy into yet another new paradigm.
Last week, we fingered The Two Most Important Charts in the World; the S&P (INDEXSP:.INX) -- and the monster level that is 1580 -- and the NDX (INDEXNASDAQ:NDX), and the "handle" that resides in and around NDX 2750/60. Those are technical contexts, not catalysts, and I wouldn't be surprised to see us retest those levels as the next leg of our stair-step. That was the catalyst for The Friday Fade Trade, although I covered up (for a very small gain) into the weekend as per my stated stylistic approach.
Indeed, you can't blame traders for having a quick trigger to cover up (the short side has been the cute side this year). While I've played two-sided -- anything less is akin to boxing with one hand tied behind your back--we're seemingly approaching a cusp in the denial-migration-panic continuum where few dare question the forward direction of the stock market. My email indicator seemingly supports that notion, as the prevailing tone isn't whether or not the tape will turn but rather whether or not to wait for a pull-back to buy.
Timing is everything, we know, but that sorta certainty, coupled with other elements (VXO 12), suggest that blind optimism is a dangerous proposition. Be that as it may, I continue to trade surgically -- I bit the bullet and bought some BlackBerry (NASDAQ:BBRY) this morning, despite my wanting to add the stock closer to $12 -- as we continue to take our journey one very careful, and risk-defined, step at a time. Just be yourself sir; no matter what happens, they can't take that away from you!
Good luck, and remember that profitability begins within.
Jobs Changed Everything
Followers of my writings know that I have been pounding the table on a coming correction since late-January, as intermarket trends warned of a deflation pulse. The Bloomberg European Financial Condition Index peaked (see below) right around the time of the call, and it did look like a fall was to come mid-February.
Up until Wednesday the same intermarket trends that moved ahead of the Summer Crash of 2011 and mini-corrections of last year were signaling risk-off. Upon the ADP jobs number, however, a sharp reversal began to take place in a way that surprised me. The nail in the coffin came Friday, as a complete reversal in intermarket trends took place. Yes -- the call was wrong, but the setup was there for a correction and I stand by the reasoning. Our ATAC models used for managing our mutual fund and separate accounts rotated out of bonds and into stocks Friday.
It is unclear if the signal will hold. If risk-on persists, the coming fat pitch trade will likely be in emerging markets. If instead this is a false positive, then we could easily go back into bonds later this week and resume defensiveness. The next Lead-Lag Report will highlight precisely what happened, but it does appear that bearish sentiment collapsed following ADP. Either way, the next few weeks will be important to watch.
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Tuesday, March 12, 2013
US Stocks: Little Doubt What Traders Are Thinking
As the stock market has moved higher, investors' bullish conviction has grown. Many think it's bullish, but please read this excerpt from Elliott Wave International's March 8 Short Term Update.
This is an important aspect of the rally that has been overlooked by most market observers:
"The push has engendered the bulls to become more vociferous...as the Daily Sentiment Index (trade-futures.com) has jumped to 80%, its highest level since July 7, 2011.
"The end of market declines often occur with a DSI below 10% stock bulls. You can see the percentage of bulls (in red) that have coincided with the Dow's lows over the past year.
"The end of market rallies often concur with the DSI at 75% bulls or higher. The current 80% bullish figure fits well for the end of [the rally]."
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Apple Long-Term Chart Update
It seems that the Apple (NASDAQ:AAPL) chatter is finally dying down a bit. But really, right here and now, AAPL is testing a key support area: its long-term trend line. Now there isn't any need for a long, over-exhaustive puke your brains out analysis here; just a quick update of the AAPL long term chart. But investors should take note.
Below is a 15-year chart with monthly bars, so this is a 5,000 ft view of the stock. And considering this, one has to use a pretty "thick" crayon with the trend line (due to intra-month swings). But in general, the $420-$430 level appears to be important for AAPL, especially on a monthly closing basis. A sustained move below its long-term trend line would likely be a flush that gets bought for a trade, but leaves the stock technically broken. Note as well the importance of the 20 month MA and how the recent break below this level was key to the deep January "flush" bar.
Trade safe, trade disciplined.
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Yesterday’s N/R 7 Day in Gold (NYSEARCA:GLD) did a good job of identifying today’s Gap & Go leading to the first tag of the 20 dma in a month.
Offsetting and closing above the 20 should be a bullish event
I was stopped out of Silver Wheaton (NYSE:SLW) yesterday and have reinitiated a pilot position on this morning’s ORB.
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Wednesday, March 13, 2013
Do You Feel Lucky?
Last night CNBC ran a segment on gaming stocks. One of the names mentioned was Caesars Entertainment (NYSE:CZR) and this morning the stock is popping almost 10%. This company offers a near textbook case of the disconnect between credit and equity investors. CZR carries net debt of more than $22 billion, a lot of it consisting of expensive mezzanine debt; after servicing the debt, cumulative cash flow since it came public (in a botched IPO) is negative; some tranches of next year term loans are trading at $0.92, and the 2018 10% bonds are trading at $0.65; its 5yr Credit Default Swaps -- at near 52 wk. lows -- is an astounding 2400 bps. Yet, stock traders are attributing more than $850MM of equity value to the company.
I understand that when a company has a short interest of 25%, the stock tends to act more as "trading crack" than a discounting mechanism for the value of the company; but that only flies until the stock goes to zero and it comes time to blame "Wall Street".
I'm conspicuously uninvolved in the name, although I am eyeing the Apr 15 puts, which have already traded more than 1800 contracts v. an open interest of 40. What's holding me back is the implied volatility up 10 pts. just this morning, to a juicy 72.
Long-Term Apple Bull Says Samsung Is More Innovative
Yesterday, I dumped 40% of my long-held Apple (AAPL) position for what I consider to be reasonable reasons, though I'm not afraid to admit that it may have been a moment of pure capitulation.
Now here's an interesting little anecdote (though I remind you that anecdotes do not equal reasons to buy/sell) that long-time mega-super Apple bull Gene Munster of PiperJaffray is out saying that Samsung is more innovative.
This is like Rudy Giuliani ditching the Yankees to become a Mets fan.
Again, I don't place much value on anecdotes, but this is an interesting switch in perspective and possibly and indication of sentiment getting really bad.
BOIL on the Move...
The ProShares Ultra DJ-UBS Natural Gas (NYSEARCA:BOIL) is making new multi-month highs and pushing up against very significant resistance between 43.30 and 44.30, which if hurdled, should trigger upside acceleration towards 50.00.
At this juncture, only a decline that breaks and sustains beneath 41.80 will compromise the timing of the anticipated upside intermediate term buy signal.
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Thursday, March 14, 2013
Amazon May Be Vulnerable
Amazon (NASDAQ:AMZN) is gapping down on a downgrade this morning.
The gap is occurring on the 7th week from our square-out at the January highs and follows a test of the low of the high bar day. (see square-out post here)
A 3rd break of the 50 dma with a close below this widely watched m.a. on the important Friday weekly closing basis puts AMZN in a weak position.
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ULTA Earnings Play
Ulta Salon (NASDAQ:ULTA) operates 467 beauty stores in 43 states offering hair care, cosmetics and other products, as well as salon services. Ulta has been one of my favorite longs for the last few years, but technically I feel the stock is a little long in the tooth.
They report earnings tonight and with the stock dropping below its 50 and 200 DMA's after the resignation of CEO Chuck Rubin last month, I feel like the potential for a sell-off after tonight’s report is possible and I’m playing it with the March $80/75 Put Spread that cost me $0.40-0.45 cents. My risk is the entire amount, so trades should be adjusted accordingly. My maximum reward with the stock falling below $75 will be in excess of 1,100%. I realize this is a hero or zero trade, but with proper sizing of the trade, it offers me a nice way to cash in on a stock that to me looks technically broken and ready to start a trek lower.
Rocky Balboa Market Won't Break
Remarkable action in US stocks continues today, as various intermarket trends get further from risk-off mode. I can not stress enough how much has changed since last week following the ADP report in terms of relative trends beneath the market's surface.
I discussed this on Josh Brown's site, referencing the importance of process and how 2013 has been so far. Will the trend continue higher? For now it looks that way. Our ATAC models used for managing our mutual fund and separate accounts took an aggressive position in US equities last Friday as we rotated out of bonds.
I suspect the environment continues to be moderately positive into the end of the quarter as emerging markets stabilize. When money eventually flows to badly performing cyclical country equities which have decoupled from the US, a major trade can be made.
For us, risk-on got a fresh dose of confidence thanks to jobs numbers. I will be making a big point about this live on CNBC today at 3 p.m. EDT, and I love it when Minyans tune in!
Friday, March 15, 2013
ULTA Trade Update
Yesterday, I buzzed about betting against Ulta Salon (NASDAQ:ULTA) into earnings as I felt a sell off was a real possibility after the stock’s recent technical weakness. Guidance was lowered and the stock is currently indicated to open down over $12 around $76.
We bought the March $80/75 Put Spread for 0.40 cents and should see a very nice return in the area of 1,000% or more. This was a hero or zero trade and like I said, it is always better to be lucky than good, now we’ll take our profits and focus on a few more earnings plays over the next couple of weeks that include Francescas Holdings (NASDAQ:FRAN), Tumi (NASDAQ:TUMI), Five Below (NASDAQ:FIVE), and Exone (NASDAQ:XONE) to the upside and Lululemon (NASDAQ:LULU) to the downside next week.
The Ides of March
The final expiration of the first quarter is upon us and we're seeing some real action. Some top-line vibes, in no particular order:
BlackBerry (NASDAQ:BBRY) $15 is a natural pin; I prolly should have identified that yesterday but if wishes were knishes, I'd weigh 300 lbs. I'm currently long this stock "one up" against Facebook (NASDAQ:FB) puts. That doesn't make it right but it does make it honest.
The bears threw a lot at the banks this morning and while JPMorgan (NYSE:JPM) is still down a deuce (2%), the rest of the sector swallowed the supply and said, "More please?" Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and yes, Goldman (NYSE:GS) are leading the upside speed. Respect.
Market breadth? 3:2 negative, which doesn't qualify as a tell but is worthy of a mention.
Will the streak continue? No, not the Miami Heat; I'm talking about the Dow Jones Industrial Average! The debate continues to rage -- 1987 vs. 2013: Pros and Cons -- and this is shaping up to be a very interesting stretch in a very interesting year.
The bears have to be thinking to themselves, "How do you shoot the devil in the back; what if you miss?" Meanwhile, we continue to edge ever-so-closer to the S&P (INDEXSP:.INX) 1580 level that is a confluence of a few time horizons. See those charts here, and respect--don't defer--to the price action.
As always, I hope this finds you well.
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