Buzz on the Street: The Bears Take a Stronger Hold of the Market
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, August 12, 2013
GLD Following Through to Upside
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In keeping with our morning note that a bullish ‘hook’ had been put in, SPDR Gold Trust (NYSEARCA:GLD) held the upside breakout on Friday and is following through with a large continuation gap.
Friday looks like a Pause Day following Thursday’s thrust - an overall TNT pattern (Thrust, Pause, Thrust).
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Today’s outsized gap is over the 50-day and is threatening at least 2 key bullish technicals:
- A stab through the lateral 130 key resistance and prior breakdown line from June
- An offsetting of the gap on June 30th.
I was finally impacted by the CBS (NYSE:CBS) and Time Warner Cable (NYSE:TWC) dispute and continuing blackout when I tried watching the PGA Championship. That stunk. CBS said on Friday that total viewership is only down 0.2% W/W from before the blackout and that it has had a minimal impact on its ratings. This means that not a lot of Time Warner Cable's 14.6 million cable customers are watching CBS owned channels (which include Showtime, so I found out).
Natty is on a tear to the upside today and is making continued bullish movement, but the rest of the technicals remain bearish from a longer-term view. The trend remains down, and at the very least, we need to see a recapture of the upper rail of the downward channel that on May 28.
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On the other hand, crude failed right at the 61.8% retrace, which the bears needed to happen. Net-long positioning in the weekly COT report was only reduced marginally by 5.4K contracts to +357.52K , representative by a few shorts being added. So that downside catalyst remains.
For rates, the 5-year yield has now flipped into a bullish trend, though the 10-year and 30-year remain neutral and very close to turning positive. They had all been in a bearish trend since the second week of May. Positioning remains more neutral via the JPM survey, SMR survey, and COT futures, so upside catalysts are possible there. Using the long bond future (US1) as an example, open interest has declined to 580K contracts from a peak of 744K contracts in early May. For this morning's action, we saw strong buying show up at the NY open, and that has now gotten flipped back at higher prices. Demand during the NY sessions has been stronger than the Asian sessions, for what its worth.
Equity breadth after the first 30 minutes was almost exactly 1:1 neutral for NYSE all securities. After the first 60 minutes, this was relatively unchanged with a tiny amount of decliners added.
While looking through positioning charts, I re-stumbled across the net-long positioning of speculators in S&P 500 futures, and it looks like another bearish divergence from the prior market highs. Net longs decreased to +97.4K, with longs being reduced by 40.5K contracts. Shorts increased by 40.97K. See it below.
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Apple Vs. Gold: Parallel Bull Market Structures
Apple vs. Gold. Got your attention? Okay, I’m having a little bit of fun here. But really, there is a rhyme and reason to time and price and to how investors herd to a particular stock, commodity, or trend. A look at a chart of Apple (NASDAQ:AAPL) vs. gold highlights the parallel bull market structures… and declines.
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Investor psychology is reflected through price movement and is a big reason why I am a proponent of technical analysis. Support, resistance, trend following and exuberance.
Trade safe. Trade disciplined.
Tuesday, August 13, 2013
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I hate to sound like a broken record, especially since the downside move I have envisioned has yet to materialize. I will, however, say that the stock market's upside momentum has waned since my July 19 timing date even if prices have not gone down. Still, the weight of the evidence suggests this is not a time to be playing very hard with stocks as the divergences continue to mount. Yesterday, the astute Jason Goepfert wrote, "Despite the fact that most broad-based stock indexes are hovering near new highs, 'sentiment' has deteriorated, forming a kind of negative divergence (see chart)." This is what happened right before May 22. Jason goes on to note that the Option Speculation Index is flashing cautionary signals as well. Similarly, when I run many of my indicators, they show the same kind of negative divergences. For example, the credit spread between "junk" bonds and Treasuries failed to make a new high. In the past that divergence has been a cause for pause. Then too, the number of stocks in uptrends is declining, yet another negative divergence. And while in the past the Hindenburg Omen Indicator has not worked all that well, when it does work, it is impactful. Recall a Hindenburg Omen is registered when: 1) the daily number of NYSE new 52-week highs and the daily number of new 52-week lows are both greater than or equal to 2.8 percent; 2) the NYSE index is greater in value than it was 50 trading days ago; 3) the McClellan Oscillator is negative on the same day; and 4) new 52-week highs cannot be more than twice the new 52-week lows. All of those metrics occurred last week. If the Hindenburg works, we should see the Dow Diamonds (NYSEARCA:DIA/154.03) close below 154 followed by a break by the S&P 500 (INDEXSP:.INX/1689.47) below 1684.
While stocks are not going down, they are not really going up either. The sideways action has caused my phone to light up with the question, "Jeff, are you softening your downside call?" So far my answer has been, "No!" Our financial advisors have been getting questions too. The question du jour is, "Okay, we raised some cash, but the downside did not show up. Isn't it time to put that money back to work?" Of course, in most cases these are the same folks who didn't want to buy stocks on the back-to-back Upside Volume Days of 12-31-12 and 1-2-13 that kicked this buying stampede off. This morning, however, they are right with the pre-opening futures up on hints of stronger economic data on both sides of the Atlantic.
Getting Long BBRY
BlackBerry (NASDAQ:BBRY), which has fallen over 95% from its all-time stock price high of over $230 about six years ago, has recently been making rapid rebounds in the market after news that CEO Thorsten Heins might be taking the company private. Prices spiked upwards about 7% to $10.42 this morning on positive speculation from reports that Heins wants to get out of the public spectrum and allow BlackBerry to catch its breathe. The company has not yet begun its search for prospective buyers, and BlackBerry is quite an unattractive prize for any enterprise interested given its 13% stock price drop YTD, EPS of -0.41, and steep loss of subscribing customers. However, there are other enterprises like Silver Lake and CPPIB that have shown some interest in the failing mobile network provider.
Analysts project that if Silver Lake is successful in taking Dell (NASDAQ:DELL) private, it may become partners with BlackBerry as well. Dell has struggled with the changes in the technology industry, from desktops to mobile devices. A pooling of the companies' efforts and resources could solve their problems. Another interested suitor, Canada Pension Plan Investment Board, said it would consider purchasing BlackBerry if the company went private. No buyout offers or negotiations have been made yet.
To widen its arsenal of assets, BlackBerry announced today that it created a strategic operations committee in charge of both bolstering sales for its newest BlackBerry 10 smartphone and seeking possible partnerships or joint ventures to counter the ferocious competition from companies like Apple and Samsung (KRX:005935). Timothy Dattels, chairman of the committee, said:
Heins, who will also serve on the special board, stated, “We will do our homework and assess what we think is best for the company and then we will have discussions and they will either yield partnerships, alliances or not.” He went on to say that in the meantime, the rest of BlackBerry will continue its original plan to reduce costs and take advantage of the opportunities that arise.
During the past year, management and the Board have been focused on launching the BlackBerry 10 platform and BES 10, establishing a strong financial position, and evaluating the best approach to delivering long-term value for customers and shareholders. Given the importance and strength of our technology, and the evolving industry and competitive landscape, we believe that now is the right time to explore strategic alternatives.”
In the midst of restructuring its marketing strategies, BlackBerry has also decided to reevaluate its operating infrastructure, putting the company in a very precarious situation. A report by CBC news found that BlackBerry not only fired 250 employees who were stationed at a test facility in Waterloo but also got rid of three crucial veteran executives: global manufacturing and supply chain senior vice president Carmine Arabia, corporate information technology vice president Doug Kozak, and service operations vice president Graeme Whittington. Rebecca Freiburger. A spokeswoman for BlackBerry, stated, “We are in the second phase of our transformation plan where we will be assessing our organization - from top to bottom - to ensure we have the right people in the right roles with the right skill sets to drive new opportunities in mobile computing.” No news is available for how many other jobs BlackBerry plans to cut this time around, though not all sectors within the company are necessarily involved in the restructuring program.
Prem Wasta, BlackBerry’s biggest investor, announced today that he is also leaving the company “due to potential conflicts that may arise” while taking the enterprise private. He still supports Heins in his efforts to redirect BlackBerry’s momentum, though he speculates it will take some time before the company starts seeing major gains again.
Though the company has experienced heavy losses, BlackBerry will not "go gently into that good night." The latest developments in its fight to stay afloat include authorization from the Defense Information System Agency (DISA) to operate as a mobile network provider on the U.S. Department of Defense’s broadband. DISA plans to incorporate 10,000 BlackBerry 10 smartphones into its network this fall and add another 30,000 by year end. To be authorized by the DoD is an impressive achievement that involves meeting incredibly strict security standards, which BlackBerry has been very familiar since its network normally deals with managing private corporate information. With news of the approval, Scott Totzke, Senior Vice President of BlackBerry Security Group, stated, “Being the first smartphones to be supported on U.S. Department of Defense networks further establishes BlackBerry’s proven and validated security model. With foreign entities - governmental and criminal - ramping up attacks on electronic communications and information systems, BlackBerry provides government agencies with a proven partner that follows top-to-bottom security protocols.”
Investors will surely keep an eye out for Blackberry’s activity in the near future. Meanwhile, the company’s stock continues to hover around $10.35, up 6% for the day and trading at the highest prices in the past 30 days.
Where there is smoke, there is fire. I think that BlackBerry has more upside potential, but I always want to define my risk vs reward. This is a longer term play in BlackBerry, but if it breaks to the upside, then this trade has a potential reward-to-risk ratio of 3 to 1.
My Trade: Buying the BBRY Jan 13-16 Call Spread for $.70
My Risk: $70 per 1 lot
My Reward: $230 per 1 lot
Reward vs. Risk: 3-1
Exit Strategy: I will look to sell 50% of the Spread if the position doubles and hold the balance until Expiration
Boring Is The New Black
This morning's WSJ has a great article on the proliferation of "safe" bank CEO's in the aftermath of the banking crisis. Read the article here.
As I discussed last week at TEDx Wilmington, changes in confidence alter our preferences and actions. When confidence is low we choose safe, whether we are alone, in the boardroom, or among other banking regulators. That financial institutions are picking boring executives at the same time they are selling off their far flung global operations, boosting risk management departments, and experiencing weak loan growth all fits together. Confidence doesn't affect just one aspect of behavior, it impacts everything - and simultaneously too.
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