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.
Ducking in and out of meetings yesterday afternoon, I blinked twice when I saw the Apple "news" that Carl Icahn bought a large position in the stock -- and then took to Twitter to 'talk it up.'
The SEC ruled that social media is an acceptable medium for company announcements in April, 2013. Still, yesterday's events felt a world away from when the SEC warned Netflix (NASDAQ:NFLX) CEO Reed Hastings about posting his prognostications on Facebook (NASDAQ:FB) last December.
Is social media, and the ways in which we communicate, moving that fast? Evidently, the answer is a resounding yes.
To be sure, other high profile investors have posited their positioning on Twitter - Bill Gross at PIMCO comes to mind. But at what point have we jumped the proverbial shark?
With HFT to the left of us and social media disclosures to the right, the investing process is morphing at warp speed. As Josh Brown eloquently observed yesterday-on Twitter, of course-"Apple adds $20 billion in market cap, or Chipolte + Under Armor, on a pair of tweets from Carl Icahn. Baller."
I won't take the other side of that statement -- Carl Icahn is a baller -- but we've seemingly entered into a new realm in the investing landscape, a social sphere situated somewhere between "Pump & Dump" and "Post & Boast." Mr. Icahn's 52,000+ Twitter followers got a gift -- or at least a first-mover advantage -- as the rest of the global financial marketplace, many of whom are not on Twitter, were left to play catch-up
And you wonder why mainstream America thinks they're at a disadvantage.
I have no horse in the Apple race. I had a level I was looking at, but it never got there and my greatest cost was one of opportunity. If nothing else, however, yesterday's sequence served to fortify the frustration felt by investors who feel the investing process is unnatural -- and yes, in the words of Stan Druckenmiller, "rigged."
T-Report: Worst Volume Day for CDS Ever
The IG CDX Indices had their lowest volume of the year yesterday as far as I can tell.
Only $2.5 billion of IG Indices traded, and IG20 barely topped $2 billion. That used to be a couple of big trades.
HY20, the on the run CDX volume got to only $665 million. iShares High Yield Corporate Bond (NYSEARCA: HYG) and SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK) combined for almost $500 million of volume (though over 70% of the volume was in HYG). While high-yield CDS remains the hedge of choice, two things are clear:
- The ETF's are becoming as big or a bigger technical factor in high yield as CDS.
- No one is hedging.
Name That Move
Not that 10 points is a big move given the outright level of the S&P 500, but it is big enough that I would like to be able to explain them.
S&P Futures for Past 2 Days
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I would like to say that spike up was due to lower inflation data, the drop was because of a weak auction, and the bump was good earnings.
I am sure if I tried hard I could attribute each of the moves to something, but it feels like I would have to try hard. Normally it is pretty obvious to me why the market did something (in hindsight). Whether you agree with the move or not, it is relatively easy to pinpoint. Yet another sign of apathy?
A Random Crawl Down Wall Street
So little is going on that to call this a random walk down Wall Street would be doing the phrase injustice. There really seems to be a tone of apathy.
Relatively few people want to discuss "taper". Fewer still want to examine whether "tapering" will impact the equity market. In theory, QE supports the economy (good for equities and bad for bonds), and over the past few months, the monthly $85 billion of Fed money seems to eventually find its way into stocks rather than bonds.
For now the "meme" is that the Fed will only taper because the economy is doing so well and that they will time it perfectly so growth continues without fed support. That Higher interest rates are not a drag. That the Fed times things perfectly, and their growth projections make sense. I have far less faith in the Fed and far less faith in the growth story.
Bunds Finally Crack
Ten-year Bund yields moved 8 bps higher. At the same time, Spanish and Italian bond yields moved a bit lower. This is a very bullish spread tightening.
We are starting to focus on Europe again as we near the one and only German debate on September 1. That will be a key date as we will get a sense of whether an "anti-Europe" faction will develop or not.
The popular view seems to be that the German elections and election results will usher in a new wave of the European financial crisis. I'm not so sure. It could happen, but several factors are at play that may make it less of a risk than many think.
We will take a closer look at Europe over the coming days, but for now, we continue to dislike bunds. We also think the most likely case for sustained U.S. growth will come from a rebound in Europe. That isn't our base case for the European outlook, but it is an important factor in our analysis. We find few compelling growth stories in the U.S. without a rebound in Europe, and by compelling, I mean +2.5% GDP or more.
Silver Gains on Gold
Between gold and silver, silver has had a rougher year despite gold stealing all the attention. The white metal, though, has outperformed the yellow metal percentage-wise since both metals' lows. Gold and silver reached their most recent 2013 lows on June 28. Since that date, silver has rebounded about 17% while gold has rebounded about 12.32%.
Since iShares Silver Trust (NYSEARCA:SLV) June 27 low, it has rebounded about 17.8%. GLD has gained about 12.3% since its June 28 low. The charts below show the ratio of SLV to GLD. For perspective, I've included two sets of charts, showing the SLV-GLD ratio constructed both ways.
The shorter-term trend of GLD outperforming SLV has reversed, and the GLD-SLV ratio is nearing an important resistance point from a trend that began at the end of last year at just under 6 . Flipped, the SLV-GLD ratio is nearing resistance at 0.167.
Click to enlarge
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Silver correlates with gold, and it usually outperforms gold when gold rises and underperforms gold when gold drops. So far, silver's price has exhibited this behavior, and it may be a better play than gold, based upon historical behavior, if gold continues to trend upwards.
Below, see 1-year chart of SLV's and GLD's percent changes.
Thursday, August 15, 2013
When Is Cisco Gonna Pull A Viacom?
A couple of weeks ago, Viacom (NASDAQ:VIAB) upped its buyback plans to $20 billion or about HALF of the company's market cap. Looking at Cisco's (NASDAQ:CSCO) balance sheet and cash flow, the company has $50 billion of cash on hand vs. $16 billion of debt, and it generated more than $12 billion of free cash flow in the last 12 months. Cisco 7-year bonds trade at a YTM of 2.7%. Cisco could borrow $50 billion, buy back 40% of itself, and be nearly debt free on a net basis 12 months out. Assuming its business stays at current levels, in four years its net cash on the balance sheet would be back roughly to where it is today.
Escaltor up, Elevator Down
I have been chatting about things changing and prepping for the breakdown. I reduced exposure, so now, I'm sitting on dry powder. Today, we finally get the breakdown and the confirmed head and shoulders. At this point, we have gone from a trend and momentum market to a traders market, so I'm dusting off the old trading manual and putting the portfolio in the drawer.
Process wise, I look at the market to tell me what the easy trade will be.
On one hand, I am looking at the best short entries. The best short entries would be a rise into 1682 (the old neckline) for a sharp move to the 50-day. Though, I see this as less likely at this point.
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On the other hand, where are the best long entries for a bounce? There are a couple of gaps below the 50-day moving average that I have marked on the chart. If we get a break of the 50-day, then those quickly become targets, maybe as soon as tomorrow. My old pal NYMO had its breadth rotation tell, and now, he is in full puke mode. Probably going to close the day out around -80 or so. When it gets that low, I look for a long trade. If we get a nasty gap down tomorrow, I will buy it and go fishing. Why go fishing you ask? 1) So I don't sit there at my screen and second guess my way out of the trade. 2) It is dropping into the low 70s in the morning, which would make it gorgeous out on the river tomorrow.
Basically, as I see it, we have some unfinished business around 1680 with a new low for this range coming soon probably in the 1640s or possibly the 50-day moving average.
SLW Emerges from its Apr-Aug Base Formation
Purely from a pattern perspective, you can see my minimum, optimal, and outlier targets for the upside breakout in Silver Wheaton (NYSE:SLW) from its April-to-August base pattern.
Only a break that sustains beneath 25.20 will begin to weaken the pattern, while a decline that breaks today's low at 24.31 will neutralize it altogether.
Click to enlarge
Friday, August 16, 2013
The Freaky Friday Level of Lore
Check the S&P chart below. As discussed yesterday, there 'was' room to S&P 1650, and we almost got there on the close. The 50-day moving average is in play now (1657) and 'horizontal' support is directly below at 1650.
Expect the bulls to circle their wagons there on a slinky August Friday -- and they should have an opportunity to do so.
Beware the Ides of August
My ears are buzzing this morning.
Yesterday, I heard a strategist say that there was no reason to be concerned about a decline here as you don't get trend changes in August. He went on to say August is just 'too thin, not enough conviction.'
Really? What about August 1982, August 1987, August 2000, August 2007, which was the blow-out low prior to the last ditch rip to new highs in October. August 2008 was the pre-crash pivot high.
Beware the Ides of August.
I believe that changes in confidence alter our choices and actions.
In researching confidence, I developed a framework that I call "Horizon Preference," which states that when our confidence level is low, it is all about "me, here, now". When confidence is high, it is all about "us, everywhere, forever". (My book "Moods and Markets" covers this much more thoroughly than I am here.)
What brought this to mind today, was this quote from Der Spiegel regarding Egypt:
Welcome to Egypt under General Abd al-Fattah al-Sissi. The country is so polarized that people are no longer able to feel any empathy whatsoever for others. It is a country in which the smartest and most critically thinking intellectuals are now spewing little more than propaganda, with people on both sides of the deep political divide displaying a penchant for simplification, vilification and agitation. Those who ask critical questions run the risk of being physically attacked, an experience that many foreign journalists have encountered in recent days.
Read the article here.
Talk about a litany of very weak "me, here, now" human behaviors: "polarized", "no longer able to feel any empathy whatsoever for others", "deep political divide" "penchant for simplification, vilification and agitation."
That the Egyptian market has sold off sharply, hardly comes as a surprise. Changes in confidence transcend everything we do.
Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
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