Buzz on the Street: Cyprus Barely Makes a Dent in the Little Bull Market That Could
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 18, 2013
This Time is Different... Or Exactly the Same
The first arrow points to the Greek election. The second arrow points to our own election. The immediate reaction of futures was to sell off. In both cases, they bounced and were calm for a few days. Then the sell-off hit.
On multiple choice exams, they say go with your first instinct.
For those who read our notes last night, we thought sell-off, bounce, then real sell-off.
I think this is real.
Remember, corporations, banks, family offices, even individuals don't react quickly. In the former they have meetings before they decide what to do.
Will Ben be enough? Will weakening data here reinforce Europe?
I don't know, but I do not take the last 24 hours of price action as any sign that the market has digested the news.
This will come down to flows that move slower than we are used to. This is in the hands of people who don't make decisions like teenagers on a video game.
I think the longer-term move is for market weakness.
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Risk of Overreaction
It is not a pretty situation in Cyprus.
However, I would keep in mind that many market prognosticators overplayed the potential severity of many events in terms of impact to the markets (debt ceiling, Greece/Europe, fiscal cliff, Obama victory, Obamacare, sequestration, etc.).
So if you're banking on Cyprus driving the last ultimate breakdown of financial civilization, remember all the other things that were 'supposed' to blow things up. Yet, the trend off the 2009 lows has stayed intact.
And remember, the Dow Jones Industrial Average (INDEXDJX:.DJI) just came off a 10-day winning streak and was up 11% year-to-date before the Mila Kunis top, so it's not like the market wasn't due for a breather anyway.
I'm not buying here -- just reminding you to look at the other side.
Gold Miners Deeply Oversold, In Need of a Bounce
While both the price of Gold (NYSEARCA:GLD) and the Gold Miners ETF (NYSEARCA:GDX) peaked in September 2011 and again with a lower peak in July 2012, it is clear that the Gold Miners have taken the brunt of the recent gold complex pain. With Gold down roughly 20 percent from its 2011 peak, the Gold Miners ETF is down about 45 percent.
Looking back on the Gold Miners ETF, you can see the rounded, broadening top, followed by the swift fall to the 50 percent Fibonacci retracement level (of the '08 to '11 bull run). This produced a nice tradable bounce, but was merely a backtest of the breakdown. The drop from that lower high, has been steady, consistent, and painful to watch. It has lead to a drop below the 50 percent fib and a bounce off the 61.8 percent fib. This also coincides with a February flush and a deeply oversold RSI. See Gold Miners ETF – GDX charts below.
In the second chart, I zoomed in on the current downtrend. Support resides around $35, while resistance sits around $42. Ultimately, it wouldn't be surprising to see a retest of the $41-$42 level. This is the old 50 percent fib and area where price began to accelerate downward in February. But, first things first, Gold Miner bulls need to stop the bleeding. Trade safe, trade disciplined.
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Tuesday, March 19, 2013
My Small, Thin Cypriot Wedding
News flow about Cyprus has been fast and furious over the weekend, which is bound to be followed up with a lot of "wait and see" the next few days as the country's central bank declares an extended bank holiday. "Hurry up and wait" seems to be an apt description here.
A couple of questions bouncing around in my mind about this whole situation come from the political/social lens. Specifically, here are some answers I want to know:
Could the EU just be using the Cyprus case as a "shot across the bow" to get the attention of bigger countries? Clearly, the concept of a deposit tax runs a huge risk (almost predictable if you ask me) of touching off the thing they want to avoid: bank runs. Why pay a tax to keep your money in a poorly run institution? If you're Italy, Spain, or some other EU country that has a banking system grossly oversized relative to GDP, policy around this has to be front and center. Seriously, it should've been front and center the past four years.
If you recall, Greece was supposed to be a "special case" as well. If you're a small country that's either in the EU or contemplating joining the EU, do you really want to move forward with that? Or if you're in, do you hold a referendum on leaving? Because the message will be clear if you look at Greece and Cyprus holistically: You're being punished for being small. You're not a country that's too big to fail.
The European Union's new slogan: "We're one Europe that's really two."
It was Senator Everett Dirksen who was rumored to say, "A billion here, a billion there, and pretty soon you're talking real money." And that quip came up last week as the Senate grilled JPM's former chief investment officer about the now infamous "whale trader" who was responsible for the $6.2 billion loss in the derivatives markets. Concurrent with last week's Senate hearings, the Fed released the results of the 2013 CCAR for the 18 largest banks. As our banking team writes, "In sum, 14 of the 18 'passed,' two were given conditional non-objection to their capital plans, and two 'failed.' On the negative side, we were surprised to see BB&T Corporation (NYSE:BBT) 'failed' for 'qualitative' reasons and JPMorgan (NYSE:JPM) was 'conditionally approved,' which we partially attribute to last year's London Whale trading issue. More positively, we view those exhibiting the largest increase in total payout ratios and higher-than-expected stressed Tier 1 Common ratios as this year's winners. These include Bank of America, Regions, and Citigroup. Of note, Goldman Sachs (not covered) also only received conditional approval of its capital plan while Ally Financial (private) failed on both quantitative and qualitative grounds."
Another "banking crisis" surfaced last weekend when Cyprus imposed a plan to apply a 6.75% levy to deposits of under €100,000, and a 9.9% tax to those over that threshold, marking the first time ordinary depositors have been "hit" by the Euroquake debt crisis. That deal, as of yet, needs to be ratified by the Cypriot Parliament, and might still be watered down, but the collateral damage spilled over to our markets yesterday. The resulting action was typical in that one should have anticipated a down opening, followed by rally attempts that failed, leading to a down close at the "bell." The question thus becomes, "Is the buying-stampede over?" My sense is that it is; however, I would use any subsequent pullback as a buying opportunity because I believe the economic recovery is durable. As for portfolio tactics, given what is happening I would trim some positions in Financials and add to positions in Technology. Interestingly, the Technology sector is currently more cheaply valued than the Utility sector, implying Utilities are going to grow faster than Tech. I do not believe it! According, I would increase market exposure to the Technology sector.
China's Last Stand
Chinese stocks have struggled mightily over the past several weeks. Although new fixed investment and fresh stimulus programs have historically accompanied the transition of political power in China, the government appears to be taking a different turn this time around. This includes the tightening of credit in order to cool a long overheating housing market and measures to dampen inflationary pressures. None of this is supportive of a rising stock market. And with the global financial system now in knots over the unfolding situation in Cyprus, the risks to the downside are only increasing.
China stocks as measured by the iShares FTSE China 25 Index ETF (NYSEARCA:FXI) are now under heavy pressure. But this was certainly not the case until recently, after bottoming at around $32 per share back in early September 2012, the FXI rallied strongly over the next few months, peaking at around $42 per share through late January 2013. From there the tide turned lower, however. The first downshift was swiftly to $38 per share, where the FXI found strong support through late February into early March. But starting last week, Chinese stocks broke decisively through this support and have been moving sharply lower in the days since.
Today, China stocks are making their last stand. At $36.32 on the FXI as of late morning on Tuesday, it is perched right on long-term support at its 200-day moving average. The bullish case might suggest a bounce may be imminent from these levels, particularly given that the FXI is now oversold based on relative strength and its momentum readings are now at bearish extremes. But the 200-day moving average has not been a reliable source of support or resistance for China stocks over the last few years, and recent history from late 2011 has shown that the FXI can become much more deeply oversold before finally finding a bottom. Furthermore, if the FXI does break decisively below what is already weak support at its 200-day moving average, an additional double-digit move to the downside to $32 per share would likely be in short order.
As a result, either now or following any short-term bounce in the coming days may be the time to close any remaining positions in FXI and move to the sidelines, particularly given the ongoing market uncertainty associated with the events unfolding in Cyprus and potentially across Europe. And watching for any move to $32 per share on the FXI may warrant a fresh look at reestablishing positions.
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Wednesday, March 20, 2013
Weezie on the Hop!
On top of navigating risk in this trippy tape, writing about it in real-time and countless other to-do's associated with managing a media enterprise, MVHQ is in the midst of an office move (we're moving to midtown -- cue the tunes!).
I bring this up to help paint the visual -- boxes galore -- and in an effort to share the journey, as we have for the past dozen years. It's been some ride, I'll tell ya, and it continues to continue!
Some Random Thoughts, in no particular order:
Yesterday, after I covered my Facebook (NASDAQ:FB) short, I oh-by-the-way mentioned that it didn't lift with the futures during the afternoon Snapper. In hindsight, that was telling, as the stock is down a deuce (2%) in an otherwise firm tape.
Other red beans in the green sea include JPMorgan (NYSE:JPM)--the next contestant on Short Sale of American Icons?--Barclays (NYSE:BCS), Apple (NASDAQ:AAPL), the energy patch (the OIH (oil service sector)) and the trannies (TRAN -50 bips).
And of course, the VXO is down 12%, and back at an 11-handle., which is nuts, in a way (given Europe) and intuitive in others (volatility is the opposite of liquidity).
We're getting some strong feedback from Minyans who would like to explore custom Buzzes and/or bulk licenses. Thanks for that, and keep 'em coming please! Critter food ain't cheap.
A few notable bears--Adam Parker from Mother Morgan and Meredith Whitney--turned bullish yesterday. They may be right--time will tell--but I was struck by Ms. Whitney's level of conviction. When asked if she would buy stocks now, after a four-year 125% rally that took the DJIA to all-time highs, she said, "Without a doubt." I've been trading 23-years and for the life of me cannot understand how any view can be "without a doubt" when there are always two sides to every trade. Not a dig; just saying.
In terms of my current risk profile, I haven't shifted my stance after selling 50% of my BlackBerry (NASDAQ:BBRY) into the opening rush (near $16) and adding back the 10% short SPY exposure I nipped at yesterday (to get me back to 50% of a full position). And yes, I continue to hold plenty of dry powder as the market is a master and I'm simply a pawn.
As always, I hope this finds you well.
Joy Global Looks Shortable
Joy Global (NYSE:JOY) looks lower and shortable on any rallies.
A weekly from April 2011 shows a waterfall decline from a 3rd lower high followed by a 1 2 3 Swing Snapback from last August into January 2013.
JOY looks set for a test of the 50 low, perhaps as early as April which is 2 years from high (720 degrees in time).
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Face-plant, err, Facebook (NASDAQ:FB) is doing serious damage to my reputation as an idiot-savant this morning. BUT, I can't stop telling everyone I want to BUY this darn thing based on the chart. Clearly, we have a bull pennant consolidation and the 200 day Moving Average just below where we're trading. RSI is dropping into the mid-30's, which is the area where the roil for the previous rally was born. I'm realizing now that the stock gods want FB to test the 200 before any rally is attempted. So, if you've got the guts -- I'll be floating my bid in said area for a 50% position. The second half bid is drilled-in like a whirling dervish at at the bottom of the gap around $24.50. If that mocking bird don't sing I'm done with FB if only until Zuck starts shaving. (aka - I'll be shorter than Todd Harrison on his scooter at Space Mountain.)
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Thursday, March 21, 2013
Socionomic Insight Into Recent Events
Some Socionomics insights: The Lululemon (NASDAQ:LULU) behavior is a reverse metaphor of the Emperor's New Clothes. Suddenly, the stock is seen as not really what everyone thought. The "Transparency" revelation is a symbol for all stocks. They are not as desirable as they seem.
Meanwhile, Cyprus is just a metaphor for Uncertainty, but the market is still not sure what it "means." Note that Ben Bernanke has become more and more of a symbol rather than a real person. He has become locked into a Role. Indeed, he is Role Playing. Bullish men and moods always become boring before they change into their opposite.
Lighten up while you still can, don't even try to understand; just find a place to make your stand and take it easy.
That anthem has been playing in my crowded keppe all week but consistent with my opening missive, there are two sides to the current construct. I'm not going to Pete and repeat the levels--we're both strapped for time, and their in the link directly above -- I'll simply reiterate there is two-sided risk as we chop our way through another day.
With that said and respected -- respect but don't defer, right? -- and quite possibly because I'm slated to be away from the fray Monday through Wednesday (Disneyland with three kids during spring break with a very painful hip situation; AWESOME!), I've further pared my risk into the morning slippage. I'm currently sitting with a 20% position in SPY (NYSEARCA:SPY) puts, which is fine, through the lens of "just trading" and "hit-it-to-quit-it."
IF we see a last gasp higher (to S&P 1580), I'll unleash the hounds for a trade (even if I'm in Space Mountain, if that's still there). If we trade lower, I'm represented (albeit not what I was but consistent with the discipline that has served me in good stead). If we sit here, sat as a flat on hat? My theta-or decay -- won't trigger a starvation diet for my cats (one of whom is Crash, and we like to keep him happy).
Someone asked me on Twitter (@todd_harrison) if Deustche Bank (NYSE:DB) is an upside tell today--it's up 30-odd cents. I shared that the stock is down 21% this year, and it literally kissed the 200-day moving average yesterday. That's an intuitive place for a Snapper but hands over ears, it's a function of the technical metric. I've included the chart below, for those looking for a visual.
Lemme jump and get this to you, as the tape is trying to do the same. As always, I hope this finds you well.
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What Are POMO Coverage Ratios Telling Us?
Since the beginning of the year and since Twist morphed into QE, POMO became straight reserve injections rather than a net neutral operation. As such coverage ratios through the Fed's POMO spiked up to start the year, but have trended down ever since. At the time, we thought it may be linked to the TAG expiration, as in dealers were unwinding securities holdings in concert with a drawdown in deposits, which could still be the case. It could also be linked to mortgage selling, but I am not totally sold on that idea.
See it below. While there are fluctuations in each direction as different baskets have different coverage rates, the trend lower is clear. For example, the 30-year basket usually has coverage ratios in 2.85 range while the 7-10 year basket is closer to 3.15. And if you look at the second comparison chart, you can see how the general trend in coverage mimics the general trend in yields. So, I think this should provide a tailwind to bonds, not a major one, but something, as the amount of supply being pushed out is lessening.
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Friday, March 22, 2013
Let the Games Begin!
The final fifth of our freaky week arrives with the bears -- or at least the Montana Grizzlies -- up in arms. They've had every opportunity to knock the bulls back--earnings misses, the specter of Cypriot default (and the attendant impact on psychology throughout Europe)--and they've captured a grand total of 1% in the S&P (INDEXSP:.INX). That Cyprus situation will seemingly come to a head shortly but investors have been conditioned to believe that aid packages will continue to save the day. This will again prove true--until it doesn't.
Yesterday we recapped our current vibes--the market writes the script and Minyanville tells the story--including dueling technical patterns and the battle between fragile psychology and Teflon sentiment. With quarter end less than a week away, that smoke you smell is emanating from the grinding teeth of portfolio managers throughout the land who have to pen letters in short order. Whether or not they're holding up the tape or sitting on the edge of their seats with itchy trigger fingers will shape the tape in the coming days.
I've had an active quarter trading--more active than I've been in some time--and I've lightened up ahead of a family trip to the House of Mouse (we leave tomorrow morning and return Wednesday). As detailed yesterday in real-time on the Buzz, I flattened all but a 5% short-side SPY placeholder (September paper) which I'm not married to but I need not divorce. My intention has been to trade around the short side as we edge close to S&P 1580 -- while capturing opportunities in individual situations--but I wanna focus on the fam, as that is precious time, and I abhor blind risk.
I would expect (at the very least) a press lower today (vs. the opening print), and we'll then turn to our tells for guidance. Keep your chin up, eyes open and right hand up, for the risk profile you go home with today will be the exposure you wake up with on Monday.
Good luck, as the March Madness continues...
The Mask of Comedy and Tragedy
While the outcome of Cyprus remains a TBD, I would strongly encourage Minyans to reread my thoughts on the battle between the "faced" and "faceless" from December 2009.
While clearly early, based on what I am seeing on many fronts, the issue is accelerating, and for corporate shareholders and bank and sovereign creditors I cannot emphasize enough what this means to co-investment risk.
Are the "faced" for or against you?
Transportation Average Saying Time to Carpool?
A quick look at the hourly chart of the DJ Transportation Average (INDEXDJX:DJT) (or as we traders refer to it, "The Tranny") reveals the possibility of a head & shoulders top forming. This is particularly worrisome as the Tranny has lead equities (both higher and lower), especially so in recent weeks. Please keep in mind I'm only monitoring the formation at this point and there is no reason to assume it will be validated thus far. Should it be validated, the initial target is 5300 +/-… An outcome of such likely has very bearish implications for the broad equity markets. I'll do my best to update Minyans as this potential situation unfolds
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