Buzz on the Street: This Market Is Bulletproof, for Now...
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, February 11, 2013
On January 11, I posted the following:
Facebook (NASDAQ:FB) hits 31.53 target, 1x projection range breakout.
It was also, of course, the inverted head & shoulders target. We wandered around there for a bit, but on January 31, we confirmed to the tick that 31.53 was indeed a major level of resistance.
Now that we got out of the long for a nice profit (entry suggested on November 5 around 21), where do we get back in, if at all? Putting up some fibs off the 2012 low and 2013 high (see chart), we get current perfect resistance at 78.6% (square root of 61.8 is 7.86) or 29.30 (Feb 6 high). This is an important rejection on the bounce from 28.01 low and most likely means we have more downside. The most obvious destination is the 12/31 gap at 26.63, which has picture perfect confluence with 61.8% at 26.79. One of these numbers would suffice for a pretty solid long entry (if we don't slice through), with risk below defined at 25.03, 50%.
Below 25, the stock is back on the road to perdition and I would move to more fertile grounds. But for now, a dip to 26.63/26.79 looks quite likely and again, should provide us with a tradable rally. For now, patience. There are some very inauspicious winds creeping up behind the overall market, no need to get hurt.
Click to enlarge
POMO coverage has started to increasingly see less Treasuries submitted to sell to the Fed, meaning that either A) dealers are thinking Treasuries may rise from here or B) a structural problem, such as not having enough to sell. This is the second operation in a row we've seen this kind of trend in the long end; with another tomorrow, we'll be watching.
Commercial bank balance holdings of corporate and government bonds may have found a bottom last week (week ending Jan 30) as the outflows stopped. The same could be said for the large outflows in deposits.
- Government bond holdings up $2.8b in the last two weeks after falling $25.9b the first two weeks of the year. (total $1.863trln)
- Corporate bond holdings up $3.4b in the last two weeks after falling $2.7b in the first two weeks of the year (total $867.3b)
- Deposits up $19.5b after falling $254.8b in first three weeks (total $9.217trln)
This is a bullish catalyst for all bonds.
CUSIP ID requests for new corporate and municipal bonds rose 14.5% YoY according to CUSIP Global Services, which signals that this fall/spring (the seasonally active time of year for new issuance) will be even bigger then last year's record year.
Financials vs. Utilities: FIGHT!
As of this Buzz, this has been a bit of a boring day. Europe (NYSEARCA:VGK) isn't really performing all that well, Emerging Markets (NYSEARCA:EEM) continue their weakness, Small Caps (NYSEARCA:IWM) don't look super attractive, and all the while, the Dow Jones Industrial Average (INDEXDJX:.DJI) continues to hover around the mythical 14,000 level.
What stands out to me the most today is the strength in both Financials (NYSEARCA:XLF) and Utilities (NYSEARCA:XLU). This is unusual from an intermarket analysis standpoint. Financials tend to outperform when expectations for lending and a steepening yield curve are rising. Utilities tend to do well under the exact opposite scenario. Why are both leading? It does appear that there is a very real tug of war underway between deterioration and the bears on one side, and the Nouveaux Bulls on the other.
Who will win? Our ATAC models used for managing our mutual fund and separate accounts remain defensive until one side gives. So long as the 10-year yields stubbornly refuses to break above 2%, every up move in risk assets is likely quite suspect.
Tuesday, February 12, 2013
Currency war, or not, there isn't much to say about yesterday's stock market action other than it was boring. After tonight's State of the Union (SoU) address, the rest of the week should be more interesting. As stated for the past few weeks, I think the S&P 500 (INDEXSP:.INX) (SPX/1517.01) makes a trading peak following the SoU somewhere in the Wednesday to Friday timeframe with a subsequent 5% - 7% pullback. With that said, there is not much more to say about the equity markets until we see if my "call" turns out to be correct, or if the markets will make me look foolish yet another time. One thing I have been generally right about is the strength in the Dollar Index since the summer of 2011. Recently, however, the Dollar Index (@DX.1/80.4) has begun to weaken. And speaking of weakening, the Japanese Yen has absolutely collapsed since Prime Minister Abe moved toward the policy of cranking up the printing presses (see chart). To me this is a sign a potential currency war is developing, but I digress.
Interestingly, given the weak Yen, the Dollar Index looks like it is "rolling over" and is destined for a rendezvous below its May 2011 low of 72.86. This view is reinforced in the charts since the Dollar Index has traced out a massive head-and-shoulders "top" formation. The trigger event could be the upcoming sequestration. Politicians being politicians suggests that another last minute deal to avoid sequestration will be achieved as the "can" is "kicked down the road." If so, I believe Bernanke will crank up the printing presses, which should accelerate the dollar's decline and put a "bid" under the commodity markets. If that "call" turns out to be correct, the correction in gold, since its double-top in August - September of 2011 at ~$1920/ounce, should be ending. Accordingly, even though gold currently doesn't look that attractive in the charts, I think the risk/reward ratio is favorable into the sequestration and would use weakness towards gold's support zone of $1620 - $1640 to position accounts for at least a trade and maybe much more.
T. Rowe Price Opposing Dell Deal
Mutual fund giant T. Rowe Price (NASDAQ:TROW) is out today with a statement opposing the bid for Dell (NASDAQ:DELL).
“We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward,” Brian Rogers, T. Rowe’s chairman and chief investment officer, said today in an e-mailed statement from Baltimore.
TROW is the second-largest external shareholder of Dell, behind Southeastern Asset Management, which also opposes the deal.
Could a higher price be in the works to satisfy the critics?
Traders seem to think so, as Dell is now at $13.80, above the $13.65 bid price.
As I said this morning, if you're betting on a bidding war, I'd look to options for upside exposure (notably, the March or April $14/$15 call spreads, I am bidding for the March spread as I think this story has legs) to protect against disaster in case the deal goes south.
Merger arbitrage makes sense when you're playing with other people's money -- but IF you're gonna get in, keep your downside risk defined, because if this deal fails, the stock's probably going under $10.
Tale of Two Tapes?
It's an S's over N's (S&P out-performance of NDX) sorta day, with the former complex buoyed by the still-firm financials and the latter matter weighed down by big beta. Indeed, per Jeff Cooper's last Buzz, Netflix (NASDAQ:NFLX) has now joined Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), F5 (NASDAQ:FFIV), LinkedIn (NYSE:LNKD), and VMware (NYSE:VMW) in Red Dye.
In response to Minyan DP, who asked if my S&P 1520 stop was drawn with a pencil or a crayon, I offered: "It's drawn with a crayon -- S&P 1525 or so -- but hands over ears, the tape trades firmer than a college cheerleader so it may prove to be a moot point." Indeed, I spent most of last night poking holes in my current positioning, as detailed this morning, and I didn't even mention my success ratio when trading "situations" vs. "pure tape."
Of course, we've got The State of the Union tonight (any shot Obama will say "strong to quite strong" and leaving it at that?). I'm not sure there will be any surprises or catalysts nestled in there although price makes news, not the other way around (read: if the markets react, they'll assign a reason to the rhyme). In the back of my mind is the specter of -- or, the perception of the specter of -- political brinkmanship roiling the tape but that's speculation at best. Indeed, if wishes were knishes, I'd weigh 300 lbs.
SO, with the S&P pinned at 1520 -- of course -- and despite my inner monologue whispering, "As go the piggies, so goes the poke," I'm sitting tight for the time being (risk-wise) while mentally preparing myself to get stopped out on this particular downside try. If and when that happens, I will ask someone to please remind me that "hit-it-to-quit-it" racked up nice performance for some time and when I've stray from stylistic approach, I've paid the price.
I've got a 3 p.m. meld in the MV War Room but if and when my level is triggered, I'll practice discipline over conviction as that's been my greatest ally in this ongoing War on Capitalism.
Fare ye well into the bell, and have a mindful night!
Wednesday, February 13, 2013
Good morning Minyans -- just a quick note to highlight a near frenzy in the credit derivatives markets this morning, where Spain's and Italy's Credit Default Swaps are narrowing some 10%, and CDS on large US financials are tighter by just a little less than 10%. New corporate issuance continues at a torrid pace, with $15 billion so far on Monday and Tuesday, including a slew of junk deals and Disney (NYSE:DIS) issuing floating rate notes at negative spreads to Libor. On an index basis, and adjusting for the rise in Treasury rates, HY spreads remain near all time lows. The offshoot is headlines like what we saw last night from Comcast (NASDAQ:CMCSA) and General Electric (NYSE:GE), the former intending to buy back $2 billion of stock in 2013, and the latter increasing its buyback plans to $35 billion.
Let's be clear: this party will end and will end in HORRIBLY ugly fashion (way worse than 2008-2009), but that is not today, this week, this month, and most likely not even this year (or next) story.
Amazon Rebounds Off the 50
This morning’s DMR flagged Amazon (NASDAQ:AMZN) and whether the current test of its 50 dma would lead to a nice rally as it did at the November low.
Notable was yesterday’s N/R 7 day, which implied an expansion of volatility today/tomorrow.
In addition, note the virtual 3’ down inside’ days within the body of last Thursday’s large range undercut of the 50.
Combined with the N/R 7 day the indication was for a large move today, with the likelihood that it would be to the topside.
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Natural Gas Putting in a Secondary Bottom
Last evening, in his State of the Union address, President Obama mentioned natural gas vehicle conversion to reduce carbon-based emissions as one of his goals for his second term.
Whether the mention of natural gas was gratuitous or not, my work on Brent Oil and Gasoline points to higher prices, perhaps much higher, which should be a positive, perhaps a major positive, for United States Natural Gas (NYSEARCA:UNG) in the weeks and months ahead.
For the time being, however, UNG is attempting to put in a near-term bottom in the 3.22-3.20 area, which will be confirmed by a sustained climb above resistance at 3.31-3.33.
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Thursday, February 14, 2013
Europe Continues to Erode
Overseas equity averages continue to weaken as the US. S&P 500 (INDEXSP:.INX) stays stubborn, not cracking down despite intermarket deterioration. Small-cap stocks are perhaps the biggest net positive overall, and our ATAC models used for managing our mutual fund and separate accounts are sensing some improvement, though not enough as of yet to signal all-clear for our inflation rotation approach to investing.
Market resiliency cannot be denied on an absolute price basis, and the longer markets hold, the more the disconnect between relative and absolute persists, the more likely something is going to be a break to the upside or downside. I still maintain that caution is warranted. The most exciting thing about the next bull run will be what I suspect could be a powerful move in emerging markets. We aren't there just yet, but that's the fat pitch to look for.
If indeed it is the Nouveaux Bulls who are right, and all other investors wrong, an incredible run can happen in cyclical countries. The problem for now though is that Europe continues to erode, with Germany (NYSEARCA:EWG) taking it on the chin. Until some stabilization occurs in Europe, its hard to see Emerging Markets stage meaningful strength, at least for now.
Buzz Op-Ed: Weight Watchers Looking Thin
Weight Watchers (NYSE:WTW) is getting shalacked today after forward guidance was announced below street estimates for FY 2013. If actions speak louder than words; I loaded up on this name this A.M. around $44. There's a $10 gap from yesterday's close begging to be filled. The overnight drop was on very low volume and today's price action is reasonably firm for a name down 20% in the first hour of trading.
This is a high risk trade. If you decide to go long be sure to have a stop loss somewhere near today's low.
Not While They're Guarding Their Own Coop -- Sequester Fears Seem Out of Place.
Worried about sequestration's hit to GDP? You have good reason, or reasons -- $1.1 trillion of them, or about $110 billion annually for 10 years. Its effects are being feared in everything from Virginia's military economy and other states' defense contracts, to sacred cow entitlement programs.
Would you be willing to position your portfolio in anticipation? Not so fast...
How much is our government's budget -- $1.6 trillion? Notice how difficult it was during last year's budget battles to shave off even $60 billion -- cuts that would have been largely delayed. Recall during the presidential debates how one side circled their wagons around Big Bird, just because the other side questioned sending $400 million to the quite financially solvent PBS.
Good luck, sequester.
Before the recent "fiscal cliff," we already knew the pattern is to reach some sort of agreement at the 11th hour (if not at one minute before midnight). Various vested interests that want to avoid sequestration also happen to be among the negotiators.
But the immediate "drastic" effect is only the tip of the reason why they'll probably do whatever it takes to avoid sequester. The real reason might be better understood with a metaphor:
What is more difficult than turning an aircraft carrier to the right 90 degrees?So, why is it so difficult turning this budget even 90 degrees? Because the "risk" is that it will turn 180 degrees -- that cutting $1.1 trillion, or $60 billion, or even $400 million might start a new trend. Not just growing government slower or standing still, but shrinking it.
Stopping it from continuing to turn 180 degrees.
And what's even more difficult than that?
Turning it back around again.
Jack Welch was on CNBC this morning, arguing strongly that any manager could deal with the relatively small ratio of cuts -- making do on only $1.5 trillion instead of $1.6 trillion. So, even if the budget's protectors don't stop the sequester, I'm suspicious of it impacting the market negatively.
Not that the market can't drop. In fact, it's a little eerie that the market is rising to new highs against the backdrop of sequester fears. The bullish behavior suggests the market already agrees with my entire premise -- which is that sequester will be avoided, diluted, or irrelevant. Keep up the levitation act, and "good" news on avoiding the sequester might instead be a "sell on the news" event.
Friday, February 15, 2013
Minyan Mailbag: GOLD
I've been a subscriber and a fan of your work for several years now. Thanks for the great job you do.
I would like to know, what is your stance on Gold? I've been owning a position in the metal since 2003 which I reduced when you called the top several quarters ago. I had the feeling that it could be trying to bottom now, as yourself mentioned a few days ago, but today action is quite worrying, no ?
Hi Minyan J,
There is a big potential turning point on the clock for February in Gold (NYSEARCA:GLD) as we walked through recently.
February is 540 degrees from the top where you sold.
If gold is still in an historic bull market, this month/early March is where it should bottom.
There was a nice Monthly setup in GLD as long as 158.38 held. That level broke yesterday and the alternative scenario of a 3rd drive down from last Septembers high is playing out.
The monthly Plus One/Minus Two bullish setup failed on yesterday’s break of 158.38 and you can see gold is reacting in kind to the failure today.
The big Quarterly Swing Chart is now pointing down now and the presumption is if an important low is going to be made it will be in this quarter…probably February. The closing all time high of GLD around 178 ties to the first week of March interestingly. Of course this is the big anniversary date for stocks from ’09.
153 is opposite that 178 level.
I will be focusing on gold and GLD in the coming weeks.
To me the action looks like a clean-out final flush out, but time is more important than price, so we need to look for a sign of climactic selling mirroring the climax buying in August/September 2011.
Todd's often pointed out that commodity volatility often precedes equity volatility.
If you believe in such a mantra (I do), then check out the charts below, which plot S&P futures against Oil and Gold. (I didn't use S&P cash because I wanted equalize the time horizons on the charts)
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