Buzz on the Street: Investors Become Anxious as Markets Whipsaw
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 5, 2013
Good morning and welcome back to the flickering pack. Following a stiff lift to all-time highs and a few bites of humble pie, we power up our weekly pup to find stateside stocks mixed as we power up a fresh five-session set. Some top-line vibes, in no particular order:
If you read one article on the Goldman Sachs (NYSE:GS) programmer who was convicted of stealing code and sentenced to eight years in federal prison, this should be it. Michael Lewis has always had a way with words.
If you haven't read "both sides" of the FOMC-Treasury debate -- with excellent input from Mark Dow -- I highly suggest you chew through it this weekend. You always want to know what your counter-party is thinking, if your counter-party happens to be human.
NYSE internals are 9:5 negative (not yet at tell status); the financials are soft (ex Goldman, which is up a buck), as are the metals. To that point, I dusted off the Gold vs. S&P chart below for schnitz and giggles; if the past is a prologue, either gold should rally or stocks should decline (or both).
I usually get asked to do TV gigs when the markets are in turmoil; today, I was asked to do a segment on the floor of the NYSE around 3:15 with my ol' pal Liz Claman. I'll be there for the quick hit; it remains to be see what type, if any, turmoil will precede the segment.
I'm watching the Facebooks (NASDAQ:FB), Yelps (NASDAQ:YELP), LinkedIns (NASDAQ:LNKD) and Teslas (NASDAQ:TSLA) of the world for clues to our forward fuse. If they get all JDS-Uniphase(NASDAQLJDSU)-like, circa 2000--particularly with year-end performance anxiety edging closer -- we would be wise to pay attention.
If the tape doesn't come in (for sale) in August, September or October, we could see some pretty nutty ketchup (performance anxiety) in November and December.
Lemme get this to you; as always I hope this finds you well.
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Clear and Present Markets
1. The government wants oversight of Apple's (NASDAQ:APPL) iTunes and App Store. This is interesting in that the government has not traditionally regulated technology, and it opens up technology to the slippery slope of regulation by those that infamously described the internet as "a series of tubes". One ruling on digital books pricing is leading to overreach into every digital item Apple sells. Apple's failure to settle this case, the way Amazon and others did, could prove a critical failure of leadership because it is eroding the core strength of the Apple ecosystem.
Part of the reason there is so much competition and price deflation in technology is that it has not really been regulated. Regulations create barriers to entry and allow for monopolistic pricing. If the government starts regulating iTunes, Amazon (NASDAQ:AMZN) is next, and then Netflix (NASDAQ:NFLX). Hollywood is at the heart of this. They fear Apple, after seeing what happened to the music industry, and spent millions to bring Washington insider Chris Dodd in to run their lobbying group after his "retirement" from the Senate. iTunes and the App Store are a place to purchase inexpensive, safe content for our mobile devices, and are the heart of Apple's long term strategy. Oversight of the retail outlet will begin to dismantle the primary differentiator between Apple and its competitors, precisely at the time when video content is being disrupted by digital delivery models. Apple pressed for lower price points to increase sales by monetizing sales lost to theft, and the result of government oversight is likely to be higher prices in the App Store and more P2P file "sharing".
2. I found it interesting that Jet Blue (NASDAQ:JBLU) is repositioning itself as an "up market" carrier, attempting to differentiate itself in a commoditized industry. As prices have fallen and bankruptcy has tarnished the image of many airlines, there is no "premium" provider to the mass market. Jet Blue was the first "hipster" brand, using technology in every seat and an all coach cabin to differentiate itself. Jet Blue runs the risk of losing its core market as it courts "business class" pricing, but it bears noting that most suits still ride in taxi cabs. Jet Blue already has these customers, and with so much competition I'm not convinced they will stay as the prices climb.
3. With corn prices continuing to fall, watch what happens in the food space. The staples group has struggled with weak traffic and cost inflation for years, and finally delivering margin expansion could make the high PE multiples look more rational in hindsight. However, this business is so competitive that companies often don't match price increases, or get promotional to drive volume and gain share. This has happened to Kraft (NASDAQ:KRFT) in the cheese and deli segments. I also recently took a position in Darden (NYSE:DRI) as I expect lower food prices will allow them to lower menu prices, and bring back some of the traffic they have lost to the "fast casual" chains like Chipotle (NYSE:CMG) and Panera (NASDAQ:PNRA). Consumer behavior has changed, and we will get a sense of how durable the share gains of private label and fast casual restaurants are as lower food prices enable more price competition. I will also be watching Sysco (NYSE:SYY) as higher case volumes will be indicative of improving trends in the restaurant sector.
A Measured Move Could Set Nikkei Price Target at 11,500
While US Equity Markets continue to make new all-time highs, European and Japanese equity markets are hovering just below their May highs. As much as this divergence is a sign of strength for US equities, it is also a sign that Europe and Japan are still correcting and navigating through time and price. Of the two, I find the Japanese Nikkei 225 (INDEXNIKKEI:NI225) to be the most fascinating, as much of the early year euphoria has been replaced by a wide-ranging, volatile pullback that is entangled in politics and monetary policy questions. That said, I want to focus on some key support and resistance levels, as well as a potential Nikkei price target, should the index continue its correction through price.
After an historic 7-month run from October to May (tracking nearing 90% gains, no less), the Nikkei 225 gave way to parabolic pressures, falling nearly 9% from intraday high to low on May 23 alone. This started a stealth bear market that the index has recently been crawling back from since the mid-June lows. Let's take a quick look at the chart and try to highlight a current corrective pattern, as well as a scenario that would disrupt this pattern (and likely see the bulls dancing again).
See the chart below.
First and foremost, note that the chart below is an EOD chart, and has not pulled in last night's session (which was down roughly 200 points – currently at 14,258.04). That said, the open gaps have served as magnets for the recent daily rally, as the Nikkei tests the "lower" highs made in July. Note that those highs also coincide with the big "B" on the chart. This is important because the bearish corrective path could setup an A-B-C measured move. This would mean that the highs recorded in July would need to hold as resistance and the subsequent downturn would need to equal the initial drop from the May highs to the June lows ("A"). This would yield a Nikkei price target of roughly 11,500, give or take a couple hundred points. This area is just below the 200-day moving average, and just above the 0.618 Fibonacci retracement of the Oct-May bull-run at roughly 11,400.
As mentioned above, this A-B-C measured move pattern would be offset by a move in price above the July highs. So, the lower highs at point "B" will be important to watch over the near-term. Note that I mention this pattern more as an observation. I do not have a position in the Nikkei, but the divergence with US equities is interesting and bears watching.
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Tuesday, August 6, 2013
Out of Nintendo
I took today's pop to toss Nintendo (OTCMKTS:
Given that Wii U sales are somehow even more horrendous than estimates, and that reported 3DS sales didn't quite hold up to the hooplah, I think the stock's due for a breather.
I'll look to get back in at a lower price because people still seem to undervalue, if not outright hate, the Nintendo franchise.
Large Call Volume in VIX
There was very large call option volume in the VIX (INDEXCBOE:VIX) this morning. The featured trade is in the August $18 and September $17 calls as each traded some 125,000 contracts shortly after 11:00 EDT. This appears to have done as a spread with a sale of the August and purchase of the September for a $0.76 net debit. As the August strike had sufficient open interest to cover the volume and the September does not, it's safe to assume someone is simply rolling down a long volatility position as a form of portfolio protection. On face value, some might have taken the surge in call activity as signal that a spike in volatility was imminent. But this trade reflects basic hedging and is therefore a somewhat positive market signal. This illustrates the value of reading behind the headlines of unusual option activity. That surge in call activity was enough to drop the overall put/call ratio from about 1.13 down to 0.71 during that 30-minute span. The ratio is slowly creeping higher.
Meanwhile, over in VXX (NYSEARCA:VXX), a trader seems to have a much more sanguine view of near-term volatility and is taking a decidedly different approach of rolling down a short put position as several large block trades of 500-1000 contracts were registered in the August $14 put that expires this week and the also in the August $13 puts that expire next week. This also appears to a roll down and would be a bet that volatility remains muted and that structural downward bias caused by the daily roll and rebalance of the VXX i to keep it reflecting a 30 day option will push that index to new lows next week.
Hanging in There
The market continues to do what it needs to do to hold on to the bullish case. Now, I do think it is probable that we top in August, but I want to let the market tell me that rather than just guessing. That means I will sell after the turn, not before.
As for today, the market broke below the breakout range this morning and re-captured it. Also, it is holding on to the trendline after briefly breaking it. Contextually, these are signs of a weakening trend, but just because the trend is weakening, doesn't mean it is over. I would not be surprised to see one more push higher before this thing is finally done. In the meantime, our old friend NYMO (McClellan Oscillator) got down around -40 today, refueling the market for a push higher, should it want to.
Interestingly, this is the first down day that we see all three of my key sectors leading down. Retailers, banks, and transports are all more red than the markets overall. This is another sign of growing internal weakness. Staying long up here may be running on borrowed time, but I am in the business of maximizing trend returns, so I remain long above 1692, with additional stops below at 1685, 1672, and then the 50-day moving average.
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