Buzz on the Street: Mr. Market Walks Into a Bar With QE3, iPhone 5, Mark Zuckerberg, and a Geopolitical Powder Keg
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, September 10, 2012
Look for IG18/HY18 Eclipse to be Tested
I think this time it holds, unlike prior eclipses, but am looking for credit to weaken, just a touch coming into ESM ruling in Germany, continued silence out of Rajoy/Spain, and concerns that what the Fed delivers as QE on Thursday doesn't match what the market expects as QE.
The HY ETF's (JNK, HYG) seem to be particularly vulnerable. Not so much that they have more downside than CDS, but because they have too many bonds with rate risk that have limited upside and too many yield-to-call bonds. Also, I don't get a sense that retail is rushing to put more into HY at this stage of the game.
The markets appear to be weak with quite a bit of red on the screen, but the magnitude of weakness just is not there as of this Buzz. After strongly outperforming last week, small-caps (IWM) and emerging markets (EEM) really aren't giving up a lot of gains. This is encouraging since it suggests money is getting stickier in more volatile areas of the stock market. Furthermore, certain European stocks are performing quite strongly, as the National Bank of Greece (NBG) gets a strong bid.
I suspect markets will be quiet for the most part until the Fed's decision, but expectations are clearly building for monetary action. Treasury Inflation Protected Securities (TIP) are outperforming nominal bonds (IEF), and I just don't see any kind of meaningful defensiveness under way to suggest a turnaround is likely in the near-term. Bulls are holding on, and might be able to climb to the next rung of the upward ladder.
Where to Now?
From a pure technical standpoint, the market on the surface looks set for continuation. Under the hood we have a number of issues that suggest a top could come this week. SPX 1440 represents a battle zone that like last April, puts the market in one of the most pivotal moments since the March 2009 bottom. Below is a weekly chart of the SPX displaying its importance.
Looking at the RUT, everyone loves to comment how small caps have lagged the market. Well that was then and this is now. The Russell 2000 index is the closest broader market index to its all time high. I've shown the breakout that occurred last week in the IWM. Now look below and as you can see there is a pattern shaping up that could push the RUT to 900. You can sit on your hands and hate the market. It's a crowded room. Fear is justifiable. But you must understand that institutions only fear losing out on a market rally. They will sit in cash until they can't afford to.
I sat down with a Big Ten university endowment fund last week. They were frantically raising cash in equities because from a valuation standpoint, nothing looked attractive. I asked this man how much of his fund he moved into cash in October 2007 and again in July of 2008. There was no answer.
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