Buzz on the Street: A Volatile Market Welcomed Investors Back From Vacation
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, September 2, 2013
Markets closed in observation of Labor Day.
Tuesday, September 3, 2013
S&P (INDEXSP:.INX) 1660 (50-day and horizontal resistance) and S&P 1675 (downtrend/lower highs) are resistance to the upside if we see a "gap and go" (if the higher levels hold for the first 30-60 min).
If we "pop and drop," S&P 1640, S&P 1600 and the 200-day at 1560 will come into play through a technical lens.
Gold (NYSEARCA:GLD) has room to $1500 before it collides with the downtrend (technical resistance). Back-of-the-envelope, I figure there's $50 worth of Syria angst in the current spot price.
Why? The specter of geopolitical unrest in the Middle East--aside from it being an unfortunate evolution of social mood--is on the margin constructive for both gold and crude.
Deflation is the other side of that trade, which makes both risky investments. See both sides--or should I say, see all sides--as we edge back into the world's wildest reality show.
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IWM Train Tracks
There are possible Train Tracks on the 10-minute iShares Russell 2000 Index (NYSEARCA:IWM) following this morning’s short-term breakout.
See a 10-min IWM chart below.
This week ties to the beginning of the Gann Panic Window counting from the August 2 S&P 500 high. Of course, that same count was derailed in early July on the countdown from the May 22 high.
It is worth keeping in mind that on the clock from the August 25, 1987 high to that year's October 14 through October 19 crash, that early October saw the largest one-day Dow Jones Industrial Average (INDEXDJX:DJI) gain to that point in history.
Most players at that time assumed another pullback low had been installed.
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Negative Real Rates Coming Soon?
I continue to believe that the Fed will either not taper this month or taper very little to show the market procedurally just how they would step away from bond buying. Gold and silver (NYSEARCA:SLV) may be of the same opinion, given their uptrend and strong outperformance as of late. As bond yields have spiked in the face of lackluster inflation expectations, the market automatically assumed that a postive real rate environment was here to stay, ignoring the very real underperformance of Homebuilders (NYSEARCA:XHB) all year, which has not been a vote of confidence for housing going forward.
With markets wobbly due to Syria, Oil, and Summers (SOS), the Fed likely will not risk the wealth effect. The yield spike this year remains a risk that stocks can act to with a lag in a very ugly way, and it remains to be seen when the after effects may be felt. That means the Fed probably can't step away that quickly, which in turn likely keeps the previous metals bid alive. If indeed the yield spike has been too extreme, a reversal could just as easily happen.
Wednesday, September 4, 2013
SanDisk Hanging Fire
As I often say, the news breaks with the cycles, not the other way round.
Today, SanDisk (NASDAQ:SNDK) ran up to its 50 DMA (on news of a fire at a competitor) before reversing sharply.
The news breaks with the moving averages?
Below, see a daily SanDisk chart from June with its 50 DMA.
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Now, See a 10-min chart of SNDK for today:
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Friday Payroll Preview
On Friday, the August nonfarm payrolls report will be released. The current consensus estimate is for a gain of 180K, up from 162K the prior month. Let's take a look at all of the economic data we've received this month to get a sense of where NFP might come in.
The current average for the 3 weeks of jobless claims that we've received this month is 330K. In the week when payrolls are surveyed (08/15), claims were down to 321K.
This compares to:
- July average: 340.4K vs 162K NFP
- June average: 345.75K vs 188K NFP
- May average: 352.5K vs 176K NFP
- April average: 340K vs 199K NFP
- March average: 355K vs 142K NFP
- February average: 350.5K vs 332K NFP <- clearly an anomaly
- January average: 360.2K vs 148K NFP
- Michigan consumer confidence down to 82.1 from 85.1
- Conference board consumer confidence up to 81.5 from 81.0
- ISM manufacturing employment component down to 53.3 from 54.4
- Markit US PMI employment component up to 53.1 from 53.0
Given all of the above information, it's reasonable to expect we see at least an in-line to better-than-expected report on Friday. The one outlier for me is the subdued growth in retail jobs per the Beige Book. 90% of the jobs growth this year have been from that sector, so that is a negative outlier.
The most clarity will be from tomorrow's ADP private payrolls report and the employment component of the ISM services index, which have the highest correlation to NFP. In July, ADP rose to 200K vs 162K NFP and ISM services employment fell to 53.2 from 54.7. With the US economy being predominantly service-based, it usually gives the best tell.
SDS: Pullback Within An Incomplete Recovery Rally?
From my pattern perspective, all of the action in the ProShares UltraShort S&P500 (NYSEARCA:SDS) off of its Aug 28 high at 39.33, into yesterday's low at 38.11 -- and so far today, into an intraday low at 38.13-- represents a complex correction of the prior upleg from the Aug 2 low at 35.85 to the Aug 28 high at 39.33.
Key support resides at 38.10 to 38.00, which should contain the weakness.
If not, then the SDS should press towards a test of more important support at the Aug 26 low of 37.37.
In any case, my overall work argues that the Aug 2 to Aug 28 advance is the initial upleg of an incomplete, larger counter-trend advance that points to a 41.00-42.00 target zone after the current pullback runs its course.
It is with the foregoing in mind that I remain 50% long on the SDS from 48.90/95 on Aug 30, looking to add to the position either against 38.00, or into downside follow-through towards 37.37.
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Thursday, September 5, 2013
"The news is even more positive than the overall numbers imply, as individual car buyers, not fleet sales, are behind the surge."
-Michelle Krebs, Edmunds.com's senior auto analyst
Michelle went on to write, "And sales incentives of all kinds were down 3% from July to $2,374, Edmunds.com estimates, though were up 3% from last August. … Even more positive than the overall numbers imply;" indeed, for GM sales improved by 15%, while Ford and Chrysler rose by 12%. The biggest winners, however, were some of the foreign brands (although most of those cars are manufactured in the US) with luxury model sales at BMW up a stunning ~45%, causing one savvy seer to remark, "What recession?!" According to Autodata, the annualized industry sales pace in August puts the 2013 sales pace at a cool 16.1 million units, which is the highest this year (and the highest rate since 2007) and portends for further strength into 2014. Despite such sales' numbers, the average age of a car in this country remains at 11 years, implying demand should continue to be robust. The result is that auto manufacturing plants are running flat-out, 24/7, and still don't seem capable of keeping up with the burgeoning demand. I think that bodes well for a capital equipment cycle to begin that should give another boost to our economy. And evidently, that's what the equity markets thought yesterday as the S&P 500 (SPX/1653.08) gained some 13 points in an attempt to recapture its 50-day moving average (DMA) at 1663.13. Whether that happens or not, I don't think the SPX can surmount my long-standing "pivot point" of 1684 that served us so well on the upside. Verily, 1684 acted like an "attractor" on the downside and now should act as a repeller on the upside. Further, the NYSE McClellan Oscillator (see chart) has gone from profoundly oversold to currently neutral, and the SPX has only been able to modestly rally. This is NOT good!
I have a number of negative stock market convergences into next week. If those convergences come on the downside, with a "print low" into my long envisioned 1530 - 1560 zone (near 1530 was last April's reaction low and 1560 was last June's reaction low), I think the correction is over and another rally will begin. There are also a plethora of catalysts for a potential downside capitulation move from here including a tense G-20 meeting, Syria, tapering, a dollar dive, sequestration, the debt ceiling/continuing resolution, Obamacare, IRS gate, Benghazi, Rosengate, Holdergate, Fast and Furious, GSA scandal, Solyndra, Lisa Jackson, etc. On the surface yesterday's rally looked good with 78% of the volume coming in on the upside. But, beneath the surface the Demand indicator "stunk" (read: few buyers). I remain cautious...
The Last Chance for the Bear Case
I’ve been relatively silent the last three trading days. I got spun around twice last week as I would venture to say it was one of the most difficult weeks to trade in recent memory. When I get spun around like that, I shut things down and watch for a couple of reasons. 1) I feel like my thesis is wrong, so I want more data. 2) My confidence is damaged so I do less
I am a big fan of Paul Tudor Jones, so these two quotes ring out in my head.
“Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.”
“Always maintain your sense of confidence, but keep it in check.”
-Paul Tudor Jones
I am sticking with my plan of staying light underneath the 50-day moving average. We are tickling that from below this morning, but we are also hitting the declining trendline from the recent tops. It seems that most were expecting a waterfall type decline, and when we only got one day of it, it confused everyone. I am certainly confused as this would be one of the weirdest bottoms I have ever seen.
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I remain 30% long and keeping it light, but I will add on a close over the 50-day moving average.
Gold (GLD) Pullback Nearing Short-Term Support
GLD continued its pullback from secondary resistance today and is now nearing important short-term uptrend support. Watch the price action around $131-$132. A sustained break below $130 would neutralize the setup.
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Friday, September 6, 2013
Clear & Present Markets: 9/6/2013
1. China continues to move toward more open markets, and it introduced trading futures contracts on government bonds. Currencies and interest rates are linked, so this is a significant step toward a freely floating currency and market driven interest rates. I am not saying we are at the point yet, when China allows its currency to float, but the government is putting the proper infrastructure in place. The question is if the Fed ends QE and China floats its currency (negating the need to purchase treasuries to peg the currency), who is left to buy Treasuries? Rates could move faster than people think, but more important than the level of rates is the volatility we could see in fixed income markets.
2. The New York Times is reporting that the G-20 is expected to enact new tax laws that limit the ability of multinational corporations to avoid paying taxes by operating subsidiaries in certain countries. It will be interesting to see if this agreement to coordinate tax policy ever becomes more than talk. Tax discrepancies are a major point of contention in the EU, and the implication is that governments even aim to curb discrepancies in tax rules at the state level. I don’t know how this is enacted without shifting tax authority to a new entity, but sovereigns are calling attention to the problems of oversight related to multinational corporations.
3. Looking over my fundamental screens, I am struck by the number of consumer discretionary stocks that are down more than 25% this year in a market up double digits. A few years ago, many analysts were talking about a “fundamental change” in consumer behavior, and it appears we continue finding evidence of that shift. Notably, the number of teen apparel retailers on the “biggest losers” list indicates that those most “connected” with new technology and less connected to the traditional retail strategy aimed at their demographic. Part of the reason I think the luxury segment has performed better is that their customers are less connected through technology, resulting in slower disintermediation. I am playing the sector through specialty retailer PetSmart (NASDAQ:PETM) and discounter TJX (NYSE:TJX), which engage their customers in a unique manner that limits the ability of on-line competitors to disrupt the model.
Mood Dictates Price
As I was tying my tie for temple (day two!), I pulled up the chart below to see if the NFP reaction triggered a breakout through the down-trend (the 50-day is at S&P 1665). As I was squinting at pixels, I noticed a one-liner come across my third screen; Russian President Vladimir Putin, and by extension Russia, is backing Syria with military force.
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Coincidence? Perhaps, but as Peter Atwater has been drilling into our heads for the last few years, it's not necessarily "if-then." The "other side" of the stateside policy -- printing money to purchase toxic debt -- has been manifesting via social mood for some time (this article is also relevant). The rest of the world is none-too-pleased with the USA; now, seemingly, they have a channel to vent it.
S&P 1628-ish (last week lows) is a level to monitor if and when, and the banks (along with high beta) will help tell the tale.
Oil and the Drums of War
It's Friday afternoon and the drums of war are beating a bit louder now that Putin literally dared the US to step into the ring. Is he misreading Obama, or actually wants war?
CL (crude futures) are back above 110; a close above that level could usher in a run to 122.86, 78.6% 2008. That market is taking war talk a lot more seriously than equity fund managers chasing bonuses. I do not need to remind readers that oil above 110 preceded 10% and 20% corrections in equities in 2011 and 2012.
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Trade with caution into the weekend.
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