Buzz on the Street: Investors Become Cautious After Earnings Reports, GDP Estimate Cuts
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Holy Moly Facebook!
Facebook (NASDAQ:FB) just made itself the star of earnings season, putting in a huge beat.
EPS came in at $0.19, $0.04 ahead of consensus. Revenues were $1.81 billion, smashing the $1.61 billion consensus.
Mobile advertising was an amazing 41% of ad revenues, up from 30% last quarter. That is just plain crazy growth.
The stock is up about 16% in extended trading to $30.74.
A Little Cyber Security
Some stocks just run then flag, run then flag, etc... I found a new one while looking around for some additions TO the technology side of my portfolio. Now, while I am not as plugged in as Sean Udall, I do like to pick apart balance sheets and carve up an income statement. Lets look at Check Point Software Technologies (NASDAQ:CHKP). It is an interesting stock that has had a very nice move.
From a fundamental perspective, it still looks cheap. it is increasing free cash flows consistently, up 10% this year, while total current assets are about 20% of the current market cap! Plus, the company is looking to expand its network security business with additional add on features. Net margins are 46%, that's not a typo... seriously 46% and only trading at a 14 forward P/E.
OK, fundamentals are solid, how is it technically? In a sentence, I wished I had seen it mid-June when it showed my favorite pattern, a 50-day tap after a golden cross. It is still good now. It put in a nice flag, then broke out on earnings. It retested and filled the earnings gap as well as the flag breakout. That looks like healthy back and fill for continuation higher to me. I'm adding it today and will look to continue building a position over the coming weeks on pull-ins. It should stay above 53, to keep the momentum going, and I will use that prior resistance area as a stop out.
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Short-Term Warning Signs
I've been trying to ride this trend at key points, but I find myself with the least exposure I've had in a while
All three of these charts are flashing some short-term "warning signs" that are noteworthy.
It never hurts acknowledging them, especially for the super-active trader.
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Thursday, July 25, 2013
Is a Bottom in for Broadcom?
It looks to me like Broadcom (NASDAQ:BRCM) put in a bottom earlier today. This doesn't mean I'm going to get silly long, but as I sell down other winners, this will be a place for fresh money.
In my view, the stock shouldn't have fallen below $30, but that is what stocks do sometimes. As I said yesterday, I think the worst case scenario is that I'll be selling shares between $31-33. But there could/should be future catalysts which push the stock to something much closer to a peer-group valuation, which would be 30-40% higher from current prices.
Chart of the Day: Homebuilders Vs. Banks
For today's chart of the day, we decided to look at the relationship between homebuilders (NYSEARCA: XHB) and the S&P Regional Banking ETF the KBW Banking Index (INDEXDJX:BKX).
Over the past year, you can see that all three basically trading in-line with each other. (chart 1)
However, over the past few days, the homebuilders have been getting smashed as industry data has gotten a bit shaky and homebuilder earnings reports have been weak. (chart 2)
For those concerned with housing's impact on the financials, the action in the space is worth nothing
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The Case for the Fed to Buy Some Yen
Our April argument had been that if Abenomics succeeded in making Japan more competitive and hence effectively exporting its deflation to the remaining world, then classic inflation hedges like gold and TIPS (which had been bid up over the past few years) should be sells.
As this theory played out in practice, the sell-off in the overbought TIPS markets caused real bond yields to spike while inflation printed lower, thereby causing real rates to move from negative to positive territory. Reflexivity caused this panic to feed of itself worsening the situation in global fixed income markets.
In our May 24 Quant Crystal Gazer note on the Mexican Connection, we argued that it suited the purpose of the Japanese government as well as the Fed To let some air out of the "yield chasing" behavior in the bond and equity markets. For this purpose, we saw the Mexican market correction as a classic placeholder for other markets.
With the breather becoming a painful gasp -- the Fed needs to reduce real yields. Reversing the above sequence of events should then be the logical solution.
Ideally, the Fed would like to re-engineer moderate inflation expectations while keeping the fixed income risk premiums in check with the continued or enhanced Bernanke put.
Appreciation in the Japnese Yen should reverse the Japanese-exported global deflationary trend and enable the Fed to purchase moderate inflation expectations.
A calmer bond market convinced about the sustainability of the Bernanke put would in turn flatten the yield curve and enable real rates to reduce.
The Chinese maybe tracking this dynamic rather closely as they have possibly been the most severely affected by the Japanese strategy which caused the CNY-JPY to appreciate to decade highs.
A consequently weaker dollar could also revive the dollar carry trade and theoretically benefit global equities
Friday, July 26, 2013
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Ahead of the consumer confidence number at 9:55 a.m. ET (consensus = 84), we are a bit off the lows but definitely in risk-off mode.
In a turnaround from recent action, the Russell 2000 (INDEXRUSSELL:RUT) is underperforming the S&P 500, crude oil is down, and yields are down. Housing also had a nasty start, moving down about 1% before recovering a quarter of the loss.
This is healthy as the market needs some cooling off time since the run off the 6/24 low, during which we've seen what's been a mediocre earnings season and mixed economic data.
I posted a chart of the SPX versus the VIX Index (INDEXCBOE:VIX) below. Note that the VIX is just about the levels we saw during the May high while the SPX has actually exceeded those levels and is still near the all-time high set on Tuesday.
Flight to Safety
There seems to be a slight change in patterns today, and my guess it's related to the Nikkei (INDEXNIKKEI:NI225) overnight drop. Noticeable flight to bonds/treasuries is still holding as I type even after the sentiment beat. This is an early diagnosis, so it's subject to a complete reversal. Nevertheless, this was the tape overnight and at the open and should be noted. CBOE Interest Rate 10-Year T-Note (INDEXCBOE:TNX) 2.569% back in the spotlight. ZN resistance is 126'230, 126'280 and 127'0115. Support s 126'180 and 126'140.
Nine times out of ten, in the arts as in life, there is actually no truth to be discovered; there is only error to be exposed.
-H.L Mencken, American journalist, essayist, editor, satirist, critic of American life, and scholar
And yesterday, the only "error" was my call for a trading top as of last Friday. Of course, my window of opportunity for a downside feint remains from mid-July through mid-August, but so far the equity markets have remained resilient. Nevertheless, the expected weakness occurred Wednesday night with the S&P 500 (SPX/1690.25) printing lower yesterday morning by about 12 points. Subsequently, the SPX opened down by 5 points, rallied into the 10:00 hour, stumbled into the 11:30 a.m. "pivot point," before rallying back to the "flat line" at noon. As a sidebar, there are two "pivot points" during the trading day; one is around 11:30 a.m., before the pros go to lunch, the other is at 2:30 p.m. as the pros "square" trading positions for the "close." Yesterday was a perfect example of that sequence with the session's low arriving at 11:30 a.m., with a rally peaking at ~2:00 p.m., followed by the pullback that bottomed between 2:30 and 3:00 p.m. The resulting rally lifted the senior index into the closing bell. While that action has not deterred my cautious stance, it did surprise me.
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Whatever the outcome in the short term, I remain bullish over the longer term embolden by my sense we are into a new secular bull market. One of the drivers for that stance is next week's release from the Bureau of Economic Analysis (BEA), which is rejiggering all the GDP figures since 1926. The reason is my long-standing belief about the benefits of "intangible capital," which previously have not been reflected in the official figures. When Intangible Capital is included in the economic figures, our economic reports change; and, they change profoundly! It is shown that we are saving more, investing more in the future, generating more cash flows, growing GDP faster, etc.
And, that was the point of a conference call with my friend Steve Vannelli yesterday afternoon, whose fund I own [see the attendant chart of the GaveKal Knowledge Leaders Fund (MUTF:GAVAX)]. In said call, Steve talked about the world's most innovative companies that are accruing "intangible capital," which is not being recorded by our accounting metrics. That is about to change, and the change is going to be impactful not only for the GDP figures, but for individual companies. To be sure, the moving of "intangible capital" into the "dedicated economics of activity/output unto itself" will raise the level of GDP growth, raise the level of corporate profitability, reduce debt ratios, increase net margins, etc. This morning, however, the markets seem worried about next week's Fed meeting, leaving the S&P 500 futures lower by 5 points.
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