Buzz on the Street: And When the Sky Was Opened, It Rained Jobs on All the Beautiful People in the Land!
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, July 30, 2012
Dendreon Misses, Closes Jersey Plant
Dendreon (DNDN) announced $80M in net revenues, a quarter-over/quarter decrease and a miss compared to consensus net revenues of $86M. The company also announced the closure of their New Jersey plant. The closure will, according to the comapny, allow them to be break even at $100M in quarterly net revenue (compared to the $125M in quarterly revenue they stated previously).
The quarter-over-quarter revenue decrease is a big disappointment and might only get worse with coming competition.
Closure of the Jersey plant makes sense, as northeastern urologists and oncologists have long been the most skeptical about Provenge. Additionally, the Georgia and California plants are closer to the 65+ demographic of men with prostate cancer. If they had to close one, Jersey is the right one.
The call will be interesting, but generally we can expect downgrades due to the revenue miss, despite the plant closure. Dendreon says they can still do $1B dollars in revenues from the two remaining plants, but at this point I doubt anyone believes Provenge will be a billion-dollar seller in the US -- at least any time soon.
It looks like the stock is halted. Once it reopens, the stock will be lucky to hold $5.
Apple Stock Nearing Critical Short-Term Resistance
After a huge December to April rrally that saw every analyst and his brother/sister calling market tops the whole way up (myself included), Apple (AAPL) finally decided to take a breather, but not before every mom and pop retail investor had at least thought about buying, with many getting loud about it in April.
You see, it’s only natural to want in on highflying, euphoric action. Quite simply, no one wants to be left out. Don’t get me wrong, Apple is a wonderful company; I just don’t like chasing and prefer to get in at “discount” prices at technical levels I like. In short, Apple stock fell from a high of 644 in April to a low of 522 in May. This much-needed pullback allowed the stock to breathe a bit and for investors to reassess. Back in May, I posted two charts on Apple’s near-term pullback objective, looking at the .382 fibonacci retracement level of 537, and the A-B-C measured-move target of 529. Apple’s intraday low was 522.18 and closing low 530.38 – not too shabby.
From there, the stock rallied back near 620 before selling off after earnings. So that leaves a few important questions: Was the recent rally just a retest of the highs? If so, where could it fall to next? Or is the recent move higher a sign of new highs to come?
For help answering these questions, we’ll need to look at the technical charts and consider a few important near term technical levels:
1. The broken near term trend line - Apple broke below its near-term uptrend line after its recent earnings miss. It is now (today) technically backtesting this line (currently around 600 and ascending). A break above would be a bullish sign.
2. The larger picture downtrend line – When Apple couldn’t mount 620, it formed a pretty clear downtrend line and wedge formation. If the stock can clear the backtest (lower wedge line) AND the larger picture downtrend line, then the bulls will be back in business.
3. 570 Support – This is the 50% fibonacci retracement level of the May to July up move. It is also the late June closing pivot higher and lateral support. In short, a sustained break of the 570 support area would hint at lower prices. So in summary, if Apple fails to sustain a break above the larger-picture downtrend line, then investors should watch 570, as a break of this level could usher in the possibility of a larger picture A-B-C move, making the initial A-B-C move a fractal.
See technical charts below.
Trade safe, trade disciplined. Have a great week.
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Rare Event Watch: ACI
We are watching Arch Coal (ACI) for a swing-long entry on a potential double-bottom pattern setup. Friday's extra-big gain on extra-high volume was a rare event, having occurred only 7 prior times in the stock's history, with impressive gains of 13.7% on a 12-day swing trade.
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Faster Than a Speeding Bullet
As a socionomist, it is fascinating to watch the Twitter backlash regarding the Olympics. To me, Twitter may be the most extreme "me, here, now" company that exists in the world today. That there is now anger being aimed at the medium for being too immediate and too connected is seriously worth considering.
Maybe it is just me, but the question of who controls the speed and method of information transmission is not to be taken lightly given how depressed social mood is today.
Strong Internals, Strong Rally
I continue to press on making the bullish case in my writings, stressing that it is entirely possible that another 20 to 30% more in gains can occur into year end. The S&P 500 is up over 11.5% year to date, but the bond market still gets all the love. I expect this is about to change because market internals are behaving in a markedly improved fashion. Small-Cap stocks recovered strongly off of the lows hit earlier in the day, and the bear trade of Utilities, Consumer Staples, etc. continues to underperform and weaken.
Much of this is clearly because of anticipation that Draghi will go Ivan Drago to the negative narrative and say "I must break you" in order to keep his job. However, hope can be a powerful thing. If reflation does return in earnest, then the fear of the bond market being wrong about deflation can turn into a significant driver for equities into the end of the year. I'm personally keeping an eye on cyclicals here, given the potential for a sharp reversal in the weeks ahead as leadership rotation takes place.
In the Range
NQ (NDX futures) are in a wide trading range between 2516 and 2658. Which way this breaks could be quite powerful (chart 1). Current stall, after testing top of range yesterday, is 2649.50, 61.8% April/June (chart 1). The macro view has not really changed much. We are most likely in a corrective B wave up after the 3-year cyclical bull market 5-wave move ended in April (chart 2).
The macro bearish scenario really only gets negated above NDX 2800, so caution is still the norm even though rallies in between can produce nice profits. Just make sure you don't forget to ring the register.
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Wednesday, August 1, 2012
Short End of Treasuries Selling Off on IOER Cut TRade
Check out the action in Treasuries post-FOMC. The long end is about back to where it was pre-announcement, but the short end has risen much more rapidly, with the 2-year up 3 bps since the release.
I'll admit this one is out of my league, but for those that are interested in such things, I was told there was a trade with the 2-year to bet on a potential cut of the IOER (reserve rate).
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Move Along Folks -- Nothing to See Here
The FOMC phonebooks are here and as expected, no new stimulus measures were unveiled. The Federal Reserve did plant the seed of additional accomodation if economic conditions warrant such a move. The bulls will argue that this is the official "foreshadow" of things to come; the bears maintain that The Bernanke Put is well below current levels.
All eyes will shift across the pond to see if Super Mario is "real" in terms of his pledge to do "whatever it takes" to support the Euro Zone. In the meantime, I will remind you that the first move is typically the false move after the FOMC "rate" decision.
As always, I hope this finds you well.
Green Mountain Drama
Based upon Bloomberg data, options traders are pricing in a roughly 25% move for Green Mountain Coffee (GMCR) following today's earnings report.
That seems reasonable given the stock's crazy moves, and it's a big turnaround from last year, when options traders were dramatically underestimating potential moves in Green Mountain.
The contrarian bug is hitting me today, and I'm willing to bet that Green Mountain, which is already pricing in a lot of bad news and bad will, won't make a gigantic move by Friday's expiration.
So, I put on the following trades: (all expirations are this week)
-Short the $23/$24 call spread (I'm short the $23 and long the $24)
-Short the $14/$15 put spread (I'm short the $15 and long the $14)
Based on my execution prices (I took in $0.43 of premium), I'm looking for Green Mountain to stay between $14.57 and $23.43.
Max profit ($0.43 for each lot) is achieved between $15 and $23.
Max loss is $0.57 per lot if the stock shoots through $14 or $24.
Thursday, August 2, 2012
Draghi's Irving Fisher Moment
During today’s press conference, Mario Draghi blurted out one of those hubris-filled sentences that included all the ingredients necessary to gain space on the wall of infamous one-liners. I’m referring to his remarks that the ECB does not respond to the greed and fear exhibited by markets, it responds in a cold calculating economic manner, and then offered that it is “pointless to bet against the Euro”.
In the rush of feeling like the most important person with a worldwide microphone, he seems to have forgotten a couple of things:
1) when Spanish 10-year yields reached 7.62% he must have coldly calculated that lest something happened right away, Spain would spin out of control; so it was the fear in the bond market that got him off the dime, calculating as he may have been.
2) The consensus is that the Federal Reserve and the US government can continue their Texas hedge of printing money and running up debt because the US dollar is the reserve currency of the world. By exclusion, the Euro is NOT the reserve currency of the world. So for all his gigantic ego, Mr. Draghi is the ultimate emperor with no clothes. He sits at the end of the printing press of a piece of paper that has no value other than the “greed and fear” price that the market imputes to it every tick. If he thinks that just because he can print as many Euros as he wants, the Euro will never go away, he better have a good basis to think that this time is different from all the other failed devaluation efforts of the last 2000 years. Or else, Mr. Draghi may just have presented us with yet another “permanent plateau of permanency”.
It is hard to tell exactly what is driving anything with so much going on, but one plausible explanation was that the market rallied on hope that Spain and Italy would ask for aid on the press conference. Then sold off when they didn't.
That makes no sense to me. They will ask for aid in private and only announce it once it has been given. They aren't about to ask for aid and risk rejection. They did not say they will never ask for aid. So what are we going to do next time they schedule a press conference? Are we really going to rally every time they potentially could ask?
Maybe the move is just a delayed response to what was a weak ECB meeting. Yes he hinted at some possibilities, but no he didn't deliver anything.
In the end, you either believe they are prepared to support Spain and Italy or you don't.
Then we get NFP tomorrow. At this stage it is becoming virtually impossible to tell what is a good number and what is a bad number. How much of current market price is on hopes of QE versus hopes that Europe stabilizes versus hopes that the economic slowdown was overstated, just like the Q1 growth was overstated?
It Takes Tow to Tango
Love does not consist of gazing at each other, but in looking together in the same direction.
-Antoine de Saint-Exupery
The market has continued with its choppiness over the past week. After a succession of several down days, the market witnessed a sharp rally late last week. It's important to note that hedge-fund performance has been quite anemic this year. As they try to chase performance, especially heading into the end of October, I expect these exaggerated up and down moves to continue.
There have been some critical developments in the technical picture over the past few days. Last week, as the S&P 500 reached for new high of the move since June, the Russell 2000 (^RUT) was conspicuously absent from the new-high chorus. It failed to reach even its July highs and after yesterday’s decline, is below the 200 day SMA (and Exponential MA) once again.
Absence of small cap stock participation is always a worrisome sign.
Dow Transports (^DJT) are also in the same position with multiple closes under the 200-day SMA (and Exponential MA).
Given the divergences in the indexes, I have been trading light, primarily in earnings related stocks.
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Friday, August 3, 2012
Payrolls, Positioning, and Perspective, Oh My!
As discussed yesterday, there is a camp out there chanting "Bad is Good!" through the lens of a potential QE3 catalyst. For them, this morning's better-than-expected payroll data was a bummer (although they'll quietly note that prior estimates were again revised lower). In terms of the price action, this is a mix of short covering and long-only money being put to work (with a few big catalysts out of the way).
Again, and so it's said, I don't believe the Federal Reserve is keying off the BLS, Mr. Bernanke's assertion aside. The stock market is the world's largest thermometer in a finance-based global economy, and with the S&P and NASDAQ up double digits, we'll see more jawboning than stimulus until those averages give back their YTD gains.
In terms of Facebook (FB), I didn't sell the morning pop (always honest). We know there's a monster seller in the marketplace (I won't name names but the account "Woofs") and the insider lock-up expires soon. That second point is fairly well known and the stock has morphed from hero to goat in a New York minute; I like that, from a contrarian standpoint, although I respect that moves tend to last longer than one might expect.
$19 is the price for a full position and risk managers can set their stop below $17 if they want to remain disciplined while giving the stock some wiggle room on the downside.
As always, I hope this finds you well.
The CDS Market Isn't Worried About Muni's
As we see a "wave" of defaults, the hype is growing that certain calls will be right. If the CDS market is a better predictor, I don't see it. This is MCDX17 (Muni CDX index) and it has barely reacted to the moves and has not experienced a single default.
So far, the problems are remaining isolated to smaller localities with specific problems that led to default.
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Last Friday the S&P closed precisely on the 1385 square-out.
It’s a time/price square-out because 1385 is opposite April 2, which was the high of the year (so far).
The market respected the squareout with a nice pullback, a 1 2 3 Pullback to 50% of the most recent swing (1360) leaving a Holy Grail buy setup yesterday -- a test of the 20 dma.
A convincing Friday weekly close above 1385 implies higher prices ahead.
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