Buzz on the Street: Bernanke Gets His Ya-Yas Out!
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, August 27, 2012
Big Victory For Apple in Smartphone Patent Case
Apple (AAPL) is up almost 2% today to new-all time highs after coming out on top in its patent case against Samsung.
A jury awarded Apple $1 billion damages after determining that Samsung infringed on 6 of 7 patents in the case. However, Samsung's key smartphone, the Galaxy SIII, was not part of the case, so it's unlikely Apple sees an immediate financial benefit from the ruling. ($1 billion is not a lot of money to Apple)
However, it succeeded on two other fronts:
1) It publicly humiliated Samsung as a copycat, which could force Samsung to attempt to be more original, something it obviously isn't good at. Hell, Apple should be running ads worldwide merely reciting the findings.
2) It sent a powerful message to the Android complex, which Google (GOOG) has actually warned about copying Apple products.
Overall, this ruling sets Apple up really, really well from a competitive standpoint, because it's obvious the Android hardware makers (and to a certain extent, Google itself) don't do much in the way of innovation.
If you don't believe me, I highly recommend watching the original iPhone unveiling, and you'll see Apple's influence in the modern smartphone era.
Equities got the fade trade this morning, after S&P futures touched as high as 1416, but have promptly gone straight down to the lows of the day. Rates are low, likely helped by the long QE trade in Treasuries. On Friday, we noted that the weekly COT report indicated speculators got seriously long the 10-year future. The buyers appear to be mainly hedge funds, whereas asset managers have punted their long position from three weeks ago.
Apple (AAPL) is down from its premarket high of 683 to 675-677, creating some weakness in NDX futures.
There are conflicting headlines from Europe as the EU is saying that the Troika report on Greece won't be ready until early October, and Germany says the EU is nuts. Greece aid is on hold until this report is ready, so Greece running short of cash should be a flashpoint again soon.
Crude had a nasty reversal this morning. It was up a buck when I walked in at 7 am and has now gone straight down since the floor session opened, falling 3 points.
A quick check overseas shows sovereign credit mostly flat. Portuguese 2-year bonds are now at 4.88%, down from a high of as much as 20% in the past year. How they are that low is beyond me, as there banks have been on ECB life support for as long as I can remember and shareholders have been diluted to the point that they are no longer recognizable (Banco BPI just sold common shares at 50 cents!!). Maybe the thinking is that a smaller market will be easier to manipulate?
The parade of folks calling for QE3 at Jackson Hole and the September FOMC meeting is over. Many of the research notes that I've seen this morning are all paring back these calls, saying that Bernanke won't make any definitive statements at Jackson Hole. In my opinion, the spotlight is and always has been on Draghi. Just about every earnings call or release I saw noted uncertainty about the European crisis. It's highly likely Draghi won't make any statements that will allow markets to front-run his policy action, but some details would be nice (see the Spanish 2-year below, perfect example of front-running).
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The Illusion of Certainty
I've always considered the statement "the market hates uncertainty" to be a curious one when the future is always unknown and by definition uncertain. It isn't that markets need certainty to be comfortable trending. Rather it is the illusion of certainty which is all-important. In that respect, SuperBen and the League of Extraordinary Bankers can play a critical role. Should Bernanke telegraph at Jackson Hole another round of stimulus, that removes monetary uncertainty. Should Draghi announce an official form of bond yield targeting, that removes event risk uncertainty that could come from contagion. The point in all this is that clarity in terms of monetary action is likely to hit all at once, which could result in a collective sigh of relief from equity investors worldwide who have largely missed the S&P 500's run in 2012. Silver (SLV) and Gold (GLD) seem to be convinced that the illusion of certainty forced upon us by central bank action is here, as inflation expectations rise, money comes out of bonds, and continues to position for higher collateral prices ahead.
It would certainly be a shocker if the Dow Jones Industrial Average (^DJI) made new all-time highs in September, wouldn't it?
Tiny Resverlogix Back in the News
Resverlogix (Toronto:RVX) is a small biotech company based in Calgary, Canada working on a potentially big product. Their RVX-208 is an oral pill that boosts apo-a1, causing a rise in the type of HDL particle that can remove plaque from arteries. This is called Reverse Lipid Transport (RLT). I wrote about this for Minyanville way back in April of 2004 (Next Generation Lipid Science).
Resverlogix's RVX-208 boosts the body's production of apo-a1. If a couple of decades of bench science and what we saw in patients with Esperion's drug is correct, patients who take RVX-208 on a daily basis should see significant reductions in arterial plaque as measured by a procedure call IntraVascular UltraSound (IVUS).
Resverlogix released data from their SUSTAIN Phase IIb trial today. This trial dosed patients for 24 weeks and looked at apo-a1 and HDL levels. But that's not what the trial was for. We already knew RVX-208 boosted both. This trial was to make sure liver enzyme elevations seen in the Phase IIa were not a safety issue. In that regard, SUSTAIN was a big success. Liver enzymes didn't continue rising and, in most cases, fell from the sub-clinical peaks around week 10. This provides an important 'all-clear' on safety to the big pharma companies sniffing around Resverlogix.
The big test comes Q1-2013 when Resverlogix is due to announce data from ASSURE-1. This all-important trial measures plaque regression via IVUS. Run in cooperation with the Cleveland Clinic -- the global experts in IVUS trials -- a successful outcome to ASSURE-1 should rocket Resverlogix's share price. This is the ultimate binary event, however, so be rational when choosing position sizes. The stock's home base is Toronto, so most US investors won't have access to options to hedge risk.
My firm has been covering Resverlogix since January 2008. There have been hiccups along the way, to be sure. If ASSURE-1 is positive, Resverlogix will go from an unknown Calgary biotech to one of the most talked-about names in the huge cardiology market segment.
Summer Trading Hides Major Pitfalls
August is never kind to daytraders, but what's worse, the minor bleeps can suck in unsuspecting buyers. This could to be an August to remember for precisely that reason. Right now, traders need to go wider, be ruthless, and not buy the hype. Don't let August become your graveyard.
Going to the ES (SPX futures) chart, the nasty bearish candle of 8/21 has yet to be negated on a closing basis (1412.50 was its close, we have not been able to close above that since). Note current support at 23.6% July extension (1403.50). It looks like once we got the squeeze out of the way from the AAPL weekend news, interest just died down. We made a lower low today, and yesterday's candle leaves another tall shadow above, just like the one from 8/21. I would not trust any rally until we at least close above 142.50, preferably 1419.
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Gold vs. SPDR Gold (GLD)
A few people are wondering how gold, the cash and its related futures contracts, can be down on the day but the gold ETF, SPDR Gold Trust (GLD) is up. This is a function of closing prices. Gold is "closed" at 1:30 ET and uses that price as the daily settlement. But as we know GLD, trade until 4:00 PM and use that number as the settlement price. Of course gold and GLD continue to trade basically non-stop 24 hours a day on electronic and overseas markets. So today's divergence is merely reflective of the two different, somewhat artificial, settlement prices.
The thing to focus on is the spread between the two. GLD started as 1/10th of the gold future, but over time the fees have whittled away some value and it now trades at about a 5 point discount. So with gold at $1673 per ounce GLD now trades at $162 per share. GLD has been one of the better tracking ETFs, others like USO for oil or TVIX for volatility have been a disaster, but even it isn't immune to the perpetual erosion of fees.
Wednesday, August 29, 2012
Bernanke Preview, Watch Out For High-Yield ETFs
Bernanke will likely talk about keeping options open, but nothing specific. Neither here nor there at this stage.
He will downplay the ability of monetary policy to fix things. He's said it before, but think he will be more forceful this time.
He will aggressively push back on politicians and the fiscal policy side. I think he will take this opportunity to ratchet that up a notch and that will scare the markets especially when the Republicans respond negatively and neither party shows any actual inclination to do anything real. Probably avert fiscal cliff, but only in some can kicking way.
So that's where I'm coming out. Negative for US assets, but not a death knell.
I think the HY ETF's (HYG, JNK) aren't a bad short. I'm not expecting a big sell-off but think too many people have become complacent with regular retail inflows. From my conversations, I see that enthusiasm is waning and think some fast money bears are at risk of being caught long (yes, there are a number of bears at heart that are currently long, particularly junk bonds). Nothing majo,r but do think market has become too complacent.
I prefer ETF's because I'm not sure the move will be big enough to really offset the bid/offer and execution risk in bonds (they will jack offers the minute it looks like it is turning back if I'm right). I still think CDS has too many shorts so won't move much in what I think is a 2% correction - not much, but it is 4 months of carry at this stage.
China Equity Bear Continues...
With two sessions remaining in the month of August, the Shanghai Composite (SHCOMP) is closing in on a new 4-month low, as well as a test of its March 2009 low of 2037.
From a technical perspective, let's notice that all of the action off of the major low in October 2008 at 1665 has formed an intermediate-term rounded distribution pattern.
Such patterns, especially on an intermediate-term basis, tend to move into a steep, near-vertical, phase of weakness prior to completion, which suggests that the Shanghai Comp could become unhinged in the days ahead, driving the index toward a full-fledged test of the October 2008 low at 1665.
Should such a scenario unfold, then the Shanghai Comp will have relinquished all of its 3-year post-crisis gains, while the S&P 500 remains approximately 112% above its crisis low of 666.79!
Something to ponder? What does the huge divergence mean? Is China cheap, or is the S&P 500 expensive? Or, can the divergence exist in a vacuum indefinitely?
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Yelp Skyrockets Despite IPO Lockup
Following an early decline, Yelp (YELP) is skyrocketing up 15%+ today, which marks its first post-IPO lockup expiration.
This crazy move may seem counterintuitive, but keep a few things in mind:
1) Short interest is 39%, according to Bloomberg, while analysts are very cautious towards the stock -- 6 holds and 1 sell.
2) Unlike Facebook (FB), Yelp just reported a huge quarter so it has fundamental momentum on its side.
So it's safe to say that investors have been far too pessimistic towards Yelp, setting up a short squeeze on a well-telegraphed event.
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Thursday, August 30, 2012
The Aug. 8 nibble into Exelixis (EXEL) oversized secondary is mighty close to my $5 goal in Wednesday after-hours trading. I'm going to hold out for the $5 handle, but not much more, on the trading piece. The rest will sit in wait - probably for years - as cabozantinib attempts to prove itself against cancers more widespread than medullary thyroid cancer.
Trade Update: KORS
It's been a long walk on the runway, and Michael Kors (KORS) looks like it needs a rest. We are exiting our swing trade from 48.19 here at 54.03.
Supermodel -- you worked it!
Futures were lower pre-market on comments from the German that open-ended bond buying would do more harm than good. To top it off, we've heard chatter that next week's ECB meeting will not consist of a new bond buying scheme - as we more less expected given the ESM's pending ratification - but will resolve the issue of seniority with the ECB's bond purchasing program. However, the bond buying would go forward despite the Bundesbank's Weidmann objections.
The open got sold pretty hard, was this the realization that Bernanke isn't bringing QE3 tomorrow at Jackson Hole, and potentially shorting in front of it?
The NDX is weaker on a very poor guide from Ciena (CIEN), which is down 12% this morning. Sean Udall pointed out that on the conference call, management is grabbing onto "macro conditions" and the stock could be in the penalty box for some time.
Credit has been weak, but if anything was weak in front of the equity selloff in the opening few minutes. IG18 remains a little more than 1bp wider on the day. The EURUSD has been strong this morning, but is beginning to succumb to the equity pressure.
Sovereign credit is slightly weaker in Spain with the 10-year yield +13bps on the day and the 2-year yield (more important recently) is at +8bps to 3.68%.
Good luck today!
Friday, August 31, 2012
Facebook (FB) is hitting all-time lows again today, just one day after Piper Jaffray went gaga pushing it as a great stock to own.
According to our friends at Barron's, three Wall Street firms -- BMO, Stifel Nicolaus, and Merrill Lynch -- all cut their Facebook price targets.
Merrill's activity had me scratching my head at first:
Merrill Lynch's Justin Post, cutting his target to $23 from $35, writes "Facebook has multiple lock-up expirations over the next year (see Table 1) and recent selling activity on the August lock-up suggests to us the risk of future selling pressure. The biggest lock up date is 11/14 (40% of shares eligible for sale), and we wouldn't expect stock to see buying momentum until December."
I was tempted to post Detective John McLane's response to this late-to-the-party move (okay, I can't resist), but it kind of makes sense, because the stocks' reaction to the first relatively small lockup was way bigger-than-expected, and the 11/14 one is magnitudes larger.
Also, we are definitely in "it's embarrassing to be seen owning Facebook" territory, so money managers may seek to get it off their books ahead of the lockup, creating a selling begets selling situation.
Fed Put Is Solidly In Place
1. It is clear that he is convinced that QE has and can stimulate the economy. It is also clear that he will favor QE unless growth accelerates to a rate that is above trend (required to lower unemployment).
2. Bernanke's Jackson Hole Speech attempts to address many of the concerns expressed in my most recently published article.
1. The speech is very "dovish." In that sense, it is as "bullish" a speech as the market could possibly hope for. The only thing that could be more "bullish" is if he had said "QE 3 starts right now."
2. What Bernanke said, in fact is: QE works and we will use it at any time if the economy is not growing above trend (which is what is needed to get unemployment down) and prices are stable. This is the articulation of a very strong "Fed put."
3. Having said that, Bernanke does not really make a persuasive case for the effectiveness of additional QE. All he says is that empirical studies tend to show that QE worked in the past. Let's assume that this is true. But that is besides the point. Conditions change. QE worked in the past because liquidity was constrained. There is much reason to believe that it will work much less in conditions where liquidity is not scarce.
4. Bernanke acknowledges costs and risks to further QE. This is not new, but it is good that these issues are being considered within the FOMC. In the end, the determination of the EXTENT to how costly or risky further QE would be is a judgment call. It is not something that can be solved arithmetically.
My judgment on this is that as long as the economy is not liquidity constrained, more QE ultimately does more harm than good for reasons detailed in my article cited above. But people should not misunderstand me -- and I repeat -- I don't think another round of QE is going to cause hyperinflation right away. What I have said is that more QE jeopardizes future growth and stability (by making normalization more painful) and that it erodes the credibility of the Fed and the nation's currency.
However, for purposes of investing and trading, what I think does not matter. What matters is what Bernanke thinks. Bernanke thinks that QE stimulates growth, that it does no harm under current conditions, and that it should be used as long as unemployment is high and prices are stable.
A Closer Look at Apple
Apple (AAPL) surged Monday on weekend news that was taking it to Samsung in the courtroom, but the stock has slowly pulled in all week; this looks to be setting up as a bearish trend week. As well, the stock has breached the hourly trend line from the recent 570 lows, so caution is warranted for short-term traders.
On the daily chart, you'll notice Fibonacci support around 654 and 638, respectively. MACD is starting to turn down on the daily bar chart -- good to keep an eye on this.
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