Buzz on the Street: No Jobs for You, America!
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 2, 2012
Between the Ticks
The S&P 500 is hovering just below the last big sell signal -- the move back below last years 1370 high.
Following Friday’s explosive move, today is bound to be choppy and with the holiday midweek, technically the question is whether the S&P will pullback into Gap Window on the hourlies prior to Friday’s key jobs data.
Important to watch: the Monthly Swing Chart on the SPY turned up in pre-market trade. The S&P cash is set to do so out of the gate.
See the hourly SPY chart from last Monday here:
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Triangulating Dell's Bid for Quest Software, Microsoft Surface, and the Google Nexus 7
The days of hardware manufacturers running someone else's software are just about over (not an original idea on my part...).
Think about it.
Amazon (AMZN) and Barnes & Noble (BKS) exploited the Android platform to build their own content ecosystems, delivering ZERO discernible benefit to Android. So Google (GOOG) developed the new Nexus 7 tablet, which it can specifically align with its own business goals.
Microsoft (MSFT), seeing the likes of Dell (DELL) and Hewlett-Packard (HPQ) continually fail to keep up with Apple's (AAPL) hardware innovations, also decided enough was enough, and threw its own hat in the ring with the Surface tablet.
The prevailing attitude in the gadget world is now, if you want to do something right, you've got to do it yourself.
This is big trouble for computer makers like Dell and Hewlett-Packard, because they're destined to be marginalized by Microsoft and Google aping Apple's strategy of making hardware + software in house.
However, the upside seems to be in software.
Because companies like Dell and Hewlett-Packard are going to buy everything that's not nailed to the floor in order to generate revenue in the post-PC age.
So as I'm watching Dell finally pull the trigger on Quest Software (QSFT), I'm kicking myself pretty hard for not throwing my own money behind this thesis, which I've had cooking for far too long.
Revisiting the Good, Bad, and Ugly!
If S&P 1360 seems familiar, it's because it's the price point we targeted entering the year (when the stock market was trading at S&P 1257). A lot of folks thought we were too bullish at the time but interestingly, once we got there--and started layering into short exposure--many believed we were too bearish. It was a squeezy feeling for fifty points--until the following 150 handles wobbled off the wagon.
On Friday, we scribed The Good, Bad and Ugly and chewed through a particularly dicey juncture for the tape. I will review those thoughts now to see where we've emerged, with hopes of providing forward-facing signposts.
NYSE internals almost 10:1 positive. (Update: They're now flat)
Europe extending it's gains. (Update: Thus far the same, albeit some profit taking in Spain)
Performance anxiety (long squeeze) into quarter-end. (Update: This catalyst is now removed)
Financials above BKX 44 (this tell continues to work smoothly). (Update: Check! Still in place!)
The price action in the dollar and commodities smells of "risk on." (Update: We're seeing some reversals today).
Quarter-end influences disappear at 4PM today. (Update: True; see above).
The VXO (-10%) is under the legal voting age. (Update: The VXO (16.44 can barely drive)
Apple (AAPL) is under-performing. (Update: Apple is now massively out-performing!)
FB (FB) RED. (Update: FB is flattish/holding it's own thus far today)
S&P 1350-1360 resistance is upon us and if the tape is gonna hit a wall, it's gonna hit a wall in here. (Update: S&P 1360 whack-a-moled the tape today; this is an important digestion for the bulls if they hope to hit the S&P 1400 price target implied by the reverse head & shoulders).
Barclays (BCS) opened lower in the face of the circle smirk and has continued lower since. (Update: The stock has found some footing (+3%) after getting hammered late last week).
Everyone is referring this European news as a pathway to a TARP-like solution--like that's a good thing? (Update: This is perhaps the most profound element of the current situation; the consensus is on clarity, but few, if any, people I speak with believe that the clarity will be a negative catalyst).
The autos can't drive higher; General Motors (GM) is down 1.3% and Ford (F) is almost 4% lower. (Update: Lower still on the heels of the ISM miss).
Finger pointing, blame games, political infighting, social mood shifts, nationalism, isolationism, electoral rhetoric, income inequality, wars on capitalism, faith in the system, trust in each other. (Update: This isn't a day-to-day observation; it's a cumulative dynamic that bears (and the bears) are watching).
Carnies; circus folk. Nomads really; they have small feet and smell like cabbage. (Update: Enough said)
For my part, this is supposed to be a vacation week to recharge my batteries but I wanted to weigh in as Ruby takes a nap and I found in front of my computer. I am on kid duty the better part of this week--which is awesome and much-missed--and we'll be closing on our new home tomorrow (away from the fray for the better part of the day).
As such, I'm flat risk and intend to stay that way barring any major dislocations; indeed, my biggest risk today should be that I put Ruby's diaper on backward (which may be the case).
Good luck Minyans; I will check in as I can.
Tuesday, July 3, 2012
Since it's an abbreviated trading session today, I'll keep comments short:
On Airbus's July 4th timed announcement that it will invest $600 million to build planes in Alabama, I offer that this is yet another example of a transnational corporation trying to be local amid mounting nationalism worldwide. Like Google's (GOOG) recent Nexus Q announcement, "Made in America" is a big deal today with consumers and politicians and I'd look for more transnationals to follow suit. Will it really work is a whole other story.
On Microsoft's (MSFT) $6.0 billion "non-cash accounting charge" announcement last night related to its 2007 purchase of Aquantive, I'd offer that what started as a few "raindrops" of goodwill charges is increasingly becoming a steady drizzle. And given the volumes of deals done from 2005-2008 at top prices, I expect thunderstorms as the global economy slows. Still, I am amazed at how tolerant investors (and the SEC/FASB) remain on all of these charges. While I fully understand the accounting rules, how something can be worth $6.0 in one quarter and nothing the next is beyond me. And then there is investors' continued willingness to shrug it all off. Imagine what would happen if an asset manager spent $6.0 billion for a stock that went to zero and then tried to tell fund holders that it is okay because the write down is non-cash. While there are nuances here folks, that is essentially what Microsoft just did.
Finally, on Barclays, I'd strongly recommend that Minyans spend sometime reading the FT and Telegraph coverage. From my perspective US media hasn't yet captured the British outrage. And suffice it to say, I think this is a really big deal with implications that will be felt for decades.
Happy Fourth of July. And between your hot dogs and burgers, please take a moment to remember those who made and continue to make American independence possible. We ride on the wings of true eagles.
Fireworks in the SPY
On June 19th, the market quickly became overbought and retreated almost immediately. This time around, it has been flirting with short term overbought readings (yesterday’s S&P short range oscillator is at +7.1) but it has managed to push through.
As I have shared several times before, when the market or a stock visits a significant support or resistance level for the FIRST time (whether it is in technical or sentiment indicators), it often retreats. It’s the persistence and ability to ‘persist’ close to these levels that is important.
The best case technical scenario for the market is to tread water (even though holiday volume is light, as expected) and give very little back. This will help build on recent price gains.
On 6/29, I shared a dramatic surge in percentage of stocks above their 40-day MA, which can be construed as positive divergence. In addition, there has been improvement in the Advance-Decline line. See chart.
Have a happy 4th!
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Wednesday, July 4, 2012
Markets closed for holiday.
Thursday, July 5, 2012
BoE Says More QE and China Cuts
Markets have been enjoying a nice rally since last Friday’s EU Summit. It seems like 95% of the news has been negative since then, but the markets have ignored it all. Hopes for more stimulus and market mechanics have been in control. With end-of-quarter markups, tons of guys were caught short!
So far this morning, futures got a pop as the Bank of England leaves key rates alone but says it will do more QE. China did cut, and now the ECB has cut rates as well. Now that the news is out, perhaps the market takes a rest.
I do think tactically it will be better to short S&P 500 (SPY) above $137.50 up to $139.50 as my oscillators are +80-ish, higher than we’ve seen all year. So if you aren’t “caught” short from last week. This last squeeze can be a nice opportunity to sell some left over longs, and tactically short the SPY.
We do have three pieces of employment data today, as well as the big one tomorrow, so it won’t be easy.
Tuesday’s high on the SPY is $137.51, then the major zone starts at $138.66 up to $138.99 (there is an open gap). The measured move of the inverted and shoulders pattern is around there, but stretches up to 139.50-ish.
The go to stocks we talk about have all had $10-$30 moves this week, so booking some profits, or selling or hedging in some ways makes sense. Even the laggard sectors had spirited moves that lasted for more than a few days.
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Sovereign Peripheral Yields Not Liking the ECB
Today may be central bank intervention day, but sovereign peripheral yields are not liking it. However, arguably, China cutting rates shouldn't make a big dent in US markets as the focus is currently all on Europe.
Spanish yields are seeing selloffs to the tune of:
2-year: 4.64% +55bps
5-year: 6.01% +48bps
10-year: 6.84% +43bps
Is this because the ECB failed to enact any new LTROs? We are seeing the opposite reaction of what you could expect if the "carry trade" was back in style with the ECB cutting the deposit rate to 0. Note that the 10-year auction of Spanish bonds was below secondary market rates, but still saw a dip in demand.
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Did Netflix' Reed Hastings Just Kinda Sorta Preannounce?
Netflix (NFLX) is trading up sharply this morning after CEO Reed Hastings announced on Facebook that Netflix monthly viewing hours crossed the 1-billion hour mark for the first time ever. (see attached screen grab)
Sounds like a piece of important information to casually put out on Facebook.
Now the tricky question is, will that 1-billion hour metric actually translate into a better-than-expected quarter?
It would be monumentally silly for Hastings to drive up expectations heading into the quarter, given how badly the stock crashed last year after the company failed to hit overly-optimistic guidance.
So assuming Hastings learned his lesson, you'd have to think that there's no way he'd possibly put out that number unless he was absolutely certain the market would like the Q2 results, which hit on Tuesday July 24.
Therefore, it's possible that the stock performs well into the quarter, after which we'll likely see a monster move.
In which direction, who knows?
Frankly, this is the type of situation where I really find myself scratching my head.
Is Netflix having a great quarter just too obvious at this point?
Or could Hastings have screwed up by leading the market on?
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Friday, July 6, 2012
Europe is Weak Again of NFP
Liquidity is abysmal in Europe. Markets have continued to sell-off and are back to last week's levels in many cases -- Spanish bonds in particular. Yet, no one seems to care. It is a bit of a bizarre situation. Central banks cut, but that was completely expected. No new ECB programs was a disappointment and still no details on the Spanish bank recap. That is probably the single biggest issue. Uncertainty remains over what will be done or how it will be done. Europe continues to drag its feet on that, which is worrisome. Yet Europe seems surprisingly calm about the recent sell-off.
NFP seems like a total guess. Virtually all of the data has been weak, but ADP came in surprisingly strong. I don't think the real economy has done much, yet we aren't really betting on the number of jobs created, we are betting on the number of jobs BLS says has been created. I continue to believe that their seasonality adjustment is a complete mess (let alone what they do with birth/death). That led to job numbers in Q1 that were far better than the reality. I'm not sure whether Q2 was worse than reality or just reality.
Today's number will be key. The best thing for the markets is likely a jobs number around 100k with an uptick in the unemployment rate due to increased participation in the labor force. That would show some stability in economy and keep the Fed in play as they could look at the ever followed unemployment rate. The worst thing would be a weak report with an improvement in unemployment.
Payroll Growth Pathetic
June Payrolls totaled 80K, 20K less than expected and well below the ADP whisper. The two prior months were revised down by a net 1K. The private sector added 84K jobs (13K from goods producing, 71K from services) vs expectations of a gain of 106K. The unemployment rate held steady at 8.2% as the 128K increase in the household survey was basically offset by the 156K increase in the size of the labor force. The all in U6 rate rose 0.1% to 14.9%. Two positives within the report were the 0.1 uptick in the average workweek and the 0.3% month-over-month gain in average hourly earnings, which comes to 2% year-over-year. The participation rate remained unchanged at 63.8%, but the average duration of unemployment ticked up to 39.9 from 39.7. Bottom line, the 3rd straight month of job growth below 100k is pathetic with an average of 78k in that time. The weakness in April and May were likely due to some weather give back from strength over the winter but June is more likely being negatively influenced from the growing global economic moderation that will likely intensify in the 2nd half, thus furthering the malaise in the labor market. While a figure like today will only invite more FOMC deliberations, if only cheap money was the magic elixir to what ails us, the global economy would be roaring. Deleveraging however is the only real, long lasting cure.
Huge headlines today in Spain's largest newspaper about how the country's sovereign risk premium is back to where it was prior to the summit, and how the efficacy of Spain's bank bailout is being placed in serious doubt by experts inside and outside the country.
Regarding the greatest "accomplishment" of the recent EU summit, it is being reported in Spain and elsewhere that the "vicious cycle between the banks and sovereigns" has not, after all, been severed. Specifically, it is being reported that Spain will have to provide a 100% guarantee of all funds provided by the EFSF and/or ESM, and perhaps even post collateral, in order for its banks to receive bank bailout funds. Furthermore, the article states that Spain's banks may never receive the "direct" multilateral ESM aid since the central supervisory institution that must be created will probably not be functioning before 2014 -- and by then, it will be too late.
The significance of all of this is that I think the news that the recent summit has been ineffectual will be felt as a serious disillusion in Spain -- politicians, consumers and investors. It is very demoralizing. The concomitant gloomy mood ultimately impacts the real economy. Furthermore, it has the political effect of deepening public skepticism about EU institutions.
A final note: This article quotes Finland's finance minister saying that the nordic nation is prepared to exit the Euro if it is required to pay the debts of other nations. She says that "Finland is not going to stay within the Euro at any price." This is a serious escalation of rhetoric by a top official and investors around the world should take note. The sentiment expressed by Finland's finance minister is not isolated. This sentiment is growing throughout Europe and poses a non-trivial threat to the integrationist project.
I believe US investors are dangerously complacent regarding what is really going on in Europe.
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