Buzz on the Street: The Dark Market Rises
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 16, 2012
TBT Final Leg Down
My near, intermediate, and longer-term work are all screaming that purely from a technical perspective, the ProShares UltraShort 20+ Year Treasury (TBT) are positioned for one heck of a surprising sling shot move in the opposite direction. Ahh, but the world in which we currently find ourselves is not so neat and tidy, is it?
We have Bernanke's testimony tomorrow and Wednesday, which could hint at more stimulus in the form of bond or mortgage buying. We have continued weak economic data (today's entry was sluggish Retail Sales despite lower gasoline prices). And we have suspicions that China is gearing up for considerably more stimulus, too!
Finally, we have the unmistakeable sense that investors and fund managers remain skeptical of stocks and still friendly to bonds (remarkably)! Why? Because the bond bull market lives, and bulls love markets that continue to climb -- until they don't!
Bottom line: From my technical perspective, all of the weakness off of the June 13 recovery high at $16.22 in the TBT into today's low at 14.46 represents the final downleg of the entire bear market, which entices us to remain long in our site's model portfolio.
At this juncture, only a stock market implosion (crash) will exacerbate the current decline in the TBT's (climb in bond prices) into a vertical panic-- and while that is possible, it remains improbable. I am looking for a place to add to our long TBT positions in the upcoming hours.
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Cable Stocks Acting Well Ahead of Another Earnings Season
Another quarterly earnings season is about to kick off with cable stocks the preferred investment of late for media investors.
Google (GOOG) will kick off another earnings season for media investors after the close on Thursday. Next week will bring Apple (AAPL) and some other technology companies closely related to media and communications. As usual, the bulk of the traditional media companies report toward the end of the month-long quarterly earnings season.
Recently, the market has been volatile with investment sentiment souring as the European sovereign debt crisis continues, and economic data from Europe, the U.S. and China shows slowing global economic growth. Ad-supported media stocks have help up pretty well so far during downdrafts, and catch a bid in rallies. This is encouraging for bulls coming off a slightly weaker-than-expected upfront. I think investors may be looking more favorably on traditional media because the companies are more focused on domestic markets than overseas economies, in particular Europe.
This especially appears to be the case for cable system operators. Comcast (CMCSA), Time Warner Cable (TWX), and Charter Communications (CHTR) are all trading at multiyear highs. Even Cablevision (CVC) has bounced strongly, up 30% from its lows, despite very poor financial results and negative year-over-year growth trends. Not to be outdone, non-U.S. cable operators are also seeing their stocks with Liberty Global (LBTYA) and Virgin Media (VMED) up about 10% since early June.
I think the participation of the non-U.S. operators is a sign that more is at work than U.S economy focused businesses. Investors probably like the utility like nature of the cable business. History has shown no major slowdown in growth during recessions as households tend to hang onto their cable services while cutting more discretionary expenditures. Cable stocks have a defensive business model and their stocks gain attraction when worries about the economy rise.
There could be even more at work. A recent report indicates that Pay TV bills rose over 7% in the last year. Direct price increases for cable TV had been in the low single digits so the higher growth is a signal that customers are spending more on premium or advanced services. This could further suggest that despite all the talk about cord cutting and cord shaving, households actually still find a lot of value in their cable TV subscription.
In fact, I think it is fair to say that worries about cord-cutting have receded. There are fewer news articles and analyst reports focused on the issue. This is not a surprise as reported data indicates no major uptick, and net subscriber numbers indicate that sub losses have slowed.
Less focus on cord-cutting also lets investors focus on still-growing broadband subs that are coming on board with no price discounting. The opportunity in small and mid-size is also getting greater appreciation and the segments are now at a size large enough to be material to overall company growth rates. Success outside of core residential cable also could be improving investor confidence in the home security business that is more recently a focus of cable companies.
Entering earnings season, I think cable stocks remain a good place to invest. There is a risk the strong stock performance has raised the expectations bar. This risk is higher as companies are about to report a seasonally weak quarter. However, I think the defensive nature of the cable business will remain attractive to investors as long as Europe is simmering, the U.S. economy is slowing, and uncertainty exists over 2012 US fiscal policy.
Cimarex (XEC) pulled back into Friday's range as early trading traced out an intraday Cup & Handle on its 10-minute chart.
The stock pivoted out of the Cup & Handle and now shows a first 1 2 3 Pullback on the 10 minute, which sets up an extension higher.
Note the pullback on the dailies to the 20 dma last week following a breakaway gap to the upside on June 29 followed by a first kiss of the overhead 50 dma.
XEC looks coiled for a move above the 50 dma.
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Tuesday, July 17, 2012
Isn't It Ironic, Don't Ya Think?
In the category of most ironic question of the day, and reflecting complete cluelessness of what powers Congress has given the Fed for monetary policy, a Senator is asking Bernanke what he thinks about the evils of rate manipulation. The Senator is talking about LIBOR and referred to it as a key economic indicator, which of course it is, but so is the fed funds rate and the entire interest-rate curve which Bernanke and Co. has done such an infamous job of manipulating. To the Senator's question, Bernanke responded "it was unacceptable behavior."
Same Old Big Ben
Markets were looking for the "When?", not the "If?", and were disappointed around 10:00. Big Ben basically said what he has been saying for the past year or so, if not longer. Markets wanted some shots fired.
S&P 500 (SPY) tried to push through resistance and failed, 135.89 was the pivot. Once we went back below it was a signal to sell some stock or get short. Similar day to July 10.
JP Morgan (JPM) gave clues as it gave back a bit more than It should have from Friday's gains.
Goldman Sachs (GS) also failed to hold above $99-$99.50.
Low of the day right now on SPY is $134.55. The longer we stay below 134.90-135.30, the higher the probability we can see some lower prices. Next area of support is $134-134.20, then the Intermediate trend line.
It will be interesting to see if for the first time we don't go from the low end of the range back to the upper end. As of now, we are getting cut off in the middle. (lower high, with an event)
Very mixed tape as some stocks that have been weak continue to break down, like Baidu (BIDU) and the cloud names.
Casinos have been broken and remain broken. Retail is mixed.
CF Industries (CF) and Monsanto (MON), the "Go To Ags", stay impressive.
I still would not press each end of the range as it hasn't yielded easy results.
P.S. I know the strategy failed in Facebook (FB). But sometimes a loss could be a win. If you use stops when trades change, you can save a lot of money. Got stopped out at 30.25 yesterday for a loss. But that's a lot higher than today's low of $27.10.
Uphill Battle For New Yahoo CEO
I've been doing quite a bit of thinking about Yahoo's (YHOO) new CEO Marissa Mayer, who was a longtime executive at Google (GOOG).
Mayer did a lot of work in user interfaces at Google, so I would suspect that Yahoo sees her as the right person to spruce up Yahoo from a visual perspective. In addition, the fact that Mayer is just 37 is big. To me this means that Yahoo wants someone that's 'with it' to help it better compete with Facebook and Twitter for eyeballs.
However, it does seem to fly in the face of Yahoo's last CEO appointment -- Scott Thompson -- who was a techie (inaccurate resume notwithstanding) fit to clean up Yahoo's back-end.
So which strategy is right?
Should Yahoo focus on improving the user experience? Or fix the tech issues? Everything at once? Is that even possible?
Notice -- Yahoo shares had an initial pop in after-hours trading yesterday, but has given up all the gains and is now actually slightly negative on an up day for the Nasdaq. This is a sign that investors are still skeptical that anyone can turn Yahoo around.
Wednesday, July 18, 2012
After a long hiatus to work on my new book and help my family through numerous medical challenges, I am so happy to be back with you again! I have really missed being part of the great Minyanville community. I hope to have some killer trades and great trading psychology for you and invite any and all comments, questions and suggestions. It's great to be back!
We are presently short NQ (NDX futures) at 2623, and behind the eight ball so far. The spike high on July 10 (arrow on chart below) is what the bulls have to overcome here. We will be quick to cut this trade if the bulls prevail as we believe that nicks are a part of doing business. Gashes are not!
Intraday, NQ seems to be rolling over and we remain with our bearish view.
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Covering Intraday Shorts
I am covering my short of the NDX I mentioned earlier.
Fed's Beige Book
The headline is that the Fed saw weaker manufacturing and retail spending last month, and a "slower pace of growth".
- Most regions noted strength in auto sales.
- Housing market and construction levels were largely positive, but inventories declined.
- Several districts noted slower new manufacturing orders
- Real-estate loans and loans in general grew modestly
- Business still remain "cautiously optimistic" about future business conditions.
A Ridiculously Strong Day
Michael A. Gayed
Markets continue to follow-through from yesterday, but in a more powerful way than most may think. The bear trade is utterly collapsing, with Consumer Staples (XLP), Utilities (XLU), and Healthcare (XLV) all failing to keep up with the market rally whle small-cap stocks outperform once again. Our ATAC models seems likely to reposition BACK into stocks after flipping into bonds last week, which is something I noted in my writings was likely to happen given the extreme movement of various intermarket relationships. I suspect we could close above Dow 13,000 in the coming days as money begins to once again question where else it could move with bond yields this low, and with companies increasing dividends and share buybacks. Next up? China - any whiff of fiscal stimulus could send stocks cheering in a way that makes everyone want to chase and re-question the negative narrative.
Thursday, July 19, 2012
AAPL Knocking on 615
If Apple (AAPL) investors are hoping for new highs this summer, they'll surely want to keep their eyes focused on the 615-620 band of resistance. A break above this level would open the door for a retest of the highs. See chart below.
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Answers I Really Wanna Know...
What the heck were the Knicks thinking letting Jeremy Lin go at a very reasonable rate (on a relative basis)?
As the S&P and NDX are just playin', playin' in the band, is the mainstay movement just noise at this point?
Is Crude telling us that this ain't just another run-of-the-mill dust-up in the Middle East?
Was our Ojai discussion really seven years ago?
Volumes today are 20% higher than the 30 day moving average. Doesn't much feel that way, eh?
Would now be a good time to remind ye faithful that the banks are "OK" above BKX 44?
When is the last time you read Kevin Depew's The Modern Stealth Depression?
Are we having fun yet?
First Sign of Weakness
The bounce that the charts had pointed out to has been great, as S&P is hovering at 1379. The tech sector has really sparkled. But it's always prudent to pay attention to underlying strength and weakness in certain sectors.
I am starting to get concerned about banks. Bank of America (BAC) is in the vicinity of June lows.
Maybe they are starting to fret about Spanish yields, which are not easing! It's disconcerting to see the action in yields.
I continue to believe that we remain in a choppy, up-down market environment.
Friday, July 20, 2012
The T Report: I Feel Like Bill Murray in Groundhog Day
More Of the Same
Spain is weaker again this morning. Stocks and bonds are both lower.
Corporate credit is a touch wider with MAIN at 163.75 or almost 2 bps wider on the day. IG18 is opening at 109.5, or 1 basis point wider. German stocks are down, but nowhere near as much as Spain or Italy.
So it is risk-off in periphery again today, with a mild reaction so far in "core" markets.
As I wrote yesterday, it is incredibly tempting to be short, and so far that would have been the right trade with futures down and IG a little wider, but somehow I can't quite pull the trigger yet.
Commentary still seems very skewed to the negative side. Everyone seems to be pointing out that Volatility (VIX) at 15 will mark a top. I tend to agree, but the widespread agreement scares me.
There are some people pointing out that last year, when Germany hit 0% yields, it was a low for stocks and we saw a significant rally, but far more people continue to point out Spanish bond yields as a core problem.
If I felt that the majority of people were pounding the table suggesting to be long here, I would definitely be short, but as it stands, I will remain with my roughly 50% long weighting.
IG18 does look extremely rich. It is trading at least 4 bps rich to intrinsic, which seems overdone. With fixed income ETF's like High Yield (HYG) not even trading at a 1% premium, that just seems to rich and it is likely to underperform regardless of market direction, as even in an improving environment, it will lag as single names catch up.
Banks remain a focal point. Their underperformance yesterday was telling. There is real concern about the future profitability of these institutions. There is concern about the LIBOR scandal. As a whole, I am torn between whether the market is overreacting to weak earnings out of Morgan Stanley (MS) and the overhang of more regulation and lawsuits, or that in spite of some better housing data, the economic malaise we have seen in Europe is spreading here, and will hit the banks hard.
It is hard to own any of the "LIBOR" banks without a better assessment of their exposure. As I dig deeper, I'm growing comfortable with some of them and getting a little scared that there are some big potential issues at a couple of the banks.
Will Europe "Evergreen" Spain and Italy?
There is some conjecture that the EFSF will start buying bonds. I think the most likely outcome that is easiest to swallow for the big countries and still gives some benefit to Spain and Italy is to participate in t-bill auctions.
The lending nations should be relatively comfortable with t-bills. Even Greece never defaulted on t-bills, so the EFSF can borrow 6-month money at next to nothing and pass it along to these countries.
That isn't as good as providing long-dated cheap money as it retains a lot of roll risk and depends on ongoing commitment to support. But it is better than nothing, should be palatable to the lending nations, and takes advantage of the fact that EFSF really can borrow at zero.
I don't think supporting the secondary market does much as Spanish banks aren't selling much – they have their bonds tucked away in hold to maturity books, so using what capital money is left in the EFSF for primary market operations seems a better use to me.
The Direction of the Dollar
Michael Sedacca had a good question regarding my observations about the DXY and the S&P, specifically, whether the divergence was related to Euro selling. I think that's very much the case. But the real question is whether or not this trend will continue. It's an important question because if you like building macro cross-asset allocation models (And frankly, who doesn't? Wait, what? So, it's just me, then? Oh...), your strategy is predicated on understanding this issue.
For that, I'd like to humbly submit Professor Kurtz's piece from yesterday on collapsing German yields. More than anything else, I think Professor Kurtz does a great job of capturing mood. "Me, here, now" risk aversion would drive German yields negative, because it makes little sense otherwise. And the ongoing fiscal/banking/sovereign crisis provides the rationale for Euro selling.
The social and political situation in Europe continues to deteriorate, and as Professor Kurtz mentions, this is bound to have a profound impact on the Japanese yen. The possibility of a yen devaluation isn't outside the realm of possibility. And if I recall, these two currencies are the biggest components of the Dollar Index. Both of these events, in tandem, would be a boost for the dollar.
So thinking about the implications of these issues within a macro-based cross-sset allocation framework, you start to see the possibility of a rising dollar with rising US equities and lower Treasury yields. For the past decade or more, this would've been unthinkable. I'm not completely wedded to seeing this scenario unfold, I'm just offering that from my perspective: 1) It exists and 2) Here's a backdrop under which it can unfold and continue.
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