Buzz on the Street: And the Bulls Kept a Rollin', All Night Long
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, July 15, 2013
Is Silver Basing?
Spot silver continues to carve out a base-like formation for the past three weeks.
That said, however, to trigger the potential of the formation, the price structure must hurdle and sustain above 20.30/60 resistance, which will project upside targets of 21.20/50, and possibly 22.50/80 thereafter.
Only a break of today's low at 19.56 will weaken the pattern, while a decline that breaks 19.00 will wreck the base-like pattern altogether.
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So far, 2013 has been defined by aggressive V formations, making any kind of tactical trading quite challenging. The strength of the S&P 500 (INDEXSP:.INX) has been nothing short of impressive, especially given weakness in quite literally every other major asset around the globe. This begs the question -- is the S&P 500 right, or is everything else by not participating on the upside?
Global growth still remains muted, inflation expectations are not picking up meaningfully, and euphoria over the equity advance is unrelenting. While valuation wise this is not a bubble, the pace of the advance is reminiscent of the latter stages of the 1990s, and the first 8 months of 1987. Everyone seems to be under the impression that a stock market up nearly 20% can't go down. Maybe they are right, but I am much more interested in rotational leadership than old stories. Emerging markets do look ready to outperform, especially given reaction to China's GDP report. As asset allocators around the globe wonder where to put money to work, a 1999 U.S. market may be much less attractive than a 2009 emerging market trade.
We've noted in recent weeks how Q2 was tracking as the worst ever in terms of earnings guidance, but that companies were playing the expectations game, setting themselves for earnings beats.
As of Friday, according to Factset, of the 30 S&P 500 companies that reported earnings, 73% beat on the earnings line, though only 47% beat on revenues.
That may not necessarily be a bad thing -- unless of course, you believe stock prices should relate to actual demand for goods and services rather than earnings management -- as in four of the last five quarters, less than 50% of companies beat revenue expectations (58% is the four-year average). Nonetheless, stocks are up big and near all-time highs.
In terms of guidance for Q3, 8 companies have issued negative guidance, and zero have issued positive guidance.
Tuesday, July 16, 2013
Clear and Present Markets
1. I have mentioned it before, but I want to make sure you "see it" given the -0.1% Retail Sales report yesterday (ex-auto & gas). Beware of consumer stocks in the second half. One consistent message we are hearing on bank earnings calls is that refinance activity has dried up. Mortgage refinance has been an important driver of retail sales, because it increased disposable income and funded both consumer purchases and home renovations. Lower refinancing volume, combined with higher gas prices and a tax increase, are creating the conditions for more challenging second half retail sales than investors expect. Home improvement stores may have a solid 2Q, as Lowes (NYSE:LOW) commented in May that April and May comps were running at about 10%, which allows for significant operating leverage. However, at current valuations, the growing downside risks to growth outweigh the potential upside, and we decided to sell our Lowes position.
2. I made some comments yesterday on Modern Monetary Theory (MMT), and later in the day heard a portfolio manager on CNBC say "at some point the Fed has to sell the $3 trillion in assets on its balance sheet." This person clearly is not familiar with MMT, which views all "dollars" as debits and credits on an electronic balance sheet, allowing them to be transferred or canceled at will. The Fed has "tested" selling small lots of assets back into the market in "Reverse Repo" transactions, and it has not gone well. I could be wrong, but I think the plan is to just cancel the securities or allow them to run-off. Selling the assets on the Fed balance sheet back into the market removes dollars and reduces liquidity, and while I think this could be done on a small scale to cool off inflationary effects if velocity picks up, I don't think it is possible on the degree required to unwind the entire portfolio.
Bonds Forming Head & Shoulders?
TLT (NYSEARCA:TLT) could be forming a Head & Shoulder's Top here. However, The next move appears to be higher in price, lower in yield. Interestingly, Michael Sedacca and I were talking yesterday about how TNX (INDEXCBOE:TNX) appears to want to go higher (sending prices lower). Could we be setting up for an temporarily inverted yield curve? That would be an interesting spin no one is talking about. Hello recession, if so...
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Apples for Apples
Recently, we asked if Apple (NASDAQ:AAPL) was coiled to attack its 50 DMA in a mirror image of the coil at the 50 prior to the June plunge to a test of the lows.
I can't help but wonder if AAPL's relative strength today is a tell that it is poised for an Expansion Pivot buy signal (largest range in 10 days over the 50).
See the daily AAPL chart from May below.
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