Buzz on the Street: The Bulls Cautiously Walk on the Razor's Edge
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, May 6, 2013
Bull Setup in the Russell 2000
An inverse head & shoulders has emerged in the hourly chart of the Russell 2000 ETF (NYSEARCA:IWM). A conservative measured move targets the $99 handle. The Gann Fan shows support just below current price with resistance and target aligning around mid month (options expiration). To this point, each of these setups in IWM has more/less achieved its measured move objective. I'll be keeping an eye on Gann support (middle aqua line) as an indication the formation is failing if breached. Other that that, it is looking like a good long entry right here.
Have a great week!
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Cyclical Rotation Underway?
Friday's payroll data and monthly revisions seems to be serving as a near-term catalyst for a move out of dividend sectors into more cyclical areas of the market. Our ATAC models used for managing our mutual fund and separate accounts rotated into equities, which have failed to participate on the upside and are more pure plays on cyclical strength, particularly through Emerging Markets.
As of this Buzz, utilities (NYSEARCA:XLU), consumer staples (NYSEARCA:XLP), and health care (NYSEARCA:XLV) are all down sizably relative to the S&P 500 (INDEXSP:.INX), and bonds (NYSEARCA:TLT) are not bouncing following Friday's sharp sell-off. It remains to be seen if this will stick, but if money is selling defensiveness in favor of true reflation trades, then stocks outside the US, and commodities could see leadership ahead. If the yield curve is about to steepen in a meaningful way, putting an end to the deflation pulse I have been noting since the end of January, then the fat pitch might be here.
Since the April 19/385 square-out in Apple (NASDAQ:AAPL), I have received many inquiries regarding where resistance might be.
Since exceeding 180 degrees up at 425 and its 50 dma, AAPL ran right to 445, which is 270 degrees up.
360 degrees up from 385 is 467.
At the same time May 6, is 90 degrees square 463.
The bottom line is that there is substantial resistance right here, right now.
That doesn't mean AAPL won't/can't play right through this level, but the odds are it will react to this confluence first.
Tuesday, May 7, 2013
EUR/AUD Looks on the Verge of an Impending Move Up
After having been in a one way downtrend over the last 4 years, we could be seeing a basing in the EUR/AUD in preparation for a sustained move up over the next few years.
The possibility exists that on the back of the calls for rejection of austerity growing across Europe and following the aggressive actions by the US and Japan to revive their own economies, Europe too attempts a shift to "growth mode" over the next few years.
Australia on the other hand is struggling with the double whammy of a strong currency and weakening exports and the rate move seems clearly intentioned to weaken the AUD.
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Yes I'm Free... Free Falling
Good morning. The crushing of credit and credit derivatives spreads continues this morning, both here and overseas. To give you a sense, here are just some of the numbers just from the beginning of May:
JPMorgan (NYSE:JPM) CDS: from 89.5bps to 80.6bps
Merrill Lynch CDS: from 112bps to 92bps
Morgan Stanley (NYSE:MS) CDS: from 141bps to 125bps
Italy's CDS: from 250bps to 233bps
Spain's CDS: from 242bps to 217bps
New All Time Lows in HY spreads: 502bps
Retest of All Time Lows in I.G. spreads: 123 bps
US CDS: from 39.4bps on April 4 to 31.4bps today
What this spells is a frenzy to lend money and when the capital structure underneath equities is in a frenzy, it is impossible to keep the excitement from rising to the upper layers. Is this a blow-off stage? Yesterday I tried to address that using DeMark indicators.
If you want to worry about something, look at the 3 months Volatility Curve. For what seems like forever, equity players have been betting on a spike in the Volatility Index (INDEXCBOE:VIX) by buying out-months contracts and financing them in part by selling near-month ones, creating a very steep curve. With the VIX dropping below 13 again yesterday, the curve remained remarkably quiet as if traders are giving up on the idea that a sharp drop in stocks is inevitable, but just not yet. Through contrarian lenses of course, perhaps that's what we need for the much awaited pullback -- the expectation that it just won't come.
The Rally is in the 10s!
The 2s-10s spread is starting to widen over the past few trading days, signaling risk-taking. Volatility and no sell-off while the spread tightened from mid-March through April is a sign of correction through time, rather price. The TLT:SPY ratio is falling fast, and clearly seems to be in a C decline.
My view is that TLT could be in the low 100's by summer trading. After this initial decline, those that missed the bond entrance, could be provided a second opportunity to enter as the SPX looks to make a minor wave top in the 1632 area.
There is virtually no chatter on Apple having bottomed out. The tone remains bearish in spite of the impressive rally over last couple of weeks. This is a bullish indication and I would use the pullback into and after the dividend date (5/9) to purchase. I view the stock trading $500+ in the near future. With that said the run into the 100 SMA was a good spot to lighten up on and let it digest.
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