Buzz on the Street: How Do You Like Them Apples?
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.
Note: Some links may require Buzz subscriptions.
Monday, November 5, 2012
Fifty Votes of Grey
Maybe it's just me, but I can't recall an election where pundit after pundit was exploring one "what if" scenario after another.
Talk about obsessing on uncertainty.
So why do I raise this?
As a socionomist, I believe that our level of confidence transcends all human behaviors. The fact that we now have extreme political uncertainty fits perfectly with a world in which we have extreme economic, meteorologic, not to mention cultural (as in Homeland) uncertainty too.
Thanks to weak mood, grey is the new black and white.
And I'm sorry if I disappoint folks, but unless mood improves substantially, little is likely to change with tomorrow's election.
Facebook Will Surprise many
Facebook (Nasdaq:FB) is one of the best high volume liquid day trading stock to come out in years. It is an absolute jewel, especially the first 30 minutes, if you have the chops and don't get greedy. But not everyone is geared for this type of trading or even wants to go there.
Not to worry, the chart is also painting a very bright future for longer-term holders. An inverted head and shoulders pattern, a retest of earnings breakout trend line holding, with an eventual target of 31.50. Yes, we have the well know 11/14 event, but I would not be surprised to see the stock 10% higher from here when that occurs. Higher lows on each one of these lockup expiration is going to get the animal spirits going and we should blow past the post earnings high of 24.25 once we clear those final hurdles.
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An Eventful Week
Someone recently pointed out on Twitter (I would credit if I could) that there seems to be a scarcity of signs supporting either Presidential candidate.
During the last election, Brooklyn was jam-packed with pro-Obama signs (with a few McCain signs sprinkled about) on lawns, porches, and store fronts.
This time around, I see nothing. I saw one pro-Romney sign in my neighborhood, and nothing else. All the other political support is towards candidates for local office.
What does that say about the general public's faith in our candidates?
If you're seeing something similar/different in your community, feel free to email me at firstname.lastname@example.org.
Tuesday, November 6, 2012
SPX View: Presidential Statistics
Here is the history of the S&P 500 (^GSPC) cash index, for the five days following the U.S. Presidential election after 1980.
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NLY Mess Bleeding Into Other mREITs
Annaly Capital Management (NYSE:NLY) reported earnings last night, missing lowered estimates and collapsing interest margins. This morning it is down more than 3.5%. Many of the other mREITs including American Capital Agency (Nasdaq:AGNC) are also down 1% in sympathy. Three weeks ago, NLY arrested their decline by announcing a $1.5b share buyback.
NLY is particularly representative of the unintended consequences from the Fed. NLY's portfolio is made up of 93% agency MBS, what the Fed is targeting for its MBS side of the QE3 program. It highlighted specifically the troubles it faced due to the Fed's program in its release. While not exactly a new development, it appears that the damage is everything that we previously feared.
Something interesting came up on their conference call. The vice chairman noted that the principal payments they receive on their holdings (and interest), they have both the option of reinvesting this into new MBS or buying back stock. This may be a new trend we see, where rather than taking the loss on reinvesting into lower coupon MBS, they'll simply buy back the stock. Its akin to a hedge-fund returning investor capital, or a bank returning depositor money. In some cases, NLY is reinvesting a 5% coupon into a 3% or less. The other issue is that NLY is trading below book value, the reason is that the market does not believe NLY can continue the 13%-14% dividend it is currently paying. A true dilemma.
If the curve started to flatten (doubtful,) things would REALLY get interesting.
Some interesting factoids from the call:
-Annaly realized a 20% CPR (prepay speed on mortgages) from 19% last quarter. This is a lot higher than you would expect, given that a current FNM 4.5 has a CPR of 28%. The CFO made it sound like they own 15y vs 30y MBS, and CMOs.
-Principal prepays were at $10b, up from $8b last quarter.
-Vice chairman notes on the election, "if Obama wins, we potentially see more policy meddling. And there could be the point at some time where you actually see assumability of mortgages... I could see them instituting a policy that would make it so that people could still move around and maintain a very low coupon mortgage"
-The call also covered their comments on the state of the repo market. The company is able to lock in their short-term lending for longer periods now, at much more advantageous rates.
-The CFO believes that there is a "ton of cash on the sidelines" waiting for the right conduit to invest in, and the uncertainty of the fiscal cliff/presidential election to subside.
B to the B
Gold and silver have exploded in the last hour with Silver (NYSE:SLV) rocketing off its 200 dma in the spirit of Train Tracks on its dailies.
Is the market anticipating more Ben with a Barack win?
The market likes free money the way drunks at a bar like free whiskey, but to paraphrase the Maestro, is there anyone out there that thinks we’ll get out of the hole we’ve dug ourselves without pain?
Wednesday, November 7, 2012
VIX Futures Halt Is a Warning Sign
A week after the Chicago Board of Options (CBOE) announced record trading volume in its VIX based futures contracts for the month of October, those futures and their related options had been halted for trading at midday due to “system problems” at 1:40. Trading resumed about 40 minutes later at 2:15 ET with little damage done.
But I think if this had occurred earlier in the day near the opening you would have seen a ripple effect as those, man and machine, looking to hedge or get protection using these volatility products might have turned to even more aggressive selling of index futures such on the S&P 500 (^GSPC) and Nasdaq (^IXIC) potentially triggering something of a flash crash. Take this as a shot across the bow that another such incident seems inevitable as the markets have ever increasing volume in complex derivatives that might not behave the way they are expected during times of market stress.
Late yesterday afternoon, I did something that I rarely do; I juggled cats. No, no -- that was last Tuesday, sorry! There's a lot going on these days--sorry for the confusion; wait, I got it....
Four Mo Years!
I shared a midday vibe from the Buzz on MV Proper because I felt it was an important column for those looking to snatch acorns along the path of maximum frustration. Positioning into the Presidential Election, posted at 2PM EST, chewed through the positives and negative dynamics in the marketplace and arrived at the following conclusion:
"My sense -- and it's just a sense -- is that odds favor a downdraft tomorrow.
How much conviction do I have? Enough to share (all a man has is his name and his word) but not enough to slap bank on the table.
With a Nor'easter on the way and a powerless house in the burbs, my focus needs to be on my family and my business -- in that order -- with my P&L a distant third."
This foresight was in part predicated on the following rationale, as shared on yesterday's Buzz:
If Obama wins, markets likely sell-off. If Romney wins, initial reaction will likely be higher. If the race isn't decided by tomorrow morning, markets will sell off. Given the almost 3-1 odds on Obama winning (72% probability on In-Trade), that would seemingly provide an advantage to the bears heading into tomorrow.
To be clear, this isn't a back-pat or a victory lap--we don't roll that way in the 'Ville and as shared above, I didn't make a downside bet despite my bearish inclinations -- The Minyanville Mission has always been to effect positive change through financial understanding, from the ABC's to the 401(k)'s, and doing so through a vicarious learning process has been recognized as a legitimate educational experience.
But enough about that -- the key to longevity in this business is not to look (down and) back, but to look out (and up). Per yesterday's second column, there were dueling technical patterns in play -- the S&P 500 (^GSPC) was churning under resistance (S&P 1400 is the first support, and S&P 1380 is the BIG support), while the NDX (^IXIC) was clinging to the 200-day like Ruby clings to her Ducky. And, given that Apple is the Most Important Stock in the World, the inability of the world's most loved stock to recapture it's 200-day provided a stealth tell. I've provided all three charts below.
Finally, and only because we've been talking about this for about a month, we should note that marijuana legalization passed in Colorado and Washington. I can't discuss specific names because they're too thin (perception is reality) but this furthers my belief that cannabis plays could provide the best risk-reward of any industry in the next decade.
Why? Four reasons: Increased tax revenue, lower crime rate, its additive, on the margin, to the job market and nobody on Wall Street covers these names. This isn't a trade, it's a long-term thesis, and the first such vibe I am comfy putting my name to in quite some time.
Lemme get this to you, more to come; please understand that with the nor'easter bearing down, and my family and home still without energy or heat, I will boogie back to the burbs midday before the Long Island Railroad shuts down, as is being rumored in the sticks.
Good luck today and remember, profitability begins within!
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Thursday, November 8, 2012
Bidding For Groupon Straddle
I may not get filled on this order, but I thought I'd lay out my rationale for Buzz subscribers: (note: Professor Sedacca's already put a similar trade on)
I have an order in to buy the Groupon (Nasdaq:GRPN) $4 straddle on this week's expiration. A straddle is simply buying calls and puts on a stock to speculate on a large move. By buying both puts and calls, an investor can bet on the size of a move rather than its direction.
I'm bidding $0.65, which means I want Groupon to trade below $3.35 or above $4.65 by the close of trading tomorrow.
So if Groupon is up 20% or down 14% tomorrow from the current price ($3.89), I'm in the money. Anywhere in between, the trade is a total loser.
My thinking is simple: we've seen huge, huge moves from controversial social media companies as of late, and I would assume Groupon will be subject to the same kind of volatility.
Plus, I'm encouraged by the fact that Groupon announced today that it cut 80 sales staff members as it is "using technology to increase productivity through automation". Sounds like BS to me, yet the stock is up today! What if that's actually a harbinger of doom? Or a sign of much higher margins to come?
And if Facebook (Nasdaq:FB) can rally as much as 24% on an upside surprise, and Zynga (Nasdaq:ZNGA) can fall as much as 22% after cutting guidance, I think Groupon has a decent shot at putting in a monster move tomorrow.
Note -- I used intraday highs to calculate these numbers because with these types of trades, I lock in gains pretty quickly as they go into the money.
Again, I might not get filled (haven't yet) -- but I wanted to give readers an idea of how I look at these situations. And whether or not it gets filled, I'll put in a post-mortem tomorrow morning.
Qualcomm: Conviction Rewarded
The first thing I'm going to say is that I really believe Qualcomm (Nasdaq:QCOM) should be up more on its earnings report. Yesterday, I stated the stock should/could reach $65 on the beat I predicted. However, the caveat was that this market is constraining any meaningful valuation expansion.
Intermediate to longer-term, I still feel my low-$80's price target will be hit and frankly $100 would not surprise me. It's just a matter of time and a little help from Mr. Market. The clear risk-off feel hangs in the air and serves to compress the big winning reports. I have essentially had the same thesis on QCOM since mid-2010 (if not earlier) which is predicated on a multi-year cycle from 2G to 4G/LTE and beyond. My last summary point is that while Apple (Nasdaq:AAPL), Google (Nasdaq:GOOG), and Microsoft (Nasdaq:MSFT) get lofty praise on cash flow, QCOM is just as strong. Before the quarter, QCOM had roughly $24 billion in net cash, and it added a whopping $4.3 billion to that number. This is similar to what AAPL has done percentage-wise in its best cash production quarters.
Bottom line, this name remains one of my favorites and in fact is either my first or second-ranked semiconductor name, depending on valuation.
An Apple Buy-Stop a Day
I wouldn't try to bottom-fish a falling knife (did I get that right?). But there are stages where short-squeeze potential becomes compelling enough to buy strength.
Apple (Nasdaq:AAPL) signaled a new downleg was underway when it made two consecutive closes under 625. Today it is testing significant support at 547.25.
What makes a rally compelling is how that support is being tested.
This morning's open gapped up in a downtrend before reversing to extend the downtrend, so relevant sponsorship is available. Since meeting the 547.25 target in the session's first hour, the balance of the session has only ranged around it unproductively. While ranging, RSI diverged positively on the afternoon's retest of the morning's low.
Perhaps most compelling is my Up/Down-crash setup. A sequence of 10-11 directional closes, allowing 1-2 non-consecutive countertrend closes, often precedes either a steep reversal of that trending, or else a significant acceleration.
So, as I said above, I wouldn't try to catch a falling fish (still doesn't sound right). But a buy-stop placed above noon's 552 high shouldn't trigger a relatively tight trailing stop if a squeeze to 573 or 598 is underway.
The trend otherwise remains down. Very, very down.
Friday, November 9, 2012
Apple (Nasdaq:AAPL) is down 24% from it's 2012 high two months ago, almost in a straight line. For those of you looking for a Snapper---which could then feed into upside perforamance anxiety--this is setting up as a decent risk-reward with a stop below $530, per the chart below.
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New Rule: The Best Trade is the One I Didn't Make
Quick post-mortem on Groupon (Nasdaq:GRPN):
As I suspected yesterday afternoon, the market was underestimating the potential move in Groupon after earnings yesterday.
Unfortunately, I didn't get filled on my order for the $4 straddle on the weeklies, because as of now, the stock is trading at around $3.00, well below the $3.35 breakeven point on the trade. At this price, the straddle is worth about $1.00, good for a 33% one-day gain had I raised my bid price from $0.65 to $0.75.
In hindsight, I should have raised my bid price, but shoulda, woulda coulda!
However, keep in mind that the Groupon move seems to confirm the trend of the market dramatically underestimating the post-earnings moves of controversial stocks.
All this year, we've seen stocks like Facebook (Nasdaq:FB), Green Mountain Coffee (Nasdaq:GMCR), and Netflix (Nasdaq:NFLX) make post-earnings moves that completely dwarfed what the options market was implying going in.
Greece Bonds, ECB
There is increased chatter that the Bank of Greece will fund the bill redemption next week from the ECB's Emergency Liquidity Assistance (ELA) program. There's next to no information available about this, so I will assume it is akin to the Fed's Discount Window. These bills are used by Greek banks as collateral for emergency funding at the ECB, not to mention cash for the Greek government itself.
Oh yea, and did I mention that the EU5b bill coming due next week was used to pay back an ECB bond redemption in August? And now the ECB is saying that this special bill cannot be rolled over.
So next week there are two important events on the Greek agenda. The 2013 budget vote on Tuesday (should be late afternoon in the US) and the redemption on Friday. Keep your eyes peeled for any chatter about the redemption and the ECB. There is also the EU finance minister meeting on Monday, but it has been completely telegraphed that there will be no decision about further aid disbursement to Greece made until later in the month. That means the upside surprise is that something happens.
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