Buzz on the Street: The Bulls Hang Tough, but Gold Gets Smashed
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.
Here is a small sampling of this week's activity in the Buzz.
Monday, April 8, 2013
Google Falls Again, Nearing Important Support
After a stealth drop in mid-January, Google (NASDAQ:GOOG) stock soared over 20 percent into early March. And with that run higher came talk of GOOG's stock price hitting $1000/share. Whether GOOG would or wouldn't hit $1000/share was irrelevant. What was relevant was the fact that many were feeling like $1000/share was inevitable. And this behavior often is a sign to be cautious.
Since then, GOOG has fallen about 7 percent. And on Friday, GOOG gapped below its 50 day moving average towards an important confluence of support… one that active investors should be paying attention to.
Below is a near-term chart of GOOG stock. To give you an idea of how my technical eyes move, here's what stands out to me:
-Price is below the 50 day moving average (caution).
-Price is still above the short-term uptrend line from November to present (important near-term support).
-Price is resting just above a confluence of support (around $765): uptrend line, 38.2% Fibonacci retracement, and the October closing highs -- this area also aligns with a measured A-B-C move lower. (very important near-term support).
It is the last point that is the most important from a near-term technical perspective. If the stock can hold above $765, it will remain constructive for a bounce, or perhaps more.
Keep an eye on the Relative Strength Index (RSI), as it is currently at 38.50. Note that a drop down near 30 often leads to a trading bounce. However, I prefer an RSI divergence before I enter longer-term swing trades.
Trade safe, trade disciplined.
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Looking Forward on Treasuries
There are going to be some predominant themes for Treasuries going forward, so I'll lay them out here and try and work through the potential implications.
The first and most obvious is Fed tightening or tapering. When do they start and how does the market react? First, we know that FOMC officials are looking for sustained growth in the job market, probably at least 4 months of 200K NFP growth, smoothed or not. Thus far we haven't seen that and we're beginning to see more deterioration. So at least for the next 4-5 months, we shouldn't see any real threat from this.
If Fed researchers and Street strategists see a 3-4bp effect on rates per $10b in 10-year equivalents (current is $75b/month) then we shouldn't see a great rise in rates once the first $10b-$15b gets slowed down? Moreso, we'll see a greater effect. Once the first reduction is made, markets will begin to price in a full stop, which should be more like a 25bps rise.
One thing that will keep a "cap" on rates is the heavy ownership of agency MBS, not just by banks, but by everybody. In order to hedge these positions, when we got to 2.1% in the 10-year, the market was at one of the shortest points ever. This is due to a lack of supply in the Treasury market, due to plain old safety demand, "West Coast manager" shenanigans, and POMO purchases. But needless to say, unless we start seeing positions unwound in mortgages (unless the Fed stops inserting reserves, this won't happen), it makes a difficult case to see Treasuries fall through 2.25%. Now, with the BoJ's foot permanently stuck through the floorboard, that will provide more support for the long end of the curve.
Wednesday's FOMC minutes are less telegraphed than January's meeting minutes. The overarching theme thus far from FOMC/Fed governor speeches has been that the benefits far outweigh the costs of any asset purchases. If you recall from January's meeting, the Fed staff was supposed to do research into this topic. So, I would imagine that we see some kind of resolution with regards to that, which is a dovish sign.
Silver Shorts Surge
A smart trader I know forwarded the above Silver (NYSEARCA:SLV) chart to me this morning, which ties to the notion of a possible successful test of the lows in Gold (NYSEARCA:GLD).
It's interesting that there was NOT a big short position at the November 2008 crash low. In the crisis, there was a lot of forced selling and players were getting margin calls and forced to sell what they might not have otherwise sold.
In addition, it looks like that was a test/major higher low from the breakout in 2005 coincident with a spike in silver shorts.
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Tuesday, April 9, 2013
ETF Slows: JNK Has Second Biggest Daily Withdrawal
The iShares MSCA Floating Rate Fund (NYSEARCA:FLOT), a fund that basically buys floating rate debt of banks, has seen extreme inflows recently. While just over $1 billion, almost all of the flows have come in 2013. While interesting in concept as it would see yields rise if LIBOR rises, I don't find it particularly appealing here. Unlike leveraged loans, which have LIBOR floors, these are pretty much LIBOR plus a spread, and if nothing else, Bernanke has beaten it into my head that he is not raising short-term rates any time soon. So there isn't much benefit from owning these assets. It does avoid the "interest rate" risk but doesn't directly benefit from a sell-off in treasuries. I am concerned many shifting money into this don't fully understand that. I can see the appeal, the fund seems okay, but doesn't suit our view of when the Fed will raise rates, and doesn't directly benefit from a rate sell-off.
Last week, the Junk Bond ETF (NYSEARCA:JNK) saw a single trade of over $400 million that was an outflow. You can see this story from Bloomberg which quotes us. We are seeing more and more institutional clients use the ETFs for rebalancing their bond portfolios. As bonds become less liquid (Dodd Frank isn't doing any favors for liquidity), we are seeing more institutions using ETFs to manage risk and some more aggressive ones using the creation and redemption process as a "stealthy" way to either source bonds, or to liquidate bonds from their portfolio.
To be clear up front, I don't have a dog of any kind in the Ron Johnson/JC Penney (NYSE:JCP) saga.
Still, I couldn't help but notice the parallels in the stock performance of JCPenney and Apple (NASDAQ:AAPL) since Mr. Johnson jumped ships.
Mood is a funny thing. At the peak, we think leaders are brilliant. At the bottom, they are idiots.
The Apple mood halo for Mr. Johnson and other Apple leaders two years ago was extraordinary. By going it alone though, Mr. Johnson had much more to prove more quickly than his colleagues in Cupertino. (Or to put it in stock market terms, due to weaker sentiment, JCP didn't confirm the final Apple high.)
But notice how Apple stock has been playing catch-up since then. Today everyone, associated with Apple at its peak is under siege. And should mood fall further, what was seen as a huge positive -- working at Apple -- will soon be seen as a real negative.
To these eyes, the person who should be most concerned about Mr. Johnson's departure today from JC Penney is Tim Cook.
As huge declines in confidence are marked by acts of sacrifice, I'd offer that Mr. Cook is intensely vulnerable should Apple stock continue its drop.
Don't wish for it. Just putting it out there.
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Upturn for SLW & Miners
My near- and intermediate-term pattern and momentum work in Silver Wheaton (NYSE:SLW) argues strongly that last Wednesday's unconfirmed low at 27.78 ended the corrective decline from the Nov 2012 high at 41.30 (-33%).
That said, if accurate, that means the price structure has turned up into a new up-leg within the much larger bull trend in SLW.
The first real litmus test on the upside will come at 30.60-31.00, which should be hurdled, and will trigger upside continuation and acceleration towards 32.00.
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Wednesday, April 10, 2013
Playing Tata Motors For a Bounce
Tata Motors (NYSE:TTM) is at the lower end of its trading channel over the last 15 months after a 20% correction over in the January-March quarter.
While it's debatable how large or sustained this up move can be given the overall negative mood and slowing economic growth globally, bounce back up to its 100 day moving average could be a possibility.
On the newsflow and fundamental front, here are the quick stats:
Jaguar Land-Rover sales numbers have been strong for the last 4 months (in the range of 32,000-33,000 units) and company has been able to maintain margins (14%) in a very tough environment.
In March 2013, they posted cumulative global sales of 53,772 units which is an all-time high for the JLR combination under Tata's ownership.
With the recent correction, the stock trades at 7.6 P/E FY Mar 14 estimates.
Liquidity -- stock trades about $35-40 mln per day in the ADR.
Hence, TTM seems worth buying for a bounce-back trade on the back of a large correction and positive fundamental data.
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Lockhart and FOMC Minutes Deeper Dive
Atlanta Fed President Lockhart made a speech this morning, and do keep in mind that he's part of the new "curtailment" crew. Seriously, do they get together every six weeks, grab a thesaurus, and figure out a synonym for "lowering" just to screw with us? Anyway...
Lockhart is kind of a moderate. He's worried about the usual stuff, balance sheet getting out of control, but is also a strong proponent of monetary accommodation and isn't worried about asset bubbles and the like. The jist of his latest speeches have been that they're worried fiscal policy will constrain economic growth, so there could be pain on the horizon by the summer.
-Says boosting bond buying is possible if economy turns worse.
-Worried about the drop in the participation rate, but cautions that we shouldn't overreact to one bad month.
-Possible to wind down asset purchases at the end of 2013 or early 2014, but it is premature to focus on tapering of asset purchases.
Overall, I think he's leaning dovish.
Onto the FOMC Minutes. Frankly, I don't know if there is a recap I can write that does justice to some of the topics explored in here. Here are a few things that I jotted down:
-They discuss never selling any MBS assets to not damage "fiscal stability" (translated: break stuff). To me, the next logical step would be never selling Treasuries. For those that believe in the "stock" argument, this would essentially be another form of accommodation.
-The costs vs efficacies section is worth taking the time to read. One, that a few participants doubt that LSAP actually does anything (probably Fisher and co. here). They do point to the first program having more effect than the latest, notably because of where the financial system was then and now (duh).
-If tapering would occur, it seems more likely the cutback would happen in MBS only vs a broad reduction. This has been brought up before and it's coming up again, they would prefer to focus on the main interest rates then focusing on a certain sector of the economy, not necessarily new here.
-Generally though, I got the sense that they're a little freaked out about letting rates get out of control and not having control over the Fed Funds rate if they start selling. They also note that if net income from its SOMA portfolio falls to 0 or negative, it would create a negative viewership of the Fed.
Generally though, you can conclude from the minutes that they aren't in a hurry to stop QE, especially given the recent deterioration in jobs data, ie: NFP/jobless claims. But the one solution to the risk to financial stability are to never sell, something that we and many others have been propagating for quite awhile.
Out of Microsoft
I just unloaded the remainder of my Microsoft (NASDAQ:MSFT) May $28/$29 call spreads here at $0.82. I'm possibly leaving another $0.18/lot on the table, but I'm okay with that as I don't want to hold into earnings.
There was a strong possibility of the stock reacting positively to a lousy earnings report that everyone was expecting, but it now appears that notion is crowded, so I'm out. Not a big win in nominal terms but I will be ordering extra cheese on my Whopper.
Thursday, April 11, 2013
Oil Setting Up for a Long-Term Breakdown
CL (light sweet crude futures) is once again headed back down to test long term trendline support, now around 92. Bulls cannot afford another test as it gets weaker every time (rule of 4). CL traders can be thankful that yen carry trade does not seem to spill over to the CL pits that much, so we actually have a vehicle that is tradable.
As far as the Yen carry trade, repeat of 1998 fiasco is possible, but this time with Europe whose exports are being crushed by this game (back in 1998, it was Asian peripherals getting smoked by Japan easing).
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The SanDisk (NASDAQ:SNDK) story – and its stock – are picking up steam. And now others are noticing
Yesterday's $2+ move has created a clean break-out on the chart. New Combo Countdown Sells are imminent on the daily and weekly chart, and may offer some resistance going into next week's earnings report. But on a monthly basis, the "prize" remains the TDST Level Up line at $66.20. I have rolled up my hedges to give me cover from $57.50 and upside to $65 through May expiration.
Friday, April 12, 2013
The commodity complex is getting whacked rather hard this morning. Gold (NYSEARCA:GLD), crude, Silver (NYSEARCA:SLV), platinum metals, and copper are all down to the tune of 3%+. This has also migrated to their respective stocks. BHP Billiton (NYSE:BHP), US Steel (NYSE:X), Continental Resources (NYSE:CLR), Vale (NASDAQ:VALE), Gold Miners (NYSEARCA:GDX), Freeport-McMoRan (NYSE:FCX) are all down as well, to name a few.
With the dollar around unchanged for the day, the easy connection is that "big fund is getting taken out" or "big fund unwinding positions". Personally, all of the above have been in downtrends since mid-February, so not any new developments to see here really, the only new part is the volatility. As well, every part of the Treasury market has been reflecting similar deflationary activity. The curve has flattened, inflation breakevens have gone down every day since mid March, etc.
All of the above is deflationary, frankly, which at some point will rectify itself with the rest of the broader market.
See gold futures on the verge of turning over their entire open interest, which is bullish from a "change in trend" angle. Silver already has.
And lastly, despite much of the redness on your screens, the utes are up! Ditto Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG). There's always a bull market somewhere.
Gold Testing Macro Support
Lots of people have been scratching their heads over the action in Gold (NYSEARCA:GLD).
Some thought it would go up based on currency wars.
Some thought it would go up based on events in Europe and Cyprus.
Some thought it would go up based on the potential events in North Korea.
Some thought it would go up since our printing presses are working here and we could have inflation down the road.
When something doesn't act well when it's "supposed to," that means it can probably go lower. Back in March, GLD broke below its symmetrical triangle around $161. That was an area to make adjustments.
Today if you are a "macro participant" in GLD, you need to watch $148-149.50 as a close below this area opens the door for a move down to the $135-140 area.
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Gold Turns Yearly Chart Down
Gold (NYSEARCA:GLD) turned its Yearly Chart down for the first time in 8 years today.
For perspective, not even in the 1987 market crash did the S&P turn its Yearly Swing Chart down.
This is why GLD accelerated lower this morning as this big wheel of time turned down.
The behavior in the next week will have a lot to say about whether this is a final washout or a bear leg lower.
Even if it's a bear market. the turn down in the yearlies should see a reflex rebound soon.
If it's the end of a bull market, this is a C wave in an A B C decline from the summer 2011 peak.
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