Buzz on the Street: JPMorgan Lives!
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 9, 2012
Despite a blah day in the equity markets, corporate bonds continue on their merry way. Yes, EU sovereign bonds and derivatives have given up all of the latest summit's hopes, but corporate buyers are asking "so what?"
US financials' CDS are holding in the middle of their recent range, 2-year swaps (USSP2) are steady at 26bps, and more importantly, investment grade spreads are generally making all time lows, high yield spreads are at the lowest since early June, and by the end of today all type of companies will have sold yet another $7b of fresh bonds. Within this backdrop, we can slide, but we likely won't plunge.
On the topic of plunging, my foray in Acme Packet (APKT) around $25 must qualify as one of the all-time worst ideas ever. Perhaps my disillusionment will prove to be the bottom, but there's no way around my total misread of the prospects for APKT, its trough valuation, and management's body language during the last couple of calls. I'm resisting the urge to erase this ticker from everything Zucchi, just because I can't figure out how its business can get any worse and the stock meaningfully lower. I'm sure the company will do its best to enlighten me on the latter issues on its quarterly call.
In less nauseating venues, KEYW Holdings (KEYW) is creeping higher seemingly every day. There was nothing good discounted in this stock until a few weeks ago, and with a name this thin it doesn't take too large a buyer and/or the absence of selling (almost to the day of when Corporate Office Property finished unloading its large stake the stock began its ramp) to walk its price north. All things being equal, KEYW can work to the high teen's and not the EU, China, or other worries will matter to its business.Eye on Alcoa Ahead of Earnings
Ahead of this evening's earnings report, let's notice that Alcoa (AA) is trading just off of its multi-month lows in the vicinity of 8.45-8.21. This must contain any forthcoming price weakness to avert a press towards my next optimal downside target zone of 7.60/40.
Conversely, only a sustained climb above 9.05/10 will trigger initial signals that a near-term low has been established, with follow-through upside projected to test resistance at 10.00/10 next.
Botton line: Heading into earnings, AA is in the grasp of a powerful, dominant near- and intermediate-term downtrend. In the absence of a huge positive "miss," AA should head lower in sympathy with its current downtrends.
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Sloe Gin Fizz
While I "worked" most of last week -- there are a lot of hats in these parts; content is just one of them -- today was supposed to be the day that I dove back in with skin in the game. Instead, after a full week away from MVHQ, my time has been largely spent playing ketchup on to-do's, gotta-do's, wanna-do's as we enter a fresh five-session stretch.
But enough of that; while we'll be out the door around 3 pm to represent The Ruby Peck Foundation at the closing bell at NASDAQ, from here till there it's all tape, all the time. In no particular order:
I haven't seen an advantageous risk/reward thus far today and as much as I wanna swing the stick, I'm disciplined enough to await my pitch.
If S&P 1360 seemed familiar (we were there last week), it's because it's the price we targeted entering the year (when the stock market was trading at S&P 1257). A lot of folks thought we were too bullish at the time but interestingly, once we got there, many believed we were too bearish.
That's the thing about this "Here, Me, Now" world; it doesn't matter where we've been or how we got here; people just wanna know where we're going and how to profit. That's alright, I suppose -- a bit sad but not surprising; the other side of globalization is isolationism and protectionism; it's why mood moves markets, not the other way around.
I don't profess to know what the next leg of perception surrounding Europe will be. I do believe in my heart of hearts that all roads lead to debt deflation whether we fight it or not.
So I suppose the long squeeze into quarter-end faded on cue?
Ask me how today was (in the markets) and I'll tell you it was a posture-fest ahead of earnings.
Commodities trade with a firmer tone and that's worth noting. I will draw your attention to the chart below, however, as the "stuff" still needs to rally to get back in line with "stocks," at least through a historical lens.
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Tuesday, July 10, 2012
Kind of Unpretty
Market internals look fairly weak today, with Utilities (XLU) and Consumer Staples (XLP) both up on a down day for equities. There was some solid strength at the open when Small-caps (IWM) and emerging markets (VWO) had strong gains, but it looks like there was quite a bit of "fade the open" action as the day wore on. Fear does appear to be creeping back in given that bond yields are unable to budge higher. More earnings and guidance may be needed to provide clarity to market participants in the very near-term, with price action posturing for disappointment. I am encouraged by market resiliency so far as concerns over China continue to grow. The challenge with the amount of bad news out there is figuring out if it is already priced in, and what the next surprise is. Perhaps earnings will surprise investors positively? Time will tell, but Europe seems to be in the backseat now.
What I don't like about the market today, looking at it from a bottoms-up basis rather than the cycles or the S&P benchmark:
1) Apple (AAPL) being repelled from 619, which is 90 degrees or square its all-time high qualifies as a possibly important higher low.
2) Breakouts like Questcor (QCOR) and Synacor (SYNC) leaving big itime Train Tracks
3) Continued deterioration in former glamours like Baidu (BIDU) and Fossil (FOSL).
4) Chipotle (CMG) tracing out what looks like a Bear Flag
5) Current leaders like Coinstar (CSTR) (noted earlier) reversing with authority below old highs
6) Gapism (again) in Mako Surgical (MAKO), WD-40 (WDFC).
7) The Clouds are 50 Shades of Gray.
8) Big Blue (IBM) is below is 200 dma again... like Nike (NKE) before it failed following earnings. If IBM is not a bullish test of prior lows, it's a quite bearish 3rd lower high on the dailies this year.
We recorded a very ugly candle as of 3:14. It might be a record where two gaps get filled in a single day! This morning, the S&P 500 (SPY) went to $136.23, filled the Friday's "Jobs Report Gap" and hasn't had an uptick since.
Low of the day as of now is $133.88, trying to hold onto the 50 day, but things feel very weak. I don't see many constructive patterns.
The last Fibonacci retracement is $133.40. This is the 61.8% level, which held before the EU Summit.
Seems like way too many negative headlines to absorb. Earnings for the second quarter have been taken down, but not sure if QE3 is priced in. Same for the ramifications to 2013 earnings based on the global slowdown that's taking place.
Cummins (CMI) and KLA Tencor Corp (KLAC) were the last surprises to add pressure today, following Informatica Corp (INFA) and the cloud names late last week.
At this point, taking trades is the only way to go. I feel lucky that I sold most longs on the open and got stopped out on trailers as they went negative.
It's going to be a long summer if you marry positions and look for big moves.
Low gros,s low net during times like this.
P.S: The Monti News didn't help the bull case today. It seems like no one has commitment to this European mess.
Wednesday, July 11, 2012
Double Top in the 10-Year?
A daily chart of the 10-year September contract looks like a possible double top may be forming. However, objectively, that could be a cup and handle.
Hat tip to Minyan Vince for pointing it out on the chart. Given the massive direct bid we saw at today's auction that saw bids for yields as low as 1.36%, something to think about.
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Some Commentary on Adtran's Soft Guidance and the Broadband Industry
I think it's worth noting that Adtran (ADTN) is a company levered to the US broadband stimulus efforts. This is the government program to bring more high speed broadband to rural areas and smaller cities. While ADTN didn't cite this as a specific weakness, they also confirmed that the contracts/builds for this experience long lead times and the business is lumpy. I suspect that a sizable portion of the guidance weakness is related to softness in this segment in addition to tight carrier spending.
Thus, I'd be careful using ADTN as any sort of a "bandwidth equipment" indicator for the rest of the group. Which is exactly what Mr. Market is doing today.
Moreover, given the carnage that has taken place in the group, to me the move in ADTN in the last 3 days is a catch-up move. As of last Thursday, the stock was flat YTD, vs. Juniper (JNPR) down 20% and Cisco (CSCO) down 10%.
Of those three, I favor Juniper at current prices, then Cisco, then Adtran.
On Monday, I buzzed that new corporate issues would probably tally about $7 billion for the day. I was only off by 30% since buyers took down more than $9b. To that, I say "PAUPERS!". That's because yesterday, new issuance came in at more than $11 billion. Meanwhile, financials' CDS and even sovereigns are steady, though the latter is at high levels. 2-year swaps are again below 25 bps. I'm reading about some mechanical influences on 2-year. swaps that might be skewing the spread to the downside, but honestly, I'm not sure I understand the thinking so I won't repeat it. More importantly, high-yield spreads (I watch the Merrill Lynch US High Yield Master II Index as the proxy) edged lower despite the $11+ billion issuance.
Again, within this corporate credit environment, stocks can certainly go down, maybe even painfully so, but an outright collapse seems more like an outlier prospect.
Changing gears now, for some comic relief, take a look at Paul Krugman's predictions at the bottom of this article dating back to 1998. Considering this type of foretelling gets you a Nobel Prize for economics, I don't feel so bad about myself. (Hat-tip to ZeroHedge for pointing out the article).
Thursday, July 12, 2012
Gartner Reports Q2 PC Sales
Gartner just announced its Q2 global PC shipment numbers:
-The overall market was down 0.1% year-over-year
-Hewlett-Packard (HPQ) sales fell by 13%
-Apple (AAPL) was up 4%, which is probably below analysts' expectations
-Dell (DELL) was down 10%
Gartner cited an uncertain economy and low consumer interest in PC's as reasons for the lousy numbers.
In addition, Gartner noted that the Ultrabook segment (designed to take on Apple's Macbook Air) was slow and had little impact.
And here's the key quote from Gartner's Mikako Kitagawa:
"Consumers are less interested in spending on PCs as there are other technology product and services, such as the latest smartphones and media tablets that they are purchasing. This is more of a trend in the mature market as PCs are highly saturated in these markets."
Can you say post-PC era?
More details in the press release here.
S&P 500 Technical Update - Watch That Uptrend
No need to overcomplicate things here. Time and price have returned the S&P 500 to the critical 1330-1340 June breakout/gap area and current uptrend support.
After briefly sniffing the uptrend line, the index rallied in the last hour of trading to allow for some temporary breathing room... yeah, temporary - the index is under pressure again this morning. The next two days are critical. A close below 1330 (with follow through) would put the ball back in the bears court. Earnings anyone?
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This may be right, it may be wrong, or it may be flat-out silly -- I'll tell you tomorrow -- but I've bought some JP Morgan (JPM) common stock as opposed to the pumped-up options. I was looking at the Aug 35-July 35 back-spread, but A) I don't sell options for under 50 cents and B) it's too convoluted for what I'm looking to achieve.
The risk, of course, is that my exposure is not defined to the premium of the option (again, I decided against buying calls outright because they were too expensive in front of tomorrow morning's earnings). Instead, I get a "one delta" (cent-for-cent tick) through the common stock and will roll the dice -- in a right-sized way -- into the news.
I will also note that $34 is an important level in the stock, as it represents a back-test of the reverse head and shoulders pattern that we flagged last month (which works, through a pure technical lens, to $38, and there's that "gap" between $38 and $40). I have no 'edge' per se, but with the whispers of the Whale loss already in the $9 billion range, my sense is that they'll really have to mess the bed for this to be an outright disaster.
Anyway, that's the thought process, for better or for worse and never intended as advise!
Friday, July 13, 2012
Jamie's Dimon: Part Deux
As a follow-up to yesterday's Buzz -- we bought JPMorgan (JPM) at $34.15 per the timestamp. The pattern discussed (a back-test of the reverse head & shoulders) remains in play, per the chart below.
For those with some room on their risk-leash, $34 has reinforced itself as an important support level which -- coupled with BKX 44, which continues to work like a charm -- provides some nice risk-reward for JPM bulls.
For my part -- the master of premature evacuation -- I continue to trade surgically; hit-it-to-quit-it and make-it-to-take-it. As such, I've sold 75% of my position into this 4% pop and will likely "go home" (flatten) by the end of the session.
'Tis not enough to help the feeble up, but to support them after.
The market seemed poised for a move higher, as it came into strong, multilayered technical support. I shared some thoughts on this possibility yesterday.
Had the decline into support been on oversold conditions, it would be easier to trust that the bounce can last for some time or a substantial percentage. But, by my assessment, the market is not supremely oversold on any measure.
This is why keeping an eye on the quality of the move is imperative. Move based on good internals and good volume can endure. For starters, the market needs to be able to hold on its gains as the day progresses. In addition, this might be a great time to lighten up on companies that run the risk of potentially reporting weak numbers.
We have a failed breakdown out of the wedge and then a rally back into the formation with a downtrend break in the S&P 500. The converging moving averages can result in a lot of whipsaws and noise above and below the contracting range. The narrowing of the spread between the moving averages will likely continue if the market does rally back to the prior high from here.
Keep it light and take trades along the way both long and short. We should get resolution shortly. My bias is lower, but thus far the market is not acting like it should head significantly lower.
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