Buzz on the Street: Q3 Comes to an End
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, September 24, 2012
Apple iPhone Sales Hit
News is hitting that Apple (NASDAQ:AAPL) hit 5 million iPhone 5 sales over the opening weekend. This is below expectations. However, there was not enough supply to meet demand, which is actually inherently bullish. Mr. Market disagrees, however, as the stock is selling off in premarket trading.
S&P Morning View: Hurt Cycle Turn Coming?
ES (S&P futures) printed a gap-and-go day to the downside on Friday, declining 9.75 points at the 1451.50 close. Profit-taking began at the opening bell and continued through the close which made for a bearish Quadruple-witch Friday.
We direct your attention to a multi-timeframe look at the daily and weekly charts. We think that the contract is setting up for a decline after hitting the intersection of the upper Bollinger band and the upper trend line of the June-September buy channel. Since last Monday the contract has declined a tepid 22 points, but with the aforementioned buy channel now approaching a 12-year trend line on the monthly chart, in-concert with a weekly Hurst Cycle turn scheduled for mid-week, we continue to suggest caution on the long side as the third-quarter draws to a close ahead of the next earnings season.
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An Honest Mistake, Or An Unmitigated Disaster?
Ken Wolff & Shawn Wolff
Peregrine Pharma (NASDAQ:PPHM) is getting creamed. I saw it as low as .70 premarket so far, down from Friday's closing price of 5.39, after this announcement of discrepancies between some patient sample test results and patient treatment code assignments. A review has apparently determined that the source of these discrepancies appear to have been associated with the independent third-party contracted to execute treatment group assignments and oversee clinical trial material coding and distribution.
Does this mean there are shenanigans going on, or an honest mistake? The drug didn't fail. Other trials are going on. They say the discrepancy is specific to this trial and will have no impact on other ongoing bavituximab trials. So it could be an honest mistake. If its an honest mistake you can make 5x your money buying it down here. If the company is using the same 3rd party for their other testing however, and it calls into question the validity of any of their results, yikes.
Bavituximab isn't the only chicken in their pot though. The company also provides development and biomanufacturing services for outside customers. Surely the company isn't completely worthless. They must have a few lab rats they could sell. So if the stock manages to hold its head above .39, the low from April I'll look for a long on a counter-reactive bounce. If there's one rule I live by though, its play what you see, not what you think you should see. It won't bounce if no one buys it, and it could be a dangerous play with further news pending, so look before you leap.
Tuesday, September 25, 2012
Following yesterday's bend-not-break session, Pavlov's Bulls are attempting to impose their will again as the Apple - Google (NASDAQ:GOOG) dichotomy continues. Commodities are firm, the dollar is flat and Europe is in wait-and-see mode ahead of the Spanish Inquisition on Thursday.
With the holiday on tap -- tomorrow is Yom Kippur, the holiest day on the Jewish calendar -- it promises to be extremely thin (and by extension, more volatile) later today and throughout our weekly Hump. Please size your positions accordingly to allow for these external influences.
I expect quarter-end posturing to end tomorrow (T-3), which leaves the window open for gorillas to push their positions around in a less liquid environment. See it, even if you choose not to take part of it.
Watch Caterpillar (NYSE:CAT) for the reaction to news that global growth is slowing. This we know; the question is how much it will matter given the structural crutch in place.
Does anyone else remember the stretch between 2004 and 2006 when the VIX traded between 10 and 20? Those were fun times; could this be one of the unspoken mandates of the War on Capitalism? See the chart below for some historical context.
And smile, Yo--it could be worse and for alotta folks, it already is!
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Industrials Can't Catch a Break
I noted in my latest Lead-Lag Report that Industrials (NYSEARCA:XLI) are once again at an important relative support level after severely underperforming the S&P 500 (INDEXSP:.INX) for the bulk of 2012. Weak guidance yesterday from Caterpillar (NYSE:CAT) continues to put downward pressure on the sector as manufacturing activity expectations decline and as China frustrates investors by not taking on more aggressive stimulus measures the way Europe and the US has. Still, much of this may be priced in.
What encourages me is the continued improvement in emerging market in stocks, which should bode well for the sector more broadly on a pickup in industrial commodity demand and mining. Uncertainty over defense spending given the potential for automatic budget cuts in 2013 has also acted as a heavy weight on the sector. However, as money begins to rotate out of old leaders, and into new ones, the group may be ripe for a period of strength as uncertainty clears up. I suspect Technology (NYSEARCA:XLK) could lose steam as Industrials get more of a bid in the coming months as hedge fund money tries to catch-up to US averages.
Bonds Reverse at the 50% Retrace
Notice this morning that the long bond contract (USZ2) reversed directly at the 50% retrace of the previous move. If this continues, it could set up a lower high and the potential for another cascade lower.
However, given that the last two POMO have shown dealers increasing their positions (or lack of inventory), I am skeptical that the next move is lower. I also continue to see price action and commentary for the Treasury market that suggests the market is unimpressed with QE3.
We'll have to see.
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Wednesday, September 26, 2012
Hot Tin Roof
Caterpillar (CAT) may hold the key to what happens to the DJIA (INDEXDJX:.DJI).
CAT has confirmed a classic bear market pattern that play out in a broad array of stocks but it may take them time to get into a similar position.
Let's look at the weeklies.
Counting from the early 2010 low, CAT shows a persistent 14-month advance.
From there, a 5-wave decline into the big October 2011 low played out (note: the low coincides with the 200 week ma) followed by what looks like an A B C corrective rally. Note the nominal new high at the Wave II high in February 2012.
From there, CAT diverged from the SPX/DJIA and that divergence continues today.
This summer, CAT began another little contra trend move that backtested its overhead 50 week ma's where CAT rolled over again.
If my count is correct, CAT is perched at the onset of a bearish 3 of 3 which is potentially vicious .
A break of the 3 point rising trendline from 2010 will trigger a Weekly Rule of 4 sell signal which should see downside acceleration.
See CAT weekly here:
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I've buzzed about DeeThree Exploration (TSE:DTX) many times as a favorite speculative E&P play. The stock is ripping today on comments by CEO Martin Cheyne to Bloomberg. Cheyne said that there's no timeline for an "exit" (i.e.sale of the company), but that "this is my third co., yes, and there will be a fourth." Also according to that Interview, a comparable prices per "flowing barrel" DTX would be valued 35-45% higher.
Always be careful about cheerleading by CEO's especially when it comes to M&A, but his story jives with my long standing read of the company.
Has the GDX Finished a Correction?
Both the S&P 500, and the Market Vectors Gold Miners ETF (NYSEARCA:GDX), have been moving in tandem since July 24, when the latter established its double bottom low, with its May low, after which it took off into a powerful 37% advance into last Friday's high.
Let's notice that, although the SPX and the GDX climbed in tandem, the GDX rally extended one week beyond the peak in the SPX, which certainly is a display of relative strength compared with the GDX performance during the prior10 months.
Nonetheless, both ETFs have been under pressure for at least the past week, and both exhibit sharply-declining daily RSI, which suggests to me that a tempting re-entry into the long side of the GDX should be delayed, while we give the benefit of the doubt to another loop lower towards 50.00-49.40, based on the juxtaposition of the daily RSI.
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Thursday, September 27, 2012
The T Report: Budgets and Bailouts
Spain is Fixed! Again! Maybe...
Rajoy announces a new Spanish budget. Rajoy asks the ECB to enact OMT. The IMF agrees that the new budget is enough and ensures that OMT is enacted and that ESM can buy new issues while they are at it.
All is good, right? Not so fast.
A couple of weeks ago, I would have agreed that these steps would have been enough to continue the rally. This morning, while these alleged steps are helping prop up asset prices again, I doubt it will last.
Currently IG19 CDS already 2 bps tighter, and MAIN in Europe 4 bps tighter, Spanish 5 year bond yields at 12 bps better and S&P futures are up a healthy 8 points. What's not to like?
There are several things that I don't like, and think have changed over the past few weeks. There is mounting political pressure against bailouts. The pressure can be found in all the countries. In countries providing the money there is growing opposition to the bailouts. In countries getting the bailouts, there is growing opposition to the terms required. This is not good for continued success.
So with a backdrop of ever increasing opposition, the fact that bailout will come not just with conditions, but conditions that have to be met regularly to continue to receive aid, the OMT is unlikely to last for long.
The entire EU has provided absolutely no evidence that they can deal with the economies. The money that will be made available will be just enough to keep going, while the austerity has the risk of crippling the economy further. Banks won't be fixed to the point that they can lend again, they will be fixed just enough so that if all goes swimmingly well for awhile, they might not need more money in the future.
So any excitement by some agreement is likely to be very short lived, and may well already be priced in. Remember, we are getting ever closer to earnings season, and there is every indication that earnings won't be great and even more importantly, that the outlooks will be weak.
I remain very cautious about markets here and do not expect this Spanish Budget rally to last.
Apple and the Square of 9
Yesterday, we noted that 180 degrees down from the 705 high in Apple projected to 654. See here attached
AAPL tested 654 this morning and bounced nicely.
Stocks play out in these decrements of 90 degrees and what W.D. Gann referred to as the Law of Vibration, which dominates price action.
If this concept interests you, I have been working on creating and fabricating a physical Square of 9 Wheel for some time.
I have just received the first ones. They are 2ft X 2ft and user friendly.
Along with this Time & Price Calculator comes a half-hour personal phone consultation with me on what I have discovered in using the Wheel over the past 20 years.
Email firstname.lastname@example.org if you are interested.
Games People Play
We've got ourselves a quarter-end bender as the NASDAQ (INDEXNASDAQ:.IXIC) rallies to levels last seen... two days ago I would keep half an eye peeled to NDX 2830, for that could be a "right shoulder" in waiting (in the context of a bearish head & shoulders formation).
Through the lens of "just trading," I suppose I should be thankful for the opportunity to punt my QQQ puts into this week's Art Carnage (lower). My open positions notwithstanding -- Facebook (bought at $20), QQQ out-of-the-money puts (entered at QQQ $68.30) and Google short (entry level $760-ish), I'm more balanced today than I've been the last few weeks.
There are a LOT of emotional agendas in play -- livelihoods at stake -- and while this will peak (in the short-term) into quarter-end, we've got a slew of earnings on tap, fragile socioeconomic landscapes overseas and and the mother of all performance anxieties -- year-end -- a few short months away. In short, there is gonna be a fair amount of volatility coming our way -- way more than a VXO 13 would seemingly indicate.
Survive and thrive, one step at a time; it's not the sexiest trading approach but it's how I'm rolling these days. Loose grips on the handlebars not only makes for a more enjoyable ride, you're less likely to get thrown for a loop if you hit a bump -- and we all hit bumps at times; it's the cost of doing business. I believe this rally will fade (lower) but I'm not making a stand right here, right now.
As always, I hope this finds you well.
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Friday, September 28, 2012
Global Economic Contraction
The news flow since QE3 has taken a rather bearish tone. Major bellwether corporations across key sectors have issued earnings warnings, coupled with economic reports that strongly suggest economic contraction. Overnight Brazil lowered their GDP forecast to 1.6% from 2.5%.
What we have is a clear rally based on liquidity and not underlying fundamentals. Nike (NYSE:NKE) cited weak numbers last night after the bell with respect to sales in China, which has been the catalyst for that company of late. I continue to see an argument from a technical price and the abundance of liquidity as reason for a further push towards the 2000 and 2007 market top. There is an equally strong argument for a news driven top to be had right here. Global stocks outside of the U.S. have gone nowhere since late 2009.
When will the good faith bubble of Ben be punctured? When it does, it is likely to have bearish implications. Less is more at the moment. The market always tips its hand.
Long Qualcomm Again
This morning, I look a long position in Qualcomm (NASDAQ:QCOM).
The stock seems to be held down by fears that it will report disappointing fiscal fourth-quarter earnings (September quarter) due to disappointing Apple iPhone 5 sales, and the ongoing shortage of 28-nanometer chips.
I suspect this weakness won't last very long.
Let's remember that the iPhone 5 has been supply constrained since last week's launch. Apple couldn't produce enough units to meet demand. Sales aren't really being lost, they're just being pushed back into the December quarter.
Also, semiconductor shortages can actually be construed as bullish. It's not as if Qualcomm is mismanaging its supply chain -- demand is just too strong. Business is most certainly not bad.
During the PC boom times in the middle of the last decade, I recall significant rallies in stocks like NVIDIA (NASDAQ:NVDA) and AMD (NYSE:AMD) during supply shortages. Last quarter, Qualcomm disappointed because of the 28-nanometer shortage, but selling in the stock didn't last long.
As an added bonus, Texas Instruments (NYSE:TXN) said it was backing away from the smartphone/tablet CPU markets, effectively handing market share over to Qualcomm and other competitors. Texas Instruments' OMAP line is used in products like the Amazon (NASDAQ:AMZN) Kindle Fire and Barnes & Noble (NYSE:BKS) Nook tablets, as well as many smartphones.
Going forward, I suspect Qualcomm shares will be pushed up, at least into earnings (likely coming in early November). Remember, as it stands now, there aren't many super-hot gadgets on the horizon for the holiday season, so investors will likely want to bet on the closest thing we have to a sure winner: the iPhone 5. And they can't put all their money into Apple.
April in Play, Facebook Rocks!
EOQ day support was found so far at NQ (NDX futures) April high of 2791.25 (continuous contract, see chart). The bounce, not surprisingly, stalling at 2806 mentioned earlier. It could be a choppy session with many dynamics until we reach the closing hour.
The only tech stock I like in the upcoming downturn, Facebook, is doing quite well, pretty much neutralizing the bearish hogwash at the week's open.
See Tuesday's post:
Let's get one thing clear: Barron's had little to do with the 10% drop in Facebook. No reporter in the world can move billions, it's just utter nonsense. It does not matter that it is a poorly written article either. The reality is that the stock had a 30% run-up going into its addition to the Nasdaq Q-50 (at Friday's close) and end of September, a major reshuffling time for funds. In fact, any mainstream article that proclaims death of equities or death of Facebook is a FADE. Dumb money is following this article and as usual, they will get burned.
Looking at the chart (a more reasonable occupation), we corrected to 50% September (20.46), and some with HFT noise. The move was done today on a lower low from yesterday with a bullish divergence (RSI and volume). The trading range is set between 50% and 38.2% September (20.46/21.15). Once we are done with the week, I would not be surprised to see the stock right back at 23.
This is the one tech stock I am not afraid to hold on to for the long term and will keep adding on weakness. I suggest you do the same and ignore the media.
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