Buzz on the Streeet: Obamacare Lives! Maybe the EU Will, Too.
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, June 25, 2012
Gold and Silver spiked higher intraday after Cyprus asked for bank aid from EU authorities through the EFSF or the ESM. This was expected, and a 10 billion euro number was previously suggested. The release does not specify the size requested nor any other details.
Both gold and silver were reaching oversold levels, so some are attributing this to a technical bounce (see a chart from Professor Prudden of SLV below). And given that the dollar is higher on the day, although off its highs, this can be buying based upon the "QE hedge."
I think going forward, it seems like there are a lot of positive catalysts for the dollar, including easing from the BoE, the potential for much more easing from Europe, an extended Operation and Twists, and Japan and China are still question marks (although the Yen has been resilient despite the BoJ super duper dovish talk).
Click to enlarge
Click to enlarge
Future of the Euro
The idea of the ESM being altered in order to obtain a bank license and borrow directly from the ECB doesn't look promising. What we are seeing unfold is another stark reality of 17 moving pieces attempting to agree on verbiage that was never intended to be altered. The EU is essentially faced with the difficult task of amending its charter, and like the first failed TARP vote here in the states, it is going to take a route by equity markets for them to wake up and react. Liquidity and funding issues in Italy and Spain will only mount as their yields climb.
Focusing on our markets, we have sliced through the constructive work put in last week. Longs will still be looking to buy dips and as I referenced late last week, likely won't realize we are in a significant market correction until it's time to begin covering and look to buy for the next trade higher. I remain in cash and continue to look for opportunities.
Click to enlarge
Tuesday, June 26, 2012
Following a three-hour morning commute, I enter today's fray with fresh eyes and positive energy. I'll need it on the opening as I'm starting the session with two strikes against me.
First, I've been telling anyone who will listen that JPMorgan (JPM) feels like it wants to trade to $38-$40. After riding the stock higher, I got stopped out last Thursday and moved to the sidelines. I bought it back yesterday -- only to get spooked by the tape and letting my discipline slip. Rather than adhering to the tight top below $34 (which I expressed when I initiated the risk), I punted the position more or less where I bought it.
This morning, Goldman Sachs is out pushing the name, raising it to a "Buy!" on it's "America's conviction list" of higher recommended stocks. DOH!
The second strike was that I bought some GLD calls yesterday for a quick trade and attempted to sell them into the close (but wrote the Buzz first, communicating my actions and missing the close entirely). I'm in "singles and doubles" mode these days and it's been working to my advantage; I mentioned that yesterday and true to form, the trading G-ds gave me a double smack upside my head.
Stay humble or the market will do it for you indeed.
I'm gonna trade out of that puppy, using an absolute GOLD $1550 stop, as I look for new opportunities with advantageous risk-reward. Nobody said it was gonna be easy but sometimes, it's more frustrating than others.
Good luck today; I'll see you on the other side of the open.
(NOTE: As JPMorgan opened up 50 cents at $35.80, I added a partial (40%) position back, with the same stop (under $34) as I attempt to look forward, not back.
Eurobonds -- The Bull/Bear Disconnect
Bears seem to believe that bulls believe in Eurobonds.
Bulls don't believe in Eurobonds, at least not the ones I talk to, and I certainly don't think they are happening.
If all we get is some vague plan about Eurobonds, I would run for the hills because it means they have nothing left. But no Eurobonds is not a cause for concern for the bulls. It seems to be a part of the bear case, given the never ending stream of messages and tweets pointing out that Merkel rejected Eurobonds for the Nth time.
If Germany starts downplaying existing tools then I would get very worried. And if they question the validity of EFSF, then be very afraid. Any negative comments beyond that are part of a reasonable strategy for Germany going into the meeting. If at the end of the meeting, nothing is accomplished, then run, but until then, only react if they are taking a new more aggressive posture, not the same old one.
So if you are bored, and its hard not to be with these volumes, then check to see who is sending what stale message. I think the biggest disconnect is that bulls don't seem to get particularly excited about positive Eurobond stories, and bears get really excited about negative ones.
Sovereign debt and derivatives took a hit yesterday and aren't behaving too well this morning either. The lowlight is Italy's CDS, which are up 10% since yesterday morning and not too far from all time highs. More concerning was yesterday's near zero issuance of new corporates. That and the behavior of recently issued bonds remain the most important tandem indicators for equities; on the latter front high yield spreads have only crept slightly higher after a very sharp tightening throughout June. Financials' CDS are bobbing up and down but still closer to the month's lows than not. Also calm are the 2yr swap rates, still below 24bps.
The dichotomy between sovereign and corporates continues and depending which way it ultimately resolves will tell us a lot about where stocks go from here.
Wednesday, June 27, 2012
Facebook Coverage Coincidence
I know that a Chinese Wall exists between research and investment banking but the average investor or man on the street is sure going to wonder why every investment bank that was pushing to sell Facebook (FB) at its IPO price of $38 is now neutral on FB at $32. It really is little wonder that Main Street has no confidence in Wall Street.
Arena's Lorcaserin Approved, But There Are Strings Attached
Shortly after NASDAQ halted the stock, the FDA announced approval of Arena Pharmaceutical's (ARNA) weight-loss drug lLorcaserin (trade name Belviq) for the treatment of people with a BMI over 30, or a BMI over 28 and a related medical condition such as hypertension, type 2 diabetes, or high cholesterol.
The label recommends discontinuation of the drug after 12 weeks in patients who have not lost 5% of their initial weight.
The kicker is Arena is required to conduct six post-marketing studies, including a cardiovascular heath study in patients taking the drug over a long period.
The stock is likely to explode after it reopens. You can check here (http://www.nasdaqtrader.com/Trader.aspx?id=TradeHalts) for when NASDAQ plans to reopen the stock. I really doubt this is a sell-the-news event given the large number of Arena bears out there.
For reference, a 6-foot person weighing 225 has a BMI just over 30. A person who is 5' 6" weighing 185 also has a BMI at 30. The BMI restriction on the label is not an onerous one.
I figured approval would only come with some significant restrictions (so-called "REMS" programs). The drug will be a "scheduled" drug, which puts it into the class of opiates and other things that the US Drug Enforcement Administration (DEA) regulates. Neither the FDA release or Arena's release mention other restrictions.
This is about the best-case approval scenario for Arena. There will be debate about how the 12-week discontinuation recommendation will affect sales, but that's really a rounding error more than a significant potential hit.
Nice Move, But...
I noted yesterday that tracking the behavior of defensive sectors is important to get a gauge of market direction here. While markets look strong, I am a bit bothered by strength in Utilities (XLU) and Healthcare (XLV), both of which should ideally not lead markets higher in a bullish environment. Countering this of course is strength in Small caps (IWM) which appear to be trying to catch a bid here.
I suspect tomorrow will bring much more clarity on this move higher. Our ATAC models remain in equities, but there is a chance we may rotate out come Friday unless there is more strength internally in the markets. The quality is not as high as I would like, and it appears much of this is due to uncertainty over whether stocks can indeed rally in the face of stimulus disappointment post Fed Operation Twist. Keep watching defensive sectors, and pay attention to big spread differentials between them and the S&P 500.
Thursday, June 28, 2012
Even More on the SCOTUS Decision
SCOTUS on the mandate: "Our precedent demonstrates that Congress had the power to impose the exaction in Section 5000A under the taxing power, and that Section 5000A need not be read to do more than impose a tax. This is sufficient to sustain it"
For those who didn't dive into the different opinions, this was the crux of the difference between the lower court rulings. Those rulings upholding the law called the penalties constitutional on their face or saw them as a tax. Those that didn't, held to the fact Congress assiduously edited out any reference to the penalty as a tax for political reason.
SCOTUS said the penalty was not constitutional under the Commerce clause (this is where CNN got it wrong) as a fee, but it was as a tax. Five SCOTUS Justices chose to see it as a tax and note that people can simply refuse to pay the tax. This is how PPACA was upheld.
The Medicare portion of the decision is actually a bigger deal than I originally thought. Under the current law, states that do not not comply with the Medicaid portions of the PPACA can have their entire Medicaid funding yanked. SCOTUS says this is unconstitutional: "Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding."
Congress will be able to legislate around this if they so choose. This is an interesting aspect of the ruling in that it will have broad effect on how Congress does similar program.
The Medicaid expansion is very good for drug companies as it gets high-priced drugs into the hands of those who cannot currently afford them. Any state who does not want to follow the Medicaid expansions will be able to refuse. They will still get Medicaid money, just not as much as states who follow all the provisions. This aspect of the ruling is the only negative for the biotech and pharmaceutical business. I suspect virtually all states will accept the funds, however.
In sum, the net positive financial nature of the PPACA for insurers, biotech, and pharma remain.
Second Mouse Gets the Cheese For LULU Shorts
Lululemon (LULU) rolled over yesterday and is following through today on a second break of its 50 dma.
The second mouse gets the cheese.
LULU looks like it has eyes for Gapfill from January near 55.
In the interest of fair disclosure, subscribers of the Daily Market Report went short LULU this morning.
Click to enlarge
Technical Pressure on JPM
Purely from a technical perspective, today's pre-market plunge in JPMorgan (JPM) in reaction to greater than previously reported losses ($9 Billion vs. $2 Billion) has left behind a near-term double top pattern in the vicinity of 37.00.
This is putting pressure on the price structure towards a retest of the prior pullback low at 34.64 from June 25, which must contain the selling pressure to avert additional weakness that projects to 33.00-32.70 thereafter.
Click to enlarge
Friday, June 29, 2012
Freaky Friday Potpourri!
That's the sound of relief you're hearing across the globe as investors walk in to find S&P futures 20 handles higher and NDX futures up twice that. The headlines will offer there are steady signs of a stabilization plan for Europe, including a "whole array of possible interventions and measures." More experienced eyes will note that other dynamics may be in play.
Last week we Took Stock of the Global Financial Inflection Point and noted potentially positive catalysts that included "quarter-end is approaching next week," and "many market participants moved to the sidelines/are sitting in cash and may be vulnerable to a "long squeeze" (the buyers are higher). I believe there's an element of those dynamics in today's price action, one of which will expire on Sunday.
This bipolar stroller--death by shmoopie one day; world peace breaks out the next--is not an easy tape to trade. Yesterday I was loathe to carry my JPMorgan (JPM) position (I cut it in half as a function of discipline) and today it appears that I prematurely evacuated anew (above my sell-stop level). We've said it before and we'll say it again; there's no shame in admitting it's hard, there's only shame in pretending it's not.
Our eyes today will spy the dollar (down 1% in early trading), the financials (above BKX 44), the high-beta realm (AAPLE (AAPL), GOOGLE (GOOG), Linked-In (LNKD), F5 (FFIV)), which will presumably offer the most bang-for-the-buck into month-end (if they don't that will be telling) and the action in the metals (commodity volatility typically precedes equity movement). And of course, we'll have the requisite headlines from the modern day Debbie Downer as Angela Merkel throws cold water headlines on the rally. Wah-Waah!
There's a lot to be thankful for--including the fact that it's Friday! Buckle up, take a deep breath and know that a weekend--of for many, a full week--of the important stuff is right around the corner.
Good luck today!
Strong Moves Are Derived From False Moves
The Weekly Swing Chart on SLV could turn up today on trade above last weeks high of 27.98.
That's a big stretch, but SLV is exploding like everything else related to a declining dollar.
If SLV got anywhere near last week's highs it would leave weekly Train Tracks (bullish).
It already has carved out daily Train Tracks this morning.
The set up offered in Silver Square, is playing out as SLV knifes back up through the 'broken' base of well-tested support at 26 yesterday leaving a new low on the year.
The reversal seems to be confirming the idea of a big time/price square out 120 degrees in time from the late February high at 36.44 with yesterday's low approximating 180 degrees down from 36.44.
Click to enlarge
EU Deal: Woefully Insufficient
Expectations going into this EU summit were extremely low. There was a sense up until late last night that the entire summit could collapse in acrimony.
Thus, the fact that the leaders agreed on anything is being taken as a relief by the market.
But when you look at the details, there was absolutely nothing new in this agreement that should have surprised anybody. And everything about this agreement serves to highlight the fact that Europe is headed for a major crisis.
1. The most important aspect of the agreement was opening the possibility of the ESM capitalizing banks directly rather than through loans to the sovereigns. However:
A) The possibility of direct ECB financing of the banks is conditioned on creating a centralized banking supervision regime which the agreement stipulates will be "considered" before the end of the year. Thus, the prospect of direct loans for the banks is neither immediate nor even certain.
B) The ESM has a limit of $500B - which it has not even raised yet. Suppose that the projected $100B is used for Spain's recapitalization. Ireland, Greece, Portugal and banks from other European countries will also want in. (Ireland's PM has been loudly saying that they want in). Thus, realistically AT LEAST $200B of the $500B will be devoted to bank recapitalization. That leaves a theoretical $300B to buy sovereign debt. That is peanuts.
2. The other aspect of the agreement is that the ESM will be allowed to buy sovereign debt. However, as pointed out above, this looks like a paper tiger.
A) The potential $500B (which is really $300B after subtracting bank recap funds) has not been raised by the ESM -- and it may be very difficult to raise it. After all, who wants to lend to an entity that is "backed" largely by Italy, Spain, Greece and Portugal? Within the ESM framework, the combined "guarantees" of the PIIGS are in fact proportionately more important than the guarantee provided by Germany.
B) As pointed out above, even if the $500B can be raised, it will not be nearly enough to capitalize European banks and serve as a bond-buying mechanism.
C) The possibility of the ESM getting financing from the ECB - the only way that the ESM could become credible in terms of size -- was conspicuously excluded as a possibility. The idea has been flatly rejected time and time again.
D) The ability of the ESM to buy sovereign debt is hampered by all sorts of conditions. For example, purchases would be conditioned on the beneficiary countries complying with fiscal agreements. Well, there is no way that Spain can comply with theirs. So as of now, the entire exercise is mute.
In sum, the summit produced an "agreement," and an agreement is better than a collapsed summit. But there are no real solutions here.
The Spanish and Italian economies are in the midst of a serious collapse in investment and consumption and this collapse will not be halted by this agreement. The consequence of this economic collapse is that neither Italy nor Spain will be able to meat any fiscal targets. This facts brings us back to square one. Unless something is done to halt the collapse of the Spanish and Italian economies, these agreements are futile.
Thus, within a matter of days or weeks, markets should resume their downward descent.
Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter