Buzz on the Street: The Market Stalks S&P 1400
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, August 6, 2012
Apple Hits Multi-Month Point & Figure Target
It took long enough, but it occurred nonetheless.
The April-June base-like pattern in Apple Inc. (AAPL) that triggered potential upside targets at 606 and 623 finally satisfied both objectives as AAPL trades above 623 today.
As long as AAPL remains above 616, the price structure could claw its way higher into the 628-630 area next.
At this juncture, purely from my AAPL Point & Figure Chart perspective, only a print of 616 will indicate that the up-move off of the prior pivot PF print low at 570 is over, and that a correction already is in progress.
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My Forward-Looking Plan
I think we will see a burst of buying in stocks sometime this week that will likely correlate with a sudden downdraft in Treasuries. To most, this will appear to be a collapse in Treasuries and we will probably hear lots of bulls trumpeting "the death of bonds" and "money leaving bonds for stocks". Again, I think this will eventually happen. I just don't think that the time is now as that argument is early.
I have touched on the convergence of multiple moving averages in the broader index since the start of June. We knew the move in the market would be fierce once the digestion finalized. Are we seeing a similarity to 2007 and 2011?
If you recall, I have provided charts of each instance. We saw a similar cluster of multiple moving averages with an eventual fierce rise towards the highs of the year, ultimately failing and falling a tremendous distance, SPX 1220-1175. This fits into my path of "maximum frustration" forecast that is designed to shake both bulls and bears alike, while ending the bear market in a disgust for equities similar to what we witnessed at the end of the 1982 bear market.
Another example of why this may happen was the announcement by Louis Bacon that he was returning capital to LP's. Bacon cited, "disappointing returns and navigating markets dominated by government and central bank intervention", coupled with "short start stop start growth cycles that exacerbate trend-less volatility."
S&P 500 Sep. 1350 Puts
I am looking at these. They cover the September 12 German vote. I don't expect it to get shot down, I think the worst case is that it is "tweaked", but at least this option expires after that.
I expect Spain to ask for ECB help and to be given something that smells a lot like QE, even if not exactly QE, but given the run up, this offers some protection.
Italy is viewed as either not needing a deal or getting the same deal as Spain if they need one. I think the latter is more likely, but it does pull into question the EU's resources, especially if they don't go full QE and ESM hits any snags.
Our own problems: Earnings have not been great. We have political noise that makes Europe look like one happy family. Our own deficit is a problem. With so much attention focused on Europe, we haven't looked at ourselves in a mirror in awhile, and that may spark some problems even if Europe does well.
In spite of Friday's NFP, the recovery here remains as questionable as the data upon which we base it.
If Europe does embark down the path of unsterilized QE, what does that mean for the dollar? And can U.S. stocks really rally in the face of a strengthening dollar, at least in the short-term?.
As I wrote in the morning note, banks and Europe are likely to push us through 1,400, and possibly as high as 1,425. For now I remain long, but I will trim, and I also think these options are becoming interesting. It feels like so many things that could go wrong, or have gone wrong and just aren't being talked about would hit the S&P, and there is far more upside away from the S&P if true EU QE is on the way.
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We are watching to see how the bulls handle the breach of the lower trend line in ES (S&P futures) that has just been violated.
On a longer time scale, many times bottom pickers will be waiting just outside the trendline break waiting to take price higher, so we'll see. As we are short, we really don't want to see ES get back over 1402.50.
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Approaching a Critical Juncture
ES (SPX futures) are near a critical zone, namely the 76.4% extension of the May/June/July inverted head and shoulder at 1408. Intraday, 50% Initial balance extension at 1403 lines up with weekly R1 at 1403.50. But the most important confluence comes with 1x the initial balance at 1405.50, which lines up perfectly with the 5/1 high (chart).
SPX cash trades about 4 points higher, which puts ES 1405.50 just under SPX 1410. That is a whole smorgasbord of resistance and the VIX is starting to diverge ever so slightly. Bears get control on another drop below 1395.75.
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Wednesday, August 8, 2012
Eyeing a Trade in Dean Foods
Ken Wolff & Shawn Wolff
Dean Foods (DF) is looking interesting for a trade this morning. Check out the daily chart. It's been in a free-fall since July 3, from 17.25 to 11.66. The last couple days, the stock was trying to claw its way off the bottom anyway, so this good news sent it right back up to July highs in after-hours trading.
Now the tug o' war begins. Is this too far too fast, or does it have more upside? Traversing the entire 52-week range overnight creates a lot of short-term profit-taking incentive, and yet buyers seem starved for a bit of good news. The short % of float as of July 13 was only 4.3%, so it's not really a squeeze candidate.
I think we are going to have to watch the early trading to see who is making headway, and then jump on the winning side. If there's going to be any follow-through momentum after open, we will be looking for the first profit-taking pullback to remain fairly shallow. 15 is a good round multiple-of-five number I'll be keeping an eye on for support. If buyers aren't piling in early though, that's usually a red flag and an indication to look for a short. And a lot will depend on whether the market starts to lose upward momentum today as well. The tide floats all boats.
PCLN is also compelling. The after-hours low was 565-ish, and this morning its held 570 so far, so that's kind of the do-or-die range. If it can hold above that range, we will be looking for a 10-dollar early climb. If not, look out below. Remember it was 100 dollars lower than this at the beginning of this year.
Summer Surprise and Melt-Up
After being one of the most loved sectors by investors looking for income, the time for Utilities as a market leader appears to be over. Continued weakness in the sector suggests significant rotation may be underway as the pendulum swings away from dividends and back towards capital appreciation. I suspect this is a very early move given that bond yields are creeping higher, coinciding with a feeling that inflation expectations are back in the face of Central-Bank paranoia over global deflation taking hold. I am encouraged to see continuous strength in small-cap stocks (IWM) over the past several trading days.
But what I find most interesting is the chatter about wanting to fade the rally. No one wants to believe in the move, even though inter-market trends are just only now turning significantly more bullish. Sounds like precisely the kind of fuel needed for a melt-up and the Summer Surprise, i.e. the end to the end of the world trade…
Do You See SGEN?
Seattle Genetics (SGEN) reports tonight and the stock is leaking a bit ahead of earnings. As a quick reminder, this is one great biotech trading for one fat valuation. Even the CEO couldn't hide that when the stock reached the high $20's, and he commented that at those levels, the chances of a buy-out were far diminished. I continue to sit on long-dated out of the money puts as a cushion to reload on weakness, i.e. sub-$22 and with both hands sub-$20.
Thursday, August 9, 2012
Where's the Outrage?
Yesterday Hewlett-Packard (HPQ) announced that it was writing off more than half of its acquisition cost for EDS, and this is all the analysts could muster:
"Let's be honest; the acquisition strategy has not been great."
"This is just an accounting thing..."
Maybe it is just me, but the lack of serious discussion around the accountability of executives, boards of directors, and even the FASB over the M&A boom that occurred from 2000-2007 is deafening.
And the limp response from the analyst community is shameful.
Imagine if professional investors were held to the same standard that corporate executives are today -- where poor investments are met with "This is just an accounting thing" and "Let's be honest; the investment strategy has not been great."
Where's Peter Finch when you need him?
Bonds Weak in Front of Auction
Bonds are weak again in front of the 30-year auction today. Yesterday, as we had suspected, the 10-year auction was much weaker than many had anticipated. Today, however, it seems that the cat is out of the bag and we're already weaker in front of the auction. The when-issued note is about 1.5-2bps higher than the current 30-year yield, compared to the full 3.5bps difference we saw at yesterday's 10-year auction.
We're now below the all important level of 148 in the 30-year contract (US1), albeit on little news other than a narrowing trade deficit. I have begun to wonder if this move in rates is due to a culmination in high prepay speeds in the mortgage space, which could be one of the drivers of higher rates.
My gut feeling for the auction is that anything better than miserable will be bought as today's auction is being watched a lot closer than yesterday's. It seems that every bond bull I talk to is bearish and every bond bear I talk to is bullish, go figure.
Note that today's POMO is in TIPS, so we won't get any pre-auction sentiment like we did yesterday.
Agnico Eagle Mines (AEM) turned its dailies down this morning and turned right back up putting it in a position to offset Wednesday's little Topping Tail.
Doing so should lead to a spurt in AEM.
In the interest of fair disclosure, subs of the Daily Market Report have a long swing position in AEM
Note the outsized upside gap over the 200 dma that coincided with a Rule of 4 Breakout above a 3 pt declining trendline which has seen AEM grind higher
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Friday, August 10, 2012
Marchester United Opens
Manchester United (MANU) has opened for trading with the first cross at $14.05 after pricing the IPO at $14.
It looks as if the stock is having a really hard time staying above the IPO price, and it appears the sole reason is that the underwriters have a 2.5 million share bid at $14.
The Four-Letter Freaks
The bulls are trying to make a stand at NDX 2700 -- remember, this was the "date with destiny" that we flagged a few weeks ago as a potential upside target -- so watch the tape react in and around that zone as a near-term clue. If they break, NDX 2655, as shared in the chart below, seems like a natural magnet on an "if-then" basis.
Market internals aren't all that bad -- the big board is 3:2 negative (not yet qualifying as a downside tell), Apple (AAPL) is higher on the session, and Bank America (BAC), Wells Fargo (WFC) and Barclays (BCS) are all green.
There's an old adage on Wall Street, "If they can't tell 'em down, they're gonna take them up." It's too early to tell, which is why we must define risk as the market plays it hand.
As always, I hope this finds you well!
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For those thinking about shorting FB, realize that you are the herd and being the herd short is the most dangerous trade there is. The stock is not only heavily shorted, it is also well-hedged with options, which means the underlying remains relatively safe at these levels. Next week's put-to-call open interest levels are startling: 20,21 and 22 strike have a combined 75k contracts on the put side vs 28k on the call side, or a whopping 2.67 put to call ratio.
Everyone and their mother is short, just go take a look at the twitter feeds -- your best dumb money gauge these days. Once all that negativity gets cleared out, thinking short again might be viable -- just remember that after the 18, the stock can join QQQ/NDX.
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