Buzz on the Street: Facebook Flops -- Thanks Again, Wall Street!
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 23, 2012
The concerns that I had shared over the past two days came to life today, as the markets gapped down. (please see notes 7/19, and 7/20) Over the past few weeks, Spanish banks and TLT have been lead tells understanding market action.
I have covered my recently initiated short positions in this gap, not because I think the market is out of the woods yet but because the first easy short trade might be over after two days of decline. Today may unfold as a 90% down day and that often brings a pause in selling.
However, by my stat check, the market is not technically oversold by any count yet. In addition, there is a lot of uncertainty amidst this price volatility. Given the technical, political and price picture, I think the market may have more choppiness, with a downward bias, ahead.
Gold Must Claw Its Way Above Heavy Resistance
Once again, the SPDR Gold Shares (GLD) swooned to probe the lower support zone of the May-July basing area between 151.30 and 148.50.
So far, however, buyers have emerged at the high side of the base area, which has enabled the GLD to recover two-thirds of its earlier session loss.
That said, to get any real traction on the upside, the GLD must claw its way above heavy resistance between 154.50 and 155.60, otherwise, the price structure will remain confined to the contracting range that has been carved out since the May 30th low at 148.53.
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Look to the Sky
I have no doubt that the reason markets are unable to collapse in the face of what looks like an end-of-the-world scenario in Europe today given Spanish bond yields is the return of SuperBen and the League of Extraordinary Bankers. I am sure memories of late November last year are making investors nervous about betting too aggressively against markets, since the worse it gets in Spain, the more likely global monetary action is in a bid to preempt another Lehman scare.
Market internals actually look fairly strong today as I have been noting in my Twitter feed, and I would not be surprised to see a green close. The Bear Paradox is alive and well -- bond yields are getting closer and closer to zero, making stocks the new bonds with higher income than fixed income. Bonds have become the new Apple (AAPL) in terms of momentum, but last I checked there's no fearPad coming out to justify the excitement in fear.
Keep a close eye on the VIX and the behavior of low-beta sectors for clues on what the mood of the market is beyond the headlines. ATAC remains very close to a full-on stock allocation as the world waits for monetary heroes to (try) to save the day.
S&P Futures Pre-Market Gain
SP futures (ES) are currently trading near flat at 1341.25 -1342.50. We are anticipating a narrow-range choppy day after two consecutive Big down days, both of them with Big gap-down opens. Apple (AAPL) reporting earnings after the close should buoy SP futures today, but we will trade the day in either direction, albeit lightly.
ES needs to break 1344 on the day to get the bears scampering a bit; we have initial support at 1331.50, and resistance over 1344 way up at 1356.
The Interwebz Never Forgetz!
Netflix (NFLX) is getting smacked down about $10 after-hours as its new subscriber growth was weaker-than-expected, despite an overall decent quarter. Guidance was lousy too.
Maybe Reed Hastings shouldn't have teased investors with that July 3 Facebook announcement that monthly viewing hours had crossed the 1-billion mark for the first time -- a revelation that sent the stock up 13% the next day.
From an investor-relations standpoint, this company's the worst I've ever seen in terms of managing expectations.
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Top-line take on Apple (AAPL) is "NG."
Apple historically sandbags guidance -- that was part of Steve Jobs' charm -- and then blows past their numbers each and every quarter. This report is a a flat-out miss on the top- and bottom-line, with the patented sandbag (lower Q4 guidance) tossed in for good measure.
The whisper (earlier on the Buzz) was that folks were putting their iPhone purchases on hold in front of the iPhone5. You will hear more of that tomorrow as analysts defend America's Favorite Company.
I have no position in Apple -- my lone snivlet is a smallish Facebook (FB) short, per my earlier Buzz -- but the reaction to news (the stock is trading $30 lower) will help shape psychology tomorrow.
May peace be with you~
Wednesday, July 25, 2012
Don't Forget About Ciena
I would strongly advise investor not to forget about Ciena (CIEN) in this market. They were the first networking type name to report a strong quarter and they are the King of 100G right now, and likely for the next couple years.
CIEN is also coming off the lowest EPS base with currently negative EPS until last quarter's report. So a move from the big negative EPS to even 30-45 cents of EPS will generate gigantic growth. In the out years, I have normalized earnings power for CIEN at the $1.20-1.40 per share level on the top-end. That is likely looking out a full 2-3 years from now. Moreover, the company has shown successive quarters of cash-flow production and improving EPS will markedly increase this as well.
Bottom line, CIEN should be one of those names to show up in the high EPS (and cash flow) growth screens in the coming quarters. Thus given this and any sort of normalization backdrop, a prices in the teens will look ridiculously cheap when bracketed by EPS in the 30-45 cents range and set to double or more.
-Infinera (INFN) is getting whacked despite numbers and guidance that were broadly in the ballpark, despite the macro problems that everyone knows about. Two reasons for the pasting: first, they highlighted significant pricing pressure on the new 100GB products, beyond the normal competitive pricing for new products; second, and this is my impression, longs may be getting tired of waiting for the new DTN-X platform to pay off, and considering the pricing pressure, they may be less convinced that the long wait may not pay-off as much as hoped. I too am surprised/disappointed about pricing, but I continue to think once carriers spending comes out of hibernation, the DTN-X will be a major beneficiary;
-I've been watching Caterpillar (CAT) and Cummins Inc. (CMI) for a while trying to figure if/when either might be worth nibbling on at some point. A measure I like to watch, as much for direction as for absolute level, is Trailing 12 Months Free Cash Flow Yield. Plotting T12FCFY and the stock price, you can see that there is a remarkable correlation in the stock price movements, but a pretty clear divergence as to which company pockets cash for shareholders. Is this a pairs trade? Not yet for me, but it's got me intrigued;
-Yesterday I highlighted that the corporate-bond derivatives, let alone sovereign derivatives and bonds, had gone from good to bad pretty quickly; however, just to add to the confusion, actual bond issuance was pretty decent yesterday, particularly if one considers that much of it was in the junk space. Including a couple of high quality perpetual preferreds, more than $7.5b of paper was purchased against the backdrop of ugly equities and derivatives; today the calendar is looking pretty healthy as well with one issue, for example, being increased from $550M to $1b; also 2-year swaps at 22bps seem to be utterly oblivious to risks;
-Sandisk (SNDK) stock has been a stud since reporting, notwithstanding an ugly broad market; that partner Toshiba has decided to cut production by 30% to support prices and that SNDK is not meaningfully exposed to Apple (AAPL) does not hurt either. All things being equal, I'm looking for SNDK to continue to rally if the market improves; within that backdrop I'm selling weekly puts and calls to scalp some extra pennies.
-When stocks crack badly they often put in a trading rally after taking a beating for 3-4 straight days. Today is the 4th day of Chipotle Mexican Grill (CMG) pinata party and still no signs of life; that's not a good thing if you see the action through the lenses of trapped longs who are hoping for higher prices to cut their losses. If/when these lurking sellers decide that the bounce is not coming another sharp leg down is not out of the question.
Hot Tin 50 DMA
Earlier we sent a note about Caterpillar (CAT).
CAT traced out a little Cup & Handle on today's 10-minute chart following a test of the 50 dma, and when the handle broke, CAT cascaded lower -- apparently when Goldman suggested taking off a long scalp option trade.
CAT has quickly filled this morning's gap after triggering an ORB (opening range breakdown).
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Thursday, July 26, 2012
Draghi Says ECB Will do Whatever it Takes
Futures went from -7 handles to up 10 handles in a few minutes as ECB President Mario Draghi said policymakers will do whatever it takes to preserve the Euro. I guess Europeans can take their usual 6 week vacation, head to the beach, and have fun watching the Olympics. No need for budgets, discipline, work ethic -- the bills will be paid. They might as well give out credit cards to each nation, and say "pay $1 to $5 a month and we won't shut you down."
Anyway, it's earnings season, and some stocks are getting the smack down as some are also being rewarded depending on their reports. All in all, I don't see many patterns that are getting me excited to run and sink my teeth into. The indices backtested the broken trend line and failed yesterday, I guess it will have another chance today.
Micro resistance stands at 1343. But the real line in the sand to keep pressure on the bulls is 1350-1354. If the markets reclaim this area we will see more of the same as we will be back the channel and in the summer trade. Next spot is 1358-1362.
Lots of very experienced guys I talk to are having a very tough time in this tape. If that's you, take a step back and do less. It's very easy to lose discipline, push buttons, and create a bigger hole that's not necessary.
I've advocated having some puts on if you have a bearish thesis Instead of short indices, in case you we see more of this type of "Stimulus News"
This way, your risk is premium paid.
We can't control the world or its policies, only our approach to our own financial health and the markets.
A Historic Day For Social Media -- Is the Joke On Us?
It really is a historic day as Facebook (FB) will deliver its first quarterly report as a public company after the close today.
A few things on my mind:
1) Did that Zynga (ZNGA) mess sufficiently lower expectations? Note: Facebook gets about 11% of its revenues from Zynga so the company's fortunes are intertwined.
2) One question I can't seem to find the answer for (putting in a call on this) -- will Facebook issue guidance with the report? People are hyper-obsessed with Facebook metrics so will Zuckerberg feed the beast with a forward outlook?
3) Mobile monetization will be a major, major topic of discussion, and unless the company has positive things to say, they will choose their words carefully because I could see the stock collapsing on any negative commentary here.
4) Is the Joke On Us? A bad report will cause major, major backlash. It's obvious that the smart, connected insiders that got in early cashed out to an overeager public (though we at MInyanville certainly did our part to cut through the hype) For now, with few exceptions like LinkedIn (LNKD) social media's been a total bust for equity investors. So yes, I'm sure Wall Street's praying for a beat to save face -- could that mean lowballed numbers?
So what happens this afternoon when the BS stops and the green flag drops?
I smell a monster move that even the seemingly 'expensive' options aren't reflecting. The ATM straddle on the weeklies expiring Friday implies a 12% move, while I see a 20%+ move as very likely. This hunch has worked out a few times for me (notably Green Mountain last year).
To reflect my view that Facebook could see $20 or $35 tomorrow, I took a small position in low-cost, out-of-the-money puts and calls. I consider these lottery tickets more than anything, and I kept the position tiny in keeping with my caution as of late.
As the Talented Mr. Cooper likes to say "You puts up your money, you takes your chances."
That Draghi and Novotny Both Used the Word "Transmission"
Strikes me as interesting. It could be natural, but since I find the EU leaders in general to be a bit sloppy with terms, this seems like it was chosen specifically and because it is within their "remit".
I'm not sure that it means anything, but I'm wondering if somehow fixing "transmission" problems broadens the scope of what they can do, and possibly even overrides activities that would otherwise be prohibited?
I am not familiar enough with the rules and regs of the ECB to know whether this choice of words was meaningful, but I suspect it was. Something about the way it was used leads me to think they have something up their sleeve.
I remain long, so am biased and maybe reading more into the words than I should because of it, but I can't shake the feeling that they are up to something.
Also, the August payment owed to the ECB is not making them look good, and again, taking into account my bias, I think that could be pushing them down the path of new policies.
I would be smaller long here than I am if it wasn't for this belief they are up to something. I had cut some this morning, but am adding back risk. Although, I do believe Spain and Italy will benefit far more than the US market as they are priced for disaster.
Friday, July 27, 2012
Facebook Trade Updates
I just wanted to quickly update yesterday's Facebook (FB) and Zynga (ZNGA) trades.
I was stopped out on Zynga for a small loss.
However, Facebook looks to open about 16% lower, which is much weaker than what the options market was pricing in, resulting in a very nice gain on my now in-the-money puts (which more than offsets the losses on my out-of-the-money calls).
I plan on chucking the Facebook position after the open.
Important Spot for Bonds
LQD (7-10 year Investment Grade Bond ETF) is at an important spot here. It needs to at least hold here to maintain a higher-high, higher-low setup and not record a double-top that would send it. I am short from this Monday.
Treasuries are also in an important spot, after having broken the uptrend line on the 10-year future this morning. I can't help but think that with the FOMC meeting next week, at some point we might get a pause here. Regardless, I'm still short bonds via TBT, which has finally managed to creep into profitable territory this morning.
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Metals Looking Good for a Trade
No, after a great struggle of back and forth, hair-pulling action, I came into this metals move with a large position. I do not have to struggle so much with the question of to buy or not to buy. My question is whether to sell. I have not sold anything.
While I would have liked the metals to have resolutely bounced from their expected opening selloff, they are hanging in there in fact. Gold is at 1616 and silver 27.43. For those without positions looking to buy, you take some here, notwithstanding that gold can fall to 1604 and silver to 27.20. Those "potential" targets look very probable to hold for now, so downside risk is quantifiable. I expect the next 2 or three days to be quite choppy with a small potential upward bias. If the price action complies with this thesis, then this market could be set for another strong push higher late next week. In a year where everything is the opposite (not quite everything…fine) , it would not surprise me to sell the typically worst time to own the metals, Aug 1-Aug 15, turn out to be one of the best.
I will conclude these thoughts to those who have followed me for a while that I admit I am coming out of a frustrated, rusty year. However, I am pleased to hear so many of you have stuck by me, as I will you. At some point, with persistence, me, the metals, and their loyal, shall rise again. We may just get a little taste of that to come. Silver can run to 33.50 so there is real room here.
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