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Stocks: The Apple Cart Gets Flipped Over


Plus, the EU can't upset the bulls' plans and some energy faves find their groove.

Good morning, readers. I return from nine days of heavenly skiing in Snowbird, UT, where I confess my attention was far more on the 26 inches of fresh powder in Mineral Basin than on the flickering tickers. I did tweet a few things here and there (@FZucchi if you care to follow), but here is a recap of where I see things:

Starting off with the foundations of this equity run – the credit markets – things got a bit agitated thanks to Cyprus and Italy, but all in all the week was between a draw and a slight victory for the bears. The fight was centered around the 2-year swaps (USSP2), which broke above 15bps, got close to 20bps and settled right in the middle of the range. While in absolute this spread remains ridiculously tight, the pop showed renewed interest by the credit bears, and revisiting the intra-day moves, it was apparent that the USSP2 remained well bid the entire time.

Italian and Spanish credit default swaps around 300bps, are right at resistance and a clean upside break could restart the chatter mill of EU worries. As I've offered before, if you are obsessing over Italy not having a government and not being able to form one, you may as well obsess over water being wet. Italy has had 70 governments in 67 years and this time that's a systemic risk!? Spain is a different story – things are really bad there and getting worse by the week. Anecdotally, just a couple of weeks ago I had the chance to speak with a Spanish official at one of the international finance organizations in Washington, and he said matter-of-factly that Spain is on the verge of losing an entire generation worth of workforce. Those who stay in Spain can't find a job and those who don't want to live on welfare are leaving Spain and settling in other countries. That readers, is a systemic risk. No shocker then that with the EU back in the spotlight, the credit default swaps of Banco Santander (NYSE:SAN) and Banco Bilbao (NYSE:BBVA) have jumped more than 25% since March 14, and last week SAN's put options saw some pretty heavy trading. In sympathy, BNP Paribas' (EPA:BNP) and Deutsche Bank's (NYSE:DB) CDSs rose a similar percentage.

Back home, the only derivatives to receive unwanted attention were the CDSs of Merrill Lynch, up about 11%. US CDSs were dead flat, and in the cash bond market, high yield spreads remain at or near all-time lows, while issuance seems limited only by supply. As long as companies are handed "money for nothing" you can rest assured that they will continue using it for the immediate gratification of higher stock prices, and there you have the S&P 500 (INDEXSP:.INX) new all-time high. In such an environment taking the market down more than a random 5-10% will be a tough task for the bears.

Not all stocks are created equal, of course. Apple (NASDAQ:AAPL) for example, succumbed to a battery of bearish DeMark signals – TD Camouflage Down on Monday, Perfected TDST Sell Setup on Tuesday, close below TD RefDown on Wednesday, and satisfaction of TDRefDown opening conditions on Thursday – which netted it a $20 beating. Counts remains faintly positive on a weekly basis as long as the stock can hold $431.72 this week. Fundamentally, of course, AAPL is probably the company that could most influence its stock price via its balance sheet, but my sense is that business remains lousy and $377 remains the puke level to visit for the bulls.

On the happy side of the sheets, Gulfport Energy (NASDAQ:GPOR) busted out with volume ahead of what should be a series of headlines on its ongoing Utica drilling. The story here is pretty simple: If the testing continues to return results like the most recent ones, and management can turn those assets into production, this stock will eventually trade with a $60 handle. Otherwise this is a very overvalued stock. One yellow flag: A few weeks ago a smart short-seller sniffed out some related-party transactions involving GPOR latest acquisitions, which certainly would not win management a badge of honor. I remain net long this one via long calls / short stock.

Also in the energy patch, National-Oilwell Varco (NYSE:NOV) shook off an ugly TD Camouflage Down bar on Monday to take out TDRefCloseUp on Wednesday and confirm that break on Thursday. This won't be a straight ramp up, but there are enough tells to suggest that $75 should be in range sooner than later.

Stay tuned for more Buzz & Banter vibes (subscription required) as I catch up to the market moves.

Twitter: @FZucchi
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Positions in SPX, AAPL, GPOR and NOV
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