Buzz on the Street: May Jobs Report Anticlimactic After Volatile Week
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, June 3 , 2013
Is It Real, or Is It Contra-Hour?
The tape has found a bid at the latest inflection point of lore, just in time for today's contra-hour.
S&P (INDEXSP:.INX) 1635 and 1650 are stair-step resistance, and the last level of lore before the top end of the trend channel arrives in and around S&P 1700.
I continue to 'trade around' my short bias in the S&P, having nibbled a bit into this morning's probe lower, but I'm not overtrading, if that makes any sense. There is a BIG bogie on Friday in the form of payrolls, so we'll likely see posturing as that draws closer.
Again, there are two sides -- there are always two sides -- so see them both, map a probability spectrum and manage your risk (rather than chasing reward). This is a nutty (and synthetic) tape, so it's hard to have too much confidence in any one stance, but it's not impossible if we adhere to the processes that got us here.
Good luck -- and be the ball!
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Manufacturing Data, Q2 GDP, and Lockhart
This morning the national ISM manufacturing data turned out to be "somewhere in the middle" of the overshoots of Milwaukee (40.6) and Chicago PMI (58.7) in both directions on Friday.
New orders (52.3 -> 48.8) and production (53.5 -> 48.6) slowed down, but prices paid and inventories started to moderate which is a good sign for manufacturing growth looking forward. The employment index remained steady at 50.1 from 50.2 last month. I will have a full preview of the regional manufacturing indexes for the month to date on the Buzz tomorrow, but thus far the decline seems to have stopped or in those. Remember that the non-manufacturing (services) ISM and ADP on Wednesday are the best gauges of Friday's NFP.
With the above data in hand, it seems to be a stretch that nominal GDP (YoY) for the Q2 will be above 3%. Under this assumption, the rates picture seems much more bullish, and some bond funds both high yield and muni are seeing some pretty historic discounts (that have become more historic over the last week) to NAV that it would be advantageous to look at for investment purposes. Granted, there are also some funds that had pretty obscene premiums to NAV that are seeing those come back towards reality.
Lockhart was on the tape about an hour or so ago, saying that the potential for deflation could increase QE purchases, but that it is an unlikely scenario. He said that he would favor decreasing purchases at the August or September meeting and that Fed officials need to sort out the mixed message on QE, but that the broad FOMC backs stimulus. Interestingly, he said it was not a foregone conclusion that Bernanke's term would end at the end of this year.
Wrapping all that up, things are likely to be erratic for the next few months. Given the growth prospects and inflation prospects, I don't see either picking up enough soon to justify the Fed pulling back on purchases yet. The market is going to have a point it is comfortable yet and I think we've overshot in both directions trying to find that in the past two months.
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On Thursday, we flagged the possible Pivot High in Tesla (NASDAQ:TSLA).
Note how TSLA accelerated to the downside on knifing through the prior swing high on 5/14.
The first signal reversal bar from 5/14 saw the stock squeeze higher, but the second signal bar on 5/29 has the second mouse getting some cheese.
It will be interesting to see how TSLA acts on this first pull back to its 20 since it went into overdrive in early May.
Check out the charts below:
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Tuesday, June 4, 2013
Corrective Pattern Still in Progress?
In the aftermath of yesterday's truncated decline in reaction to surprisingly weak economic data, the S&P E-mini pressed to a new reaction low at 1626.25 -- a full 3.5% off of the May 22 high at 1685.75 -- prior to staging a recovery rally back to the 1635/40 area.
The question now is whether or not the "ISM spike low" at 1626.25 ended a correction, or whether it represented the mid-point of a larger developing corrective process.
Let's notice that the index has recovered right to the lower side of its recent breakdown plateau between 1655 to 1640, which remains intact.
In the absence of upside continuation that hurdles and sustains above 1650/55, my instincts are telling me that any forthcoming strength represents an "intervening" rally within a larger, still-developing complex corrective process that will resolve itself in another downleg that breaks 1626.25 on the way to 1600 prior to completion.
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The Social Mood of... Bacon?
Yes yes, I'm going to talk about the social mood of bacon for a brief moment, because it's got this socionomic bouillabaisse of iconography and psychology swimming all around it.
What am I talking about? Well, let's look at the current transaction that has had everyone talking: the acquisition of Smithfield (NYSE:SFD) by Shuanghui International Holdings Limited. If you have ever watched the documentary Food, Inc., you know that our food industry has consolidated and grown in size while the number of food producers has drastically shrank. The market structures of several other key sectors of our economy, like telecom, media, pharmaceuticals, and financial services have also behaved similarly. "Us, everywhere, forever" is the mantra we've heard as companies grew in size while also reducing headcount and boosting efficiency.
But if you haven't noticed, our food supply is moving in the opposite direction: We want food trucks that give us shawarmas made with locally raised chicken and lamb. We go to farmer's markets where the produce was grown by someone that may have literally just picked it out of a field before they got to the market. It's local. It's small, It's inefficient. It's "me, here, now."
But the problem is, if this is your thesis for a trade, you can't really do a pair trade that goes short Smithfield and long your local food co-op, can you? But you can go long Whole Foods (NASDAQ:WFM) and short Smithfield on a pair. Or you can use some other large industrialized agricultural producer as another target. The risk/return aren't a perfect match since you're talking about a retailer and a food producer, but you get the idea. People's fear of "us, everywhere, forever" comes together at the meat and produce counters of your grocer. Want to revolt against a Chinese takeover of a US food manufacturer? Simple. Go where you can get bacon that was made from free-range hogs raised on a farm 100 miles away that doesn't use Monsanto (NYSE:MON)-based corn and steroids and antibiotics. This is right in Whole Foods' wheelhouse.
People like to talk about fashion and media trends as well, but food is what we feed ourselves with both figuratively and literally. I know the conventional wisdom is to look at food and food retailers as defensive plays, but in my mind, nothing expresses our mood as well as food.
Buy the Correction?
Since recording a record high on May 22, the S&P 500 has consolidated and is now in its third week of sideways drift. The big question is "buy the weakness?"
The week the S&P 500 made a new all-time high, we counted an extreme number of buying climaxes. 864 U.S. listed stocks made new 52-week highs, only to end the week in the red. That was the second highest figure in the past ten years. Furthermore, other key international regions also recorded similar activity. The U.K. FTSE (INDEXFTSE:UKX) had the highest count in a decade, as did Japan.
Weekly buying climaxes are indicative of trend exhaustion. They provide strong evidence that the run since November 2012 is over with topping action now underway. The fact that the high buying climax reading coincided with news from the Fed regarding "tapering" as well as bullish calls from Goldman Sachs (NYSE:GS), as reported by Bloomberg at the time, adds a lot of weight to the signal.
Climaxes over the past several years have been overlaid onto the S&P 500. We have annotated the magnitude of market corrections following the three previous high climax counts in the U.S. market. Note the size of these: -8% in 2006, -17% in 2010 and then -22% in 2011. So far, since the May high, the S&P 500 has corrected a mere 4% high-to-low. In comparison to previous high climax counts, that pull-back number is short of the mark.
A clue that the correction is complete will come from same indicator, albeit in reverse, with weekly selling climaxes. A new 52-week low is made, but the share then ends the week in positive territory. A cluster of weekly selling climaxes, forming a mini bell curve, typically follow a high climax count. That bell curve will coincide with basing action on the index, with uptrend reassertion then duly following.
To conclude, we expect further corrective action with lower levels being necessary.
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