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.
Wednesday, June 5, 2013
Apple Patent Issue a Big Question Mark
Yesterday afternoon. the ITC ruled against Apple (NASDAQ:AAPL) in a patent dispute with key rival Samsung.
The ITF ruled that Apple infringed on a Samsung patent, and as a result, some older products like the iPhone 4 and iPad 2 can't be imported and/or sold.
That's not a big deal -- the iPhone 4 is over three years old and a new iPhone is just around the corner. The iPad 2 is over two years old. And the products in question are only the AT&T ones.
However, there are concerns that Samsung could try to extend the patent ban to other Apple products, counteracted by the possibility that President Obama could toss out the ban since it is related to standard essential patterns, which are usually expected to be licensed pretty easily and freely.
In other words, nobody knows anything.
But this is a patent case, so what else is new?
Beige Book Observations
Since the data is for the most part backwards looking or things we already have, the effect is muted.
One thing I picked up on is that the auto sales rhetoric is a bit more tapered. For a while, the Fed has noted "strong" auto sales. That has now been
Conversely, housing was upgraded to "moderate to strong pace," but no surprise given the strong growth in housing starts and new home sales.
Lastly, consumer spending/sales remains designated at 'mild growth'.
Why a Drop in U.S. Manufacturing Shouldn't Surprise Anybody
Vadim Pokhlebkin - Elliott Wave International
Over the past 18 months we have discussed the global economic contraction that was steadily making progress toward the United States.
While it may have started in Europe, we observed the clear slowing in China's economy in the April issue of The Elliott Wave Financial Forecast and then the spread to our northern and southern borders (see June EWFF, p.8).
Despite historic fiscal and monetary stimulus, economic contraction has now jumped the border fence, as Monday's release of the most recent US ISM Manufacturing Index dropped to 49, its lowest level in four years. A reading below 50 is thought to signal outright contraction.
The steady march toward the depths beyond "recession" is apparently catching most economists by complete surprise. Yet take a look at this ISM chart: Do you see a trend?
See chart below.
Economists never look forward, only backward, yet even the most recent reading was "unexpected." Our forecast remains intact: the manufacturing index will fall much further.
Click to enlarge
Thursday, June 6, 2013
Good morning all. As we sit 24 hours before the Big Bad Payroll number (tic) the trend of rising rates in everything bonds continues. High Yield rates are now a full 100bps off the bottom, with the increase in Treasury rates accounting for about 1/2 of that. The 2yr swaps, the US CDS, and foreign sovereign CDS remain very quiet, but large US financials CDS have been ticking up. Broad CDS indices on corporate bonds have also moved up a fair amount. The latter is what makes broad media news even though it is by far the least important as we monitor the true state of affairs in corporates.
Yesterday new issuance was zero except for a $250MM preferred by Allstate (NYSE:ALL), but Monday and Tuesday came in at more than $14 billion total. Hardly a crisis.
All in all, rates are clearly having a correction from lows that were totally unsustainable and counter-productive to new issuance. We just can't expect buyers to keep taking bonds that pay almost nothing. Aside from scary headlines which - make no mistake - WILL impact equities, there's nothing wrong with the demand for corporates, even if we were to go into an extended issuance lull and rates were to go up 100, 200, or 300 bps. from here. So while stocks could, and likely will, use the action in corporates as a catalyst to correct (and we know that the sharpest correction occur in primary moves) there is nothing to suggest that corporate buyers won't come back to the trough and companies will be handed more billions to rig their stocks.
For shorter term Minyans, since my long positions are mostly in Nasdaq related names, I looked at the Nasdaq-100 (INDEXNASDAQ:NDX) chart with long and short term Fibonacci retracement levels, horizontal support areas, and DeMark targets, and these are important areas I am watching: 2939 -> 2917, 2893 -> 2878, 2841 -> 2831, and 2800 -> 2769.
Again, while getting down to 2800 would probably freak people out, particularly considering that a lot of traders for more than 5 months were gorging on stocks because of the time tested/fail proof analysis that "today is Tuesday", it would actually do little to harm the longer trend in place since 2009, and may find even me arguing that at 2800 the Nasdaq really would look like a buying opportunity.
Doller Yen Yikes!
What we are seeing unfold in world risk markets (equities, commodities, and currencies) is the potential unwind of the dollar-yen carry trade. We have witnessed a sharp decline off the recent high in dollar-yen, and risk assets are appropriately responding. Let's see how today's action unfolds. A spike reversal off highs in gold, crude, and treasuries prices along with a potential bottoming in the U.S. dollar and equities will largely confirm the new secular shift into stocks and out of fixed income.
Looking at a larger view of dollar-yen shows a potential double bottom in 1994 and the November 2012 low. These are the parallels I'm drawing against. Yes, a sharp rise was witnessed over the previous 6 months in the Nikkei (INDEXNIKKEI:NI225), U.S. stocks, and their respective currencies. If you are playing with the 2007-2012 playbook, then over bearishness is welcomed. I'm looking at a longer view and believe these moves, although near term extended, are just beginning to break out. In regard to stocks, we got the move from 1575 to the 1690-1700 level and are now back to an area of interest, for me that was 1610 with a bit of wiggle room. Holding here or slightly above the 2007 highs confirms my view for 1760. If we are to continue this fall then the new secular thesis is largely voided, and we will return to the E wave bear market scenario.
And the winner is...
If a picture spoke 1000 words... you know the drill; we've been watching this for some time and true to form, we're stuck in the middle of dueling channels with a monster catalyst tomorrow. The question, of course, is how psychology is shaping up; estimates for the change in non-farm payrolls is 163,000.
If we blow out that number--a 300K print, for example--does the tape scream higher and then fade lower (as taper tantrums take hold)? I think so. Conversely, if it's a paltry print--a 50K lot--does the tape get hit before reversing higher on hope (of more stimulus)? Perhaps.
The trickiest print--and perhaps the path of maximum frustration--would be in-line, and we would quickly hear three days of volatility getting sucked out of option premiums.
I'm flat directional (SPY) risk, with an eye on adding some out-month downside exposure from higher levels (or, if the tape gets sloppy post print, I may re-initiate using the other side of S&P 1600 as my buy-stop). I do own some Facebook (NASDAQ:FB) calls, with a tight stop, as well as another blue-chipper, for a trade, but they're small potatoes relative to the risk bat of late. I'll tell you; that was some round trip!
I'm hosting a mid-quarter web-cast for our investors after the close so at a point, I've gotta gussy up. Fare ye well into the bell and remember, the definition of an investment should never be a trade gone awry, and the risk you go home with is what you'll wake up to in front of the most important economic release of all-time, that is until the next one arrives!
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