Buzz on the Street: This Rally Can't Be Killed by Conventional Weapons
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, January 14, 2013
The Yen, Illustrated
So I was trying to put together my thoughts on robots, automation, jobs and how the future we were promised never materialized (not really, but you'll have to read my upcoming piece to see what I mean), when I started checking futures markets. Specifically, I started checking the currency markets. I don't think the importance of this weekly chart on the Yen can be overestimated. And the EURJPY is over the 120 level as I write this. That's a level we haven't seen in the EURJPY cross in almost 2 years. Right now, I have to say the Greek PSI deal may have been more significant than any of us realized, along with the ECB's commitment to purchase Spanish and Italian debt and do "whatever it takes" to keep sovereign debt costs from spiraling out of control. That has been bullish for the Euro.
In the meantime, the Yen continues to weaken on the premise that Abe will try to force Japan into achieving 2% inflation. But what we may have to watch is the relationship between the Yen and the Yuan as China and Japan appear to be challenging each other on a number of different fronts. Because while China raises rhetoric about the disputed Senkaku/Diaoyou islands, Japan's cheaper currency may very well launch an attack on China it can't afford to lose.
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7 years following the false breakout in January 1973, there was another false breakout in early 1980.
While 1973 is on the 40-year cycle, interestingly, 1980 was 33 years ago and 33 is opposite January 10, 11 on the Square of 9 Wheel (January 11 being the high day in 1973).
So, these two false breakouts -- 1973 and 1980 -- relate harmonically.
A similar percentage decline now to that of the 1980 smash into March ties to last year's June low at 1266.
On the decennial cycle (10 years), this ties to the big March pivot in 2003 which was a test of the prior year's big October low and a kickoff for a multi-year advance.
March has been a big pivot in the markets since 2000. Is it possible this March sees a test of last year's June low (in which the Yearly Swing Chart turns down)? Or, alternatively, if the market holds up and extends, is it possible the cycles 'stretch' with March defining a first quarter high?
See the 1980 Dow Jones Industrial Average (INDEXDJX:.DJI) chart from this morning's Daily Market Report here:
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A great obstacle to happiness is to expect too much happiness.
-Bernard de Fontenelle
Major indexes have put in a stellar performance since the start of the year. The S&P 500 (INDEXSP:.INX) and NASDAQ (INDEXNASDAQ:.IXIC) are up 3.2% each. After such a run, one indicator that has short-term consequences, has started becoming overbought.
As of the close on Friday, Jan 11, the S&P Short Range Oscillator was +7.7. Such readings can make the market vulnerable to a short-term pullback.
Since most other sentiment indicators that I watch are not yet deeply overbought, I suspect this pullback may not last long.
Tuesday, January 15, 2013
Something to keep on your radar is the Citi Economic Surprise Index, which you can in the chart below. Many traders will point to this at market bottoms to confirm a turn of the tape. We are seeing this chart top out -- that's what they call a higher low in this business, and to me it confirms my viewpoint that our markets are forming a top. Nonetheless, I am still of the view that we can push into my target of 1500-1550.
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The Op-Ex Bender
Expiration influences tend to manifest in the days prior to the actual expiry (read: today through Thursday).
While these are always difficult to game (they are crowded), we can garner clues about individual "pin risk" by looking at open interest that is out-sized relative to average daily volume.
In terms of the price action, and despite the "don't blink" break in Apple (Nasdaq:AAPL), the market continues to "bend not break" as we edge toward the January Put & Call Funerals.
The banks warrant a mention as they hang tough despite perceived headwinds;.
Market internals are skewed Boo, but not at levels required to qualify them as a daily "tell."
My "gut" would be to fade (read: buy) this break of $500 in Apple for a pure trade. As that risk is not definable at the time being, I'm gonna pass, but I felt compelled to share my take.
Gold acts well today but technicians will be quick to note the series of lower highs and lower lows, which is typically a sign of distribution.
Apple Near-Term Selling Exhaustion Versus Facebook Short-Term Buying Exhaustion?
Facebook (Nasdaq:FB) made a pivot high in mid-July at 32.88.
It is 180 degrees in time from that pivot.
I can't help but wonder whether FB will be a sell on the hype today, as it has been accustomed to do.
If FB offsets yesterday's outside down bar it could squeeze higher but a subsequent reversal though yesterday's low could see some downside acceleration.
See the weekly FB from the IPO here:
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Wednesday, January 16, 2013
The Golfer's Stock Market
There's a saying in golf that "it's not a video scorecard," -- meaning that the only thing that matters is your score. This could be said for nearly any sport, but this is the best analogy for me. I often recall having these conversations with a friend (or a competitor) where I was regaled with how many greens or fairways were hit, or how many putts lipped out... while the only thing that really mattered was the score at the end.
Relating this back to the markets, in some cases cases, many of us (myself included) fall victim to arguing a position because the fundamentals or technicals are obviously leaning in one direction, but the price of that asset is not. This was definitely the case for the majority of the early 2012 rally as it was sustained despite overbought conditions, extreme sentiment, and Greece on the verge of blowing up every other week, as Brandon Perry pointed out in his Buzz earlier. But if you look at the chart now, the only thing you see is the price, not the headlines.
The moral of the story is, respect price and the price action, rigged or not. It's the only thing that matters in this game.
Is this the Sammy Hagar Bottom for Apple?
Yesterday, I pondered the possibility of Apple (Nasdaq:AAPL) entering its Sammy Hagar era (maximum profitability and minimum excitement).
I acknowledged at the end of the article that if I'm at the point where I'm using Van Halen frontmen as analogies for the world's most important tech company, we could be seeing a turning point.
Well last night on CNBC, respected technical analyst Tom DeMark, who called the top around $700, said the stock just put in a bottom.
The green flag drops on January 23 when Apple reports earnings -- BE THERE!
Game of Inches for the SPX
As the S&P 500 Index (INDEXSP:.INX) approaches its Sept 2012 high of 1475.51, about 5 points from current levels, which by the way, is less than 7% from its all-time high of 1576.09 on Oct 11, 2007, let's notice the still-intact series of higher-highs and higher-lows that have emerged in the aftermath of the March 2009 low at 666.79.
The ability of the SPX to claw its way above 1475.51 is critical to the preservation and continuation of the dominant post-2009 uptrend.
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Thursday, January 17, 2013
Yesterday, Ed Hyman's astute ISI organization released its Homebuilders Survey. On a week-over-week basis it surged from 57.8 to 61.9. Strength in the housing sector is an extremely important metric for it increases consumers' net worth which tends to lift consumer spending. It also helps bolster banks' balance sheets making bankers more willing to make mortgages, which encourages builders to build. Over the past nine months much of the strengthening housing data has been driven by the multifamily sector. Now, however, it appears the single family sector is gaining traction. If so, the housing numbers going forward could surprise a lot of folks and offset many of the economic headwinds. This is especially true when taken in concert with the booming automobile sales. Recall, the two sectors that typically have pulled our economy out of "soft spots" have been autos and housing. With both of these sectors showing strength, is it any wonder the folks at ISI have real GDP estimates of 2.0% for 1H13 and 3.0% for the 2H of 2013.? Of course to get to that 3.0% average for 2H13 implies the last few months of 2013 would likely have to see a GDP figure above 3.0%. And, maybe that's what the D-J Transportation Average (TRAN/5643.84) is signaling with this week's breakout to a new all-time high (see chart).
In yesterday's Morning Tack I stated, "For the economically sensitive Trannies to do this speaks loudly to my premise that there will be no recession in 2013. It also speaks to Dow Theory for we now have one-half of a Dow Theory 'buy signal.' Regrettably, for the D-J Industrials (INDU/13511.23) to confirm the Transports would require a similar upside break above the Dow's all-time closing high of 14164.53 recorded on October 9, 2007." And while I stand by that statement, one savvy seer pointed out that it's possible if the Industrials break above their October 5, 2012 reaction high of 13610.15, it also might be a Dow Theory "buy signal." While I contemplate that, it feels like the SPX will be contemplating it as well with some more sideways/corrective sessions before breaking out to the upside.
The only thing worse than missing the train in the morning is getting to the train station, finding a spot and getting on the wrong train. I love Long Island; I love Long Island...
Apple (Nasdaq:AAPL) $500 is the level to watch, while respecting the fact that 1) It's a $500 stock (give it some breathing room) and 2) expiration influences will pull this pull back and forth into Friday's expiration. I will also draw your attention the the WSJ article this morning about the "growth"-"value" debate on the Street.
Goldman Sachs (NYSE:GS) should remain on ye radar as well. We spoke yesterday about the insider sales window that typically opens a few days after earnings. While this may not be it, it may well be traders leaning against it. Citigroup (NYSE:C) and Bank America (NYSE:BAC) should also be monitored through the "reaction to news is more important than the news itself" lens.
Initial unemployment claims were the lowest in five years today, as the Russell 2000, Dow Transports, S&P Midcap 400, S&P SmallCap 600 and S&P consumer indices hit all-time highs. How about that!
I haven't been trading the tape directionally -- I own individual situations (which are working higher) against a snivlet of S&P out-of-the-money Feb paper (which aren't) -- but I'm reminded of the axiom that news is always best at a top (Apple $700, Gold (NYSE:GLD) $1900) and worst at the bottom (think March 2009).
Finally, while the tape is green, market internals on the big board are 3:1 negative. See it, even if you choose to ignore it.
As always, I hope this finds you well.
Bond Stock/Spring Switch Rotation Continues
Equities continue to show good behavior today, with the only negative being Financials (NYSEARCA:XLF) which is facing pressure on the heels of bank earnings. Small-cap stocks keep making new all-time highs, indicating solid breadth and risk-sentiment is underway as momentum becomes more entrenched. The bond market is indeed confirming risk-on, with long bonds down (NYSEARCA:TLT), Treasury Inflation Protected Securities (NYSEARCA:TIP) outperforming nominal Treasuries (NYSE:IEF), and credit spread contraction with a positive Junk Debt market (NYSEARCA:JNK).
Better economic data is forcing money to rethink the bond trade, with the complacency over deflation now being aggressively questioned through intermarket trends. I made a big point about this earlier today in an interview at the Wall Street Journal. Equities are likely far from being complacent, at least relative to bonds which appear to be in the process of normalization to actually provide real return after inflation as yields rise. The Spring Switch of 2012/"Great Re-Allocation out of bonds and into stocks" which I was early on thematically last year may actually now be underway.
Friday, January 18, 2013
This morning, ECB board member Coeure commented on whether or not European banks will begin paying back the 3-year LTRO money it received in December 2011 and February 2012. His comments indicated no worry that if money is begin to be repaid that it will not have a tightening effect on European monetary conditions and that the central bank has no view on whether or not the money should be repaid early.
Thus far, no visual chunks of money have been repaid by any of the major banks as the first round's early payment date opened after a year. Recall that some of the better off banks were coerced into taking LTRO loans as to avoid any stigma.
The downside is that the overnight Euribor rate could tighten as liquidity is sucked out of the system. The EUR could also fall as conditions weaken. Below is the spread of overnight rates vs 3-month Euribor, which has seen a gradual increase over the past month or two in anticipation of this liquidity sucking event and any rise in funding rates. Euribor futures from March forward have also begun to fall in anticipation of this event as well.
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Chop & Slop
Although the trajectory of many indices to new highs has been persistent, short-term trading around individual names has been choppy.
For example, Whirlpool (NYSE:WHR) left a nice signal bar buy last night and is not following through.
Ditto Lindsay (NYSE:LNN) which broke out of a continuation Pennant pattern and is not following through -- at least so far.
Franklin Resources (NYSE:BEN) scored a new high close yesterday but has gapped down with authority.
PVH (NYSE:PVH) is failing to follow through from a nice outside up signal bar.
And then there's Carter Holdings (NYSE:CRI) which trapped breakout buyers (at least on a trading basis).
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