Buzz on the Street: Fruit Ninjas Take on Apple
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, December 3, 2012
The T-Report: Santa Clause is Coming to Town
It's that time of the year where normally-tolerable radio stations insert so many holiday songs into the mix that it becomes unbearable, and apparently, it is the time of the year where we are reminded investments only go up in December.
In general, I don't disagree. It is a good time of the year for markets and back on November 19, I wrote 'Tis the Season to Be Bullish. The S&P 500 (INDEXSP:.INX) had closed at 1,360 the prior day and IG19 was at 109.5, albeit down from 113 the day before.
But right now, I cannot share in the holiday spirit. While China is slowing, it may have turned the corner, at least temporarily. Nonetheless, there are too many concerns out there for me right now.
The idea that investors are going to get long and then do nothing waiting for the end of the month strikes me as too unrealistic. Something is likely to test that hypothesis, and there are far too many people paid for performance that are long right now. Maybe this will be the "performance chasing" rally that works, but I am pessimistic.
We have our own political problems. The Greek deal is about to go through that stage where everyone realizes it was less of a deal and more of a promise to plan a deal.
Then, as I went through in a detailed not to clients, some favorites, like HY ETF's, are not set up to do well even in a risk-on environment.
It is possible that I change my mind, that I get converted back to liking this market. After all, I had seen a "perfect storm" scenario where the U.S., Europe, and China all deliver and we get as high as 1,500, but right now, I don't see that scenario as particularly likely, and feel strongly that positioning is overly bullish.
ExxonMobile Looking For Breakout Confirmation
Since its late summer breakout, Exxon Mobil (NYSE:XOM) has pulled back to retest the breakout level around $85. To be exact, the low of the pullback was $85.06, marking a 50 percent retracement of the June low to the September high. It would be ideal (and bullish) for this level to hold.
However, not all breakouts are created equal. And because of this, we want to watch the breakout area closely to see if it offers support and validation. In short, the current pullback is what technicians/chartists call a backtest. I like to think of a backtest as a collective test of investor psychology. After all, price is a psychological reflection of what we are willing to pay for a given security.
The uptrend line is converging on the breakout area and looks to offer a good stop level for longs.
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Despite some disappointing manufacturing data and the giveback intraday by markets, enough confirmation has taken place in the near-term to suggest that the vicious V markets experienced in November holds. Our ATAC models used for managing our mutual fund and separate accounts for the first time in two months rotated out of bonds and into stocks, playing a scenario which could result in another "melt-up" like move, similar to what occurred following the April-May mini-correction.
It is clear now that Treasury yields have become more sticky on the potential for more bond buying by the Fed. Credit spreads have narrowed, and within the bond market relative price movement is confirming risk-on's return despite absolute yields not rising.
The hardest trade of all now is a bet on new all time highs (the Fall Catalyst) which I maintain remains a very real possibility into the end of the year. I suspect Technology (NYSEARCA:XLK) and Financials (NYSEARCA:XLF) can have strong moves in the weeks ahead as more aggressive chasing in high momentum sectors takes hold. For those that lagged, this may be the opportunity you're looking for if intermarket trends continue to heal.
Tuesday, December 4, 2012
The Hipsters at the IMF
Yes, you read the title correctly. The IMF is filled with hipsters. Why? Because of their love of irony, of course.
Now you might be starting to ask yourself what I'm referring to. I'm talking about a recent report published by the IMF that was reported on by Bloomberg and the FT among others. The report endorses the use of capital controls by countries that have little room for implementing other policies or if volatile capital inflows threaten economic stability. This report wasn't a full-throated endorsement of capital controls, since the IMF caveated that these controls should be "temporary."
Ever since Lagarde took over as head of the IMF her mantra has been one of achieving growth. But now, the IMF is changing course. Capital controls are not known to be pro-growth ideas. But now that they are in play, we should expect to see capital lock-up periods and increased taxes on foreign direct investment as just some of the policies that countries will start to adopt.
But that contradiction is just small potatoes when you compare this apparent about face to the IMF's history and what it reflects about social mood among policy makers. The IMF, after all, is a multinational apparatus that was formed during the waning days of World War II. Social mood was just starting to rise and in many ways, the IMF embodies "us, everywhere, forever" attitudes. Its goals are benevolent. They encourage economic development and trade all over the globe and are intent on raising standards of living everywhere, with a particular focus on developing and emerging economies.
So for a body that stands for "us, everywhere, forever" to even consider approving "me, here, now" policies like capital controls is definitely ironic. It may even be defeatist. I, along with others like Professor Atwater, have written over the past few years about how we felt that the grand experiments of World War II and rising social mood like the EU were on a path to dissolution. This new development only seems to make it that much clearer that the "me, here, now" attitudes we have seen in the wake of the credit crunch still persist. There's no other explanation: the IMF is now run by a bunch of hipsters.
So the next time you make a snide remark about hipsters and their handlebar mustaches, riding one gear fixie bikes whilst wearing Warby Parker glasses around 19th Street in DC, they may not be an unemployed or underemployed young, creative type. They might actually be an IMF economist.
Gold and Silver in Annual Early December Correction
No, this is not news. We all know this. However, I would like to point out that this happens every year, literally. Over the past 10 years I have no doubt that Dec 1 to Dec 10 has featured the metal's poorest average weekly performance. So what happens next, that is the real question. Typically speaking, the rebound from the early December correction is a swift one. We have seen many V-bottoms in the 2nd week of December. In my opinion, it is smart to pay a little extra attention to these assets over the course of this week.
The metals have been struggling to work off an overbought COT as well as deal with psychological, horizontal resistance around 1800. Septembers move was too strong and the aftermath of massive fund buying has lingered. I am eyeing 32.40ish silver and 1783ish gold for my first bids. I was able to sell 75% of my long position into the strength, mostly because I have come to fear this early week. Hopefully, we will get prices down to those levels for a reestablishment. For now, I am being patient in this 33 silver 1695 gold area.
Today marks the end of the period that will be reported on this Friday's COT report. We have seen 3 of the 5 days feature drops in gold of over 20 bucks. I am confident that Friday's report will embolden the bulls. In the physical metal space, demand is actually far higher than normal for smaller wares like gold eagles and the like. I do believe this is just a necessary flushing of September's excesses. In theory, as early as next week, we could see gold and silver begin a strong drive-one that last through the end of January. We could witness gold finally break that 1800 mark and drive strongly on to fresh highs. Now, is the time to be paying attention. Stay tuned.
Apple Topping Tail
Yesterday's Topping Tail/Lizard signal bar on Apple (Nasdaq:AAPL), followed by this morning's downside gap, underscores and goes a long way to confirming our end of November /595 time/price square-out.
As we noted in the DMR last week, if it were any other stock other than AAPL and was trading at $60 instead of $600 what would you think on a backtest of its 200 dma?
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Wednesday, December 5, 2012
It's been our view that Apple (Nasdaq:AAPL) is the most important stock in the world--and not just because of its weighting. It has been the dog that has wagged the tech tail for some time, and we must respect that with the stock down $20.
For my part, after round-tripping some S&P out-of-the-money February puts--I punted them on yesterday's opening and bought back half the position a few hours later--my book is as follows: I'm long a smattering of lottery tickets in the cannabis space--my best idea for the next decade--and half-a-handful of the out-of-the-money S&P puts.
Net/net, I'm delta long small with positive gamma--and if you have no idea what that means, you should read this! I was toying with the idea of adding back the other half of that put position but the traction in the financials (above 47 on the BKX (INDEXDJX:BKX), which is big) and the flattish breadth has curbed that enthusiasm, at least for the time being.
As always, I hope this finds you healthy!
The S&P 500 (INDEXSP:.INX) continues to trade textbook, technically speaking. On the daily chart, see that the November low hit the 61.80% Fibonacci retracement of the June - September rally almost to the tick before bouncing sharply.
Closer-up, on the 30-minute chart looking back to November 28, you see the same thing. This morning's slide bumped right up at the 61.80% Fibonacci retracement where so far it bounced just about 100 bps. Oh and by the way, that level also happened to be 1400 on the S&P 500. It was what I call a confluence zone where multiple signals come together, and should 1400 never get pierced again for the remainder of the year (not extremely likely), then this pattern along should send the index to 1430.
If you're not watching the EUR/USD correlation with S&P 500 futures… that may be something to consider. Mean reversion is what I am talking about here. Just as the S&P 500 ramped 100 bps off the morning lows today, it also moved back to EUR/USD, where they now dance in all harmony until the next whisper of a misstep hits the tape.
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Connecting the Squares
Last week we flagged 594/595 and the end of November as a time/price square-out in Apple (Nasdaq:AAPL).
Yesterday we noted that 90 degrees down from the 595 pivot high equates to 571.
This morning, AAPL is diving below 571.
Is it an opening flush out with a reversal back above 571 to follow or is this morning's weakness a sign that AAPL is headed to 547 which ties to a 180-degree decline from the 595 pivot high?
In the big picture, a break of 547-ish indicates an extension to around 526 as shown in this chart from Friday's Daily Market Report:
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Thursday, December 6, 2012
AAPL View: More Downside Coming?
The chart shows yesterday's high-volume sell-off that took the stock down some 6.5% on a huge 4.5 standard-deviation move. We anticipate at least a fill of the 517.68 gap in the coming days.
The table shows Apple's (Nasdaq:AAPL) history over the past 10 years where the stock gapped down at the open and declined by at least 6% on the day. Recall that column data are expressed in percentage terms over T holding days; for example shows an average decline of -4.3% 4 trading days after the tested event.
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Me, Here, Now
In April, I offered a lengthy piece on the "Escalating War on Transnationalism" in which I outlined how vulnerable I saw the world's biggest corporations to the falling social mood and rising "me, here, now" decision making.
I couldn't help but smile this morning reading the headlines about Apple's (Nasdaq:AAPL) decision to increase its US manufacturing and Starbucks (Nasdaq:SBUX) decision to pay higher UK taxes. Both themes were risks I discussed in my article.
Business leaders and stock analysts will all suggest surprise by the action, but when you understand how changes in social mood affect what we want, anticipating what is ahead is much easier that you may think.
Through Sunday Amazon is offering my book "Moods and Markets" as a free Kindle download
If you haven't read it yet, here's your chance.
Crunch Time For Yields
Ten-year note yields are about to break down and lose trendline support off July lows. As for ES, 1422.50 was indeed major resistance (see Monday's post). Support is at 1394.75.
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Friday, December 7, 2012
T-Report: NFP, Yeah You Know Me
My first reaction was that this was a great report. Big headline gain in the establishment report. The drop in the unemployment rate seems great too, but then you look at the household survey (which determines unemployment rate) and it is showing job losses of 120,000.
I'm not sure where the jobs came from. I was surprised by the headline number. I am prepared to be pleasantly surprised. My first reaction again was that this is a great report and a clear buy signal.
Is the household survey a function of the big "unable to work" number? Maybe that explains it? I would be happy to get on the all is good bandwagon, but I'm struggling to reconcile my perception with the numbers and I would like to understand why the household was weak.
My guess is this is still a good report, but not great.
Back to Apple Watching
So will Apple (Nasdaq:AAPL) finish the week as a $575 billion company or a $500 billion company? With 7 hours of trading left, both are real possibilities. Scary.
Still Neutral with a Bearish Bias
I've stared at the numbers, stared at the screens, stared at the TV, stared at my coffee cup, and just can't get that excited. I remain slightly bearish and think that many of the world's favorite long positions remain crowded with limited upside.
Netflix Receives Wells Notice
Netflix (Nasdaq:NFLX) announced that it received a Wells Notice from the SEC regarding the most foolish Facebook (Nasdaq:FB) update of 2012.
On July 3, CEO Reed Hastings told the world via Facebook that Netflix crossed the 1 billion viewing hours mark in June for the first time ever.
The stock shot up 13% on July 5 (the next day of trading) as investors assumed that there was no possible way that Mr. Hastings would make such a bullish statement while bad news was coming.
Expressing some skepticism, we asked this question on the Buzz that day:
"...will that 1-billion hour metric actually translate into a better-than-expected quarter?"
The answer turned out to be no. On July 24, the company reported an in-line second quarter with a lousy forward outlook. The stock cratered 25% the next day.
The SEC wants to bust Hastings on a Reg FD violation, which is essentially a chart of selective disclosure of important information. In the dot-com days, it was typical for company executives to whisper sweet material nonpublic information to a select group of VIP's like Wall Street analysts and big-time investors, while the general public was oblivious.
Reg FD says important stuff has to be reported to everyone equally, and in this case, the SEC doesn't believe a Facebook posting (to Reed Hastings' 200K+ Facebook followers) counts as such.
I tend to agree with Reed Hastings; while the Facebook announcement showed spectacularly bad judgement, the information was distributed worldwide more-or-less instantaneously.
And keep in mind, I have a vested interested in Netflix going down -- I am still short the $87.50-$90 call spread expiring today. I'll likely close the trade shortly after the open because I think this is non-news and I fear the stock might bounce in a serious way today.
Indices Bumping Up Against Major Band of Resistance... Again
A technical peak at the S&P 500 (INDEXSP:.INX) and Nasdaq (INDEXNASDAQ:.IXIC) paints a picture of a market at a crossroads. While the past week has seen some healthy digestion, both indices remain below major confluences of resistance.
Sentiment is getting better, but until the indecision "breaks," it's probably best to keep your risk management hats on!
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