Buzz on the Street: Apple Earnings, a Hijacked AP, and the Telltale VIX Make for One Wacky Week
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.
Here is a small sampling of this week's activity in the Buzz.
Monday, April 22, 2013
Another Dell Update
The situation in Dell (NASDAQ:DELL) is very tricky following Blackstone's (NYSE:BX) drop out of the bidding war for the company on Thursday, which leaves the Michael Dell-led party, which includes Silver Lake and Carl Icahn as the potential buyers.
But on Friday evening, the Wall Street Journal reported that Carl Icahn was unlikely to follow through on his initial $15/share bid, and might consider a hostile bid if shareholders vote down the Michael Dell/Silver Lake offer.
Right now, Dell is trading at $13.29, or about 2.7% below Michael Dell's offer of $13.65 per share. This is a more-or-less normal spread from an acquisition price.
So at this point, Dell is trading as if a higher bid from Carl Icahn does not exist. The stock previously traded as high as $14.64 on 3/25/13.
But one option to consider here is that no deal at all gets done. What if Icahn officially drops out? What if Silver Lake drops the ugliest three letters in the alphabet? As in MAC. Material Adverse Change.
If Silver Lake dropped out, it would have to pay Dell a chunk of change, but Dell would likely get crushed. It was trading under $11 before the deal talk started and since then it has dramatically lowered its outlook due to collapsing PC sales.
Here are some things to think about: -- I haven't put any money down because I'm not sure which scenario is most likely to happen.
1. If you're playing Dell with the idea that you're going to get $13.65, it may make sense to just get out now. 2.7% probably won't make a big difference to your portfolio, and if a deal does not get done, you'll be in big trouble because the stock would most likely go under $10.
2. If you think the deal gets done at a higher price, consider using options to define your downside risk because they are super cheap. When a deal is on the table, implied volatility collapses because the range of price outcomes is eliminated. As an example, the July $14 calls go for $0.11. Those would be worth $1 if Carl Icahn comes through at $15 before options expiration.
3. In the event the deal falls apart, out of the money puts appear to be a good option. For example, the July $12 puts are going for $0.22. I think Dell sales past $10 in the event there is no deal.
Just keep in mind that cheap options are usually cheap for a reason -- they're not likely to pay off. But if you have a specific view on how Dell's going to play out, they are a good way to play because of the aforementioned cheap implied volatilities.
As I opined on Thursday, the market reached an oversold level into a key area of support and a relief rally should take shape. Short-term indicators are demonstrating bullish divergences. This should facilitate a rally through the early part of this week and maybe the balance of it.
With the heart of earnings hitting the tape this week, we are seeing stocks trade on their own relative merit and less as a market. I have mentioned this previously since turning bearish on the market in early April that we are trading in a micro version to the top put in place during 2011, call it a micro top. The right shoulder we are attempting to build from a technical perspective, is forming here now. The issue is that it is widely known and becoming less popular. Shorts need to be patient here and let things develop; be a trader on the short side.
As of yet we don't have a defined break, that will come with a break of 1540 on the cash. Good luck.
Happy Monday! I spent this weekend doing my spring cleaning and finishing up projects that had been lingering. It was good and therapeutic. After a pretty emotional week watching the Boston and West, TX (not too far from here) tragedies, I needed a little less "screen" time. I do some of my best thinking while the screens are off. I keep wondering how high the rebound from S&P (INDEXSP:.INX) 1540 will go. There are a myriad of possibilities, but I charted the best two possible paths here. (at least in my view).
Option 1) We just hit the retest of the old trendline and now we can spend several days in the 1560-1540 range as we work off the rest of the "oversold" before making a decisive break of 1540. My only concern would be how fast this seems to conclude the pattern.
Option 2) We go tag the 1540 area and bounce one more time, giving the bulls one last gasp of pride before hitting the 1576-1580 area only to fail the final time. This story seems complicated to me. But the time frame works a little better.
I prefer option 1, but last time I checked Mr. Market never asked for my opinion or for my input. Keep in mind the bull case is not dead yet either.
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Tuesday, April 23, 2013
In the macro credit world there's nothing short of panic buying today; EU bonds/CDS spreads are collapsing; our large financial CDS are down hard; 2-year swaps shooting for the 12 bps handle; the only stubborn yellow flag is the 2-10 curve now at 143bps - if form holds the divergence between the SPX and the 2-10 can't last too much longer; either rates spike or the SPX has to come in hard.
Man Oh Manischewitz!
There must be something funky in the air, as I was down the hall at an MVP Products meeting -- one that should have finished at 1 p.m. ET but ran a wee bit over -- when Michael Sedacca poked his head in and said, "Todd, you need to see this... something about an explosion at The White House, the market is crashing."
Talk about an attention-grabber.... I literally hopped on one crutch back to my turret to find the markets trading as if the mini-flash crash never happened. I immediately pinged a few trading pals to ask, "Did anything trade down there?" (I was told yes) and I, like you, am left to decipher the remnants of what's now being called a AP Twitter feed hack.
We often talk about how Twitter is to media what HFT is to trading and perhaps today's events best illustrate that Ready--Fire--AIM mindset in the modern-day digital trading realm, one where hair-finger reactions (by humans and/or machines) can feed on themselves before information is qualified.
We used to talk about credit of a different breed -- that of credibility -- being the issue at hand for markets at large, but (being honest) we were referring to truth and trust at the human level, not the integrity of the systems that hold our financial world together.
Only time will tell if today's downside oops brings back memories of the 1000-point plunge but one thing for certain: we live in (lightening quick) interesting times.
Even with horrid PMI data out of China and Germany, equity futures climb to new weekly highs pre-open NQ (NDX futures) is particularly strong, moving back up to 2815.75 resistance. Equity put/call data yesterday had a one day rate of change of -22% suggesting many bulls jumped on, which normally leads to a negative session the next day. Either bulls are being set up for trap in front of Apple (NASDAQ:AAPL) earnings, or that stock has bottomed. If that is the case, upside risk moves to NQ 2840 this week.
One of the reasons for the overnight reversal is ZN (ten year note futures) hitting a new year highs at 133'155, exacerbating the "nowhere else to go" syndrome. Support is at 133'030 in front of US PMI data and new home sales. Resistance is 133'145.
Wednesday, April 24, 2013
Durable Goods Perspective
The report was very stinky, top to bottom, and more importantly the large downward revision in February wasn't any better. But there's one thing to keep in mind,:all regional and national manufacturing surveys we've received to date for March and this year have been equally weak, so I think at least the market had priced in/factored in a miss to the downside for the more crucial ex-transports number. Regardless, the magnitude was more than expected, so we'll see how the market digests this.
- March manufacturing ISM down to 51.3 from 54.2
- Markit US PMI Final down to 54.6 from 54.9
- Chicago PMI down to 52.4 from 56.8
- Philly Fed up to 2 from -12.5
- NY manufacturing down to 9.24 from 10.04
- Richmond Fed down to 3 from 6
- Dallas Fed up to 7.4 from 2.2
- Kansas City Fed up from -10 to -5
Gilead (NASDAQ:GILD) is carving out a -1/+2 sell signal on a 50% retrace on today's 10-minute chart.
Economic Data Says Bonds Are Right
Disappointing durable-goods orders continue to indicate that the bond market has it much more right than the US stock market, with yields staying around the year's lows. Emerging markets still look like the next fat pitch, and our ATAC models used for managing our mutual fund and separate accounts could put us aggressively in them some time in the next two weeks with enough confirmation.
Bonds, commodities, and emerging markets have priced in considerably more of the deflation pulse than US stocks. If this deflation pulse actually causes MORE stimulus from central banks, then reflation expectations would return and potentially cause a meaningful move in cyclical plays. We are not there just yet.
Remember that my Spring Sync call is about the convergence of absolute price to the message of market internals. If market internals resolve themselves, then the potential for a large move does exist in market averages outside our border. This could coincide with continued weakness in domestic small-caps as large-caps hold, while money favors reflation trades.
Thursday, April 25, 2013
According to CNBC yesterday, Goldman's commodity research team said the decline in gold (NYSEARCA:GLD) was "more rapid than it expected" and it exited the trade with a potential gain of 10.4% below its original target price of $1450.
How do they calculate these 'targets'? Fundamentally?
If there is no fundamental 'value' to gold and there are obviously no earnings, how do they calculate a level?
The big question is how much, if any, gold did Goldman buy on the decline. Did they reverse their position?
Despite Goldman's previous long-term forecast that gold would close out 2013 at $1450 per ounce, with a further decline in 2014 to a predicted close at $1270, apparently forecasts fall by the wayside and things change and a nugget in the hand is worth two in the ground.
Gold recently waterfalled to a low of 1321.
It's not remarkable that their forecast took a back seat to being opportunistic. What is remarkable is that their forecasts focused on the CLOSING price for 2013 and 2014. Really?
With the Squid no longer on the short side spraying red ink on the yellow metal, this is another tentacle pointing to the notion that the recent ambush was a selling climax.
From where I sit, it looks like 'rumors' that European countries might sell gold to raise cash were used to orchestrate a massacre.
Note the late ramp in Agnico Eagle Mines (NYSE:AEM) and Silver Wheaton (NYSE:SLW) yesterday on the heels of the report that Goldman had abandoned its short.
Shorts Commit Funds to New Positions
Short interest numbers for the NYSE are reported for the period of settlement date April 15. Short interest numbers have increased to 13,356,582,372 shares from 13,226,713,306 shares (revised) for an increase of 129,869,066 shares or 0.98% with 1,777 advancers and 1,710 decliners and seen more advancers than decliners in 43 of the last 84 initial reporting periods. NYSE and NASDAQ had risen the last five of six reporting periods now.
During this period on a trade date basis (3/25 to 4/10), the S&P rose by 2.32%. The conclusion is shorts added to positions. The next short interest collection covers from 4/10 through 4/25 which is today, the S&P 500 has fallen -0.56%.
Short interest numbers for NASDAQ are reported for the period of settlement date April 15. Short interest numbers have increased to 7,639,312,459 shares from 7,533,460,129 shares for an increase of 105,852,330 shares or 1.40%. There were 1,397 increases and 1,077 decreases. In the last 84 reporting periods, NASDAQ has seen more advancers than decliners in 45 of the 84 last reporting periods.
Dedicated short sellers lost -1.67% in March (YTD -7.36%), as reported by www.hedgeindex.com and 2012 -15.99% while the index made 7.32% in 2011. For 2010 this index was down -17.79%. For 2009 this style lost -14.62%. In 2008, short sellers lost -1.52%. In 2007 short sellers made 4.14%.
Currently, 9 out of 146 groups have short intensity above 55%. In the last reporting period, the number of groups with high short intensity was 9. In July 2007, there were 113 groups with high short intensity and this is the recent multi-year group high.
Apple Support & Resitance: A View From Above
It is amazing that a stock down nearly 40 percent from its highs garnered as much attention as Apple did with its Q2 earnings report. But, then again, here I am writing about AAPL, so that jokes on me. I do not have a current position in the stock but thought it would be of interest to publish charts looking at AAPL support and resistance levels from above.
I'll let the charts speak for themselves, but note that the earnings report has come and gone and price volatility is beginning to settle down. Ideally, I was "hoping" for another washout lower that would set up for a nice leg higher. But beggars cannot be choosers. Now with the eyeballs fading, we are left to watch the levels closely, as the stock will either start a rally leg without much fanfare or grind lower into supports, taking out recent trading positions and sucking the last bit of hope out of "longs."
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Friday, April 26, 2013
Do You Know Something Bud?
Interesting how the VIX (INDEXCBOE:VIX) was falling and the SPX was rising nicely ahead of the Michigan Sentiment Survey release.
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Bond Market Says GDP Stinks
As of this Buzz, stocks are having a "muted" reaction to weaker than expected GDP data. Yet, bonds disagree with yield- curve flattening continuing. We are still at a juncture where anything can happen given that the cyclical trade is oversold and defensive/deflation trade is overbought, but economic data points continue to further the deflation pulse argument.
Emerging markets can be the outlier in May, but for now the environment simply is not convincing. With continued deflationary pressure in Japan, the world may be starting to wonder if we have reached the limits of forced reflationary efforts. From a trading perspective, momentum remains in play in the yield rotation. After all, overbought can stay overbought for a while.
Amazon (NASDAQ:AMZN) reported last night and after an initial pop higher, it came for sale in a big way. The online retailing giant is currently down $17 (7%) and approaching an important technical level.
See the chart below; $250-ish isn't only a level that's held for many moons, it's the 200-day moving average ($251-ish). Yes, technical analysis is a better context than catalyst but it warrants a mention as we together find our way.
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