Buzz on the Street: No Taper, All Tantrum
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, September 16, 2013
Badger Moves Overseas
With the risk of a hawkish Summers now in the rearview mirror, and new focus on US and Germany hitting new highs, the honey badger seems to be moving overseas. Note that as of this Buzz post, the Russell 2000 ETF (NYSEARCA:IWM) is lagging the SPY (NYSEARCA:SPY).
Money is favoring the global growth trade again, and emerging markets continuing their rip higher seems to suggest a big repricing may be under way. Our ATAC models used for managing our mutual fund and separate accounts rotated into the fat pitch last week, and it finally does look like momentum is strongly taking hold.
Alpha potential remains rather large, and I suspect Brazil (NYSEARCA:EWZ) will in particular begin to accelerate in a meaningful way. This is such an underinvested area of the market that an alpha spike can easily occur. In many ways, if the move is here, it must be fast to resolve crisis pricing.
Badger on. Batter up!
Take away the hype, and we basically have a standard Monday run to weekly R1 for both ES and NQ (1696.25 and 3196.75). This often signals a high for the week if we get failure, and the weakness in NDX (INDEXNASDAQ:NDX) could be pointing that way. NYSE advance/decline opened just under +2500, an extreme, that has since retraced to +1865 as I type.
What is bit troubling for bulls is NQ trading back under the September 11 high of 3183, a negative divergence that has yet to affect ES. NDX year-to-date gains are less than that of the SPX, a continued negative divergence that could signal a major top under way for the Nasdaq. Bulls need to wake up and get NQ back above that level and hold it, or risk a gap and crap and drag down the rest of the market. In fact, it would be much more healthy to see some fear ahead of the Feds.
ZN is back at 124'180, Summers has nothing to do with what will be decided this week or the debt ceiling at the end of the month.
Time for the Easy Bake Portfolio?
It is easy to get excited as the market starts acting like this. It seems like things are just going to go up forever, and we can just put the Ron Popeil portfolio in place and set it and forget it! Up cycles like this usually have about a 20-day life cycle, so keep that in the back of your head as you could argue that the up-cycle started on August 21 in most indices and on August 28 for the S&P 500 (INDEXSP:.INX).
So, from August 21, we are 18 trading days in here. RSI is up at 66. The McClellan Oscillator is somewhere over 60 right now after today’s move, and if it closes strongly, we could see the dreaded +70! Momentum needs to slow down fairly soon and give us a nice trend and a higher low.
Other things we can consider would be the “measured move” of the island reversal mentioned on September 10 that would give us a move to around 173 on the SPY. This would be a pretty nice reversal area to come back and fill today’s gap. Additionally, our Natural Gas ETF (NYSEARCA:UNG) from 9/11 trade is going to run into heavy resistance at around 20. At that point, I plan to take off one-half and measure the action around that resistance. Now is certainly not the time to get complacent, but it is time to look at areas of profit taking and have a plan. When we get complacent, we tend to become reactionary rather than prepared. That can be a recipe for disaster.
Try not to let the highs get too high or the lows get too low. Remember, it is not a profit until there is a buy AND a sell.
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Tuesday, September 17, 2013
Best Products was a Richmond, Virginia-based company that had a revolutionary business model in the retailing industry. Originally founded in 1958, Sydney Lewis began a highly successful showroom catalog business. The idea was to walk around the store and examine the products, deciding which of them you wanted. Then, you filled out a form for said products and took it to a clerk. In turn, the clerk submitted that form to a warehouse worker who "pulled" those products from the upstairs storeroom and placed them on a conveyor belt that took them down to the cash register. At its peak, Best Products had over 200 showrooms in 27 states. Mr. Lewis was a master merchandiser. In later life, he decided to turn the business over to his son and pursue his passion of collecting/donating art. With that selection of a new CEO, the stock cratered and the company eventually went bankrupt.
I recalled that story thinking about how badly Andy Lewis must have felt as he assumed his father's role, only to see the stock price swoon. Similarly, Larry Summers must have wanted to "kick his dog" yesterday as the stock market exploded on the withdrawal of his name for consideration as the new Fed head. I have long stated that I doubted if Mr. Summers would be nominated, and that even if he was, he might get up in the middle of the Senate confirmation hearings and say, "You guys are a bunch of idiots", and walk out. There is no doubt Larry Summers is the smartest guy in the room, but that doesn't necessarily mean he has the right temperament for Ben Bernanke's job. I have maintained Janet Yellen was going to get the "nod" for a multiplicity of reasons and yesterday the stock market agreed. Indeed, the "Summer (s') rally" came late this year beginning in earnest on 9-9-13 with the Syrian chemical weapons deal. As stated, that news wrecked the rhythm of the decline, and when combined with the changing of the Dow components, well y'all know what's happened.
Monday's Dow Wow took the Dow Industrials (INDEXDJX:.DJI) within sneezing distance of their all-time closing high (15658.43). Ditto the Dow Transports (INDEXDJX:DJT), which hit an intraday high of 6629.29, also within sneezing distance of their all-time closing high (6670.06). At this juncture I would wait to commit more capital because either we are going to get new all-time highs from those two indices (a Dow Theory "buy signal"), or we will get a huge upside non-confirmation. A potential "tell" may have come yesterday when the SPY broke out to new highs and then failed to extend (see chart).
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Dueling Reactions for Microsoft and Pandora
It's interesting to note the reactions to news from Microsoft (NASDAQ:MSFT) and Pandora (NYSE:P).
Microsoft announced a significant dividend increase and share buyback program, which drove a quick 5% pop to $34.49. Less than two hours later, the stock's just barely holding on to $33. (I'm short and looking to close my position out very soon).
Bad reactions to good news? Not a good sign, especially on a day when the Russell 2000 (INDEXRUSSELL:RUT) just keeps creeping higher
And Pandora announced a dilutive secondary offering, which had the stock declining as low as $22.50 after the close yesterday, a fall of 6%. But Pandora is very quickly making up ground and is right back around $24. Remember, when secondaries get bought quickly (as we saw with LinkedIn (NASDAQ:LNKD) and Tesla (NASDAQ:TSLA) recently), that tends to be a bullish indicator.
And by the way, if Apple's new iPhones don't take off, Pandora may be a beneficiary as Apple is putting out iTunes Radio, a competitor to Pandora.
Check out the charts below.
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The markets are in meander mode with an upside bias (surprise) as we tick-tock toward tomorrow's Fed announcement. Meanwhile, the bear (formerly plural) is attempting to hold the line at recent -- and yes, all-time -- highs.
There's not much left to say that hasn't already been said; the tape trades great, and the bulls (plural indeed) will look to use tomorrow's alleviation of the big bad unknown (taper) to their advantage and trigger the cup-and-handle formation we flagged last week.
It continues to feel like 2003, with gains begetting gains and performance anxiety driving a long squeeze all the way up. It's been ages since we've witnessed a "healthy" 10% correction; what remains to be seen is whether the supply is pent up, or off in the distance. I don't trust 'em but I sure respect 'em; having "RALLY" tattooed across your forehead will help do that.
Tomorrow promises to be whippy so get some rest tonight; for my part, I'll be jockeying between lacrosse practice (for club team #2) and the fourth-grade football draft, looking for sleepers along the way. I'm not complaining mind you; once upon a time, I pined for balance between working hard and that thing called life and in what seems like a blink of an eye, I'm up to my ears in it.
Six-two stacked monster; I'll see YOU in the ayem.
Wednesday, September 18, 2013
No Taper, No Cred
Taper you say? No way, says the man with the spigot; despite hints and innuendos to the contrary, the FOMC is keeping the punch bowl front and center. There couldn't be a more dovish move, absent an increase in QE.
The first, and yes, intuitive, move is higher as the S&P pops through 1709 and notches a new all-time high. THE question will be whether folks begin to question the credibility of the Fed -- -a view that I share -- and ask "why" rather than "what?"
IF (big if) that mindset permeates, the first move (higher) will prove to be the false move.
FOMC Instant Reaction
I was wrong. This is more dovish than I could have imagined. Slower growth, no tapering, less urgency to hike rates -- unadulterated dovishness.
This all seems bullish from a monetary policy standpoint. Ben and Yellen didn't take this chance to taper so they want markets higher. That seems to be the main takeaway.
The fact that their June growth projections seemed optimistic has already proven true. They took down 2013 and 2014 but don't worry, as 2015 is going to be great. Just like 2014 was going to be last September.
One thing we have speculated on is that the Fed is no better at modeling the economy than anyone else, and possibly worse than most large funds who are paid to be right.
In June, we rallied on growth. Today, we rally on more QE.
Logically, I'm just not sure how a policy that isn't working as well as they would like (or else they wouldn't have cut growth) just needs more.
I will be curious to see if this sparks more layoffs in the mortgage industry. I will be curious to see what other countries think of this move, especially that notorious "currency manipulator" China. Maybe EM will be happy as the flood of cheap money pouring in resumes?
I am not sure why Summers managed to get involved so easily when Yellen seemed like a sure thing, but I can't imagine today really helps her case.
At least those who did think we should hike rates next year thought they should be above 1%, even while inflation projections were higher, and allegedly we will be about to burst out in 2015.
This move coupled with last week's Verizon (NYSE:VZ) deal would seem to be great for LBO candidates. Can we get that first $100 billion LBO done?
For all of this not to be good for the market we would need to see the market focus on growth or the lack thereof. Or we would need a market to become disillusioned by the fed that a couple people control so much and seem to be guessing as much as anyone else on what it does or what the future will bring.
For now I have to sit back, lick my wounds on this and see if the press conference alters anything, but in spite of how bullish this seems, I can't help but think the Fed is losing credibility.
Thursday, September 19, 2013
Is It Over?
Could it be that the trend of yields rising is over?
The charts say.... yes.
Across the curve, yields have dropped below the 40 dma, which would indicate the trend higher is over. Historically, when yields are in a trend, the 40 dma has always acted as the "fence" for that trend, so to speak. Breaking through that support indicates the trend is over.
We'll have to spend some more time in this area to prove it's not a fakeout, especially because it is due to some heinous Fed activity, but so far the charts are saying that the trend of yields rising is over. Hallelujah!
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There is an old adage that you can drive from New York to California with your headlights illuminating only 20 feet in front of you the entire time; that's the mindset for active trading, where a stair-stop process trumps big-picture concerns seven ways till Sunday.
That approach is being debated across the street as macro funds attempt to shift their style to capture reward. With the Dow and S&P up 20% -- and NASDAQ (INDEXNASDAQ:.IXIC) up 25% -- those who have relied on traditional metrics (such as the market being an extension of the underlying economy in any way, shape or form) have found themselves playing ketchup in the evolving long-squeeze.
S&P 1710 (former resistance) is next-step support -- with 1655 below that -- as the market casts a forward eye on the potential government shutdown. Of course, each and every potential pitfall has been swallowed whole by the bulls so you can excuse them for not feigning concern. That may or may not matter with the VXO (INDEXCBOE:VXO) at 13 or with the Fed chair telling us the economy is soft (the "why?") but we should continue to see both sides.
It is worth noting that the S&P teased the bulls with similar breakouts in May and August before providing requisite pullbacks of 8% and 5%, respectively. Of course, even the bears are conditioned to cover up quick given the pungent smell of singed fur, which begs the question of where we are on the second chart below.
As always, I hope this finds you well.
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Some weeks ago, I offered that Tesla had potential to 177. TSLA has bounced off well-tested support at its 20 DMA and spiked up to 176.84.
Today’s date vectors/aligns with 176.50 for a possible square-out this week.
A reversal back below recent lows around the 20 DMA in coming days would confirm the significance of a possible square-out at 177.
Below, see the daily TSLA chart from May with its 20 DMA.
Late May was a spike high. Roughly 60 degrees later in late July was a spike low, so it will be interesting to see if a high-to-low-to-high cycle 60 degrees in time later happnes here in late September.
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Friday, September 20, 2013
Apple Up on iPhone Lines, Monday May Be Key
Apple (NASDAQ:AAPL) is trading higher this morning on optimism for the new iPhone 5S, released today.
There are a mountain of news reports indicating big lines outside stores in major cities, which is giving Apple bulls hope.
However, Monday may be the real tell.
Last year, Apple released the iPhone 5 on September 21, and issued a press release on September 24 announcing opening weekend sales of 5 million units.
I'd imagine an awful lot of people will be looking for confirmation from the company on Monday. If we don't get a press release, the stock will in all likelihood pull back then, unless there are mitigating factors like bullish channel checks from analysts.
Was the Fed Bullied by the Bond Market?
In delaying the initial reduction in the pace of the asset purchases (QE3), the Fed chairman cited the recent increase in long-term interest rate and uncertainties surrounding the upcoming fiscal negotiations. Of these two issues, the run-up in long-term interest was the biggest concern (although the latter is a significant downside risk for the economy).
The Fed was initially puzzled by the increase in long-term rates back in the spring. The Fed's view had been that the total amount of assets purchased was what matters, not the monthly pace. It should make little difference whether the Fed begins to taper in September, or in December, or in early 2014. Tapering is not tightening. The Fed would continue to add policy accommodation as it slows the rate of purchases. The Fed's strategy all along was to use asset purchases to generate some momentum in the economy, then scale the program back and rely on low short-term interest rates to continue to provide support the economy.
Some Fed officials believe that the long-term rates rose because of an improved economic outlook. However, recent economic reports have generally been mixed (although consistent with a moderate pace of growth) - not a significant shift from what was expected earlier. More likely, market participants either misinterpreted the Fed's intentions or there was a potential for a major reassessment of risk. Market participants have never been clear about how the Fed's asset purchase program was supposed to work. Moreover, there is still some confusion between asset purchases and monetary policy tightening in general. Amid tapering talk, the bond market began to price in an earlier hike in short-term interest rates than what the Fed expected. Most senior Fed officials do not expect to begin raising the federal funds rate target until 2015 - and most see that rate as remaining far below normal even at the end of 2016. That commitment to keep short-term interest rates low should prevent long-term interest rates from rising too rapidly.
Long-term interest rates have risen significantly in recent months. It's unclear how much that may slow the economy. The Fed is merely buying some time so it can determine that impact. Still, we all know that tapering is going to begin at some point.
Annaly Capital Cuts Dividend
Annaly Capital (NYSE:NLY) cut its quarterly dividend yesterday evening to $0.35 from $0.40. At its current price that implies a 11.66% yield. For the last 5 years, NLY has averaged a dividend of 14.4%. Even in the recent two years it has averaged 13.76%, so a 13% yield is a bit more realistic given where coupons have gone to. At a 13% yield, NLY should reprice to 10.78 from its current 12.05. That's the "bullish" scenario. There is also thinking I'm sure that NLY can bring that payment back up, but I know that their WAC is in the low 4's (I apologize I don't have the data offhand) so it would be a little difficult for them in this stage to go up in coupon.
I am relatively bullish on MBS, but I am cutting the position because I'd rather ring the register and not find out where the market thinks the appropriate yield is for this instrument. Note that NLY goes ex-divi on Sep 27. I may rotate this capital into munis or a more conservative MBS fund simply from a yield perspective, not price appreciation.
Note also that Apollo Mortgage (NYSE:AMTG) cut its quarterly dividend to $0.40 from $0.70 and American Capital (NASDAQ:AGNC) to $0.80 from $1.05 so be careful if you own other mREITs.
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