Buzz on the Street: May Ends on a Sour Note
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
Thursday, May 30, 2013
News from the Front
Japanese large investors sold $11.06b in foreign bonds last week and also sold $1.04b in foreign stocks. This marks the second straight week of selling with $8b of foreign bonds sold the week prior. Japanese investors have been net sellers of foreign bonds the majority of this year.
With regards to the Japanese pension fund, it's not exactly news that it's mulling a shift into equities. They also shifted into gold late last year and leaked stories of shifting into equities this February and March. This shift would occur at the "end of the next fiscal year" - I could not find when their fiscal year is. It is not insane to think of yields repricing to new growth and inflation points.
All things considered, if you are bearish on the overall picture and positive on Treasuries, this is one of the better case scenarios for the day. Treasuries basically flat with equities getting off oversold levels. I'm still concerned that I don't think the Treasury market or any bond market could mount any serious rally between now and the June 18 FOMC meeting.
Dividend stocks doing pretty good today, outperforming the broader market at the open, but have now settled down. MLP's still getting the smackdown. REIT's mustered a shot into positive territory at the open, but have since gone into the red.
If this scenario of real (TIP) yields continues to drive the whole Treasury complex to higher rates and a flatter curve due to monetary tightening, then TIPS should be avoided at all costs. If anything, a pairs trade of TIP vs IEF (same duration) could be employed. Is it possible that the 10-year breakeven spread could compress to 1.5% from its current 2.2% and peak of 2.6%? Considering where the path of inflation is (down) I would say that alone it could be completed by a pure selloff in TIPS.
Dr. Copper has long been hailed as the ultimate economist. But what about Dr. Lumber? Yesterday's email read like this, "Let's see, Home Depot (NYSE:HD) (HD/$79.49/Market Perform) sales are strong, home prices are firm, new home inventories are tight, new home sales are decent, home building stocks are soaring; and yet mortgage rates are rising and lumber prices have collapsed (see chart). So what the heck is going on with lumber if housing is sooooo strong?" Well, a couple of thoughts on this: 1) weather conditions in the East have delayed some construction projects; 2) end-user inventories started to rise at the end of 1Q13; and 3) Chinese buyers have temporary slowed their buying activity. Moreover, some of the spike toward the end of 1Q13 was due to limited rail car availability that constrained availability (an issue that has since been resolved). Looking back over time, lumber pKeep Your Motor Runningrices typically follow a seasonal trend. A pullback this time of year is not out of the ordinary. I agree that this drop in lumber prices may support the argument that the growth rate in new construction activity isn't surging (homebuilders are pushing prices over pace), but too many external factors are at play to use lumber prices as a read through for new construction starts over the last few months according to my analyst, Collin Mings. Another thought is that charts like the lumber chart make them feel better that their "WAY" below consensus projection for total housing starts this year is more accurate than not.
And yesterday, the stock market seemed to reflect on that "glass is half empty" point of view, leaving the S&P 500 within a point of where it closed last Friday before Tuesday's Triumph. As stated in yesterday's Tack, "The SPX ran right back to the stubborn energy level of 1675 Tuesday before halving its early gains into the closing bell. The good news is the SPX stayed above the often mentioned other energy level of 1660. The bad news is that yesterday's attempt at new all-time highs used up more of the market's daily internal energy, implying we could churn for another session or two." Obviously, Wednesday's "print low" of 1640.05 was more than a "churn," but there was still no major damage to my 1700 thesis. While some pundits note that Tuesday's early upside failure came on light volume, suggesting a failed low volume test of the May21st/22nd highs, I am not one of them; at least not yet. I think the SPX's daily energy gets recharged, leading to a bottom today/tomorrow followed by a resumption of the rally since the McClellan Oscillator is again VERY oversold on a short-term basis.
Keep Your Motor Running
Today’s 10-min Telsa (NASDAQ:TSLA) is a good example of an ORB reversal, or put another way, an undercut of the morning range/morning low (an algo hunt for stops?) followed by a stab right back up through the morning low -- the sharper the stab the better the odds for upside follow through.
See 10-min chart for Tesla today below.
So, from the knife back up through the morning low around 104, the presumption is a test of the morning high.
After a little +1/-2 pullback on the 10-min, Tesla gets on its heels again triggering a Rule of 4 Breakout on the 10 min on trade through 108. The breakout was shortlived however and back below the breakout line is the stop.
Especially as today’s highs show a possible test of yesterday’s large range signal reversal bar.
Tesla now shows what may be a Pivot High Reversal a signal bar reversal high surrounded by two lower highs.
Importantly - potentially - yesterday’s large range reversal on Tesla was the second such large range reversal in 2 weeks. Second mouse gets the cheese?
Click to enlarge
Friday, May 31, 2013
The decline in Disney (NYSE:DIS) accelerated yesterday. The stock has been down since CFO comments at the Nomura conference. I did not hear anything really new so I just listened again to the replay. The first question was a softball to the CFO. He said "instead of answering it I want to clarify a few things I said on the last CC about the current Q." He also mentioned that he thought analyst estimates might not be accurate. By that, he means too high. Sounds bad but when he went over the items, they were all things mentioned on the call including: 1) Iron Man 3 vs. Avengers comp costs studio $150 million in op income despite massive success of IM3; 2). ESPN revenue deferrals; and, 3) lapping opening a year ago of a new cruise ship. I can see traders selling this news but it is noise if you own Disney for more than a few days or weeks. Never good to talk estimates down, even if it is not really new news.
Media stocks have been lagging the last few weeks and again yesterday after trying to bounce back early in the session from very weak action yesterday. I think fundamental are good, particularly as it relates to advertising. The group is up huge over the last year and several years, so I suspect you have some profit taking as sector rotation mentioned by other professors occurs. I am long a lot of media stocks (Liberty Media (NASDAQ:LMCA), CBS Corporation (NYSE:CBS), Comcast Corporation (NASDAQ:CMCSK), Disney, Discovery Communications (NASDAQ:DISCK), Liberty Global (NASDAQ:LBTYK), Starz (NASDAQ:STRZA), Entravision Communications Corporation (NYSE:EVC), Nextstar (NASDAQ:NXST), The E. W. Scripps Company (NYSE:SSP), Dreamworks Animation SKG (NASDAQ:DWA), Carmike Cinemas (NASDAQ:CKEC) and Lions Gate (NYSE:LGF), which reported yesterday) as usual but have not added any new positions in the sector recently. In case you are wondering. Yes, the last couple of weeks have been frustrating.
Hot Enough for Ya?
Good morning and welcome to THE HOTTEST DARN PLACE ON THE EAST COAST! With temperatures expected to tickle triple-digits today you can't blame traders for feeling the heat, particularly after the longest short week in recent history. Drink alotta agua and stay hydrated; in seven or so hours, it'll be time to unplug.
Yesterday we discussed the "dollars vs. dimes" bull-bear debate, noting that the third "lower high" came into play in and around S&P 1662, which happened to be the high tick yesterday. One overnight futures session does not a market make, of course, but we would be wise to keep half and eye on our stair-step levels, which include S&P 1650 (below there now), S&P 1635 (neckline of the dandruff that potentially "works" to S&P 1595-1600). Seeing both sides, S&P 1660-ish, 1675 and 1690 are tranched resistance if the bulls again find their groove.
I continue to trade around a short bias in the S&P which doesn't make it right, but it's where some of my chips are stacked. Perhaps I'm being a bit stubborn--a bubble in complacency can last longer than out-month paper--but I've got some levels to lean against in an effort to tighten my outstanding risk. As always, we'll take our journey one step at a time and play the hand we've been dealt.
Stay cool, and good luck today!
Lions Gate Rips
Old favorite Lions Gate is popping about 3% this morning on better-than-expected Q4 results. EPS came in at $0.66, beating by a whopping $0.21. Revenues were $786 million, surpassing the $747 million consensus.
I suspect the stock's going to be a momentum monster heading into the major November release slate (Hunger Games 2, Ender's Game), so I'll definitely be looking to add to this position as we work our way through the summer.
I'm still finding that most mainstream investors haven't heard of Ender's Game or Divergent, (though the analysts are fully on board) -- they still think the stock's all about Hunger Games. To be honest, I get the feeling that the hype machine for the second Hunger Games may disappoint relative to the first, though that may change in the coming months.
That said -- the key to stocks like this is monitoring the hype. The actual results are secondary because the money is made before the news.
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