Buzz Bits: Dow, Nasdaq Bounce Back
Your daily Buzz highlights...
Flashback! - Bill Meehan - 3:47 PM
This day in market history...
- Closing levels 10 years ago
- DJIA: 5,643.18
- Naz: 1,243.43
- S&P 500: 669.12
- Crude: 19.77
- Gold: 390.80
This day in Minyanville history...
- Prof. Succo taught us about the action in Fannie Mae and GSEs in Dumpster
In other news...
- Deloris! In 1990, Seinfeld debuted. It was a summer replacement show that only ran through July, but as we all know, it returned in January as a full blown hit.
Thataway! - Todd Harrison - 2:15 PM
The FOMC minutes are on the tape and, as you might expect, the inside opinions were all over the place. We've spoken about the "uncertainty" that exists behind closed doors and the confusion is evident in the "range of options" that were discussed by Bennie and his pets (from a pause to a 50 bip hike). Again, the simple truth is that the FED is in a box. How and when that manifests--or, more importantly, when that reality seeps into the collective mindset--will tell the tale of the tape.
Initial eyes include:
- Slinky financials (watch BAC, JPM, C)
- Still snazzy NYSE breadth (2:1 positive).
- Firm metal equities (despite the fright in the underlying commodities).
- Green drillers.
- A 68% chance of a June hike (according to Fed Fund Futes).
- The potential for gap fillage (below) as the opening range is probed.
- A SLEW of last minute early bird registrations for Minyans in the Mountains (noice!).
- Stealth practicing by Farley and Intern Jenna as they ready for the staff meeting serenade.
As it stands, and as a snapshot, we're playing in the band between S&P 1246 and 1280. Yeah, I know we can drive a truck through that market but Billy Ray has set the price and it'll be "what is" until it's otherwise broken.
For my part, I'm toying in rotation station, as discussed, and looking for alpha bits. And I'm practicing my constitutional right to be patient, which is always nice in a crowded, albeit thin, tape. If you're finding yourself getting bullish on upticks and bearish on downticks, that's the tell-tale sign to take a step back. Hey, if you wanna donate money, there's always the RP Foundation!
As always, I hope this finds you well.
Quick Technical Energy Overview - Kevin Depew - 1:53 PM
Natural Gas is trying to make a bottom down here. The July contract has formed a new TD-Sequential buy setup, but the countdown price completion remains unfinished. On a PnF basis this again looks like a mean reverting bounce to correct oversold conditions with 7-7.20 the cap.
Meanwhile, Crude July is testing support at 70. A move to 69.5 will break a double bottom and set up a more important test of the longer-term trendline at 66.
The Oil HLDRs (OIH) held 142, critical long-term trendline support on two successive tests, but the bounce higher (which was completed in one day with very little progress made since) appears to be mean reverting and weak. I expect it to ultimately violate the trendline as part of the broader break in equities.
The patterns for Crude and the OIH and OSX are virtually identical to the pattern for equities. Long-term sell signals on monthly and weekly charts in DeMark terms are aligned with the negative PnF indicators suggesting near-term moves higher will be brief in duration and magnitude, subsumed by the longer-term time preferences that are now in control of the market.
I understand the case for the secular bull market in energy and metals, but I also am a believer in the case for a structural unwinding of debt. If that occurs, then outperformance by energy and metals may simply be relative in nature, i.e. they will lose less.
For anyone with a weak stomach, you may not want to look at the chart in this Buzz - Bennet Sedacca - 11:36 AM
I remember October 1987 well. All too well. With only 6 years under my belt, I felt smart, but now seasoned. Well crashed will season. No, I am not calling for a crash, just a sharp correction.
But you wanna see fear? And I mean REAL FEAR. This is a chart of the VXO during the crash of 1987. Was relatively benign a week or two before that horrid event, but look what happened once the fear machine got rolling. In VIX terms, it actually got to 250.
What else happened? Dealers wouldn't answer their phones or honor bids. Spu's would routinely trade 20 and 30 handles BELOW cash and that was when the S&P was at 300. Not trying to scare anyone here, just trying to bring some clarity to what many feel can happen if the wheels of fear get rolling…….
Veni Vidi VIXI - Adam Warner - 10:47 AM
I'm not a big fan of the VIX as a measuring tool in that it fails to account for certain quirks in the volatility landscape. Namely, it has no mechanism to adjust for the tendency of options to get "cheap" in volatility terms ahead of a weekend as traders lower bids to offset the time decay, and then get "fat" upon the return. Nor do they adjust for the skew on the typical options board wherein lower strike options carry relatively higher premiums. Both these factors came into play in yesterday's VIX "surge."
But all that being said, the lift was historically large. According to Dr. Brett Steenbarger, it was the 2nd largest one day gain in percentage terms since 1998. And the implications are bullish both one and five days out.
Tiffany Earnings... - John Succo - 9:39 AM
- Earnings did show sequential improvement and even with tax credit beat by a penny
- Gross margins improved despite a rise in commodity costs. Tiffany does have pricing power.
- International sales were up 13 percent; largely driven by Japan
- 1 cent of gain was due to foreign repatriation act. Other forex gains probably also accounted for about a penny, meaning that EPS were largely in-line.
- Net Profit Margin and Operating Profit Margin were flat
- Core sales clearly decelerated. comp sales were down 1 percent
- Inventories rose 6 percent
- Accrued debt through quarter
- Accounts receivable grew
This was not a stellar quarter. Indeed, the large rise in inventories is a bad precursor. Unless the company is able to really ramp up global sales, the pricing power it enjoyed this quarter will quickly evaporate.
Position in TIF
Biotech News - David Miller - 9:30 AM
Under pressure from a federal judge, the FDA issued a 505(b)(2) pathway approval last night to Novartis (NVS) for Omnitrope, a "generic" version of Pfizer's (PFE) Genotropin. The FDA had stalled Novartis' application for three years, claiming it did not have the regulatory authority to act. The FDA went out of its way to say this was not a precedent-setting decision. I find that a little funny since the FDA doesn't work on precedent. They noted this was a special case of a well-understood and less complex protein.
Approval under this pathway is technically not a generic approval. Pharmacies cannot freely substitute Omnitrope if a doctor writes the script for Genotropin. Docs will have to prescribe the Novartis drug specifically. 505(b)(2) pathways are usually used for drugs that demonstrate non-inferiority.
We expect much sturm und drang will result from this decision, probably not doing Genentech (DNA) and Amgen's (AMGN) stock price any favors. Any sector-wide dislocation resulting from this decision would be silly and overdone, however.
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