Buzz Bits: Dow, Nasdaq Finish On a Downer
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A Dying Wind At Its Back - Rod David - 1:58 PM
This morning's highs are a critical area for S&Ps. SPX 1274 (ESu 1283'50) was the highest calculable target of the FOMC reaction, following yesterday's mid-day pullback from the prior upleg's target. The target was exceeded by a couple of points - which qualifies as being only noise - and then MACD and RSI diverged negatively on its retest to help push S&Ps down into negative territory. This qualifies the target as being valid.
And the target held as resistance through the balance of the morning.
Although certainly not required, a new session high wouldn't be surprising, whether this afternoon or in Monday's holiday-shortened session. (The noon hour held a retest of support, so a new session high wouldn't be surprising today, at all.) What would be surprising is a new upleg. But a downleg targeting new lows wouldn't be signaled anytime soon, not prior to a close under SPX 1261 (ESu 1270'00), and not confirmed until falling at least 10 points further.
General Mills meets General Malaise - Kevin Depew - 12:48 PM
When General Mills (GIS) reported results the company noted that revenue was helped by increased demand for Hamburger Helper. Word on the street is that rising sales of Hamburger Helper presage economic downturns. But is this really true?
Hamburger Helper's roots are actually very closely tied to economic hardship. GIS introduced the product in 1971, designed to help households stretch a pound of ground beef during a meat shortage and soaring beef prices. It is noteworthy as well that during the 1990s food-industry sales barely grew at a 1% rate.
Interestingly, while Hamburger Helper showed 0% retail sales growth in 2004, it grew 6% in 2005 and was up 7% in 2006. Whether or not it is predictive of economic downturns, the reputation of HH as a budget stretcher does overlap the recent personal expenditure data suggesting slowing consumer spending and continued negative personal savings, all showing consumers must withdraw from savings to maintain even the slowing rate of spending.
Another interesting takeaway from the company's conference call presentation is not just the continuing increase in commodities and fuel-related costs, but also employee benefits and incentives. Commodities costs increased from $30 mln to $40 mln over prior years in the second half, fuel-related costs increased from $45 mln to $55 mln and employee benefits including incentives increased from $30 mln to $65 mln.
Ah, What a Wonderful Weird Pop - Woody Dorsey - 9:57 AM
We expected a weird market pop and we got it. But it won't last. The real message from yesterday is that Ben is too Soft. Ask the Dollar. Ask Gold. There is excellent seasonal precedent for stock pops in July lead to Fall crashes.
Stocks are not nearly as interesting as, say, Corn and Beans which will run hard today. Commodities are still the bull market. That theme, that meme will keep playing for much longer than anyone expects. Buy the Planet. Sell the Paper.
Positions in metals and beans
Gate Sniffage - Todd Harrison - 9:43 AM
- After the snazzy, jazzy, pizzazzy rally yesterday, a probe higher makes a ton of sense--particularly with quarter-end looming.
- IF (big if) Hoofy steaks his upside claim, it'll likely be a function of the structural (dollar -60 bips) and psychological (performance anxiety) metrics rather than (cough) "marking."
- For my part, I wanna sniff the tone and tenor after emotions abate (the first half hour). Unfortunately, that also begins a string of meetings that will last for the better part of the day. I will, as always, do what I can.
- The metals are en fuego, cookie, with gold up $25 cool handles and silver sporting a 5% smile.
- Not so hot? Apple, the nets, the homies, retail and a handful of bellweathers (Citi, Merrill, Intel, Aunt Fannie).
On The Beach - Adam Warner - 9:40 AM
Volatility got absolutely plowed yesterday. As I often note, this is more reflective of the calender than anything else. We have 10 days until we get back for a full week of trading. In my humble opinion, at/near these current prices, you are getting a virtually free look at any sort of volatility over the trading sessions between now and then. Of which there are 4 full ones, and a half day on Monday.
As of today, we have 10 calender days of option decay between now and July 10th, when action may get back to something resembling *normal.* Option prices right here, right now already have priced in much of that decay on the very realistic assumption that trading may be kind of sleepy. How much? A guess is that right here/right now options reflect between a half and 3/4's of the ultimate time decay.
In other words, let's say you have an option in stock XYZ trading at $2 today. On July 10th, that option would be worth $1, using standard time decay based on the volatility you see on the screen (and assuming XYZ is the same price between now and then). My point is that the option will in reality decline much less, between 25 and 50 cents in this hypothetical example. Why? Because the $2 price on the board ALREADY REFLECTS that little will happen over the next 10 calender days. If we were in late September for example, that same option might be trading at $2.50, and the move down to $1.50-$1.75 over the next ten days would look like plain vanilla time decay.
Details are sketchy, but here goes... - John Succo - 9:20 AM
It looks like Tracinda sent a letter to GM management disclosing Renault/Nissan desire to form a "club" or partnership with GM. The impact of that looks to be mostly marketing, but I don't know.
Like always anything Tracinda does is designed to have maximum impact on the stock. Wouldn't it be better if Tracinda worked behind the scenes with GM management if the deal was really a good one? Maybe they did but GM management poo-pooed it and this is Tracinda's way of forcing it. Whatever the truth it is strange.
A minority stake of $3 billion structurally would act like a secondary by GM: they would sell them treasury stock and the $3 billion would act as paid in capital. The deal is dilutive to existing shareholders. $3 billion is not much capital for the company as is financially insignificant given no current liquidity problems at the company.
Without details this deal looks like not much while the stock is flying. I am selling stock against our long gamma position at $30.30 up almost $3 from last night's close.
Position in GM
So when does 'the Creep of Wall Streeet' make his appearance? - Bennet Sedacca - 8:35 AM
You must be wondering what the heck I am talking about. Well, we all I know the consumer is levered. We could argue for a month if they are 'over leveraged; or simply leveraged. I am in the over leveraged camp, but who cares? Just one man's opinion.
But who is the Creep of Wall Street? The Creep, who I will be talking about at length in my upcoming quarterly commentary is the lagging effect of oil going from $30 to $73 and short-rates from 1% to 5.25%. It CRUSHES the refi market, makes savings near impossible and makes it near impossible to 'take out' money from your recently appreciated home value.
But it doesn't just affect the consumer, it affects corporations as well, my fellow Minyans. Yes, they pay interest and use fuel like the rest of us. This is what will make for a bumpy ride, I believe once the ebullience (which was short covering and enforces the fact some folks attended Quarter End Mark-Up 101 Classes in MBA school) yesterday. It will eventually make earnings comparisons tougher and tougher, and THAT is what makes stocks move.
So, from my chair, nothing has changed, except I enjoyed the mark-up like everyone else yesterday but am not excited about it, nor does it change any long-term issues.
I will have some comments later, after some more caffeine on the shape of the yield curve and how to play this. Stay tuned and enjoy your weekend.
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