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Buzz of the Street: Sentiment Fizzles After Good Earnings


Some of this week's most insightful and timely vibes.


Thursday, October 22 2009
Cash for Bunkers
By Steve Smith

Homebuilder stocks have staged a reversal and option activity is going bonkers on a surge in call buying activity. The broad Homebuilder Index ETF (XHB) is up some 5% to $15.50 and I saw a massive purchase of the 90,000 of the November $16 calls. A total of 120,000 of these have traded now which swamps not only the prior open interest at the strike, which stood at 7,100, but dwarfs the entire open interest for all the November, December and January series. Option activity in individual names is also percolating with Hovinian (HOV), KB Homes (KBH) and Lennar (LEN) among others. All of them are recording option volume in excess of 5x the daily average.

Existing home sales are due tomorrow but this may have more to due with extending the first time homebuyers credit despite growing evidence that the "cash for bunkers" is rife with fraud and actually benefits sellers, not the buyers, in the form of artificially propping up home prices.

McDonald's: Turns my Frown Upside down
By Jeff Macke

I woke up with a head full of venom. I think my loathing of the very concept of a Pay Czar has been long established. Suffice it to say, I'm not a fan of retroactive 90% pay cuts for executives, either. We taxpayers just bought the companies on the Czar's hit-list and this pay cut gibberish kills them, in my somewhat rabidly held opinion.

So, there I was all surly and mulling ways to write about the Czar without swearing when, as lovely as John Gacy's velvet clown paintings, my long time pal and holding, Chicago based McDonald's (MCD) came out and did just what I was hoping would happen when they reported, (making a religious gesture to ward off evil spirits of Hope Trading) . They beat rather nicely and did so thanks to the non-benign neglect of the dollar. You see, multinationals like a weak dollar for two significant reason. One, it makes the goods they are selling overseas seem relatively cheap. Two, companies like Micky-D's can hold the revenue in foreign currency until drawing it back for earnings, where they capture the trade of the dollar falling, or try to stash the money abroad and capture even more of the dollar falling.

With the move towards $60 I've sold a Super Sized percentage of my McDonalds this morning; leaving me with a token long position. Why bother? Because having a long position of any size keeps MCDs on my radar and I don't want to be caught unawares if the stock pulls back. I'd like to reload in the mid-50's if and when but I have to stay on my toes to get it.

I'll be back with something more angry for you all tomorrow.

Editor's note: Jeff had positions in MCD at the time this Buzz was published.

Friday, October 23 2009
S&P Update
By Jeffrey Cooper

A daily chart of the S&P from my morning report shows that the index bounced from a text book sell set up yesterday morning:

Click to enlarge

1) Unless the market was going to crash a first hour low is the normal expectation after a late sell off in the prior session.

2) The S&P bounced precisely from Gap Fill and the level of the prior closing highs at the Autumnal Equinox.

However, time is getting very compressed which if often times the sign of climatic action: After the Key Reversal sell in September the S&P declined for 7 days while the S&P wouldn't stay down for 1 day after Wednesday's Key Reversal.

This behavior will embolden the bulls and cause bears to completely capitulate which ultimately leaves a dangerous market in my opinion.

Was the set up from Gap Fill and the prior highs simply textbook technicals or too pat?

EEM Bearish Price Flip, Etc. Etc.
By Kevin Depew

Some random notes on a Freaky Friday:

  • The Emerging Markets ETF (EEM) will record a bearish price flip today following Monday's TD Sequential sell signal with a close below 41.53.

  • The expectations for a currency crisis are growing, but people are naturally looking in the wrong direction: check out the GBP today. Also note that the USD Index is nearing a perfected TD Buy Setup, which will record next week with a close below 77.

  • Capital One (COF) will potentially record a TD Sequential sell signal next week (weekly chart) while below the TDST Uplevel at 46.29.

  • Corn Products Int'l. (CPO) is trading right at the TDST Up level on the weekly chart - a down close this week (if below 30.80) could potentially setup a qualified break in the next two weeks (close above 31.15 next week, then meeting open restriction).

  • Amazon (AMZN) has a perfected sell setup on the monthly chart, while the weekly shows a qualified break of a TDST Up level; conflicting signals on multiple time frames.

Editor's note: Kevin had positions in CPO at the time this Buzz was published.

On another note, we'd love to hear some feedback on the Buzz & Banter. Specifically, 1) How do you access the Buzz, and 2) is it valuable in your day to day process. Please take a second and shoot us an email.

Thanks and have a great weekend!

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No positions in stocks mentioned.

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