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Buzz of the Street: Sentiment Fizzles After Good Earnings

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

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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. Check out some of the best of the buzz and for those minyans not currently subscribed, click here for a free two-week trial.

Note: Some links may require Buzz subscriptions.

Monday, October 19 2009
Russia Shortsightedness Last year
By Vitaliy Katsenelson


Russia shot itself in a foot last year when in dispute with Ukraine, it shut off natural gas supplies to Europe. That experienced was very unpleasant for Europe and underlined its dependence on a single nation.

Now it is paying the price for it for its shortsightedness. Germany was going to phase out use of nuclear power plants by 2022. Nuclear power is a source of 23% of German electricity. However, Chancellor Merkel promised to extend the use of nuclear power. Though you won't find this in an official announcement, you'll have to read between the lines, Germany doesn't want to be held hostage by Russia. Unfortunately Russia will be paying the price for last year's actions for a long, long time as more European nations will be looking for different (more stable) suppliers of natural gas and for alternative energy sources.

Leadership's Lagging Indicator
By Rod David



Following-up on this morning's comments... S&P is now resolving the unfinished business that I had noted. The NDX is being dragged along for the ride, underperforming all the way. Nothing surprising.

Of interest now is that the Dow is outperforming both the S&P and the NDX. This 30-component average is presumably the bluest of blue chips. It is where bullish money goes when it has reservations, but it's still bullish.

The NDX is starting to lag the S&P which was already warned that the next high would be in tenuous. This new relationship at the next high is confirmation.

This isn't in itself a sell signal, and there's still some room above. But the evidence of toppiness is mounting.

Tuesday, October 20, 2009
Market Thoughts
By Smita Sadana




Prof. Rife's musings are so in line with my Weekend Updates. Here's a short excerpt from this weekend's piece.

"The S&P500 has now gained 60% since the March low. It is important to pause and revisit where we stand in terms of meeting some of our intermediate-term objectives for the index which we have repeatedly articulated since August. Here is an updated chart:


Click to enlarge


This chart shows that we have made significant progress towards the trendline resistance which converges with the 3rd Fibonacci retracement level around the 1120 level, since the last time we showed this chart. This level continues to be the one to watch, so see if any signs of internal weakness materialize close to that level. In all fairness, we are in the vicinity of this level already (as the index peaked at 1096.6).

The primary trend does not show any signs of weakness, but I am starting to see some early signs that this rally is getting tired. A few divergences are starting to crop up again, and in the past, these have resulted in a quick, sharp correction, after which the market has continued its advance.

The percent of stocks above their 40-day moving average as well as the McClellan Summation Index are starting to show negative divergences from the market trend and have been unable to confirm the new highs in the S&P500 index. This indicates that the rally is getting narrower, which is often a precursor to additional selling pressure.

While I remain cautious on the short-term trend and are on the lookout for any additional signs of near-term weakness, I need to emphasize that the intermediate term trend of the market remains up, unchanged from last week."


And on an unrelated note, just when you thought nothing interesting happened in our world of technical analysis, I wanted to share information about a special auction taking place on eBay (EBAY). Several world-class technical analysts are putting themselves up for auction. I was invited to participate in this auction as well and the entire proceeds from the auction go for education.

Granny Smith, I Presume?
By Todd Harrison


This is one wild ride, eh? If I told you that Caterpillar (CAT) and Apple (AAPL) would blow out earnings--and both stocks would react to the upside--what would your take on the tape have been? Similar to what one would have said on the heels of Google (GOOG), I would imagine (although as I was traversing through multiple airports at the time, I can only offer that thought with the benefit of hindsight).

A quick little anecdote, consistent with my A.D.D.-ness...

A member of my family bought Apple at $94 and has enjoyed the reverse Newton ever since. As we were talking about life earlier today, he told me he didn't want to sell because the Tablet is coming and "it's gonna be sick."

After the obligatory "awesome trade cookie," I reminded him that stocks are a leading indicator and reflect what will be, not what was. I also suggested he toss a $10 trailing stop on his position so he can participate on the upside while defining his risk. Either that, I said, or take the trade as "nobody ever went poor ringing the register."

Some other, random vibes as we edge toward the Hump:


Editor's note: Todd had positions in NDX and S&P at the time this Buzz was published.



Wednesday, October 21 2009
RSI Failure Swing
By David Waggoner



A fairly reliable method of identifying significant turns using the RSI is the failure swing. It happens when the RSI closes above 70 (1), retraces, then pokes above 70 again but doesn't take out the old high (2). The pattern is complete when the lower peak's trough breaks below the trough following the higher peak (3). If this occurs as a divergence from price, it is an even stronger and more reliable signal.

On this daily chart of the NASDAQ 100 (e-minis), the signal triggered on October 2nd. Since then price rebounded off the 50 level to new high, but the RSI divergence has become more pronounced and remains below the 70 line. Technically, the RSI Failure swing is still valid.


Click to enlarge


Aint Got Rythym
By Smita Sadana




On Balance Volume is one simple way of measuring divergence or confirmation.

Prices have been moving higher lately but there are initial signs emerging that OBV is divergent. I especially keep an eye on the Russell since a) it's a broad index and b) it has more speculative stocks and some speculation is a must for continued market ascent.

Here is a look at beginning of divergences in the OBV of IWM (ETF for Russell 2000).

Please remember that these might not be imminent and instantly actionable divergences but certainly a development to keep on your radar.


Click here to enlarge


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.


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Thanks and have a great weekend!



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