Buzz on the Street: Turkey Time

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. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.

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Monday November 21, 2011

Bubble Comparison Chart Update
Todd Harrison

Minyan Chris asked us to update our Bubble Comparison Chart given the recent weakness is gold. Here it is, a weekly chart from 1985 to present day.


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Focus Media Crashes
Michael Comeau

The formerly-high flying Chinese-advertising giant Focus Media (FMCN) was initiated at a Strong Sell today by the research firm Muddy Waters, and the stock is down an incredible 50% as of the time I'm writing this. It actually traded as low as $9 before bouncing back up to the ~$12 level.

Here are some of the bullet points:

1. FMCN has been fraudulently overstating the number of screens in its LCD network by approximately 50%. This is similar to China MediaExpress Holdings, Inc. (OTC: CCME), which we reported is a fraud on February 3, 2011. We therefore question whether FMCN’s core LCD business is viable.
2. Like Olympus, FMCN is significantly and deliberately overpaying for acquisitions, writing down $1.1 billion out of $1.6 billion in acquisitions since 2005. These write-downs are equivalent to one-third of FMCN’s present enterprise value.
3. Our research shows that FMCN has claimed to acquire, write down, and dispose of companies that it never actually purchased. Investors should be concerned about to where cash actually moved in these transactions, and about the integrity of reported results.
4. FMCN has written at least 21 acquisitions down to zero and then given them away for no consideration. We show that many of these write-downs are not justified. There are several possible nefarious reasons FMCN gives acquisitions away, including doing so may put FMCN’s problems beyond the reach of auditors.
5. Insiders have used FMCN as their counterparty in trading in and out of FMCN subsidiary Allyes, with several individuals earning a total of at least $70.1 million, while shareholders lost $159.6 million.

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Fibonacci Retracement Levels
Smita Sadana

On Friday, I shared my concerns about some aspects of the market – declining 200-day SMA and not-yet-oversold condition. Now, I am watching Fibonacci retracement levels of the move from 1099 to 1285.

50% and 61.8% retracement support levels on SP-500 are 1192 and 1170 respectively.

Another level I am keeping on my radar is the 61.8% Fib retracement for NASDAQ, which is around 2489.

In the short term, the market is coming into Thanksgiving Holidays with a 4 day decline and could bounce. However, I don't find the intermediate signals oversold and that might make any move short-lived. I intend to plan my trades accordingly.


Tuesday November 22, 2011

The Bond Vigilantes Strike, Again!
Michael Sedacca

If you haven't seen it already, waves of selling have moved from Italy and Spain to Belgium this morning on news that the Belgian PM had failed negotiations with political leaders to make budget cuts that would soothe markets. This would likely result in increased pressure on the current Belgium government to be toppled, while literally every government in the Euro - except the two remaining stalwarts, France and Germany - to change. Note that Belgium is one of the "core" countries in the Euro.

As previously indicated, French bonds do not trade like a AAA country, which indicates that Moody's will likely take their threats to downgrade France seriously. It makes sense; France (via their banks) is grossly exposed to Spanish, French and Greek debt, along with being a partner in the Dexia bailout, who is also exposed to all sorts of debt from around the world, with US municipal debt being a big one (read: Jefferson County bankruptcy). It is implied that France will be there to backstop their banking industry, whether it be by the ECB or another vehicle.

A downgrade of France would likely lead to a number of very big problems with the EFSF and any bailout, because it leaves only one solid financial house left in Europe to shoulder the load, Germany. The U.K. is in decent shape, but they have job problems of their own and want no part of bailing out the rest of Europe. Smaller countries like the Netherlands, Finland and Norway are also fine, but they want no part of this either.

You also have to take into account that if France is downgraded once, what stops them from being downgraded again? As my dad used to say, a bond (sovereign in this case) can only have three A's (meaning it can't have 4).

So what's the endgame from all of this? There is two roads that I see. One would lead to Germany exiting the Euro, which I don't see as productive to much of anyone. The other would be Germany enacting major treaty changes and the enabling the exiting of countries that have a deficit greater than allowed in the EU treaties (Merkel has hinted this recently). France could then reorganize their debt issues without worrying about everyone else. However, we can't forget the mass of derivatives that tie this whole thing together, where a "credit event" could have loads of terrible consequences. (gee isn't that just the icing on the cake).

If it comes down to it, Germany will end up ok on the other end of any of these doors; their banks aren't overlevered and Germany can be the backstop for their banks alone. Its a question of everyone else now. At some point you have to wonder when the US will step in (via the IMF), but its doubtful whether or not the political capital exists (read: 93% disapproval rate of Congress).

So mark your calendars, we have another finance minister meeting on November 29th and the big EU meeting on December 9th, that Merkel has already hinted may involve treaty changes. I don't think that Euro-bonds will happen without Merkel pushing for shedding some of the weak hands from the Euro.

The Dollar at Crossroadsd
Marc Eckelberry

DXY is exhibiting clear resistance at the 20 month moving average around 78.50, note also the rejection right under 80, 50% retracement 2008/2009 (chart). Today could be pivotal as we await the Fed minutes. The GDP miss is helping the EUR/USD pair hold up, a big component of the overall index. If the dollar can pull back from here, equities could follow commodities higher. Copper and crude are up today (mostly Brent), so we have our markers set.

The downside risk for the markets remain the ES (SPX futures) gap close from 10/7 at 1155.75. Odds are pretty high that we will get down there at some point, whether in the pit session or Globex session due to the fact that NQ performed that feat yesterday (and the present struggle at 2204.50). I suspect that ES area (1155) will be the low going into Christmas, I am not in the retest of October camp. For now.

Dollar weakness is what could save the bulls.


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NFLX vs. RIMM -- A Historical Chart Comparison
Michael Comeau

Following Netflix' (NFLX) stunning collapse this year, marked by yesterday's guidance cut, I decided to compare it to another fallen highflyer -- Research In Motion (RIMM).

This chart follows each stock following their all-time highs, which were 6/19/2008 for RIMM and 7/13/2011 for NFLX. The charts are shockingly similar -- the only question is whether Netflix will bounce from here and crash the way RIMM did.

For now, I'm steering clear of both names.


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Wednesday November 23, 2011

Eurozone Contagion Deepens After Disastrous German Auction; Silver Supply Issues
GoldCore

The euro came under pressure due to the surprise collapse in new Eurozone industrial orders which led to Germany failing to get bids for 35% of bunds offered. The German 10-year bund yield rose sharply from 1.92% to over 2.06%.

This is one of Germany's worst auctions since the launch of the Euro with the Bundesbank having to pick up nearly 40% of the 6 billion euros on offer.

The German auction in turn led to further weakness in European equity markets. Asian equity indices followed US equities lower after news of a new US bank stress test and then the poor Chinese manufacturing data.

Gold will be supported at these levels as the euro zone debt crisis continues to degenerate with the periphery increasingly affecting the core – leading to contagion.

The bond auction in Germany is a disaster. If Germany has to buy its own bonds, it is frightening to think how other European nations, including France, will fare at bond auctions in the coming weeks.

From the GoldCore Trading Desk -- there are reports of some US and UK bullion dealers not having supply of certain bullion product – particularly silver bars

Reality Hits the Groupon Groupies
James Anderson

Like a cold turkey thrown in your face, reality came to Groupon (GRPN) this week. The stock broke solidly below the IPO price of $20 this morning. I can't remember an IPO that was so solidly panned as ridiculously over valued as GRPN, but since the size of the IPO was small compared to the market capitalization, it managed to collect its share of Groupon groupies that thought this should be an ideal short squeeze candidate. The only problem was that it was almost impossible to borrow shares without paying extremely high interest rates for the borrow. The net result was simple, you can't squeeze the shorts if there aren't shorts. It held on 11 trading days before collapsing this week on no news.

Is there an attractive price to jump? That is very difficult to say because the business model of GRPN is still unproven. I have no interest in looking for a bounce and wouldn't be until it's a lot lower.

Between the Ticks
Jeffrey Cooper

Although it looked/looks like a 2 to 3 day rally was setting up after yesterday’s test of the 1183 lows and the ensuing spike on the heels of the IMF’s announcement midday that they would inject money, the rally lasted all of an hour.

The market is exhausted and there is very little tolerance for empty promises and solutions when every day traders have their head handed to them in an Exorcist lookalike contest.

While the S&P is flirting with 50% of the October range which closely coincides with the 1179 ‘Master Square’ vibration from the March 6th, ’09 low (see yesterday’s alert), we are below 1209 which is 360 degrees up from this years low. So, stocks remain dangerous and the bull’s hope is that the November 21st-November 23rd cycle we’ve noted for some time now turns out to be a low for a year end rally.

However, a failure below 1179 could see a fast and dirty plunge to 1120ish, which is the bull/bear demarcation line from the 2007 peak to the 2009 low.

My advice is to be patient. There really nothing to be gained in trying to catch a small rally here unless the S&P can recapture 1209 and then 1223. Only follow through above yesterday’s high can see that play out. Above 1209 and then 1223 increases the probability for a Santa Claus rally.

Otherwise, it’s a waiting game at best and at worst means more liquidation as investors pull money out of the market forcing managers to liquidate for redemptions cannibalizing their own portfolios into year end.

Strategy. A last ditch attempt for a rally here could come on a gap down opening trap to around 1179 that quickly sees 1183 recaptured.

That being said, a potential Inverse Head & Shoulders on the short term SPY was snapped this morning and only recapturing the low of the right shoulder around 119 SPY implies squeeze potential.


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Thursday November 24, 2011


Turkey Day!

Friday November 25, 2011
 

Post Turkey Day Bounces
Ken Wolff and Shawn Wolff

I don't think the biggest question this morning is whether or not the market has sold down enough for a counter-reactive bounce. I think its "How do you cure a turkey and pumpkin pie hangover?"

Premarket is looking pretty ugly, but obviously we are lacking volume. With a straight 9 % drop in SPY and QQQ in the last 7 sessions or so, it seems natural to look for a counter-reactive bounce. I keep reminding myself though that we have to assume a trend will continue until we see actual “evidence” of a change - not speculation or hope. I don’t see much evidence yet, and I can’t imagine we will see much on a shortened day, ahead of the weekend, in an uncertain news environment. At the same time, the further we drop, the more bargain hunting incentive is building up and the more on guard we need to be for that evidence.

So if we see any strengthening at open, we are going to be scalping a few longs. If the first bounce is less than enthusiastic I may turn around and short the top as well, but I don’t think we are going to get more than a couple good swings before volume dries up completely and I start rummaging through the fridge, thinking about turkey sandwiches.

If A Bear Falls In The Forest
Jeff Cooper

As you recall, there were at least two important cycle troughs due to hit between November 21st and November 23rd.

These were the 3-year anniversary of the 2008 crash low and the 40-year anniversary of the crash low from 1971, which was an interesting year as that is the year Nixon took the US off the gold standard essentially doing away with the Bretton Woods agreement.

The world has been wandering in a fiat dessert for 40 years. And now it’s face to face with the burning bush. As noted on Wednesday, the SPY/S&P was flirting with Gapfill from October 10th and that was essentially satisfied in pre-opening trade.

In addition, from this years May 2nd high we are a Fibonacci 144 trading days.

From the last swing high on our important ‘squareout’ date of October 28th at 1293, 180 degrees up gives the 1371 May 2nd high and 360 degrees down from 1293 is around 1152 which was tagged in pre-market trade in globex.

The question is if a bear falls in the Bretton Woods does anyone hear it if no one is there? If this above cycles/geometry does not lead to a bottoming process further liquidation into year end would probably follow as money managers fear redemptions and will cannibalize their portfolios.

EFSF and Euro-Bonds
Michael Sedacca

Euro-bonds have been under heated debate recently, so we'll take a look at how EFSF bonds have traded over the past few months. The guarantors, which include all of the countries in the EMU, are liable for these bonds even in default, according to the EFSF Framework Agreement. Many of the guarantor countries, including France, Germany, Spain, Italy, Belgium, Austria, Ireland and Portugal, have seen their bonds come under attack in the past few months, which makes you wonder how they will be able to pay off their own bonds and new bonds issued jointly.

Germany is still very much against the prospect of issuing joint Euro-bonds, because their bonds have the lowest yield in all of the EMU (the next closest being the Netherlands and Finland). Peter Tchir brought up on Zerohedge this morning that he thinks it might be a good idea for the Fed to purchase EFSF bonds. I'm not sure if this is legal, but the Fed has been itching to enact more QE, and its obvious that their recent purchases of Treasuries and MBS have done nothing but benefit primary dealers.

However, this would be a serious change in mandate for the Fed that may have huge unintended consequences in the U.S. for the Fed and government (read 88% Congress disapproval rate). Logically though, its the smart (or least wrong) thing to do. We need to prevent any European contagion spreading to the US, and hopefully the average American will see this (I took a straw poll of my relatives, this was the general consensus).

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