Buzz on the Street: The Bulls Hold Their Ground While Oil Spikes
A look back at the happenings on Wall Street this week, as seen through Minyanville's Buzz & Banter.
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 February 20, 2012
Markets Closed For Holiday
Tuesday February 21, 2012
Between the Ticks
Today's 10 min S&P shows Train Tracks at a new high for the move followed by what looks like a little right shoulder and a stab down.
This is a small pattern, but within the context of the idea that we are 3 revs of 360 days from the March 6, 2009 low, or 1080 days from that low. That 1080 ties to last year's October 4 low at 1075, an 2 revs of 360 up in price from 1080 gives 1360 -- any reversal from this level and this time frame demands respect.
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Is it Safe?
I return to the Hallowed Halls to find the world exhaling on the back of the Greek debt deal. A looming question remains, however, and it's a biggie: will the ECB debt swap spark unintended consequences up and down the financial food chain?
As I wrote Friday morning, the market is never wrong and price is the ultimate arbiter of variant financial views. Insofar as that's a dynamic verdict, Hoofy will argue that policymakers have successfully navigated the sovereign sequel. He is also quick to note the difference between "drugs that mask the symptoms," as we saw in response to the first phase of the financial crisis, and "medicine that cures the disease," in the form of debt destruction and/or reorganization.
I spent a lot of time thinking about the European tact this past weekend, in large part because the above-mentioned distinction has been my argument in front of, during and on the heels of The Perfect Financial Storm. Take me at my word, I very much want to put this crisis behind us--legitimately put it behind us--as I, like you, stand to prosper from a normalized free-market where meritocracy, rather than political decisions, dictate our financial fate.
There is the potential in our forward probability spectrum that dictates we will emerge from this a stronger, more unified global economy. Conversely, there is a scenario that is entirely more disturbing; one where 75% haircuts are not publicly deemed "voluntary," where systems are saved, but not without profound societal and geopolitical ramifications, where the court of law is needed to decipher a rule of thumb--and where even that may not trusted when push comes to shove.
Investors who chose fixed income instruments presumably do so in an effort to guarantee safety in exchange for upside. If that safety is deemed arbitrary--if a central bank is able to subordinate other investors of that very same security--then that, my friend, is a default regardless of snazzy semantics or promises of an isolated situation. You don't need a law degree to understand this; you only need to have an objective lens.
The concern in the marketplace has never been Greece; it has been the ramifications of a Greek default on an interconnected maze of global derivatives that tie together financial institutions that, until a few years ago, viewed sovereign debt as one of the most risk-less investments in the world. The underlying issue--and the fate of the free market world--boils down to one very simple, yet extremely complicated question: Who wrote the Credit Default Swap contracts, and what collateral/counter-party risk sits on the other side of that bet?
The answer, as it stands, is "I don't know." Nobody does, and that's the problem. There are no central clearing houses and no educated assimilation of the risk, or the domino effect that could transpire if this "solution" is deemed, as it should be, in my view, a default. While the European approach to their sovereign situation is almost precisely the opposite of how the United States dealt with our crisis--we bought the cancer and sold the car crash--there is common bond: the specter of containment vs. contagion will dictate our collective fortunes.
I don't profess to have a simple solution, and I'm not sure there is one. What I can and will share, however, is that I added a layer of short-side risk in the S&P and NDX late Thursday following the sharp rally (about 25%, in terms of my comfort margin) and added a bit more exposure today into the rally. I may be mistaken but it's directionally in tune with what I'm feeling, which is that a gut-check for the bulls, at the very least, is waiting in the wings.
As always, I hope this finds you well.
Second to Last "Accomplishment" In the Books
For those of you who have read my analysis for some time might be familiar with my use of the term "accomplishment". Essentially, it means a break of a downtrend line. Diagonal lines run the metals markets. Their correct analysis is the greatest technical tool traders have at their disposal. An accomplishment is simply a break of one of these lines to the upside. Down trend lines range from very short term to daily lines, which are of less importance, but are relevant for a short period of time to lines that connect major peaks on weekly charts. These are obviously the most important, and affect gold and silver's behavior over a longer period of time. The longer the time frame the more important-pretty simple stuff.
Last night gold broke its most intermediate downtrend line capping trade from the Feb. 3rd high. This explains both gold and silver's strong follow through gains today. Last week we talked of a bottom on gold's break of the uptrend. I had labeled it as a fugazi based on past observations. The action thus far is supportive of that call. We are almost there-in the clear. That's when big positions can be very fun.
One last obstacle. The Nov. 8th peak connected to the Feb. 3 peak puts a line of resistance right at today's highs, somewhere in the high 1750s, very low 1760s. Break that and it's off to the races. Don't and, well, by definition, this is the top. I am selling very little here.
Michael A. Gayed
My colleague here at Pension Partners, Ed Dempsey, said something this morning which really hit me about the way markets could play out in the next few days. Remember how the Monday after the Lehman bankruptcy -- all looked relatively calm? News anchors noted at the time that markets were stable and that it was a testament to investor resiliency. Then, just a few short days later, the rolling crash of 2008 took place.
Now, what if the reverse scenario plays out? In other words, what if the initial calm following the news of Greece (positive) results in a rolling "reverse crash" with risk assets making new highs on the news? I don't think this is a far fetched possibility. If I'm right about 2012 being the year of reflation, we could be in an environment similar to 2003 and 2009. I did a Bloomberg Radio segment last week with David Wilson and Vonnie Quinn addressing this very idea. Will certainly be an interesting week as the bailout news is digested.
Wednesday February 22, 2012
Today's Close in the S&P Is Important to Watch
The 15-minute chart of the S&P 500 futures (E-Mini March contract) shows that we are at a critical point. The latest up-swing that started on February 16 has its 50% retracement level at 1,353, which is where we bounced from this morning. If we can hold that level and move out of the down-trending channel (blue parallels), then the next upside target is 1375.
On the other hand, if we close below 1,350 (the swing's 61.8% retracement line) we could swiftly move down to 1,340 and lower.
Today's close is very important.
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Crude Oil Like a Child Demanding Attention
Crude Oil is toying with a possible breakout from a 10 month inverse head & shoulders formation that would project to 130-135. Although $130 oil may not be today's business, higher oil price may be a tell as to the level of concern about growing Middle East tensions and a possible showdown between Israel/Iran. Watch price action over the coming days/weeks.
Note that Crude recorded a daily DeMark sell setup on Monday and is holding up pretty well.
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Greece and Europe
At least with respect to the Greek bailout news on Monday, European stocks have officially sold on the news as the German DAX in particular is back to Friday's close and Greek stocks are falling 4%+ to a 3 1/2 week low. The signs of a short term market top are also clear in US markets with the weak action over the past week in Transports and lagging performance in the Russell 2000 over the past week. In terms of catalysts of substance, all eyes are on next week's 2nd LTRO from the ECB with estimates ranging from 200b euros to 1T, a spread that something larger than a truck can drive thru.
The Feb Euro-Zone manufacturing and services composite index fell back below 50 at 49.7 from 50.4 and below expectations of 50.5. With respect to the gift the Greeks are getting with a reset lower of the interest rates they will pay on borrowed money, a German official said to Ireland and Portugal not to expect the same treatment. Spain and Italy are also paying a higher borrowing rate now than Greece.
In Asia, the flash HSBC manufacturing PMI rose to 49.7 from 48.8, a 4 month high, but remains below 50 for a 4th straight month. On the modest bounce in manufacturing, the Shanghai index did rise to the highest since late Nov. The yen has touched 80 vs the US$ for the 1st time since July and the Nikkei continues higher in response. In the US, purchase apps to buy a home fell 2.9% to the lowest since Oct while refi's fell 4.8% as mortgage rates were little changed. II: Bulls 51.1 v 54.8, Bears 26.6 v 25.8.
Thursday February 23, 2012
Greece, Hail Mary's, and Financial History
I've been mulling over Professor Atwater's latest missive on the Greek debt saga and I can't help but think this episode is a seminal moment in the history of finance. A moment that books will be written about 20, 30 or even 100 years later with people asking "what were they thinking?"
From a social mood and horizon preference standpoint, transforming a sovereign nation into a structured finance vehicle just seems to symbolize everything about the era that came before. If you think about what the field of finance has been for the past several decades, it has been one filled with transformation. Transforming everything into cash flows that could then be re-packaged and traded. Indeed, the shadow banking system grew to dizzying levels mostly from extracting yields on assets that really don't exist. CLOs, CDOs and all other collateralized obligations are just synthetics of real credit extension. Everything is just a basis and all of them are correlated.
I think folks are getting fatigued from all the trading for the sake of trading, which would be an example of the "risk out" mentality. But the idea of putting real capital to work for real products and development has been building momentum for the past few years, and I can't help but think this latest page added to the Greek script is bringing us closer to the point where we all say "enough is enough" to this whole structured finance movement. I don't know for sure, but it all just feels like we're reaching that point in one of those chapters out of Mackay's "Extraordinary Popular Delusions and the Madness of Crowds" where the people in charge throw that "Hail Mary" pass to try and save what can't be saved.
Subtle Signs of Bearish Behavior
There are some subtle changes in character I'm noticing of late which are worth mentioning. By now you are already aware of the underperformance, non-confirmation, and breakdown of the Transports (IYT) however, take a look at Intel (INTC), a name I'm unfortunately long since the break 4 days ago. The textbook breakout of the 4-week consolidation should have gone on to greatness, rather we're now seeing a failure and potential bullish turned bearish break. Going in I gave myself some room with a stop at $26 but if the stock doesn't get its act together soon I'm guessing my stop comes quicker than I'd like. Regardless of what you think of the stock, the simple fact that it has done a bullish / bearish reversal is a change in character for the tape.
Amazon (AMZN) is catching some negative news from Barclays this morning, and is following through on a text-book bearish wedge break from yesterday. I got short here on the signal yesterday with a stop at 185. What will be important to watch here is just how this plays out in the coming days. The stock, or any stock for that matter in this tape has a history of ripping the heads off bears just as it looks vulnerable to downside pressure. If this continues to push lows and break, it again would be a definite change in character for the tape.
There hasn't been much to say the last two months as we've run straight up. It looks like we're seeing some subtle changes to that now that have me on guard.
The Most Hated Rally Ever?
Michael A. Gayed
I just saw an interesting segment from Dominic Chu of Bloomberg Television as it relates to the double levered VIX ETN (Symbol TVIX). Apparently the inflows are so huge into it that issuances in the ETN have stopped. From a contrarian standpoint, this is potentially a VERY bullish signal for markets, as it suggests there is too much hedging going on.
If everyone is buying insurance against an event, then how can the payout on the event be meaningful?
I'm not suggesting that a significant decline in stocks can't happen, and that the VIX can't rally substantially, but the point is that crowd sentiment, particular on the trader side, is very bearish on this very hated rally. Can they all be right at once?
RE: The Most Hated Rally Ever
You May Not Love Me, But You Will Respect Me
On the question of whether this is a hated rally, I would say yes.
Back on February 10, I pointed out that folks were falling all over each other to be the first to scream "ROUBINI TOP! after Dr. Doom came out bullish on the equity markets.
Similarly, folks lost their collective "stuff" on February 15 when Apple (AAPL) hit that $526.29 high before dipping back below $500. You'd have thought Apple was going out of business with the number of people calling that the top to end all tops.
And yet, it's resuming its uptrend...
In fact, in my role as Minyanville's self-appointed renegade amateur market psychologist, I'd say that there's an oversupply of people trying to sound smart by 1) hinting at economic doom with snarky Tweets and/or 2) making fun of anyone daring to be bullish in public. Hell, I've been guilty of this myself.
Yes, it would have been all kinds of awesome if the market had topped exactly when the Roubini news come out -- but it didn't happen.
The point is, you don't have to love the rally, but you must respect the price action.
The market does not have to go down because the crowd has arbitrarily decided that it's gone up too much, and vice versa.
Trading is not about the who, what, where, or why -- it's about the when.
It doesn't matter how much we know or how smart we are. If we can't get the when right, we can't make money.
Friday February 24, 2012
Intraday Update to Daily Spot
For yesterday's Daily Commodity Spot, click here.
Euro - Out of the woods, only to enter another forest… A confirmed break above 1.3333 would have put into play 1.3425. But 1.3425 was already touched overnight. And it is being probed this morning up to 1.3477. The next higher objective on a confirmed close above 1.3425 would be 1.3485 and 1.3575. But let's not yet discount the significant resistance at 1.3333 and 1.3425. Closing today or Monday under 1.3425 would be likely also to close the same session under 1.3333.
Crude Oil - Flying a little too close to the sun… A break above the 103.00 target had been expected. But excessive optimism prevented any hesitation before its recovery triggered a new buy signal targeting 111.00. The signal has been very productive, too, extending up to 109.00 without little delay. I had noted after yesterday's close how much room a pullback would have without reversing momentum down. Fresh highs today have raised the pullback limit up to 107.35. And that would be raised up to 107.85 if 109.35 were touched. None of which would undermine the potential for fulfilling the 111.00 target (where there is potential for a massive price collapse).
Gold - This is no time to rest on its laurels… Tuesday's price action under 1760.00 had put into play 1778.00-1780.00, which was tested almost immediately after Wednesday's close. Closing above it Thursday put into play new highs targeting 1811.50/1825.50. I just want to clarify that closing today above 1790.00 would further confirm. But closing under 1778.00 could reverse momentum down.
S&Ps - The uncommon denominator… While not technically part of the commodity coverage, I do want to address the perception that the Euro has "decoupled" from S&Ps. No two "coupled" markets need trade in unison without interruption. I always suggest the two-day rule for filtering out divergences and outperformance. While the Euro has accelerated the pace of its recent upleg, it is testing resistance (1.3333 and 1.3425) while S&Ps attack a narrower resistance (1369.00-1371.00). Regardless of their different trajectories upon approaching each target, reacting down in unison would confirm the two markets have not decoupled.
Answers I Really Wanna KNow...
Will there be an underlying bid in crude into every weekend going forward until Iran is (cough) resolved?
Was it me or did LeBron seem like a man among boys last night?
Why can't small businesses tap central banks for billions of dollars in cheap money?
Aren't entrepreneurs supposed to be the next phoenix?
If you're the Ziff family, how do you feel about Eddie Lampert gaining $160 million in his personal P&L since he bought your Sears Holding (SHLD) stake?
Can we look at this market another way by asking, "Who is winning The War on Capitalism?"
Does the path of maximum frustration require all of the bears to capitulate before the second side of the twin tails arrive?
R.P.Dow 13,000 and Volume
Michael A. Gayed
The media is now fixated on Dow 13,000, and while the number is literally meaningless on many levels, it is important from a psychological level IF it causes money to get excited about stocks all over again. As I noted in a recent CNBC segment, retail money has been out of equities for the bulk of this rally. A lot of cash is still on the sidelines and stuck in the bond market.
IF Dow 13,000 gets the retail public excited again, we'll likely see a pickup in volume in the weeks ahead. The initial movement back into stocks would likely keep the trend going higher.
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