Buzz on the Street: Hurtling Through Chaos
A look back at the happenings on Wall Street this week, as seen through the 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 6, 2012
Bullish Digestion for Gold, Oil
Spot gold continues to respect the integrity of its up-slanted channel off of the Dec 29 corrective low at $1522.48. As long as the lower channel support line remains intact in the vicinity of $1700, the uptrend channel will continue to dictate the directional action of gold.
Today's low at $1711.57 could be the conclusion of a pullback off of last Fridays high at $1763.71. A climb above $1730 is needed to trigger initial confirmation that $1711.57 ended the latest correction, and that a new upleg within the channel has started.
Meanwhile, let's also notice that EUR/USD pressed right to test last Wednesday's pullback low at 1.3025 and managed to hold that level prior to pivoting to the upside to 1.3120/30. This left behind a small but potentially important Double Bottom corrective low.
As long as 1.3025 contains any forthcoming weakness, my pattern work argues that all of the action off of the Jan 29 high at 1.3235 represents a bullish digestion period, in preparation for a thrust to the upside that projects next to 1.3330/60.
(click to enlarge)
Dendreon's Got the Look This Morning
Opinions vary as to why, but Dendreon (DNDN) certainly has the look in early trading today. The ~$2 move is accompanied by strong volume and the Twitterverse is abuzz. So, what got this stock moving and why now? There are three likely components...
The first bit is a reaction to "weak" FDA advisory panel briefing papers for Amgen's (AMGN) Xgeva (denosumab). Some out there see denosumab as a potential competitor to Provenge. Actually, everyone at Dendreon is rooting for Amgen to get Xgeva across the finish line in prostate cancer. Improved sales for Provenge relies on convincing urologists to actively scan their patients for metastatic disease -- even if the patients have no symptoms. Currently, this is not done because (before Provenge) there was nothing urologists were willing to give these men. If Xgeva is approved in this supplementary indication, the theory goes, Amgen will also be out there with the same message. Two companies with the same message is better than one, especially a company as big and recognized as Amgen.
The second component is technical. Dendreon has been basing for a couple of weeks now. Every chart trader and her brothers were watching the $15 level as a breakout. The upside reaction to the Amgen news (backwards or not) provided the spark and the chart traders provided the rocket fuel. Voila! $16.
The third component is traders becoming more comfortable with Dendreon's new CEO, John Johnson. I had a chance to meet him last week when we shared a plane to the ASCO GU scientific conference. He's a personable guy I believe investors will be able to relate to. Wall Street has it in their head he's been brought in to sell the company, which doesn't hurt the stock price any. I don't believe Dendreon is in shape to sell, yet, as they have more work to do in ensconcing Provenge as Foundation of Care.
Dollar Watch Update
6A (AUD/USD futures) key resistance is at 1.0705. We just had a squeeze, pushing us up to 1.0697, but the contact still feels heavy. This is an important pair to watch right now, especially if long gold. It is still my view that long DXY is a win/win going forward (either against an equity correction, or the acceptance of a new paradigm, which in fact would be a healthier bull market), but always deferring to price action.
There is also some interesting heat going on with the VIX. Even though one should not regard it in absolute terms, the double bottom off what appears to be a capitulation low Friday (16.10), looks pretty solid (see chart below).
(click to enlarge)
The Saddest Rally in American History
Last week, I offered this:
"For the American saver, I don't believe the consequences of the drop in interest income can be ignored. As the group that went into this crisis arguably the best equipped to withstand it, they are now being asphyxiated by the one-two punch of the crisis' duration and quantitative easing/financial repression. As I have offered before, for the consumer it is never the depth of the recession that matters, only the length."
This morning, that same sentiment was offered on the cover of the Money and Investing section of the Wall Street Journal in an article entitled "Itchy Investors Ramp Up the Risk" which begins with the line "Robert Marcotte can't afford to play it safe anymore" and then goes on to quote Mr. Marcotte, who states, "I am very risk-averse, but still need to generate income."
Back in September 2009, I wrote an article on MV entitled "Will Investors Join The Forced March Into Risk" noting that "...what's been missing in this post-March survival rally has been the Mom-and-Pop investors heading back into equities. Bonds, yes. Stocks, no."
Well here we are, admittedly almost two and half years later, and Mom and Pop, after missing the 100% rise off the lows, are finally joining the march. But I'd note that their participation is not based on conviction, but rather capitulation.
Don't get me wrong, this may lead the market higher, but to me this is quickly becoming the saddest rally in American history. Savers are buying stocks not because because they believe in the American Dream, but because they feel they have no other choice. All other options have been exhausted.
And maybe its just me, but when I see the retail investor capitulate, I get a sick feeling that they are doing precisely the wrong thing at the wrong time.
Tuesday February 7, 2012
Flash Memory News
This morning Digitimes reported that Sandisk (SNDK) is cutting flash memory prices in response to similar tactics by competitor Kingston Tech. Causation or coincidence remains to be seen, but Solid State Drive (SSD) makers like OCZ Technologies (OCZ) and Stec Inc. (STEC), big users of flash, are rallying, while SNDK was down as much as a couple of dollars at one point. A few thoughts on the overall dynamic:
SNDK's guidance hurt the stock post-earnings; the short-fall for H1 was blamed on a slower mobile device market (the same theme discussed by Cypress Semi (CY) on its call) and by an inability to decrease costs at the same rate as the normal decrease in prices (about 30% annually). If in fact prices are falling faster than normal, Kingston's price cuts won't help;
I'd be curious to know if the price cuts affect just MLC NAND, or both MLC and SLC/2bit NAND. If the former then, SSD's manufacturers won't really be affected by the price cuts; if the latter, then bear in mind that much of SNDK future growth relies on increase SSD adoption: by owning SSD maker Pliant, they are vertically integrated so price drops aren't going to hurt them or benefit them on that side of the business; if SLC/2-bit prices are dropping more than anticipated, it will likely spur more SSD penetration since the per-GB price of SSD memory remains the strongest headwind to replacing HDD in the mass markets;
I'm long both OCZ and STEC, but if the near 10% up move seen today is in fact related to news of NAND price decreases, the move seems excessive; even if there is a cost benefit to these companies, a good chunk of it will end up being passed on the customers in the form of lower prices;
I was expecting SNDK to say good things on the call and was surprised it did not, but the reason I'm in it in size (always hedged) is the SSD story;
NAND price cuts or not, that story is intact or getting better thanks to accelerating adoption of SSD technology (for example, see yesterday's announcement by EMC (EMC) of its VFCache product);
That story is huge and not in SNDK's numbers: if the current estimates of a total addressable market of client/enterprise SSD sales of $17b by 2015 don't go higher, and SNDK captures 30% of that market (rather than the 40% it owns in flash), current 2015 estimates assume 0% growth for the rest of its business for the next 4 years: that's not going to happen;
OCZ has a marginal position in SSD's, but can't help benefitting from the rising tide; that said, I'm aggressively selling calls against my stock and I'll be totally out if it gets to $11
STEC is an inexpensive serial disappointer; it too will have its day in the sun - or get taken out - but I rather own some 10 strike puts going into earnings;
And to touch on Fusion-IO (FIO), arguably the purest enterprise-SSD player out there, yesterday it reversed hard after getting some TV love, but it's been "for sale" since its earnings report; it is still too expensive for me and I don't want to own buy it higher than the $16-18 range.
Trade Update: NTAP Stop Adjustment
For Swing Traders who bought at 37.55 and sold 25% of the position at 3 ATRs or at 40.50 last week, you can now raise stop to under the fast moving average (shown in cyan) or under 38.65.
We will continue to adjust the stop as the fast MA inclines. The target remains the 200 DMA for now.
(click to enlarge)
New York Hotel Prices
I've attended the New York Traders Expo, held every year over President's Day weekend, for the past 12 years. I just registered and started looking for a hotel room near Times Square. I can't believe how cheap rooms are on the discount/consolidators sites as compared to recent years. My guess is that European tourists aren't showing up, which is a data point the stock market is choosing to ignore. It feels like Europe continues to be a real problem when people actually commit to spending money.
Porcelain Ground Hog Day
Another red open, and another immediate reversal back into the green.
Every little dip is a a buying opportunity.
Hoofy won't let this thing breathe. He's in his element: a china shop.
The market is in/entering the hyperventilating stage. Only time will tell how much damage there could be when the bulls try to leave the china shop all at once.
Tops are not made on an influx of selling; they occur on an absence of buyers when all the buyers are in. Then the market rolls over of its own weight.
Only time will tell if we get a climatic spike or a whimper if in fact a reaction is in the cards.
But sentiment suggests a clear and present danger based on the new peak in bullishness as seen in the chart below sent to me by a trading bro.
Markets often play out in threes. Notable are the 3 drives to a possible high on the chart…mirroring the 3 drives to a low last summer.
(click to enlarge)
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