Buzz on the Street: Markets Waiting for Santa Claus

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Monday, December 13, 2010

The Market Could Use a Snooze
Smita Sadana



With trannies and semis down, NASDAQ seeming a little tired and Google (GOOG) up 10 days in a row (2 trading weeks), it seems that the market might be getting ready for a siesta. In addition, the recent star, the financial sector, has added to massive gains from last week, and some stocks in this sector have reached their first technical targets.

But as I have held for a long time, I don’t see any technical reasons for a major trend reversal just yet. As a matter of fact, a break from the recent relentless buying would be healthy, just as a siesta is supposed to be! So, I would release some of my long positions, with intent to reload at lower prices

Technically, 1225 area on the S&P offers strong support (see my note on Dec 3rd), on a first retracement and I would expect buyers lined close to that area.

Positions in XLF, BLK, BAC

Looking at Citigroup
Barry Ritholz & Peter Greene



We know a lot of people are involved in Citigroup (C), so we decided to draft some quick technical color on the name. As seen below C shares broke out above its int. term trend line (red line) near $ 4.65 and are now tracking to retest resistance near $ 5.05 (green line) as financial shares gain off the steepening yield curve.

We think as shares rally up into this leave they will then pull back and test the $ 4.65 breakout. Ultimately we see shares working above this $ 5.05 level, we believe it will take some time still. In a perfect world you would sell as shares approach this resistance area then reload back near $ 4.65 for the next big leg up … however we all know there is no perfect world …


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Tuesday, December 14, 2010

Minyan Mailbag: Bullish on Japan
Kevin Depew

KD -

Would you mind getting me an update on Japan? I'm looking to put on my position and wanted to see where we are from a timing perspective.

On a side note, look at this comment from the folks at Elliott Wave regarding an anecdotal look at small Japanese equities, which could be close to the most detested investment class in the world, which makes me interested :-)

"An anecdotal event in the small company sector may indicate psychological capitulation near the low in the Nikkei 225. In early September, Incubator Bank of Japan, Ltd., a small-business lender, declared bankruptcy, which triggered the government's deposit insurance cap for the first time since its creation in 1971. The bank failure is the first since the government bailed out Ashikaga Bank and Resona Holdings filed for bankruptcy after the 2003 low in Japanese shares. Prior to that, the nationalizations of failed lenders Nippon Credit Bank and Long-Term Credit Bank of Japan followed the 1998 low. Bankruptcies and buyouts of failing institutions often reflect despair at the end of downtrends and therefore often serve as longer-term buy signals. Incubator looks well placed to mark the low this time."

Thanks,
-MV

MV -

I'll go through the long-term charts down to DAILY to give you a sense of where we are. As you know, Japanese equities are my largest equities allocation.

The first chart is the YEARLY chart simply for perspective. The Nikkei 225 from peak to the low in 2008 declined 82%. From a DeMark perspective, three interesting things to note: 1) There is an active sell countdown still in effect, and we have only competed bar 7 of 13 up. 2) There is an active buy setup in effect, currently bar 3 down, however, in 2012 we will likely have the opportunity to erase that buy setup because the comparison bar (close for setups compared to close four bars earlier) will be the 2008 close of 8859.56, and 3) the TDST Down level remains disqualified.


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The MONTHLY chart shows the recent TD Sequential 13 buy signal and subsequent confirmation with a bullish price flip. The TDST resistance level is at 13468.


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The WEEKLY is on bar 7 up of a sell setup. Recall that for a setup to be perfected, the high of bar 6 OR 7, whichever is greater, must be exceeded by the high of either bar 8 or 9. That suggests a high above 6 or 7 coming up in January or February.

Finally, the DAILY chart shows a qualified break of TDST Up, and while today we are recording an imperfect sell setup (remember, high of 8 or 9 must exceed high of 6 or 7), I expect the reaction to be relatively shallow before proceeding on to a full TD Sequential countdown 13 sell signal, which by definition will come at higher prices. TDST Up (formerly resistance now support) is at 10112.88.


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Incidentally, I am also bullish on EWJ.

-Kevin Depew

Minyan Mailbag: Groceries and CD's
Terry Woo

Terry,

Can my groceries go up while the rates on CD's basically stay the same?

-Minyan G,

G,

I'm a little surprised you haven't noticed the increase in food prices, and I wonder if many others have yet to notice. But don't take my word. Let's just take a look at the charts below.

Chart 1 is a monthly view of cotton.


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Chart 2 is a monthly view of orange juice.


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Chart 3 is wheat which isn't as pronounced but looks to be on the verge of breaking out.


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I could go on but you get my point. And so while your CD's have basically stayed the same since the Fed lowered the overnight rate to 0% in 2008, many of these items will continue their upward trajectory.

The reality is, in my opinion, if no one is noticing the increase in prices, we truly are only in the beginning. More importantly, we recently had Chairman Bernanke state in a rare interview on CBS 60 minutes the the Fed was more concerned with deflation and that inflation is very very low (referring to the engineered CPI).

Take a look at the interview and see for yourself. If you believe the part where Bernanke says the Fed isn't creating more money and the money supply isn't changing in any significant way, then great! The Fed is doing a fantastic job. But I included in chart 4 a look at MZM by the St. Louis Fed which is at new all-time highs.


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So you can take Dr. Bernanke's word, or you can listen to what commodities, gold and silver are saying.

-Terry Woo

Position in gold stocks

Ditch Best Buy for HHGregg
David Dispennette



Many people just feel like they have to buy a stock like Best Buy (BBY) when it drops like it has today. I just got done watching a spot on CNBC where everybody is talking about buying the BBY dip or Walmart (WMT), Radioshack (RSH) or Gamestop (GME), I’d suggest looking at HHGregg (HGG) instead, which operates 131 home appliance and accessories stores in 11 states (compared to Best Buy's 4,000 worldwide) and plans to add 40 to 45 more stores each of the next few years.

Unlike Best Buy, HGG has some pretty good revenue and earnings projections in front of it, a solid growth plan, and as far as I’ve experienced, much better customer service. And last time I checked, it was a pretty good commercial real estate market to expand ones footprint from regional to national. I do not currently have a position in HGG, but it’s on my radar again today and I’ll pull the trigger if I’m fortunate enough to get in around $20, with a mental stop loss set at a close below $18.75.

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Wednesday, December 15, 2010

NIHD Breakout
Steve Birenberg

If you buy breakouts, take a look at NII Holdings (NIHD). The stock is pushing above its October and November double top around $44-45 to its highest point since pre Lehman. We also have an upgrade from BTIG which followed lots of positive commentary on the stock in the last 48 hours as NIHD secured nationwide spectrum in Brazil. Over the past few months, NIHD has secured very reasonably priced nationwide spectrum in Mexico and Brazil that gives the company the opportunity to expand beyond its push to talk, voice only wireless services. The upside is large as NIHD moves from a high end, niche provider to a mass market player. In Brazil, NIHD adds upside to a still booming market. In Mexico, a mature market is transformed to a growth market.

NIHD management is very well regarded at the operating level which is important as moving away from its well protected high end niche toward mass consumer markets has obvious execution risks. Furthermore, the company is transitioning away form its IDEN technology to 3G, something that a few analysts believe may not work as well as expected. Financing the expansion should be doable given NIHD's current cash balance and projected EBITDA over the next several years. In addition, now that spectrum has been acquired in both countries, look for NIHD to announce vendor financing as the equipment is purchased.

A final point for bulls is that NIHD is now spectrum rich in two large growth markets making it an attractive acquisition target for a mature wireless telco – by the way, wireless is a mature business in most of the world as mobile phone penetration is quite high globally. Besides the upside opportunity that an acquirer gets through NIHD's new spectrum, the underlying business is growing double digits.

Position in NIHD

Kinect the Dots: MSFT
Smita Sadana



Remember Zune? Alas, neither do I! Finally, it looks like Microsoft (MSFT) might have something memorable in Kinect (other than its snazzy name).

The sales of Kinect have been encouraging since the launch on Nov 4. Here's a thought from Katherine Egbert, an analyst at Jeffries:

"If Microsoft does reach the five million unit figure by December 25, it will mean that Kinect is the fastest-selling device of all time, selling 2.5 times faster than Ipad -- 100,000 units per day for Kinect over the first 50 days vs 36,000 Ipad units per day for the first 27 days.”

What is most interesting to me is the recent move in the shares of MSFT. It is important to note that this display of short-term strength in MSFT is in direct contrast to its year to date subpar performance (Down 8.8 currently versus up 10.9% for the S&P-500).

As a trader, I like to see a technically advantageous position, lined up with positive fundamental news. MSFT is at an important juncture technically, having crossed above its 200-day SMA and a strong resistance zone. Price and volume patterns remain constructive and I would add to my position on a retracement to the $26.5 to $27. See chart 1 below.


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My first target upon a successful breakout would be even a stronger resistance area around $31. See chart 2 of how important this next resistance line is.


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Literally speaking, could Kinect be the ‘game changer’ for MSFT?

Position in MSFT


Thursday, December 16, 2010

Political Crisis Deepening
John Cassimatis

It has been my longstanding belief that the catalyst separating gold from its ultimate mania would be an initial rise in long yields. While we have always maintained that runaway yields is a necessity for a metal’s parabola, the kneejerk response to interest rates first rise from generational lows would be likely be greeted by selling. Still at lofty levels, I believe this a potential intermediate term top in commodities. It’s possible, not definite, but I have been scaling out in respect.

This was a good year to be sure. The model I had spun up years ago was that ultimately as yields rose, gold and silver would find their major buy signal after correcting substantially. It will be the rise of yields beyond a certain range, a comfort zone, which will mark the dawn of gold’s final, Phase 3 assent. The tax compromise, less revenue, more spending, only fuels the probability of the sad reality that America will get caught with its pants down (Conspiracy guys argue this is an intentional busting of America’s books to usher in a more pronounced wave of globalization.) Crazy, but you’d almost have to be crazy to be a steward of this nation and not see the asteroid at this point.

Lately, I find I read Politico more than financial sites. I’m amazed really. I keep checking for any shard of hope, of reason (they are there), that is not wrestled to the curb (that’s the problem). The only solution lies in the political realm at this point. There is no reason to be confident in any way. We are a nation headed for massive trouble. While gold’s ultimate price will reflect this nadir in confidence, a correction likely awaits, as we inch closer to the tragic comedy’s final act.

1350 next support for gold, but again, I would think more of selling on strength than necessarily loading up on weakness. The tide very well may have turned for a bit here.

Positions in gold, silver

Apple Call Play?
Adam Warner

Like some Apple (AAPL)? The Idea Factory at Goldman Sachs research has this trade idea.
 

Buy AAPL Feb $330 calls for 4% of spot to capture earnings, holiday sales. Apple volatility screens attractive; we expect AAPL vol to pick up in December and January around holiday demand and potential CDMA iPhone launch. Interestingly, in spite of several sizeable catalysts including the potential CDMA iPhone announcement, Apple volatility (31%, 3-mth) is still trading near five year lows, is down from 35% levels two weeks ago, and is attractive relative to our hardware universe and the XLK.

AAPL volatility is in line with its average levels vs. XLK stocks over the past three years, despite the strong catalyst stream ahead. Based on typical holiday seasonality, we would also expect Apple implied vol to be much higher at this time of year. Over the past 16 years, shares had a median realized vol of 45% in the month leading up to Dec expiration and 52% in the month leading up to Jan expiration. AAPL 3m implied vol of 31% is lower than the average of our hardware universe of 36% and in line with DELL. While there is a chance Feb options don’t capture the CDMA iPhone announcement, we still prefer Feb options over March as we see potential for Feb vol to pick up as earnings near. Call option buyers risk loss of the premium paid.

I’m more of a put seller sort than call buyer….but hey, its AAPL and volatility is not exactly soaring…


Friday, December 17, 2010

Flush of the 50
Jeffrey Cooper



Opentable (OPEN) shows 3 large range tails starting in late November which smacks of distributing and defines a Charlies Angels sell set up.

The stock broke a rising 3 point trendline from October to tag its 50 dma and has backtested its overhead 20 dma setting up a solid risk to reward short should it turn red.

OPEN has been a big winner in 2010 up well over 100% and there are likely many stops hovering around the 50 dma which could see a nice play.

Of course the bulls could be waiting for just such a flush of the 50 to redeploy, but it looks like a good Hit & Run trade, perhaps in both directions, is shaping up.

See daily with 20 and 50 dma’s and weekly OPEN charts below.


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