Buzz on the Street: Emerging Markets Strike Back
A look back at the happenings on Wall Street this week, as seen by Minyanville's contributors.
Here is a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, March 24, 2014
Lions Gate: Divergent Squeezes By
The box office numbers are in, and Lions Gate's (NYSE:LGF) Divergent turned out to be a ... question mark.
A few weeks ago, there was talk of an opening in the $70 million range. On Thursday (March 20), I noted expectations for a $50 million opening -- I should have been more clear. $50 million was more the bottom end of expectations. Lions Gate sold off 8% on Friday (March 21), indicating that expectations for the box office had basically collapsed heading into the weekend.
Divergent hit $56 million for the opening weekend, which is basically in-line with recently lowered expectations, and, most importantly, not a bomb. That means a bit more confidence in the already approved sequel, and there is a sharp relief rally in early trading.
However, I don't think this story is over yet because the opening weekend was easy. There were a lot of Divergent fans that would have seen the movie even if it had 100% negative reviews. The next step is to monitor how box office returns fall off.
Here's a sampling of second weekend box office returns for comparable films from BoxOfficeMojo.com.
The Hunger Games: -61.6%
The Hunger Games: Catching Fire: -53.1%
Harry Potter and the Sorcerer's Stone: -36.3%
Ender's Game: -62.0%
I'd say the low -60% range is what investors would like to see. (Harry Potter was an outlier.)
On Friday (March 21), I backed off shorting Lions Gate [subscription required] into the weekend because I felt emotion entered the equation. I wanted to be the smart guy that went four for four on Lions Gate trades, and shooting for that type of ego fulfillment seemed unhealthy.
But I'm feeling like my brain's been reset a little bit, and here's what I'm thinking:
I still have doubts about the sustainability of the dystopian teen sci-fi genre, and since what moves Lions Gate is expectations for blockbuster films, it's a little hard to get behind the stock. It's a long way from 2011 when 99% of investors hadn't heard of The Hunger Games.
You can't compare Lions Gate to diversified media companies like Disney (NYSE:DIS). It's more like Take-Two Interactive (NASDAQ:TTWO). You want to anticipate the anticipation of big releases and ride the wave of momentum buying.
Divergent didn't bomb, but it only hopped over lowered expectations. I don't think that's going to be a sustainable source of excitement, and so it's back to the sidelines for me.
However, I'm keeping the stock on my radar as there will likely be trading opportunities on both the long and short sides as the November 21, 2014, release date of The Hunger Games: Mockingjay, Part 1 approaches.
Tuesday, March 25, 2014
Like a Rock
Michael A. Gayed
Emerging markets (iShares MSCI Emerging Markets Index ETF (NYSEARCA:EEM)) the last two days have been like a rock intraday, barely budging with US equities acting considerably more volatile into quarter end. I very much believe that an emerging market melt-up is likely coming in the second quarter. With stimulus being removed in the US (SPDR S&P 500 ETF Trust (NYSEARCA:SPY)) and with China (iShares FTSE/Xinhua China 25 Index ETF (NYSEARCA:FXI)) beginning to act, odds are rising that money rotates overseas after a year of wildly irrational relative movement. To think emerging markets cannot advance in a down US market is illogical, given that they went down when the US went up. Valuations are cheap, and the breakdown in biotechs (iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB)) and other small-cap (iShares Russell 2000 Index (NYSEARCA:IWM)) high flying momentum names may force attention to Brazil, Russia, India, and China. The most telling action is in Brazil, which despite the S&P's downgrade of its credit to BBB-, continues to rally unrelentingly. The move I have waited on for so long may finally arrive.
Wednesday, March 26, 2014
Biotech leads us lower (IBB is down -2.6%) as the red spreads to the small caps and high flyers. Banks are starting to get tapped too. KBW Bank Index (INDEXSP:.BKX) 71.50 is the key.
Russell (INDEXRUSSELL:RUT) 1182 is the same level for the small caps and that's slowly drifting away to the upside as is 7600 on the Dow Jones Transportation Average (INDEXDJX:DJT) and 3640 on NASDAQ-100 (INDEXNASDAQ:NDX). These are big indices losing support and that should be respected as leading indicators. If enough of these fail -- and the banks are by far the biggest tell -- 1850 on the S&P 500 (INDEXSP:.INX) will be in Jeopardy.
Click to enlarge
Why did I capitalize Jeopardy above -- where's Vanna White?
Michael Sedacca knows fixed-income and interest rates, much like his pops. When he weighs in on things like negative interest rates, I pay attention (and so should you).
I'm not as smart as Mark Zuckerberg and can't see what he sees. History will judge his billion-dollar buying sprees as genius or madness.
So, what's the end-game in Russia? Who's gonna blink first? And where does it go? We don't do politics at Minyanville, but those answers are gonna impact our financial decisions.
And then there's the chart below. That's the Russell from November 2012. (Remember that?) RUT 1163 (there now) is the 50-day moving average, but that could be the least of concerns for that complex.
"Parity," through the lens of the November 2012 trend line, is at S&P 1800. Apples to apples, of course.
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I hope this finds you well.
Thursday, March 27, 2014
Brazil has been absolutely on fire lately. I purchased it back on February 27, mentioning that I believed the bottom was in there and now it had the true tests ahead of it, overcoming downward sloping moving averages.
Today is the day that it is breaking free from the 200-day moving average to the upside. This is really setting the stage for an 18-month run (which Alex Salomon told me about several months back). It is very curious that the market appears to be setting the stage for a correction in the US, while emerging markets are finally turning the corner.
Perhaps the markets are decoupling as QE winds down, and investors can get back to a state where diversification can make a difference?
In fair warning, today is not the day to buy Brazil as it is finally over 70 on the Relative Strength Index (RSI), making it overbought. I would let it cool off a bit and let it (hopefully) base above the 200-day moving average before breaking out higher again.
Click to enlarge
Friday, March 28, 2014
"I bet there is another MASSIVE revolution in Ukraine by the end of summer with gas prices up 50% and pensions being cut 50%. And, just wait until the IMF, US, and Troika hit them with austerity, not to mention food inflation. Think about this, the average pensioner in Ukraine used to take home $160 a month, now it is $80!" That quip hit my email box yesterday (March 27), penned by a London-based investor. Also troubling is the massing of 50,000 more Russian troops on the Crimean and Ukrainian border, bringing the total to some 80,000. Certain Washington, DC contacts remain worried about the upcoming Ukrainian election, believing the vote will tilt towards reuniting with Russia and allowing Putin to use the same Crimea tactics to annex the rest of Ukraine. While many of the experts are concerned about the situation, the stock market doesn't seem to care. The other major concern seems to be the slowing of China's economy as China's year-to-data industrial profits rose 9.4% year-over-year versus 12.2% growth in the previous report. Hereto, the stock market does not seem to care. Those two concerns, however, appear to be the biggest bogeymen currently, and they are likely responsible for the restless rotation that has been taking place over the past few weeks in the stock market despite the ability of most of the major indices to hold up rather well. Indeed, many of last year's leading stocks have broken down in the charts and, in the process, have traveled below their respective 50-day moving averages. The past two sessions have actually seen the tech-heavy NASDAQ-100 break below its 50 DMA, which is not good pricing action.
While none of this portends a massive stock slide, it is a reason for caution in the near term. As Andy Adams wrote yesterday [subscription required]:
The S&P 500 has been trapped in a 40-point range over the past month and now sits in the middle of this channel, while the NASDAQ and Russell 2000 have already broken down to make lower lows. Since the S&P is not yet confirming this breakdown, this divergence among the averages could be interpreted two different ways. The first way is that the recent underperformance by the former leaders is signaling underlying weakness that will eventually bring the large caps down with them. The second way is that the recent sell-off in select stocks has been nothing more than profit-taking, and the overall market will reassume its ascent once this selling ends.
I would add that yesterday the S&P fell below a short-term rising trendline and that there is a full charge of energy built up in my internal energy indicator. A breakout above 1860 would suggest that the energy will be released on the upside. Below the 1835 to 1840 range would imply the opposite.
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