Here's a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, May 5, 2014
The Inflation-Deflation Debate Settled Once and for All
Over the last few years, I've maintained that people have experienced "bifurcated 'flation." There is inflation in things people need -- health care, food, education, energy -- and deflation in things people want, such as cell phones, laptops and plasma TVs, which have become commoditized as a function of the most deflationary invention of all time: the Internet. That latter dynamic is great if you're a consumer, but it's not so hot if you're a provider of those products, as margins get squeezed.
I stumbled upon a chart last night that sums this up with a neat little bow, and I've shared it below.
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Tuesday, May 6, 2014
Volatility Spike on the Horizon
On January 10, I discussed the Volatility S&P 500 (INDEXCBOE:VIX) "fear gauge" and how it has become more difficult using it as an indicator for a measure of sentiment due to that fact that it can now be traded.
When something can be traded, it can be manipulated, intentionally or not, and it becomes less pure as a read on what traders are actually doing with their money.
On the upside, the fact that options, futures, and ETFs are now traded on the VIX means that investors and traders have more information on how other traders are positioning themselves for future volatility. One of those pieces of information is what I focused on in January. It measured the number of put options outstanding on the VIX versus the number of call options. At the time, the ratio was becoming skewed, showing that traders had opened many more call options than put options. Historically when they've done that, the VIX has spiked at some point in the months ahead, without losing too much beforehand.
It did so again. From the date of that report through early February, the VIX jumped more than 76%. Since then, stocks have settled down and so have volatility expectations; the VIX is back down to 13%.
And now the call option traders are back.
Over the past few days, the put-to-call open interest ratio has slipped under 0.33, meaning that for every 100 put options that traders have opened on the VIX, they've opened more than 300 call options. On the surface, this would suggest that they're expecting an uptick in volatility in the months ahead.
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Based on what has happened before, they're likely to get it. When the open interest ratio was below 0.33, then over the next six months the VIX saw a spike of at least 50% after 75% of the days. At the other end of the spectrum, when the open interest ratio was above 0.75, then there was only an 18% chance of seeing the VIX jump by more than 50%.
The summer months tend to be relatively muted as volume ebbs, but the odds of a volatility spike between now and the end of summer have increased markedly.
Wednesday, May 7, 2014
,,Fire in FireEye
If you need a sign of the times, look no further than Internet security play FireEye (NASDAQ:FEYE), which reported first-quarter earnings after the close yesterday.
First things first, headed into earnings, the stock had fallen 62% from the March 5, 2014, high of $97.35.
Earnings were in line with expectations, while revenues beat consensus estimates. Second-quarter revenue guidance is nicely above expectations. Additionally, it raised full-year revenue guidance, putting it fractionally ahead of consensus.
However, FireEye is down another 11% this morning because it's forecasting bigger-than-expected losses.
In good times, hot momentum names get a pass on profitability and other important metrics as long as they generate enormous revenue growth. FireEye also has the benefit of being in the right business (security) at the right time with the recent security scares at companies like Microsoft (NASDAQ:MSFT) and Target (NYSE:TGT), so it's got that story stock appeal. Yet nobody cares.
There's a healthy aspect to the rotation from high-beta into defensive sectors following the 2013 boom, but this type of action shows that investors are still in "shoot first and ask questions later" mode when it comes to risk.
On a related note, I'm very eager to see what happens to Twitter (NYSE:TWTR) today. Yesterday, it fell 18% on record volume on a well-telegraphed event (IPO lockup). There are some news reports circulating that insiders sold more shares than expected. But still, the action smelled a lot like capitulation. If that wasn't the real washout for Twitter, I'm afraid of what is!,
Thursday, May 8, 2014
All You Need to Know About This Market in One Chart
Topping or Basing? The Jury Is Still Out
Nothing has changed since my last few notes on the market [subscription required]. The action remains bifurcated as the S&P 500 (INDEXSP:.INX) and the Dow Jones Industrial Average (INDEXDJX:DJI) continue to outperform the Nasdaq Composite (INDEXNASDAQ:.IXIC) and the Russell 2000 (INDEXRUSSELL:RUT). The market is still in a topping phase, but the top needs to be confirmed before stocks make a move lower. The top will be confirmed if and when last month's lows are breached. Conversely, if the S&P 500 and the Dow are building healthy flat bases and remain perched below resistance and if they break out, odds favor that the Nasdaq and the Russell will rally, and the market is in for another move higher. Either way, patience is king.
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Friday, May 9, 2014
A Miner's Tell
Franco-Nevada (NYSE:FNV) is a leading miner that often turns up ahead of the group.
For example, Franco-Nevada bottomed in early December, while Market Vectors Gold Miners ETF (NYSEARCA:GDX) and Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) bottomed at the end of December.
Franco-Nevada chopped back and forth throughout December prior to a clean breakout over its 50 DMA in January. The stock didn't look back, running up a quick 25% that didn't really let anyone on board -- until one didn't want to be on board.
Yesterday, Franco-Nevada left a 180 buy setup, closing at or near session highs following a close at or near session lows on Wednesday (May 7). The 180 buy setup only is good if the stock or index are above both their 10- and 50-day moving averages in order to confirm an uptrend.
If Franco-Nevada can follow through, breaking out above a declining trend line from February and March, the indication is that a higher low was installed in April. If the advance in January through February was a wave one and the six- to seven-week pullback into April was a wave two, then Franco-Nevada may be embarking on a strong rally phase on a successful breakout.
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