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Buzz on the Street: What Traders Are Saying About Yahoo, Seadrill, and Divergences in the Major Indices


A look back at the happenings on Wall Street this week, as seen by Minyanville's contributors.

These articles were originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

Here's a small sampling of the 120+ posts seen on the Buzz & Banter this week:

Tuesday, May 27, 2014

Yahoo to Start YouTube Competitor
Michael Comeau

AdAge is reporting that Yahoo (NASDAQ:YHOO) is getting set to launch a YouTube rival this summer.

According to AdAge, Yahoo is busy talking to high-profile YouTube content creators, and it is upping the ante by offering a higher split of the advertising revenues.

I suspect this won't end well.

The problem is two-fold. First, this will cost a decent amount of money to get off the ground, both in terms of marketing, infrastructure, and revenue shares. But more importantly, Internet users are fairly conservative.

Historically, it's taken a serious improvement to get people to switch to new services. There was Facebook (NASDAQ:FB) taking over for MySpace due to superior usability, and Gmail beating out Hotmail, Yahoo, etc., on a huge improvement in speed and storage space.

It's hard to imagine what Yahoo could add that would draw away the YouTube audience (both consumers and producers).

The big existing producers on YouTube aren't going to give anything exclusive to a new video platform because there are no viewers and, hence, not much in the way of advertising dollars.

And at the same time, why go to Yahoo when you know everything is on YouTube already?

I suspect this could end up like Microsoft's (NASDAQ:MSFT) Bing -- an unprofitable also-ran.

Wednesday, May 28, 2014

Minyan Mailbag: Seadrill
Brandon Perry


What's your take on Seadrill (NYSE:SDRL) as its earnings are released today?

From a technical analysis perspective, it is a bit of a confusing situation. In the short term, it is overbought, so if it "beats," it seems like it would be more of a "fade the pop," rather than a "buy the breakout" scenario. It also is looking like the stock is running up into the old gap zone, and it could easily stall out right there.

In the more intermediate term, the stock's technical show that it is forming a bit of a rounded bottom and should be entering a bull phase soon.
Click to enlarge

On the fundamental side, the company has invested huge amounts of cash flow into capital expenditures. Now, investors get to see if these investments actually payoff into sales. Right now, the company is trading at 3.4 times sales, so a massive spike is needed in sales to get this back to the cheap zone of 2.5 times sales. Remember that Seadrill is a Limited Partnership, not a traditional corporation, so sales are a better measure.

When watching the earnings report today, it is about sales, not earnings.

Thursday, May 29, 2014

Another Washout Low Behind Us?
Jeffrey Cooper

Despite the decline in the Nasdaq-100 (INDEXNASDAQ:NDX) and the Russell 2000 (INDEXRUSSELL:RUT) off their March peaks, there hasn't been a major distribution day of 10:1 down volume in the market since February.

The S&P 500 (INDEXSP:.INX) skimmed its 50 DMA and has not traded below its 200 DMA all year.

The odds are that the mid-April low was not a washout. Odds are that the NDX is scoring a double top and that this is a false breakout in the SPX underscored by Megaphone Tops in both the SPX and the Dow Jones Industrial Average (INDEXDJX:.DJI) and by a divergence marked by the failure of the Dow to follow the S&P to new record highs, at least so far.

Below, see daily S&P and Dow charts from this morning's Daily Market Report [subscription required].
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Friday, May 30, 2014

Jeff Saut

I have been getting more and more questions about a correction recently. While it is true that I began this year armed with the statistic that following a 40%+ rally like there has been since June 2012, without a 10% pullback, the odds for a 5% to 7% drawdown in the first three months of the year were high; and there was a 6.2% dip into the first week of February. I have also said the odds favor a 10% to 12% correction sometime this year. But I have added that I have no idea when it is coming. Of course, that brings to mind another quote from the legendary Peter Lynch. In his article titled "The Fear of Crashing," Peter says, "Sure, a 10% correction is coming. But what happens if we first rally 12% before we get the 10% correction? That means that the high prices you don't want to pay today, will be the bargains that you can't get after such correction." Then there was the idea that there could be a "stealth," or "internal" correction, while the major averages hover near their highs. This thought was expressed in my strategy report dated May 12, 2014. To wit:

However, the carnage beneath the guise of the S&P 500 near its highs has been intense with many of the high-beta stocks off 30%+. As stated last week, the average stock in the Russell 3000 (INDEXRUSSELL:RUA),is down approximately 15% from its recent high, while the average stock in the S&P 600 (INDEXSP:SP600) is lower by almost 19%. The larger capitalization S&P 500 average stock is off over 9%, and the stocks that make up the S&P COMP1500 (INDEXNYSEGIS:SPSUPX) are down nearly 14% on average from their 52-week highs."

And so far, that appears to be what has occurred as the major stock market averages like the S&P 500 continue to notch new highs.

I stated in the report, "However, the carnage beneath the guise of the S&P 500 near its highs has been intense with many of the high-beta stocks off 30%+." This has been especially true in the small cap complex.

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To this point, I was speaking to a small cap portfolio manager recently who asked, "With many of my stocks off substantially, has the small cap complex become cheap?" Now typically, I tend to favor small caps, but while valuations have come down, their valuations are not particularly cheap as can be seen in the three charts below. This suggests tilting towards larger capitalization stocks, which is in keeping with my view that the S&P 500 is going to extend into the 1950 to 1975 zone before becoming more vulnerable to a 10%+ drawdown.,

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Twitter: @Minyanville
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