5 Reasons US Stocks Are Taking It on the Chin
Observations from the front, and a deeper dive into Twitter.
I’m learning to fly but I ain’t got wings; coming down is the hardest thing.
-- Tom Petty
Stateside equity markets opened in the hole today; a confluence of factors contributed to this, including:
Wal-Mart (NYSE:WMT), the world's largest retailer, cut is annual profit forecast after higher payroll taxes reduced customer traffic in the second quarter. We've been talking about stagnant wage growth vs. inflation in things we need (and deflation in things we want) for quite some time; we should keep an eye out for other indications of such.
Tech bellwether Cisco (NASDAQ:CSCO) cut 4,000 jobs; not exactly the type of move you would expect as mainstay market proxies tickle all-time highs. They're not alone; some analysts expect Wall Street to embark on an "epic layoff" that will shed upwards of 100,000 jobs, or 15% of the total workforce over the next 18 months.
George Soros is making a monster bet against the S&P (INDEXSP:.INX). He is bullish on Apple (NASDAQ:AAPL) and JC Penney (NYSE:JCP) -- and dumped gold, as well as chunks of Citigroup (NYSE:C) and Netflix (NASDAQ:NFLX) -- but the SPY (NYSEARCA:SPY) bet is a downside wager, not a hedge against long stock positions. His 13F reveals that his SPY put position is his single biggest exposure at roughly 13.5% of his entire fund.
S&P 1685 -- the trend line that has been in place since November (barring the false breakdown in June) -- is now broken, which removes the long-bias crutch for the technical types among us.
Egypt is getting ugly (the government headquarters was torched; the death toll now exceeds 500), consistent with our tricky trifecta of societal acrimony, social unrest, and geopolitical conflict. On this topic, I’ve given much thought about the third phase of this continuum and believe it may arrive in digital form. Remember, the goal of cross-border conflict isn't death or physical destruction, it's economic upheaval. Given our digital dependency, cyber warfare remains a legitimate threat.
In terms of technical support, S&P 1650 -- the 50-day moving average, as well as former resistance from June -- is where the bulls need to circle their wagons. The 200-day moving average resides down at S&P 1550, for purposes of perspective, and I wouldn't be surprised to see us get there. I continue to hold a handful of (underwater) December SPY puts (the proverbial snake eyes) as we continue to find our way.
The Twitter Revolution, Part Deux
Yesterday, I wrote the article Twitter Legalizes Front-Running in Stocks. Not surprisingly, there was a lot of feedback on the column. A random sampling is shared below.
Question: Carl Icahn, to my knowledge, is not a broker. How is this front-running?
My response: I was not talking about "front-running" in the traditional sense, as this is no longer a traditional tape. There are seismic digital shifts afoot and this is simply an extension of that prevailing trend.
Question: How is [what Icahn did] any different to PMs going on CNBC and talking about their top picks, or you and I posting our trades?
My response: I suppose the answer lies in the interpretation of REG FD ("full and fair disclosure"). To quote, "On August 15, 2000, the SEC adopted Regulation FD to address the selective disclosure of information by publicly traded companies and other issuers. Regulation FD provides that when an issuer discloses material nonpublic information to certain individuals or entities -- generally, securities market professionals, such as stock analysts, or holders of the issuer's securities who may well trade on the basis of the information -- the issuer must make public disclosure of that information. In this way, the new rule aims to promote the full and fair disclosure."
Mr. Icahn is not an issuer -- and technically, he did nothing wrong -- but this opens a Pandora's box in terms of what defines "selective disclosure" (to 52,000 Twitter followers), whether you're an investor or an issuer. Don't think for a second that a LOT of funds didn't sit up and take notice of this situation; what precludes them from touting their positions after they buy them, and then selling into the frenzy?
The issue for the integrity of the markets is that they move in real time, while any legislation aimed at stemming this emerging pattern will take time to implement and enforce.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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