Buzz on the Street: Happy New Year!
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.
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Monday, December 31, 2012
Fun With Numbers and Charts
Since the Yen is continuing to weaken, what effect will that have on the US Treasury market? As the Bank of Japan is the biggest buyer outside of the US Fed, what does a weakening Yen mean for one of the biggest buyers of US debt?
As the Yen weakens against the dollar, the total dollar value of Japan's holdings of US Treasuries increases. But at the same time, the purchasing power decreases, meaning total purchases decrease.
So what is the historical basis of the Yen vs Treasury yields? And for that matter, the predictive power of US' trade balance vs Treasuries?
The first chart below is of 5-year Treasury yields vs the Japanese Yen. Pretty good correlation.
The second is of the inverse trade balance vs 5-year Treasury yields. The trade balance partially represents the strength of the dollar, which influences Treasuries.
Click to enlarge
Click to enlarge
CNBC's America's Held Hostage Special
Last night, CNBC ran a special report on the fiscal cliff called "America's Economy Held Hostage." I skipped it because franky, and I don't think I'm alone in this, I've had as much fiscal cliff news as I can handle.
The reaction across the Twit-O-Sphere (our modern version of the market water cooler/tape) seems to be that it's a sign of a bottom -- and with the market up the way it is today, it might be.
The last time CNBC ran a big special was on June 3, when it played "Markets In Turmoil."
Incidentally, the S&P 500 (INDEXSP:.INX) put in a bottom the next day at 1266.74, and since then, it's been up about 11%.
However, keep in mind that CNBC ran a "Market In Turmoil" special on August 4, 2011 that preceded a 10% declne in the SPX.
So be careful in being too quick to call CNBC's special a sign of capitulation!
Anonymous Tweeters, particularly those that focus on copying & pasting from ZeroHedge (you know who you are) love to make fun of CNBC, but it's important to see both sides.
Buzz Op-Ed: I Got My Apple Pipe...
Good morning Buzz fiends,
Everyone's favorite fruit company may have a case of bad Apple's (Nasdaq:AAPL)… For any of you that have tried to trade this tart lately, it's proven to have been a bit tangy (ahem, speaking for myself anyway). Due to so many global forces affecting AAPL stock, the price action can throw lots of curve balls, each with a motive of its own. In my time as a professional trader, I must say that AAPL is one of the most, if not the most difficult stocks to trade over short periods (notice I said "trade" not "invest"). Sitting here in my office on Sunday morning, the chart appears less of a forbidden fruit. Thus, Monday shall be a different story with Fiscal Cliff headlines and politicians who won office campaigning to American's heartstrings, whispering sweet nothings regarding dastardly important issues of which they have debatable comprehension. I digress…
The price action in AAPL over the last two months has been nothing if not impressive in my opinion. The fundamental story is there and it makes perfect sense. However, AAPL has never traded fundamentally in recent memory. Even as the largest publicly-traded (non-government partnership) company in the world AAPL, has trailed the S&P's PE ratio since the introduction of the first iPod. AAPL just can't get no love from the street. When it does, it seems the move is nearly over. Although I have my doubts in their ability to serve a new revolutionary product (in comparison to the first iPhone) over the next five years, the user infrastructure is designed flawlessly in keeping customers engaged with the brand. x + y = constant high margin revenue stream for years to come. All this aside, Honey Badger don't give a (Editor's Note: Insert your own expletive here).
In the one year daily chart below, King AAPL appears to finally have his crown. But, I'm not so sure this is what esoteric financial professionals claim to be a "Head & Shoulders Top," at least not yet anyway… AAPL has simply refused to break the "Neckline" of which the implications are unfathomably bearish for the near term. If AAPL is to do so in the coming days or weeks, I could expect price to fall as low as the $325 handle in short order. I know, I know, unfathomable.
Further, the volume signature throughout the last year's H&S topping pattern is inconsistent with what technicians look for as confirmation of the formation. But, Apple is full of tricks i.e. bouncing just before filling a gap, 300% ATR spikes in the face of doom, ambi-turning, you get the picture. If we are to look only at price action and ignore the personality of this electric snake, the Elliot Wave count would seem to suggest a 5 Wave structure has already occurred or is in the process of being finalized. I'm not convinced it's complete.
A normal projection of EWave 5 is 100% of EWave1 or the $425 handle which nicely coincides with filling an open gap from last January. Should a contracted EWave 5 be observed i.e. 61.8% EWave1, I would expect price to bounce before filling the gap around the $440-$450 handle. That's "if" an EWave 5 is actually observed; sometimes EWave's act like Honey Badgers… Around $475 there's an unfilled gap that should magnetize price should it come close and $500 has worthy support in price, neckline, and neutral trend channel placement. I would wait until $490 is broken on volume before being naked short on that meat-hook.
For the Vegan Bulls, I hear you cringing at yet another carnivorous bear call on AAPL and sympathize. However, if the herd were more often correct than not, this would be a much simpler profession. I commend your resistance of mediocre groupthink and am not convinced your next parade isn't just around the corner.
Considering panic sell-offs are notoriously short lived, something as benign as another flash crash could satisfy the technical criteria needed to move forward. Granted, it isn't very likely it will happen this quickly, but through the lens of time it may feel just as insignificant. If not, hedge accordingly and live to trade another day. Although resistance lie just above in the $525 - $530 level, should price somehow breach through I can see $575 being tested without much thought. With price where it is currently, I am tempted to say there's nearly a 50/50 outcome as to if Bulls or Bears reign. In the larger picture, I do not believe the highs are in for the year on the S&P 500. My SPX target is 1520 on the low side and 1611 on the high side before the ascent from the 2009 bottom is complete. If this hypothesis has any merit, it's unthinkable that it could be done without AAPL at or near new highs.
Trade well my friends,
Tuesday, January 1, 2013
MARKET CLOSED FOR HOLIDAY
Wednesday, January 2, 2013
Good morning and welcome to the new year and a fresh start in the City of Critters!
Despite spending the last week in bed fighting off an amalgamation of the ailments that everyone in my family accumulated over the last month, I'm still not 100%. As such, I plan to work from home today--and rest as I can--and head back to the big city tomorrow for a series of meetings and interview. I look forward to a big-time 2013 all the way around, and thank you in advance for sharing the journey with us.
A few items, in no particular order:
On Monday, I took some time to review our 2012 Ten Themes; some were wrong, some on point and some unfortunately proved correct. I've recapped them here, if you have an interest in sneaking a peak.
I also scribed my annual list of "Things I've Learned," which thankfully grows in kind each year. That list is here and (quite hopefully) it is in no way comprehensive.
Looking forward not back--cause that's how we roll in these parts--the bulls have the tape by the horns the last few sessions. After the S&P (INDEXSP:.INX) dropped from 1450 to 1400 the last two weeks of December, it's poised to open today somewhere in the neighborhood of...yep, 1450. That's 100 S&P handles in a month, if you traded it correctly, or death by 1000 paper-cuts, if you were a step slow.
Obviously, the next "Single Most Important Catalyst in the History of the Market" is a scant two weeks away, when politicians square off on whether to raise the debt ceiling (remember that?). Along those lines--and with a knowing nod to the devolution of social mood--John Boehner told Harry Reid 'Go F--- Yourself" Outside the Oval Office yesterday, according to The Atlantic Wire.
There is fresh chatter (thank you MS on the Buzz) that speculation abounds that Fitch may downgrade the US credit rating, citing a Dec. 19 report from Fitch warning that if any part of the fiscal cliff deal hits, the US would suffer a downgrade. I know the bulls aren't even thinking about any sorta pain in the near-term--and this may or may not happen to begin with--but it's worth seeing both sides whenever you trade risk.
For my part, I haven't done much with my pad into year-end 2012; I locked in a good year, took most of my money off the table and held steady with a handful of situations (that have been yawners of late) and a smallish spate of S&P out-of-the-money February puts (which, in the round trip we've seen, have simply dripped time decay).
I'm not gonna chase, fade or otherwise get in the way today, at least in the first hour or so as the expiration hangover subsides and emotions subside. I am looking forward to swinging the risk bat again but that doesn't mean I have to blast for the bleachers on the first pitch.
As always, I hope this finds you well.
Happy Fiscal Cliff New Year
The rally in markets over the past two days means one thing and one thing only -- traders were NOT prepared for Washington to actually pull through. The surprise was always to the upside as I aggressively noted on Twitter using intermarket trends as my backup. Market internals remain positive, and I suspect the U.S. will stage a period of near-term outperformance to play catch-up with emerging market stocks, which fared very well in December.
Could equities move up in an unrelenting way to new all time highs? Certainly possible given the lack of participation by retail investors, and continued disbelief that despite the supposed eurozone breakup, Mayan end of world, and Fiscal Cliff insanity, we're all still here. What is important to remember is that a very marginal increase in demand can push stocks up given continued share shrinkage through company buybacks. In other words, it won't take much for markets to breakout in the first quarter. I suspect deterioration kicks in sometime mid-February as internals prepare for the debt ceiling fight.
Next Big Product Calls for Smartphones and Mobility
Ok short and sweet here as trades are running left and right...
The next "It" products for smartphones in Tech Luminati hands...... that's a drum roll. Near-term I'd have to say that the new Research In Motion (Nasdaq:RIMM) BB10 phone, the Z10 (or Zed 10 for the English fans out there), is going to be the edgy, fun, "cool" smartphone in the first half of the year. I still see RIMM penetrating its own sub base for the duration, but if they are going to gain some incremental consumer, early adopter and Tech Luminati share it's going be be fairly early in the products launch.
In the second half of the year, we should see the "battle of the curved screens". If we see the Moto X, or Moto Nexus device in the second half, that will become the next big thing in the Google (Nasdaq:GOOG) Android world. The only rub for the Moto Nexus could be if it stays a "Verizon only" launch. For Moto to really sell massive device numbers, they will need to start selling a GSM based 4G variant for the Moto Nexus and I think they will. But they likely could still give VZ a 3-6 month exclusive period. Bottom line, look for explosive Moto sales growth on any Nexus type product release.
The other "curved screen" phone should be the next iPhone. I was personally underwhelmed by the last two iPhone refreshes, but that could change with the next version. Time will tell, but I do think the next iPhone should have the "radicalized" look that I have been waiting for. This will in all likelihood keep the AAPL fans fawning over the device and maintain share.
Lastly, mobility is set to move to wearable devices. I don't see anything that will challenge the Google Glasses in the near term, especially if they can release the product into a lower price point sometime in 2013.
Thursday, January 3, 2013
If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative.
Over the last two days, the market has witnessed a spectacular move. There is unison in moves in mid-caps and the Russell 2000 (INDEXRUSSELL:RUT), as these indexes powered to new all-time highs. (Please see a chart of Russell 2000 attached below)
Dow-Transports (INDEXDJX:DJT) are also within a stone's throw from 2008 highs. The backdrop as defined by Advance Decline line is also robust, as the A/D line is keeping in sync with the current advance in the market.
Given that most hedge funds seriously underperformed last year, there is a possibility of continued upside momentum in the intermediate term.
In the short term, there is a possibility of a retreat. A minor, docile pullback will be actually good for the market.
Click to enlarge
Now's Your Metals Entry If You Missed the Fiscal Cliff Move
Again, like seasonal clockwork, January 3 is a bloodbath. This one wasn't that unpredictable after the rapid advance. I am seeing Silver (NYSEARCA:SLV) in the 30.40's and Gold (NYSEARCA:GLD) in the low 1660's. If you're looking to take a good risk-reward stab, you got your shot.
January can be one of the best months for gold and a major rally can start any time now. I have a feeling it starts sooner than later (as in tomorrow, although there is some event risk with unemployment report). I am a buyer here. I refuse to believe the sentiment is this poor in the face of political incompetence, $85B per month of money printing, debt ceiling raises, etc.,etc.
The Year of the Italians?
Happy New year! Buon Nnno! It's always nice to see the markets getting going early in the year. I was chatting with the Tech Master Sean Udall today poking around at various charts and this one really caught our eye.
Italy (NYSEARCA:EWI) is really looking set to break out with a nice inverse head and shoulder pattern. If it can get over this 13.50-14.00 area, we could see a measured move to 18-ish which is a nice prior congestion area. On the fundamental side, we have declining interest rates, a recovering euro zone, and have you seen the 2013 Ferrari?
So put down the Champaigne, pop the Prosecco, and let's Bunga Bunga like its 1999!
Click to enlarge
Friday, January 4, 2013
Jobs Report Tidbits
-The unemployment was one one-thousandth (7.849%) of a percent from ticking to 7.9%, but at the same time, November's revision was only three one-thousandths (7.753%) into 7.8%.
-The participation rate remained unchanged at 63.6%, but the labor force grew by 192K to 155,511mm.
-The average duration of unemployment dropped markedly to 38.1 weeks from 39.7 weeks. The 3-month average is 39.2 weeks.
Note that since the NFP report, Gold has regained about 1% to 1647.50. It was down as much as 42 points this morning. This is obviously due to the falling dollar, putting the EUR/USD in positive territory and the USDJPY dropping to 87.70 from 88.40. Bonds have also recovered some, but were very erratic in the trading following the report.
Bonds Ready to Bounce Up
Bonds have taken a hit over the past six weeks, with the rise in yield accelerating over the past three days it now looks oversold in the short term. Yield on the 10-year hit 1.97% which would be an 8 month high. I think the 2% level will provide both technical and psychological support in the short. I'm looking for bounce and buying a spread in iShares Barclay's (NYSEARCA:TLT).
Everyone, myself included, believes we are finally coming to the end of what has been a near 30-year bull market for bonds, but that big unwind and reallocation probably still won't occur until some point in the future. And despite the FOMC minutes that indicated some members would like to curtail QE sooner than later, it's simply not happening in the next two weeks. For now the Fed is still purchasing $45 billion per month (and yes distorting the market) and money managers are not only still hunting for whatever crumbs of yield they can find, but are also somewhat price insensitive as financial crisis still haunts them into the need for capital preservation. This is the first time in two years I'm taking the long side of a bond trade, and a trade is all it is, but I think this entry offers a good risk/reward.
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