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.
Here is a small sampling of this week's activity in the
Breakout Failure on the S&P? Take Some Notice
(INDEXSP:.INX) took out some momentum levels today that could
cause a bit of concern. I like to trade individual names for
break outs through key levels, but if it turns into a "breakout
failure," I take notice.
The S&P broke through a key level last week -- 1573-1576 --
and pushed up to 1597. What that does is, it squeezes shorts that
have been rolling them up and it also baits in those who feel
like they might be missing the move.
What is important after a breakout is measuring the validity of
the break out. If it fails to hold and turns into a bit of a
trap, take notice. So when 1574 gave way, I used it as a
high-level stop on some positions. We are holding to 1562-ish by
a thread, which is the 21-day MA.
The accelerated weakness in the commodities also has investors
rattled and hearing footsteps. All-in-all, one of my rules is
that I don't like to buy on Day 1 of a wide range engulfing bar,
which is what we have today.
The last few times this year it happened this way, it didn't lead
to much. I'd rather watch from the sidelines a bit.
After a harsh day like today, everyone will start chirping about
what type of correction we might see. At this point nobody knows,
but you don't have to know if you're flexible and measure levels.
Buy the Dip?
It looks like there have been multiple attempts to buy the Dip
today. Here is my attempt at tracking on them on the S&P 500
today. While partially tongue in cheek, there is an element of
truth to it.
We had weak economic data out of China, Europe isn't resolved,
why this time QE will work for Japan is anyone's guess, and we
have had a series of misses on the data side and so far earnings
don't look that great relative to how healthy the economy
We continue to view 1,500 as a target on the S&P 500 and
think 1.60% is reasonable on the
Given the number of people I have heard today explaining how the
US stock market is the best place to be (in spite of record
highs), I think a quick shake-out is a real possibility. Maybe
the DIP buyers will win, but if they aren't winning by 3:30, look
for an ugly close as some decide to cut, and it is hard to look
at the volatility in other asset classes and assume that US
markets are safe from it.
Click to enlarge
Between the Ticks
(INDEXDJX:DJT) are both back below their 50 dma's.
The quick recapture and subsequent give-up of the 50 suggests the
recent rally in both were test failures of their respective
This is a sign that the S&P back below the key 1584 'square'
is probably a significant event.
Tomorrow the S&P will likely turn its 3 day chart down in
carving out 3 consecutive lower lows, something that, believe it
or not has not happened all year.
If this plays out, and the index continues lower/accelerates
lower it will coincide with a violation of a prior swing
high---the March 'flat line' or Slim Jim.
This is something that has not occurred since last fall when the
S&P stabbed back below the prior June pivot high.
More importantly, as shown last week, trade back below the March
flat signals a Boomerang sell signal, the same pattern traced out
) at its September high.
Click to enlarge
The Legend of Turnaround Tuesday
Gonna keep this quick anddirtyclean as time keeps on slippin'
slippin' slippin' into the future.
If there is margin selling out there today, it's in the
(NYSEARCA:GLD) complex, which is now $35-$40 off the best levels
of the session. Meanwhile, over on the path of maximum
frustration, stocks are trading at session
, seemingly impervious to
the correlation we flagged this morning
(note: this isn't a daily "one-beta" dynamic; it's broader than
While I strayed from my discipline earlier--I was off the desk
when my buy-stop was triggered on my second lot of 25%--I am
going to sit tight with my current posture, which is now
50% of a full
This, of course, was rounded up from 5% exposure on the opening
after I punted 95% of my risk into yesterday's red mess.
There is a school of thought that you can't time the market and
perhaps there's merit to that, with upward of 70% of volume
coming from R2D2 and C3PO. Still, my game-plan is to trade around
a short bias under S&P 1580-1600 and I'll continue on that
track until such time I'm stopped out or (perceived) conditions
change. It could, of course, be worse--
it could be raining
--so keep your right hand up and your spirits high as we continue
to find our way.
May peace be with you.
ES Loses 2013 Support
(SPX futures) back under 2013 trendline support, so far
confirming that April rally was a bull trap and Q1 trend is being
reversed (chart). Bulls need a close above 1568.50 to negate that
Click to enlarge
This morning's census data release of housing starts appears to
show a "surge" in demand for apartments.
Actually, not really.
The chart below is a comparison of single-family and multi-family
starts since 1964. Since 1994, apartment construction has been
below historical trend as the mortgage market opened up to
households who were always (and should have always been) renters.
Consequently, apartment supply was insufficient coming into the
financial crisis. The latest increase in apartment construction
barely gets us back to the anemic pre-crisis levels.
Supply always is and will be the enemy to apartment markets, but
we have much further to go (in most markets) before that becomes
an issue. Any stimulus is good, but the economic stimulus (i.e.
multiplier effect) from apartments is much less than
single-family houses. Is this good news? Yes, but not as good as
many may believe.
Lastly, look at the single-family line… We are still at the
lowest levels in 50 years. If a renter cannot get a mortgage for
a home today, what will happen when rates rise?
Click to enlarge
Deflation Pulse Beats Faster
I put up a
on Minyanville addressing the idea that the market seems to think
$85 billion per month is not enough given now very clear
deflationary behavior underway. Stocks have nowhere near priced
in just yet on an absolute basis the severity of the deflation
pulse in nearly every other area of the investable landscape. The
collapse in relative price of
small-caps must be respected, alongside bond yields, which
indicate a major flight to safety is under way.
While the fear is on a continuation of gold's decline, I believe
stocks are now the most vulnerable risk asset. So I continue to
be cautious here, and I encourage you to check excerpts of the
coming re-release of my father's book discussing bear market
. This is how major declines can happen, when price suddenly
realizes that the conditions are very different than what most
Our ATAC models used for managing our mutual fund and separate
accounts continue to profit from the deflation trade, waiting on
the next fat pitch. The compression of the yield curve is quite
telling, and should not be ignored.
How Far Will This Apple Fall?
With today's price action, Apple runs the risk of breaking
horizontal line support (created by the lower edge of the upside
gap from January of 2012 and the short-term lows from earlier
this year) at $420.41.
However, if you take a look at the wider view of AAPL, it could
be a "normal" long-term downside correction for the stock. By
"normal", I simply mean it may be nearing the end of a larger
"ABC" correction to the downside. The wave "C" support level
comes in at $390.90. Given it is a long-term correction, it's
tough to assume that the support will be exactly $390.90 - so
give the stock a little leeway around that level.
If the stock can find some solid ground at or near this $390
support level, it may be a nice reward / risk entry point for
prospective bulls. I would probably use a stop-loss on any close
below $385. In all humility, though, you should take all of this
with a grain of salt as it's coming from your friendly,
neighborhood forex / bonds / commodities specialist.
Click to enlarge
Reloading on the Short Side
I'm not one to press -- at least I don't
I am -- but as I look around the financial landscape, and the
inability for the breadth to improve with the futures, I've
reloaded on my SPY September Puts (to 50% of a full position)
with a stop above the trend-line (that has been in place since
November). Through my lens, that comes into play in and around
S&P 1558, so it's relatively tight and defined as these
Markets that are weak all day with 2:1 negative breadth (or
worse) tend to end that way; and if I'm wrong, and Snapper
sizzles the shorts, my risk is a few handles.
Click to enlarge
Holding Microsoft Into Earnings
) reports earnings after the close today, and I wanted to quickly
run down why I'm holding
my $28.50/$29 call spreads
into the report.
First things first: the PC industry has been a total train wreck
since even before Windows 8 was released. But
everyone knows that
, and since analysts keep cutting earnings estimates and target
prices, there's a nice negativity bubble surrounding the stock.
Secondly, while PC sales are pretty, Microsoft's enterprise
business is pretty strong, and the company still generates a ton
of cash flow. Plus, the 3.2% dividend yield makes the stock
attractive as an income play or even as a corporate bond
) recently reported so-so earnings and guidance, and the stock is
up since then.
And to make a profit, I don't need Microsoft to go up much -- at
$29 I'm at maximum profitability on my trade, and I think
Microsoft can rally to $29 in short order, even on a mediocre
quarter with mediocre guidance.
Longer-term, I don't have a ton of confidence in the stock, but I
think they'll hang on in the near-term just fine.
Somethin's a-Brewin' in TIPS
5-year TIPS auction
was pretty atrocious, and I say that because the discount that
was priced in over the past month didn't even make a difference.
You might call this auction a
. The reason I say that is because indirect bidders, who
submitted their relatively average $8.267b worth of bids, got
99.88% of their bids.
That is simply unheard of in any Treasury auction. Remember, for
the most part, indirects, or foreign government sources, aren't
buying for economic reasons. Directs didn't even bother showing
up. In the post-auction trade, it looks like whatever dealers got
they just dumped it right down.
I can't figure out if this is FX related, i.e. rebalancing after
the Yen selloff or the "real asset" hedge getting unwound - TIPS
have been a favorite trade for those seeking protection from
"central bank money printing". Regardless, the trend is very
clear, there is a move away from real assets. So I'm going to
noodle it some more while I look back at some historical auction
Levels of Lore
This is an important zone for the market; the S&P 50-day is
'right here, right now' and the S&P 1540 is a level
we discussed at length yesterday
Market breadth is now 2:1 negative (this is why we don't count it
as a tell until 30 minutes have passed) and the financials are
(INDEXDJX:BKX) -1.1% vs. SPX -.6%).
early, but keep your eyes peeled and your right hand up as we
continue to find our way.
As I will be making the commute into the big city in an hour or
so, I have covered my remaining short-side exposure into this red
mess (I abhor blind risk). Please remember that we each have
unique time horizons and risk profiles.
Friday, April 19, 2013
Apple PnF Points to $320
On December 10,
a PnF chart of Apple pointing to a $310 price target and wrote
"Jefferies lowers their price target on Apple to 800. The PNF
chart lowers it to 310."
Here is that same PnF chart updated, pointing to 320, only a
slight modification but keeping the longer term investor focused
on the real trend. The great advantage of PnF charts which work
well with stocks, but not so well with Indices).
Click to enlarge
Turning It Around: Now Shorting Microsoft
Now that I'm done with my adventure
on the long side with Microsoft, I'm back in on the short side.
I'm looking for some negative market exposure, and now that the
stock's had a bit of a relief rally, I think it's set to stall
out as people once again focus on lousy PC industry data and the
company's weak position in mobile. And it certainly helps my case
) is dropping out of the bidding war for
), with one factor being weak PC sales (though Microsoft has a
quite a strong enterprise business, the PC business dominates the
I'll stop myself out at $30.30-ish should the stock move against
me. This is a pretty tight stop but I have no patience for
losses, especially on short-term trades. If I'm wrong, I can live
with being wrong in a small way.
LinkedIn Hovering Above Recent Support
(LNKD) is beginning to look tired, it is hovering above a
confluence of important near-term support, so we'll give it the
benefit of the doubt for now.
This support includes:
1) The higher lows trend line
2) .618 Fibonacci retracement
3) 50-day moving average
Note that although the stock price entered a period of
consolidation, it is still 40% above its 200-day MA.
Click to enlarge