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 Buzz.
Is It Real, or Is It Contra-Hour?
The tape has found a bid at
the latest inflection point of lore
, just in time for today's contra-hour.
(INDEXSP:.INX) 1635 and 1650 are stair-step resistance, and the
last level of lore before the top end of the trend channel arrives
in and around S&P 1700.
I continue to 'trade around' my short bias in the S&P, having
nibbled a bit into this morning's probe lower, but I'm not
overtrading, if that makes any sense. There is a BIG bogie on
Friday in the form of payrolls, so we'll likely see posturing as
that draws closer.
Again, there are two sides -- there are always two sides -- so see
them both, map a probability spectrum and manage your risk (rather
than chasing reward). This is a nutty (and synthetic) tape, so it's
hard to have too much confidence in any one stance, but it's not
impossible if we adhere to the processes that got us here.
Good luck -- and be the ball!
Click to enlarge
Manufacturing Data, Q2 GDP, and Lockhart
This morning the national ISM manufacturing data turned out to be
"somewhere in the middle" of the overshoots of Milwaukee (40.6) and
Chicago PMI (58.7) in both directions on Friday.
New orders (52.3 -> 48.8) and production (53.5 -> 48.6)
slowed down, but prices paid and inventories started to moderate
which is a good sign for manufacturing growth looking forward. The
employment index remained steady at 50.1 from 50.2 last month. I
will have a full preview of the regional manufacturing indexes for
the month to date on the Buzz tomorrow, but thus far the decline
seems to have stopped or in those. Remember that the
non-manufacturing (services) ISM and ADP on Wednesday are the best
gauges of Friday's NFP.
With the above data in hand, it seems to be a stretch that nominal
GDP (YoY) for the Q2 will be above 3%. Under this assumption, the
rates picture seems much more bullish, and some bond funds both
high yield and muni are seeing some pretty historic discounts (that
have become more historic over the last week) to NAV that it would
be advantageous to look at for investment purposes. Granted, there
are also some funds that had pretty obscene premiums to NAV that
are seeing those come back towards reality.
Lockhart was on the tape about an hour or so ago, saying that the
potential for deflation could increase QE purchases, but that it is
an unlikely scenario. He said that he would favor decreasing
purchases at the August or September meeting and that Fed officials
need to sort out the mixed message on QE, but that the broad FOMC
backs stimulus. Interestingly, he said it was not a foregone
conclusion that Bernanke's term would end at the end of this year.
Wrapping all that up, things are likely to be erratic for the next
few months. Given the growth prospects and inflation prospects, I
don't see either picking up enough soon to justify the Fed pulling
back on purchases yet. The market is going to have a point it is
comfortable yet and I think we've overshot in both directions
trying to find that in the past two months.
Click to enlarge
the possible Pivot High in
Note how TSLA accelerated to the downside on knifing through the
prior swing high on 5/14.
The first signal reversal bar from 5/14 saw the stock squeeze
higher, but the second signal bar on 5/29 has the second mouse
getting some cheese.
It will be interesting to see how TSLA acts on this first pull back
to its 20 since it went into overdrive in early May.
Check out the charts below:
Click to enlarge
Click to enlarge
Corrective Pattern Still in Progress?
In the aftermath of yesterday's truncated decline in reaction to
surprisingly weak economic data, the S&P E-mini pressed to a
new reaction low at 1626.25 -- a full 3.5% off of the May 22 high
at 1685.75 -- prior to staging a recovery rally back to the 1635/40
The question now is whether or not the "ISM spike low" at 1626.25
ended a correction, or whether it represented the mid-point of a
larger developing corrective process.
Let's notice that the index has recovered right to the lower side
of its recent breakdown plateau between 1655 to 1640, which remains
In the absence of upside continuation that hurdles and sustains
above 1650/55, my instincts are telling me that any forthcoming
strength represents an "intervening" rally within a larger,
still-developing complex corrective process that will resolve
itself in another downleg that breaks 1626.25 on the way to 1600
prior to completion.
Click to enlarge
The Social Mood of... Bacon?
Yes yes, I'm going to talk about the social mood of bacon for a
brief moment, because it's got this socionomic bouillabaisse of
iconography and psychology swimming all around it.
What am I talking about? Well, let's look at the current
transaction that has had everyone talking: the acquisition of
) by Shuanghui International Holdings Limited. If you have ever
watched the documentary
you know that our food industry has consolidated and grown in size
while the number of food producers has drastically shrank. The
market structures of several other key sectors of our economy, like
telecom, media, pharmaceuticals, and financial services have also
behaved similarly. "Us, everywhere, forever" is the mantra we've
heard as companies grew in size while also reducing headcount and
But if you haven't noticed, our food supply is moving in the
opposite direction: We want food trucks that give us shawarmas made
with locally raised chicken and lamb. We go to farmer's markets
where the produce was grown by someone that may have literally just
picked it out of a field before they got to the market. It's local.
It's small, It's inefficient. It's "me, here, now."
But the problem is, if this is your thesis for a trade, you can't
really do a pair trade that goes short Smithfield and long your
local food co-op, can you? But you can go long
) and short Smithfield on a pair. Or you can use some other large
industrialized agricultural producer as another target. The
risk/return aren't a perfect match since you're talking about a
retailer and a food producer, but you get the idea. People's fear
of "us, everywhere, forever" comes together at the meat and produce
counters of your grocer. Want to revolt against a Chinese takeover
of a US food manufacturer? Simple. Go where you can get bacon that
was made from free-range hogs raised on a farm 100 miles away that
)-based corn and steroids and antibiotics. This is right in Whole
People like to talk about fashion and media trends as well, but
food is what we feed ourselves with both figuratively and
literally. I know the conventional wisdom is to look at food and
food retailers as defensive plays, but in my mind, nothing
expresses our mood as well as food.
Buy the Correction?
Since recording a record high on May 22, the S&P 500 has
consolidated and is now in its third week of sideways drift. The
big question is "buy the weakness?"
The week the S&P 500 made a new all-time high, we counted an
extreme number of buying climaxes. 864 U.S. listed stocks made new
52-week highs, only to end the week in the red. That was the second
highest figure in the past ten years. Furthermore, other key
international regions also recorded similar activity. The U.K.
(INDEXFTSE:UKX) had the highest count in a decade, as did Japan.
Weekly buying climaxes are indicative of trend exhaustion. They
provide strong evidence that the run since November 2012 is over
with topping action now underway. The fact that the high buying
climax reading coincided with news from the Fed regarding
"tapering" as well as bullish calls from
), as reported by Bloomberg at the time, adds a lot of weight to
Climaxes over the past several years have been overlaid onto the
S&P 500. We have annotated the magnitude of market corrections
following the three previous high climax counts in the U.S. market.
Note the size of these: -8% in 2006, -17% in 2010 and then -22% in
2011. So far, since the May high, the S&P 500 has corrected a
mere 4% high-to-low. In comparison to previous high climax counts,
that pull-back number is short of the mark.
A clue that the correction is complete will come from same
indicator, albeit in reverse, with weekly selling climaxes. A new
52-week low is made, but the share then ends the week in positive
territory. A cluster of weekly selling climaxes, forming a mini
bell curve, typically follow a high climax count. That bell curve
will coincide with basing action on the index, with uptrend
reassertion then duly following.
To conclude, we expect further corrective action with lower levels
Click to enlarge
Wednesday, June 5
Apple Patent Issue a Big Question Mark
Yesterday afternoon. the ITC ruled against
(AAPL) in a patent dispute with key rival Samsung.
The ITF ruled that Apple infringed on a Samsung patent, and as a
result, some older products like the iPhone 4 and iPad 2 can't be
imported and/or sold.
That's not a big deal -- the iPhone 4 is over three years old and a
new iPhone is just around the corner. The iPad 2 is over two years
old. And the products in question are only the AT&T ones.
However, there are concerns that Samsung could try to extend the
patent ban to other Apple products, counteracted by the possibility
that President Obama could toss out the ban since it is related to
standard essential patterns, which are usually expected to be
licensed pretty easily and freely.
In other words, nobody knows anything.
But this is a patent case, so what else is new?
Beige Book Observations
Since the data is for the most part backwards looking or things we
already have, the effect is muted.
One thing I picked up on is that the auto sales rhetoric is a bit
more tapered. For a while, the Fed has noted "strong" auto sales.
That has now beentapereddowngraded to "moderate." Not a negative,
but not a good sign considering the exponential growth in subprime
auto lending. Though, SAAR domestic auto sales plateaued in
November 2012 at 12m and have remained around that mark for the
past 6 months, so it's not something we don't already know.
Conversely, housing was upgraded to "moderate to strong pace," but
no surprise given the strong growth in housing starts and new home
Lastly, consumer spending/sales remains designated at 'mild
Why a Drop in U.S. Manufacturing Shouldn't Surprise Anybody
Vadim Pokhlebkin - Elliott Wave International
Over the past 18 months we have discussed the global economic
contraction that was steadily making progress toward the United
While it may have started in Europe, we observed the clear slowing
in China's economy in the April issue of
The Elliott Wave Financial Forecast
and then the spread to our northern and southern borders (see June
Despite historic fiscal and monetary stimulus, economic contraction
has now jumped the border fence, as Monday's release of the most
recent US ISM Manufacturing Index dropped to 49, its lowest level
in four years. A reading below 50 is thought to signal outright
The steady march toward the depths beyond "recession" is apparently
catching most economists by complete surprise. Yet take a look at
this ISM chart: Do you see a trend?
See chart below.
Economists never look forward, only backward, yet even the most
recent reading was "unexpected." Our forecast remains intact: the
manufacturing index will fall much further.
Click to enlarge
Thursday, June 6
Good morning all. As we sit 24 hours before the Big Bad Payroll
number (tic) the trend of rising rates in everything bonds
continues. High Yield rates are now a full 100bps off the bottom,
with the increase in Treasury rates accounting for about 1/2 of
that. The 2yr swaps, the US CDS, and foreign sovereign CDS remain
very quiet, but large US financials CDS have been ticking up. Broad
CDS indices on corporate bonds have also moved up a fair amount.
The latter is what makes broad media news even though it is by far
the least important as we monitor the true state of affairs in
Yesterday new issuance was zero except for a $250MM preferred by
(ALL), but Monday and Tuesday came in at more than $14 billion
total. Hardly a crisis.
All in all, rates are clearly having a correction from lows that
were totally unsustainable and counter-productive to new issuance.
We just can't expect buyers to keep taking bonds that pay almost
nothing. Aside from scary headlines which - make no mistake - WILL
impact equities, there's nothing wrong with the demand for
corporates, even if we were to go into an extended issuance lull
and rates were to go up 100, 200, or 300 bps. from here. So while
stocks could, and likely will, use the action in corporates as a
catalyst to correct (and we know that the sharpest correction occur
in primary moves) there is nothing to suggest that corporate buyers
won't come back to the trough and companies will be handed more
billions to rig their stocks.
For shorter term Minyans, since my long positions are mostly in
Nasdaq related names, I looked at the
(INDEXNASDAQ:NDX) chart with long and short term Fibonacci
retracement levels, horizontal support areas, and DeMark targets,
and these are important areas I am watching: 2939 -> 2917, 2893
-> 2878, 2841 -> 2831, and 2800 -> 2769.
Again, while getting down to 2800 would probably freak people out,
particularly considering that a lot of traders for more than 5
months were gorging on stocks because of the time tested/fail proof
analysis that "today is Tuesday", it would actually do little to
harm the longer trend in place since 2009, and may find even me
arguing that at 2800 the Nasdaq really would look like a buying
Doller Yen Yikes!
What we are seeing unfold in world risk markets (equities,
commodities, and currencies) is the potential unwind of the
dollar-yen carry trade. We have witnessed a sharp decline off the
recent high in dollar-yen, and risk assets are appropriately
responding. Let's see how today's action unfolds. A spike reversal
off highs in gold, crude, and treasuries prices along with a
potential bottoming in the U.S. dollar and equities will largely
confirm the new secular shift into stocks and out of fixed income.
Looking at a larger view of dollar-yen shows a potential double
bottom in 1994 and the November 2012 low. These are the parallels
I'm drawing against. Yes, a sharp rise was witnessed over the
previous 6 months in the
(INDEXNIKKEI:NI225), U.S. stocks, and their respective currencies.
If you are playing with the 2007-2012 playbook, then over
bearishness is welcomed. I'm looking at a longer view and believe
these moves, although near term extended, are just beginning to
break out. In regard to stocks, we got the move from 1575 to the
1690-1700 level and are now back to an area of interest, for me
that was 1610 with a bit of wiggle room. Holding here or slightly
above the 2007 highs confirms my view for 1760. If we are to
continue this fall then the new secular thesis is largely voided,
and we will return to the E wave bear market scenario.
And the winner is...
If a picture spoke 1000 words... you know the drill; we've been
watching this for some time and true to form, we're stuck in the
middle of dueling channels with a monster catalyst tomorrow. The
question, of course, is how psychology is shaping up; estimates for
the change in non-farm payrolls is 163,000.
If we blow out that number--a 300K print, for example--does the
tape scream higher and then fade lower (as taper tantrums take
hold)? I think so. Conversely, if it's a paltry print--a 50K
lot--does the tape get hit before reversing higher on hope (of more
The trickiest print--and perhaps the path of maximum
frustration--would be in-line, and we would quickly hear three days
of volatility getting sucked out of option premiums.
I'm flat directional (SPY) risk, with an eye on adding some
out-month downside exposure from higher levels (or, if the tape
gets sloppy post print, I may re-initiate using the other side of
S&P 1600 as my buy-stop). I do own some
(FB) calls, with a tight stop, as well as another blue-chipper, for
a trade, but they're small potatoes relative to the risk bat of
late. I'll tell you; that was some round trip!
I'm hosting a mid-quarter web-cast for our investors after the
close so at a point, I've gotta gussy up. Fare ye well into the
bell and remember, the definition of an investment should never be
a trade gone awry, and the risk you go home with is what you'll
wake up to in front of the most important economic release of
all-time, that is until the next one arrives!
Friday, June 7, 2013
The Bruce Lee Market
Don't get set into one form, adapt it and build your own, and
let it grow, be like water. Empty your mind, be formless, shapeless
- like water. Now you put water in a cup, it becomes the cup; you
put water into a bottle, it becomes the bottle; you put it in a
teapot, it becomes the teapot. Now water can flow or it can crash.
Be water, my friend.
- Bruce Lee; martial artist, actor, film maker
Recently, this has been the Bruce Lee stock market in that you have
needed to be "water" in order to flow with the movements of the
stock market. This week that movement has been downstream with a
decline of ~5.3% from the intraday "high" of May 22 to yesterday's
intraday "low;" and quite frankly, I really did not expect this
week's 2 Â½ session downside two-step that took the SPX to its
50-day moving average (@1605) where it found support (although the
ensuing bounce came on very low volume).
Yesterday morning's Dow Dive began overseas when Mario Draghi
suggested more monetary easing was not in the cards. Subsequently,
the ECB left interest rates unchanged leading to the euro's rise
against the U.S. dollar, which pressured U.S. stocks early in the
day's trading. Adding to the Dow's consternations was a "flash
crash" in Japan, while Italy also took a "hit" of 2.6%. The
cacophony crested with the senior index shedding about 116 points
into the lunch hour, leaving the NYSE McClellan Oscillator more
oversold than I have seen it in a long time (see chart). And just
like pressing down a spring produces a big bounce-back, a
compressed McClellan Oscillator produced the same result for stocks
Thursday afternoon. This is what I discussed in yesterday's Morning
Tack in that the market typically gives investors a second chance
to be intelligent with their portfolios. The inference was you do
not sell stocks when they are as compressed as they were early in
This morning, all eyes will be focused on the NFP employment
numbers, which should set the tone for the stock market's next
move. If the NFP numbers are favorable, yesterday's upside reversal
should gather steam. If we rally back towards the recent highs, and
fail to make higher highs, then my mid-July point of vulnerability
will get moved close to now. If, however, we do make higher highs,
the aforementioned scenario should play. That scenario called for
higher highs into July and then the potential for the first serious
decline of the year. And make no mistake, if that July swoon
occurs, I think it will be a swoon for buying because I believe
stocks will be higher by year end. Interesting, one would expect
the recent winners to be sold in the pullback since the May 22
downside reversal, but that is not what has happened. Indeed, the
stocks that have been the biggest winners YTD have held up the
best! Surprisingly, the stocks that have been sold are the higher
dividend payers, which is NOT what usually happens on a pullback.
Also of interest is that companies generating the highest
percentage of revenues outside the U.S. have outperformed their
"domestic revenue" brethren. Indeed, "Be water, my friend!"
Hedges On: Is It Time for the 50 day dance?
I'm adding my hedges back here as we test the 1636-1640 level. A
little too deep into that area for my liking, but we can't always
get what we want. It may be time for the market play around near
the 50-day moving average as bulls and bears fight it out for the
next 5% move. Bears will get aggressive lower, and bulls will get
defensive. I expect whippy action the closer we get to the 50-day
moving average. I will hedge up into the downtrend line and take
them off "in the hole". Stops are above the old lateral resistance
and down trend highlighted in the chart. Good luck and happy
How to Trade The Rest of the Day
SPDR S&P 500 ETF
(NYSEARCA:SPY) we have a classic gap open. All day we have traded
above the intraday DMA Channel (yellow band). We are well above
resistance (red) so do not think about shorting here.
The most important line for today now are the one hour ranges. You
might want to be cute and try and scalp a break of the one hour
high (light blue line) or wait for SPY to trade under the intraday
DMA Channel. Typically, a day like today ends with more strength.
You have been warned.
The dashed lines are the 5-minute range. Pivot is magenta. Support
is green. Aqua is prior day two hour high. Brown is the prior day
two hour low.
Click to englarge