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.
Bull Setup in the Russell 2000
An inverse head & shoulders has emerged in the hourly chart of
Russell 2000 ETF
(NYSEARCA:IWM). A conservative measured move targets the $99
handle. The Gann Fan shows support just below current price with
resistance and target aligning around mid month (options
expiration). To this point, each of these setups in IWM has
more/less achieved its measured move objective. I'll be keeping an
eye on Gann support (middle aqua line) as an indication the
formation is failing if breached. Other that that, it is looking
like a good long entry right here.
Have a great week!
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Cyclical Rotation Underway?
Friday's payroll data and monthly revisions seems to be serving as
a near-term catalyst for a move out of dividend sectors into more
cyclical areas of the market. Our ATAC models used for managing our
mutual fund and separate accounts rotated into equities, which have
failed to participate on the upside and are more pure plays on
cyclical strength, particularly through Emerging Markets.
As of this Buzz, utilities (NYSEARCA:XLU), consumer staples
(NYSEARCA:XLP), and health care (NYSEARCA:XLV) are all down sizably
relative to the
(INDEXSP:.INX), and bonds (NYSEARCA:TLT) are not bouncing following
Friday's sharp sell-off. It remains to be seen if this will stick,
but if money is selling defensiveness in favor of true reflation
trades, then stocks outside the US, and commodities could see
leadership ahead. If the yield curve is about to steepen in a
meaningful way, putting an end to the deflation pulse I have been
noting since the end of January, then the fat pitch might be here.
Since the April 19/385 square-out in
), I have received many inquiries regarding where resistance might
Since exceeding 180 degrees up at 425 and its 50 dma, AAPL ran
right to 445, which is 270 degrees up.
360 degrees up from 385 is 467.
At the same time May 6, is 90 degrees square 463.
The bottom line is that there is substantial resistance right here,
That doesn't mean AAPL won't/can't play right through this level,
but the odds are it will react to this confluence first.
EUR/AUD Looks on the Verge of an Impending Move Up
After having been in a one way downtrend over the last 4 years, we
could be seeing a basing in the EUR/AUD in preparation for a
sustained move up over the next few years.
The possibility exists that on the back of the calls for rejection
of austerity growing across Europe and following the aggressive
actions by the US and Japan to revive their own economies, Europe
too attempts a shift to "growth mode" over the next few years.
Australia on the other hand is struggling with the double whammy of
a strong currency and weakening exports and the rate move seems
clearly intentioned to weaken the AUD.
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Yes I'm Free... Free Falling
Good morning. The crushing of credit and credit derivatives spreads
continues this morning, both here and overseas. To give you a
sense, here are just some of the numbers just from the beginning of
) CDS: from 89.5bps to 80.6bps
Merrill Lynch CDS: from 112bps to 92bps
) CDS: from 141bps to 125bps
Italy's CDS: from 250bps to 233bps
Spain's CDS: from 242bps to 217bps
New All Time Lows in HY spreads: 502bps
Retest of All Time Lows in I.G. spreads: 123 bps
US CDS: from 39.4bps on April 4 to 31.4bps today
What this spells is a frenzy to lend money and when the capital
structure underneath equities is in a frenzy, it is impossible to
keep the excitement from rising to the upper layers. Is this a
I tried to address that using DeMark indicators.
If you want to worry about something, look at the 3 months
Volatility Curve. For what seems like forever, equity players have
been betting on a spike in the
(INDEXCBOE:VIX) by buying out-months contracts and financing them
in part by selling near-month ones, creating a very steep curve.
With the VIX dropping below 13 again yesterday, the curve remained
remarkably quiet as if traders are giving up on the idea that a
sharp drop in stocks is inevitable, but just not yet. Through
contrarian lenses of course, perhaps that's what we need for the
much awaited pullback -- the expectation that it just won't come.
The Rally is in the 10s!
The 2s-10s spread is starting to widen over the past few trading
days, signaling risk-taking. Volatility and no sell-off while the
spread tightened from mid-March through April is a sign of
correction through time, rather price. The TLT:SPY ratio is falling
fast, and clearly seems to be in a C decline.
My view is that TLT could be in the low 100's by summer trading.
After this initial decline, those that missed the bond entrance,
could be provided a second opportunity to enter as the SPX looks to
make a minor wave top in the 1632 area.
There is virtually no chatter on Apple having bottomed out. The
tone remains bearish in spite of the impressive rally over last
couple of weeks. This is a bullish indication and I would use the
pullback into and after the dividend date (5/9) to purchase. I view
the stock trading $500+ in the near future. With that said the run
into the 100 SMA was a good spot to lighten up on and let it
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The lead line in a
Marketwatch story this morning on Nouriel
is "Stocks aren't in bubble territory, but they could be headed for
a big crash". The story then goes on to say that a "huge rally in
risk assets over the next two years could be setting markets up for
a major sell-off."
Yesterday noted bear Jim Rickards
, "To clarify, I called stocks higher since last year, time
stamped. Just because it's a bubble, doesn't mean you can't make
This morning Barry Ritholtz
(Editor's Note: there is some 'colorful' language contained in
this blog post)
his two cents with "This indifference is not the sort of thing
typically seen at tops."
"As we have been saying since 2009, this continues to the most
hated rally in market history. Until that changes, I suspect it has
farther to run..."
Bulls and bears alike are now of the view that whatever this market
is (and love it or hate it) it is not overloved or overowned,
therefore it must still move higher from here.
But I would note that everyone's perception of what THE market peak
must feel like is grounded in 2000 and/or 2007. "Now those were
The idea that THE peak could somehow sneak up on the market is
laughable to market pros today. "Tops feel and act like tops! And
this ain't one."
I don't pretend to call tops and bottoms, but the recency bias that
I see today is palpable. Because it doesn't yet feel like THE peaks
of the recent past, it can't be one today. Therefore the market
must keep going higher.
What I know from history is that tops are defined by the moment
when everyone believes the market will continue to go higher, no
matter the justification/rationalized thinking.
Today the justification - from bulls and bears alike - seems to be
that we aren't at a 2000 or 2007 bubble top yet. The market must
continue to move higher until it feels like it.
2000 and 2007 were just two of the hundreds of major market peaks
over the past 100 years.
At the end of the day, just because it doesn't feel like either one
of those may not matter.
Just food for thought.
The auction was weaker as we expected, and the 4.5bps roll seemed a
bit excessive even. Directs were also well below average, which I
attribute to record high allocations to Treasuries over the prior
With the roll into the new issue, we'll be closer to the
1.82%-1.83% area I was looking to buy.
Remember that good auctions tend to culminate bullish moves, the
inverse being true for poor auctions.
Eyes of the World
Technical Analysis 101 dictates that the time to buy a breakout --
much like the time to short a breakdown -- is on the retest of that
level. That seemingly sets the stage for a re-test of S&P 1600
per the chart below, although the price action remains pristine.
The definition of an investment should never be a trade gone awry;
heck, I think that is one of our
Ten Trading Commandments.
In a perfect world, those are set in stone; in an imperfect world,
they are 'glossed over' to prove a point. In the
world, one where all you have is your name and your word, life is
I covered a bunch of my short exposure
before my surgery, I didn't punt
of my S&P September puts (
I tried to do so late Wednesday but I couldn't connect to
my wireless trading platform
). It's not the size that matters; it's the principle, and the
Trading Gods have again reminded me why discipline must always
Interestingly, that one-off broken position has a green P&L
today despite the rally in the markets. That can only mean one
thing, an uptick in implied volatility. That, perhaps more than
anything else, is the most curious thing on today's screen.
Yesterday we noted the slippage in gold while offering, "commodity
volatility typically precedes equity movement." Today, the yellow
metal has recaptured those gains and then some, and I would be
remiss if I didn't note the price action in my persistent battle to
12 Cognitive Biases that Endanger Investors.
Before I headed into HSS, I recorded a web-cast of what was to be
my presentation at
Social Mood Conference
in Atlanta. We'll be publishing that shortly in Minyanville and I,
for one, find that entire dynamic fascinating.
Thanks and as always, I hope this finds you well!
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This week/next week shape up as very pivotal in my work.
An idealized target of 1639 to 1641 shapes up as 1639 squares
today/tomorrow and there is a measured move to 1641.
Checking the Square of 9 Wheel, I noticed that one full rev down
from 1641 gives 1483.
This proves the geometry because 1483 ties to the 1485 February low
which was NINETY DEGREES in time from last February's low.
So here we are approaching 180 degrees in time from the November
low and 360 degrees up in price from the November low.
At the same time, mid-May is the anniversary of the birth of the
Before you give short shrift to anniversary dates, it is worth
considering that the pre-crash pivot high in 2008 occurred around
this anniversary. Ditto the high in 2007 occurring on the
anniversary of the 2002 low and the test failure high at the end of
August 2000 rhyming with the September 3, 1929 high.
Understanding the Apache Announcement
I have long loved
) and their management. They are by far, one of the most efficient
managers of their capital structure in all of Oil Exploration and
Production. They buy distressed assets on the cheap when other
companies are struggling. You could almost say they are the Warren
Buffet of E&P. When I hear announcements like today, my ears
perk up. Today they announced a $4 Billion asset sale, of which the
proceeds will be used to reduce debt and buy back shares. This is
good for the company in the long-term as it will make the balance
sheet more attractive, reduce lagging assets and boost Return on
Equity that has struggled at a measly 6-8% the last several years.
It also allows them to keep credit lines free for additional asset
purchases should prices fall and be positioned to issue additional
equity if it is necessary.
However, from an industry perspective this is concerning. This
eerily reminds me of
) recent announcement where Leon Black said "We're selling
everything that is not nailed down." While I believe that Apache is
doing the right thing here, I am concerned with what it means for
their outlook for oil prices. From a long-term perspective, this
makes APA an attractive stock as I believe it will be much higher
3-5 years out. Short term, the stock is extended, oil prices are
extended and it looks like they are preparing for lower prices. In
the very near term, it looks like more of short to me with the
overbought nature via RSI and outside the upper Bollinger band, as
well as the potential for rejection at the 200 day moving average
from underneath. I may take a quick short here, but want to see
full rejection at the 200 day. The target would be the 50 day
moving average at around 75-ish.
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Utilities Get Sucker Punched
The deflation pulse has most benefited dividend sectors the most,
particularly utilities, consumer staples, and health care. I noted
in my latest
that sharp cyclical rotation appears to be underway, with utilities
as of late taking the brunt of the selling. Valuation are stretched
in the sectors across the board, and recent weakness is indicative
of major repricing beneath the market's surface.
With the Bank of Korea, Reserve Bank of India, Reserve Bank of
Australia, and the European Central Bank all cutting rates, bets do
appear to be rising that inflation expectations could rise from
depressed levels, in turn lessening the appeal of low growth
sectors. It is possible that a V-like move occurs in defensive
trades given the sharpness of the decline, but this is likely no
longer an area to make an aggressive bet on in the near-term.
Friday, May 10, 2013
Bernanke's Speech, Why It's Important
So there's been a lot of chatter back and forth about the
significance of Bernanke mentioning the concern over asset bubbles.
This isn't the first time that Fed governors have mentioned the
reach for yield or bubbles. Back in February the
first to lead into
was board member Stein, followed by Williams and
. It's important because it's the first time Bernanke has mentioned
it; usually the rest of the board members/governors will "prep the
market" first. It was also within the minutes from the last FOMC
meeting if I remember correctly. So it's gotten to the point where
the search for stability has led to instability.
Yellen and Stein mentioned things like farm prices, REITs, and so
forth. In Bernanke's questions from Chuckie Evans, (yep you read it
right!) he mentions things like covenant-light HY bonds, which
coincides with the abrupt increase in issuance of PIK HY bonds
where you get more bonds as coupon instead of interest. Why they
wouldn't pay interest in this kind of environment is beyond me, but
if people will accept it, why not?
Anyway, back to losing money in my TLT position, a good example of
"don't trade just to trade."
Signs of the Times?
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Insofar as I'm trading less -- which is prudent given my recovery
process and the elements involved -- I'm layering into
(NYSEARCA:SPY) puts with a stop above yesterday's high at S&P
Bernanke's speech, the price action in gold -- and yes, defined
risk, which is like finding a long lost friend -- is my reasoning,
if I were to share it out loud. S&P 1600 feels like an
intuitive 'first stop' as far as these things go.