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.
News From the Front
They sure do make em honest down in Texas. I watched the
interviews with Richard Fisher
this morning on CNBC and they were rather enlightening. The key
takeaway, even from the most realistic and honest person on the
FOMC, is that we can't cut back too sharply on purchases as it
would be too much of a shock for markets.
Supposedly there was chatter or strategist comments going around
earlier today that Bernanke would hit favorably on the tapering
subject at Wednesday's testimony. I don't have any confirmation for
either so please take it as only opinion. This was said to be a
catalyst for today's reversal in Treasuries. Personally, Bernanke
has never been one to give away much at Congressional testimonies.
MBS have also been getting scorched, but I imagine the Fisher
comments this morning aren't helping. Fannie 2.5's are +2.2 to
1-800-GET-ME-IN is still lit up with
SPDR S&P 500 ETF
(INDEXSP:.INX) 1670 and
(INDEXRUSSELL:RUT) 1000 in the rear view mirror. As my dad would
have said if he were here today "when they call, I will answer, and
most certainly sell to them."
For what it's worth, general repo collateral rates have trended
down throughout the month along with Fed Funds rate. General
collateral is now down to 3bps from 21bps at the end of last year.
This is similar to prior LSAP programs where securities used for
collateral becomes tight. You can see a graphical representation of
the number of bonds borrowed from the SOMA account below. Oddly
enough, the problem persists of not enough high quality collateral.
Speaking of low rates, 4-week bill sizes have gone back up to $45
billion from the $20 billion that it was over the last three weeks.
Maybe that might help the situation of tight collateral some.
Ok, something that's not monetary policy related. Solar name
Real Good Solar
) has turned over its entire float today, for the second day in a
row and is now going completely parabolic.
Click to enlarge
The Good, the Bad, and the Ugly
Big Board Breadth is 2:1 positive (update: 9:5).
M&A activitiy is upticking, be it
) in tech or
), in the specialty drug sector.
Banks are elevated to levels last seen in 2008.
All-time highs, everywhere you look; trend followers and momentum
players are feeding on the frenzy, which will work (until it
The chasm between commodities and stocks
, which has most certainly mattered in the past.
The chasm between the stock market rally and a legitimate economic
Massive amounts of short covering, which removes a forward layer of
Social mood vs. risk appetites
, the haves vs. have nots, Main Street vs. Wall Street.
(INDEXNASDAQ:NDX) just flipped the downside switch, despite
My recent feel for the tape (since discussing my performance; this
is the second year in a row this has happened, and it
be the last time).
Charlie's Angels Sell Signal in GMCR
Green Mountain Coffee
(GMCR) looks set to leave a Charlie's Angels sell setup…3 Tails (in
this case, Topping Tails) in close proximity.
Click to enlarge
One stock in focus is
(CSCO) and its behavior after the post earnings jump and
consolidation. The best tool for analyzing that progress is volume
profile. Note that on the day that followed the earnings release,
the VAL (value area low) was at 23.55. That is the line in the sand
in terms of either retracing or not into the empty volume "hole" of
after-hours earnings release squeeze.
The profile shape is a "P", indicative of short covering, so it
behooves bulls to show that they have fresh buyers coming in and
holding the break. So far, that is the case, with three days of
consolidation. But today, we have a slightly bearish pattern, which
is losing yesterday's VAL at 23.79 (current resistance to the tick
as I type). The low is 23.59, the first real retest of the 5/16 VAL
of 23.55. If long the stock, you want to set alerts at that level.
If short the stock, 24.23, 5/17 VAH is your line in the sand.
Click to enlarge
"They were symbols of a new, more structured way of thinking about
investing. But as times change, so do the investing paradigms that
capture the essential issues and challenges of those times. In that
spirit, Paul Samuelson was right to insist that we speak and write
about operationally meaningful theorems in understandable ways. In
the institutional investing world, today's essential issues revolve
around delivering sustainable wealth creation and post-work income
security for real people in an aging slower-growth world. Alphas
and Betas are only useful concepts to the degree they help deliver
And so wrote Kurt Ambachtsheer, author of The Ambachtsheer Letter.
That quote was sent to me by a portfolio manager whose interest was
piqued by reference to Alpha and Beta in
of Rich Bernstein and his comments that, "We are beta managers, not
alpha managers because correct asset allocation is the key to
outperformance in the markets." I don't know a lot about Alpha or
Beta, but I have always attempted to, "Speak and write about
operationally meaningful theorems in understandable ways."
Take yesterday's letter where I wrote, "Over the past 40 years the
leading space for stock performance has come from 'dividend growth'
stocks, with 'dividend payers' being the second best performing
group." And "dividend paying" stocks led the market higher in 1Q13,
but that has changed in 2Q. So far the S&P 500 is better by
almost 7% for 2Q13, but this time it is not "dividend payers" that
are leading the charge. Indeed, the leading group appears to have
been the stocks with the highest "short interest" ratios.
Recall my report of a number of weeks ago with the quote, "He who
sell was isn't hisin, must buy it back or go to prison." This is
obviously an old market "saw" that has stood the test of time; and,
it seems be to playing again in the current quarter.
Unsurprisingly, these stocks are poorly rated by Wall Street
analysts and possess sketchy fundamentals. Still, it appears the
stock market's strength is causing the short sellers to cover their
short positions and buy back those "shorted" shares.
Unfortunately, this is the kind of action that tends to occur
toward the ending of a rally. I have also said that the stock
market's daily energy level is extremely low and the SPX could
pause before resuming its up move toward my 1700 price target into
the end of the quarter. Verily, last Friday the SPX punched through
1660, and stayed there, but it is difficult for stocks to extend on
that move with its daily internal energy so low. Therefore, expect
the SPX to stall the balance of this week as it re-energizes its
internal energy for another attempt to rally toward the 1700 level
into the end of the quarter. Still, if the SPX can stay above 1660,
the short sellers should panic, and continue to "buy" into
quarter's end ...
Wait -- so the Fed actually won't taper? Surprise! Seriously folks,
the entire discussion over an end to QE has been overblown, given
that economic data is still mediocre, with industrial production
not really showing signs of a significant pickup in growth. What is
perhaps most interesting about the market's behavior as of this
Buzz is that bonds are selling off even with Bernanke attempting to
reassure markets that its too early to pull back on stimulus.
The fact that
iShares Barclays 20+ Treasury Bond ETF
(NYSEARCA:TLT) has sold off indicates the market is no longer
interested in front running the central bank. Continued yield curve
steepening remains a positive for risk assets. With many now
calling for a correction as intermarket trends improve, I do wonder
if the contrarian trade is to bet on a continuation of trend. Our
ATAC models used for managing our mutual fund and separate accounts
favor US small-caps, waiting for a trade right back into the fat
pitch of emerging markets, which may be soon to come.
Last night I finished reading Professor Michael A. Gayed's
re-release of his father's classic text
Intermarket Analysis & Investing
which was recently published in its second addition. If you've
never had a chance to peruse these pages. IA&A is a required
reading for everyone in the trading community, in my opinion. Mr.
Gayed, Sr. pays a lot of attention to the utilities and their
implications upon the broader market, particularly the intermarket
relationship between utilities vs. leading non-correlated asset
classes. Over the last several sessions the
iShares Dow Jones US Utilities
(NYSEARCA:IDU) has sold off and is now demonstrating a choppy
pattern that could be construed as either bull or bear
consolidation firmly resting on the 50 DMA. Given the high-yield of
the utility sector and its normally risk-adverse investor base, a
decrease in the average could mean a few different things:
1. Safe haven investors are finally stepping into other, more
frothy sectors. They're no longer happy being "paid to wait."
2. Smart money is not convinced the yield spread between risk-free
and utilities justifies the added interest rate risk.
3. Fund managers are being pressured to add alpha.
My thinking is that if utilities sell off further, there's risk of
a shock to interest rates in the next 3 to 6 months. Many may
recall that the DJUA was first to lead us higher out of the market
bottom in August 2011. As a leading sector on the way up, I've got
to also respect that it may be a leading sector on the way down.
Conversely, should the former high be broken and another sustained
leg higher becomes observed, this could be an indication that fear
has returned to the market but not in context of rising rates. In
other words, another leg higher could be in the cards before a
severe sell-off appears.
I'm sure there are many more takeaways other than the ones I've
pointed out above. My intention is to share my thought process with
Buzz readers. I'm always grateful for your feedback and
observations! Those who may follow my posts know that I am in the
bear camp currently. As Todd often says, I too, am "Always early."
Reason being more often than not is because I'm not trying to get
the last little bit of any move. I have a small short on the
Russell 2000 currently, which I plan to dollar-cost average higher
every 1% or so north of my entry around Friday's high. I've trimmed
nearly all my equity longs to only a small fraction of their
initial size. I'm not completely bearish of being long "all"
equities, just the ones I've shared with you in recent memory.
There's always opportunity out there, both long and short. Good
luck out there!
Click to enlarge
Quick Takeaways From Bernanke
The important things that we expected were in there:
- Fiscal policy is restraining growth (there is a whole section).
- Short-term inflation remains subdued due to things like energy
prices, but long-term expectations (think 10-year breakeven rates)
- Extended periods of low yields will cause investors to reach for
"Another cost, one that we take very seriously, is the possibility
that very low interest rates, if maintained too long, could
undermine financial stability. For example, investors or portfolio
managers dissatisfied with low returns may "reach for yield" by
taking on more credit risk, duration risk, or leverage"
"Recognizing the drawbacks of persistently low rates, the FOMC
actively seeks economic conditions consistent with sustainably
higher interest rates. Unfortunately, withdrawing policy
accommodation at this juncture would be highly unlikely to produce
such conditions. A premature tightening of monetary policy could
lead interest rates to rise temporarily but would also carry a
substantial risk of slowing or ending the economic recovery and
causing inflation to fall further."
This doesn't say a whole lot that hasn't been said, but it's a
surprise that it was said at all. It sounds like he says they are
afraid of withdrawing accommodation because inflation may fall
further. Ironically, it signifies that policies aren't working.
The $10 Trillion Monster
For the last month and a half, the first security that I have
looked at everyday is the 10-year Japanese Government Bond, or JGB.
The JGB market is $10 Trillion large, which makes it the second
largest security in the world behind US Treasuries. The Japanese
variables are such that a meltdown in this market has been a higher
probability event than most expect. Over the past 6 weeks, we have
seen halts in the JGB in the Japanese session as well as
unprecedented implied volatility in the options market for JGB's.
This has all happened AFTER the Bank of Japan, or BOJ, announced
it's newest, extremely large version of QE. What made me sit up and
notice is the after effects of the BOJ announcement have INCREASED
volatility and DECREASED liquidity in the JGB market. I thought
central bank intervention was suppose to calm the bond markets and
bring rates down NOT UP? Right now we see that the
(JPYUSD) and the JGB are tightly correlated. Could additional
measures announced by the BOJ make this situation worse, bringing
both the JPY and JGB lower? I think that is the risk, and when a
$10 Trillion market is at stake, it is time to take notice. The
unintended consequences could be enormous for the world markets as
there are a ton of interest rate derivatives swimming around in the
global banking system.
500 and 200-DMA Stats
The market hasn't touched the 50-day moving average since April 19.
Typically, in a healthy upward moving market, we get a test about
every 45-60 days. A perfect example has been this year. The market
crossed the 50-day on December 31 and finally came "close enough"
on February 26 (57 days). After that, it stayed above it until
around April 18 (53 days). We enter the time window just after this
The thing that is more concerning is that we have not touched the
200-day moving average in more than 6 months (Nov 28). It runs on
about a 6 month cycle -- usually May/June then October/November.
Additionally, every year since 2005 (except for 2007) the
has hit the 200-day moving average in May or June. Will this year
be different, or are we set up for a deeper correction than many
are expecting here?
From Divergence to Convergence: SPY vs. GDX
Has "The Great Convergence" started, which will reverse some of
"The Great Divergence" between the S&P Index and the Gold
With yesterday's high volume, key-downside reversal in the SPDR
S&P 500 ETF, juxtaposed against yesterday's positive
performance by the
Market Vectors Gold Miners ETF
(NYSEARCA:GDX), coupled with their respective-directionally
powerful-daily momentum (RSI) patterns, evidence is mounting that a
period of relative performance has commenced for the GDX.
But while relative performance is one thing, to get any real
traction on the upside, the GDX must hurdle and sustain above
In the meantime, my work argues that while the SPDR S&P 500 ETF
ratchets to the downside in a corrective period, the Market Vectors
Gold Miners ETF will build a significant bottom, ahead of a thrust
into a recovery, bull phase.
Friday, May 24, 2013
The Two Yoots
We've done a lot of coverage on the breakdown in the previously
-- I mean utilities,
Today, they're underperforming again.
As I write this, the Dow is down 0.32%, the S&P's down 0.51%,
while the utilities
iShares Dow Jones US Utilities
(IDU) are down 0.68% and 0.63% respectively.
I think this is partially because of the previous outperformance,
as well as anticipation of rising yields (junk bonds are getting
hit as well).
However, even if the higher-yielding stuff continues to get hit, I
wonder if downward momentum in the safety stocks (dividend payers
and utilities) will actually drive Treasury yields back down.
It's looking ugly out there thus far -- good luck.
One thing to note: a lot of companies have been filing for debt
and/or equity offerings this week. Could they be rushing in to
borrow before yields really spike?
Minyan Kyle sent me this note yesterday (unedited):
In a world where the corporate buyback charade drives equity
prices higher - financed by bond issuance - one has to believe that
higher rates don't help a continuation of the charade
That's something to think about...
Good morning - Spain and Italy's bonds and CDS are spiking higher.
The levels are not as meaningful yet as the trend and speed of the
retracement, but they are getting close to meaning something. The
CDS of some large US financials have also bounced pretty hard off
all time lows, and high-yield spreads have popped 25bps since
Wednesday. Here the levels are nowhere close to being a problem,
but again, the trend matters. Same can be said for the 2-year
swaps, which earlier this a.m. touched 16bps. 15bps was the level
to watch, so now we must really pay attention.
Given Wednesday sharp equity reversal, the concurrent crankiness of
credit derivatives raises the
first yellow flag over stocks since the Cyprus
Until and unless the
takes out the Wednesday highs and/or credit derivatives take a turn
for the better, we should assume a higher level risk in stocks for
the near term.
As I have written and tweeted in the last several days, the single
(if not sole) leg of the equity stool - the corporate bond market -
remains as solid as ever. But that says nothing for potential
corrections, and the sharpest corrections take place in bull
markets. Not to spook anyone, but the 1987 crash was really just a
4-day, 30% correction in a massive bull move.
Back-to-Back, Chicken Shack
Yesterday, following a 7% haircut in Japan, stateside stocks put on
a brave face. The price action, in my view and with 23 years under
my belt, could be summed up in one word: fascinating.
The question remains whether, through a different lens, it might
qualify as "denial," or the first in the psychological continuum of
"denial-migration-panic" which is detailed further in
The Three Phases of Leave
do is embolden the bulls and while this observation isn't
back-tested, I've always been wary of "back-to-back" Snappers as
the first session creates hope and the second one (the next day)
often destroys it.
(GS) and Apple are trying to provide some upside leadership, yet
breadth remains 3:1 negative.
1600 are levels to watch on the downside;
1655 (yesterday's) high will violate the emerging pattern of "lower
highs" (a sign of distribution), if and when.
It will get thin and thinner as the day wears on -- three day
weekend and all -- so keep that in the back of your mind, and
perhaps prepare for it by trading somewhat smaller than you