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.
Apple Has Recovered Into Heavy Resistance
Let's notice that
) strong rally in the aftermath of earnings has climbed into
important P&F resistance between 428 and 436.
A print of 4.38 will be considered a breakout above a triple-top at
436, and will project higher prices towards a test of 460
At this juncture, only an inability to print 438 followed by a
decline that prints 418 will indicate that a recovery rally has
ended, rather than indicating the first upleg of a new bull phase
Right now, the majority of my work argues in favor of the bullish
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Momentum Is Bullish, You Know?
While the cyclical trade remains rather oversold, the deflation
momentum continues to persist, potentially on bets that the Fed and
ECB will do even more to juice the stock market… I mean the
economy. The gap between inflation expectations and inflation
targets as defined by intermarket analysis is fairly large now,
which continues to mean that something's gotta give.
Emerging markets remain the next fat pitch for us, and some
strength does appear to be kicking in. Ideally, leadership overseas
should coincide with a weaker Dollar and rising bond yields, which
has yet to happen.
As to "sell in May and go away", if the cyclical trade shows, signs
of life, it might be instead "rotate in May" out of the US but more
time is needed to confirm. Our ATAC models used for managing our
mutual fund and separate accounts continue to remain defensive, and
may be close to a rotation into equities for a quick trade in the
coming weeks. I will be live on CNBC Closing Bell today at 3:50 PM
EST discussing this and much more. Indeed being bearish on stocks
this year has not worked (yet), but being bullish on deflation has.
The Swing Chart Method
Apple undercut the prior 419 low and is attempting to recapture
that prior low.
The weeklies on AAPL are due to turn up and the ensuing behavior
will help to determine the trend, just as every 1-to-3 week turn
did on the way down.
A turn up on the Weekly Swing Chart from this point, especially if
AAPL can break out above the upper rail of a declining trendline,
suggests a nice rally phase because:
1. There are a possible 3 drives to a low on the weeklies
2. AAPL responded strongly to a time/price square-out of April 19
See the weekly chart here:
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Is There a Bubble in Buybacks/Dividends?
It feels like every day, another company announces a massive
increase in buyback authorization and/or dividend payouts.
This is an issue worth paying attention too as large buybacks in
particular tend to occur at/near market peaks for a simple reason
-- companies tend to have 'too much' cash when things are peaking
and confidence in the future is at extremely high levels. Why?
Because it's human nature to extrapolate the present into the
Factset does a great job of collecting this data for
(INDEXSP:.INX) companies, and I posted the most recent charts from
The first chart shows a 20 year trend in dividends. You'll notice
that the number of dividend payers is rising sharply following a
huge decline in 2008/2009 when financial companies eliminated
payouts. That's definitely a sign of confidence. However, the
aggregate amount of dividends per share being paid out isn't far
above the previous peak in early 2008.
So no big whoop over there.
However, I was quite surprised at what I saw in buybacks. We aren't
even close to what we saw in the heat of the last bubble in 2007.
We'll have to see how these numbers shake out in Q1 of 2013, but
for now, we haven't yet approached bubble territory in this area,
though if you only looked at headlines, you'd definitely think
we're at all-time highs for buybacks.
I'll follow up on this topic next quarter. I'm especially
interested in how dividend/buyback activity relates to free cash
flow growth. In Q4, free cash flow grew by 8.5%, while buybacks
grew by 9.6% and dividends were up 15.9%.
How sustainable is that?
Lots of companies are borrowing at very low rates to issue buybacks
(which is another potential can of worms down the road), and that
makes sense from a technical finance perspective when you look at
how low rates are relative to the cost of equity, and the
difficulties in accessing offshore cash, but still: can companies
go on buying back stock and issuing dividends if the economy slows
and takes free cash flow down with it?
And is the borrowing-for-dividends trend a sign that we're topping
out, irrespective of where buyback activity is relative to the last
It's obviously tricky to answer these types of questions, but I do
think we should be on the lookout for extreme frothiness in the
capital return schemes of S&P 500 companies.
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Employment Data Month-to-Date
The following is the compiled employment data that we have to date.
Between now and Friday's NFP day, we'll have the national ISM
manufacturing survey and ADP private payrolls tomorrow morning. The
ISM non-manufacturing survey, which in my opinion has the highest
relevance to jobs data, will not be released until after NFP on
Friday. The Challenger planned hirings/firings is also tomorrow
morning, which is a somewhat useful, erratic tool
- Empire State employment up to 6.82 from 3.23
- Dallas Fed employment up to 6.3 from 2.6
- Kansas City Fed employment up to -3 from -15
- Philly Fed employment down to -6.8 from 2.7
- Richmond Fed employment down to 3 from 9
- Chicago PMI employment down to 48.7 from 55.1
- Milwaukee PMI employment down to 49.37 from 55.99
- Markit US PMI final employment down to 52.7 from 54.6
So the catalysts that we have thus far clearly skew to the negative
side, especially the Chicago/Milwaukee PMI which show a
"contraction." I would discount the large drop for those two
somewhat as the weather has been pretty miserable in those areas.
The two biggest manufacturing surveys, NY and Philadelphia are
mixed in both directions. Overall though, given the data, you would
expect a similarly weak payrolls number on Friday (for April) vs
the 160K estimate, but a revision higher for March's figures.
for a PDF I've compiled with the data over the past 12 months for
all of the above mentioned.
Since the gold (NYSEARCA:GLD) mini-crash of a couple of weeks ago,
it has been up-up-and-away for the precious one. In DeMark terms,
today's action is pretty important: if gold closes above 1467.88 it
will complete a TD Sell Setup, which will invalidate the Qualified
Break of the TDST Level Down (at 1561.55) and the implied
likelihood of completing a TD Combo Countdown Buy, which is only on
bar 5 and which would entail a retest of the lows and more. A close
below 1467.88 would cancel the TD Sell Setup count and keep the
bearish setup very much in play.
Good morning! I am on the road today to the beautiful Texas
Hillcountry where every town has a river or a lake. Today it is
Marble Falls, quaint, green, and the best pies in all of Texas!
I guess heading out and passing all the farms and ranches has me
thinking about the fertilizers. I've been doing a little chart
surfing while waiting for my meeting and it looks like
) has some more downside to go. Nitrogen orders continue to come in
light. From a chart perspective it just got rejected by the 50/200
day bowtie. We have a couple of gaps below that look like they are
needed to fill, so I am thinking this could be a cute short down to
the 200 area.
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Time to Exit Treasuries
We have been treasury bulls for much of this year. We have liked
the 10-year (USGG10YR) above 1.8% and really liked it above 2%. Our
original target had been the 1.80% yield (either as a technically
plotted line, or a nice round number that seemed to hit a lot of
That trade worked out, but then after the "Yen" devaluation trade
became so prevalent, we moved our range lower, all the way down to
1.60%. Again, a nice round number that seemed to hit a lot of
Although we are not at 1.60%, we are taking off the trade.
There are several reasons for this:
1. There are fewer shorts in the market and even the bears are
quiet or claim to have no position.
2. The 2's 10's spread has declined and at 142 is back to its
average since 2000 and is almost at the post crisis lows. So the
forwards are not as attractive as they had once been.
3. The latest frenzy has been Fed buying and alleged Japanese
buying, the former has only one way to go (probably won't happen
this time, but it could) and the latter may be true but it also
might just be a yeti (something people claim to have seen but
4. Disappointment in a European rate cut is a possibility and in
this bizarre world of central bank intervention, that might
actually hurt treasuries.
5. Since March 8 (when we jumped on the Japan buying bandwagon),
(NYSEARCA:TLT) has outperformed
(NYSEARCA:SPY) by 5%.
Announcements that the Treasury has had to issue less debt and
other evidence of scarcity stops us from being bearish for the
moment and may even encourage us to go back into treasuries, but as
of now, it is a good time to take profits even though we didn't hit
Click to enlarge
Breadth on the NYSE was 3:1 positive at 10:20 NY Time.
Looking back at the last two days of activity in the Treasury
market, the tone of Tuesday to Wednesday seems clear. Tuesday's
heavy selloff was rate locking for the enormous Apple deal, which
got unwound into yesterday. The response to the FOMC statement was
met with a selloff, in my mind not because the Fed is going to cut
asset purchases, but more due to higher inflation expectations.
The forward analysis: I am equally as wary as I was pre-meeting
yesterday on inflationary pressures. This does not have to do with
what is reality, but where the market will drive these
expectations. I don't have a solid read on which way to go,
structurally Treasuries are pointed higher. Fundamentally, the case
is still for higher Treasuries in the near-term; or with actual
continued, realized poor economic data and poor stock performance,
a breaking of new lows on a yield basis. If jobs growth continues
to stay around the level it is now, I don't think a peek at 1% on
the 10-year is outrageous.
Is there anything I can garner from the past 6 months of Fed
policy? The same old adage that they are terrified of spooking the
market, especially when psychologically they are a heavy component.
Which is why at the first sign of hawkishness, the pendulum swung
back in the other direction.
With the ECB rate, considering they cut the marginal lending rate
specifically to extend more lending to small and medium
enterprises, that makes me think there is some kind of parity with
the main refinancing rate cut. Specifically, 0.75% vs 1.5% and 0.5%
vs 1.0%. Taking a guess here, but the number associations match up.
The cut to the main refinancing rate essentially does nothing with
the overnight rate at 6-7bps (something Draghi himself pointed
out), though I gather from the press conference that the ECB thinks
With regards to the deposit rate, cutting this to 0% caused a
dramatic change in the money deposited at the ECB. During today's
meeting it was discussed that negative deposit rates could be a
possibility. In early July 2012 before the cut from 0.25% to 0%,
the ECB's deposit facility had about EU800b in assets deposited.
Now it's down EU109.662b. This activity signals two important
One: there has been ruminations of a Fed cut to the IOER rate.
Similar to the ECB's deposit rate, reserves are not being lent. So,
if the IOER rate is cut, will this cause US commercial banks to
lend? My guess is no, there will be an incremental boost to the
real economy, but the issue here is demand pull, not supply push.
The other major part being credit risk vs rate risk, which is a
whole different argument.
Second: the effect of the deposit rate cut and the early repayment
of LTRO has caused the deposit facility to wind down, so a cut into
the negative would more than likely have an equal negative as
positive effect. Such as putting the money market industry out of
business, in its current form. Next, it again highlights the
distortion of the monetary policy mechanism, easing is only making
its way to top level institutions. So I'll stress again that look
for ways for the ECB to accelerate real growth rather than more
liquidity, which requires outside the box thinking.
- Draghi is stepping up the extremely accommodative policy, for as
long as needed - echoing Abe/Bernanke.
- Look for new solutions to be centered around boosting lending to
small businesses rather than injections of liquidity (like LTRO).
- Draghi was very dovish
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I've noticed something interesting in the 18 or so hours since
) earnings beat yesterday.
There is an awful lot of bellyaching about the company beating
expectations through what people are calling mobile ad spam.
I suspect there is something of a gap between reality and
First, let's remember that it's not cool to like Facebook too much,
and there is definitely a bull market in snark (it's easier to be
snarkier than actually clever).
Secondly, Facebook is more of a need than a want. The simple fact
that people take social media vacations means that Facebook is
basically a drug.
People may not want to be addicted to it, but they are. That makes
it a great ad platform.
Like every growth story, Facebook will eventually stumble. But for
now it's alive and kicking to the haters' chagrin.
Honey Badger Goes Global
Honey badger stock markets are apparently not allowed to fall for
more than one day as money cheers more money coming from the
European Central Bank cutting rates. In the grand scheme of things,
a 25 basis point cut won't move the needle, but it does take Europe
one step closer to zero interest rates and the inevitable QE that
would result beyond that point. While US intermarket trends have
been volatile in the last few days as I noted through various
failed "V" formations, the emerging market trade seems to be the
next fat pitch.
There is a growing possibility of a full rotation out of bonds and
into stocks for our ATAC models used in managing our mutual fund
and separate accounts. With emerging market stocks discounting
considerably more of the deflation pulse than US averages, I
suspect money will begin to position into severe cyclical laggards
in what could be a mean reversion moment underneath the market's
surface. If I am right, then the various failed V formations likely
become Ws as emboldened investors bet on more stimulus to close the
gap between the deflation pulse and central bank inflation targets.
SuperBen and the League of Extraordinary Bankers will do whatever
it takes to force reflation into the system.
Whether they succeed or not is irrelevant in the here and now,
since expectations set price.
Friday, May 3, 2013
Smoke and Mirrors
Headline jobs data was a blow out. So, let's look under the hood.
- The 0.2 drop in avg hours worked equates to a LOSS of 600k
- U-6 moved UP 0.1 to 13.9%.
- Service jobs accounted for the entire jobs gain. Goods
producing jobs were DOWN 9k.
- Part-Time workers for economic reasons increased by
- Non-seasonally adjusted labor force participation rate fell
again to 63.1 - levels we haven't seen in over THIRTY years.
- Birth/Death adjustment, aka fictional jobs, added 193k jobs,
which means we did nothing. This adjustment is also responsible
for the sizable upward revisions in February and March.
Tell me again this was a great report?
I know this sounds bearish, but I think we could be setting up for
a sizable dislocation at some point this year. Earnings are
disappointing and we will miss this quarter's estimates by 4-5%.
FY13 estimates are still at $110/sh for the S&P500. I think
we'll be very fortunate to do $104-$105. With Europe still in
turmoil (and now Germany having issues) and China slowing, the
possibility of even lower numbers is there. Barton Biggs was sub
$100 a month or two ago.
Now, we have to wonder if the Fed will begin to taper. Maybe they
will, maybe they won't, but as I have said for a very long time now
(the chart below is proof), QE should create multiple contraction
not expansion. Average P/E with rates at current levels is below
12x. At a $105/sh estimate, we are over 15x currently. To match the
average, the S&P should trade at ~1250.
Run for the Roses
As the S&P eclipses 1600 for the first time in history, the
number of bond funds that own stocks soars to its highest point in
at least 18 years, another sign that typically conservative
investors are taking bigger risks to boost returns
reports the WSJ
This year's runaway move in
Johnson & Johnson
) also exemplifies the search for yield and the significance of the
November low noted in the Daily Market Report.
After virtually 10 years of a wide and loose range, JNJ started its
run in November.
Last fall, we believed
The Mother of All Short Squeezes
would play out.
While this move seems like it has gone longer and further than
expected (certainly to me), there are two things that are worth
1) A new cyclical high can be seen in a secular bear market, i.e.,
a B wave.
2) Has there ever been a momentous booming rally that hasn't been
followed by a bust? There is a time to reap and a time to sell
despite the feeling in during late stage breakouts (and late stage
breakdowns) that nature has been repealed.
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Update on Mr. Steel and Perspective
A little update on my previous buzz:
) is flirting with the breakout above the previous pivot resistance
of 17.89-17.90. If it can clear this area, it should be a quick
move up to 18.30-ish, then on to the bigger resistance and my first
target of the 50 day moving average.
I'm out the rest of the day celebrating my son's birthday. Don't
forget to enjoy the things that matter this weekend. Take a break
from the markets and keep life in perspective.
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