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.
Hilsenrath and Fed Taper
I again think we're overreacting to the idea of
Fed cutting back on purchases
, but it seems that the market is more fragile to such test
balloons than it was before. The first test balloon for this was
back in February
. And again, this is certainly not the last thing we're going to
see. There isn't any great shakes in this article, just a rehash of
things we already know, except for two takeaways:
"Fed officials aren't very concerned about the annual rate of
inflation falling toward 1% in recent months, well below their 2%
objective. Because expectations of future inflation have remained
steady, many Fed officials expect inflation readings to move back
up toward 2% in the second half of the year. "I'm not too worried
about it," Mr. Plosser said. 'Expectations remain pretty stable.'
So it seems they view the deflationary pressures as transitory,
which is somewhat troubling. We know that for the most part the
higher taxes haven't passed through to the economy yet. Consumers
continue to spend roughly the same, in line with any increase in
income, and save less. Whether or not this changes leaves a big
airpocket to the downside. Any decrease in consumer spending will
transfer through to a decrease in inflation. If this becomes
sustained and the Fed decides to ease further, game over. We all
know how that will end.
The other is the comment about uniform tightening of policy, a la
2003-2006 rate hikes. This one kind of seems bizarre, but I guess
it reiterates that a change in policy isn't a one way street, so
more of a caveat. As in, if they cut purchases they can always add
them back. They should be more afraid of the rapid tightening in
1994, where in a 13 months they tightened by 3% and rates blew out.
If and when they do taper, I've always thought it will come in
mortgages vs Treasuries. The agency MBS line with "implicit
guarantee" and the fact that it's a certain market means the line
is blurred with monetary policy and targeting asset prices.
Frankly, I think this article reads like an interview with Dudley.
I have to check his last speech, but if memory serves, it brings up
a lot of the same points.
The "Bond Bubble" Paradox
The long bond was down over 1% at one point last night. Stocks were
barely down at the time. Since then, bonds have rallied and stocks
have done a bit worse. CDS in Europe is weaker.
The "bond bubble" paradox is this:
- Something (in this case, the Hilsenrath article) causes the
market to get concerned about treasury yields, sending them
- Higher treasury yields drag investment grade and high-yield
bonds along for the ride, eventually causing equities to look
- The sell-off in risky assets (high-yield and equities)
accelerates sending money back into the relative safety of
- In the end, treasuries, the alleged root of the problem,
perform well, and equities get hit.
That seems like a bizarre scenario, but it also seems realistic. It
may have already started. Expect volatility.
Some reasons that the "tapering" of QE could cause this exact sort
of scenario are:
- If QE helps the economy (and allegedly it does), then pulling
back on QE will hurt risky assets more as the economy is
- If QE money has been flowing into risky assets (and given the
trajectory and correlation of risky assets, it is hard to argue
otherwise) then risky assets will be hurt the most.
Before we get too excited about any potential move, it is a good
time to remember that all we are likely still see massive purchases
-- just a big less of them. We will be publishing a more thorough
analysis on what the Fed could do, and the likely implications
on the homepage later today
Long Bond: So Far, Nothing Different Than the Prior
The 30-Year Treasury Bond (US1) has taken a decent beating in the
last 7 trading sessions, and it now sits below the 21, 55, and 144
Exponential Moving Averages (these MAs are the commonly used levels
in the futures pits). Moreover, the 21 and 55 EMAs are downward
sloping. This is not the first time the long awaited collapse of
the long bond (count me at the head of that crowd) seemed at hand,
only to painfully squeeze the shorts for the umpteenth time.
Nevertheless, two important levels are getting closer: the daily
TDST Level Down at 142-31, and the weekly TDST Level Down at
139-30. Should either of these support areas cave - particularly on
a qualified basis - it would indeed be a change of character. There
has been no qualified break of a weekly TDST Level Down line since
I can't repeat enough how inexpensive are the options on the US1
futures. At implied volatilities of about 8.5% across the calendar,
they are cheap on absolute and relative basis. Going long
at-the-money straddles 1 to 2 months out, around technically
important levels has been a profitable strategy for me. For those
not trading in the futures markets, options on the
iShares Barclays 20+ ETF
(NYSEARCA:TLT) are also fairly valued on a relative basis, but they
are also 5% more expensive in absolute terms. If using the TLTs,
spread strategies might be more prudent.
Parabola, Aisle 5
When the market gets frothy, I like to look for frothy stocks. They
can make for a great quick short opportunity. Running through
screens I spotted
). I used to love this stock as a long back in 2009-2011; great
company, and a great story… back then. Now let's fast forward to
2013. Slowing revenue growth down to 8% year over year. Price to
sales of 9 times! And all you have to do is pay 36 times forward
earnings. This, my friends, is a bad deal.
Looking at the charts we have a nice opportunity for a short set up
too. MACD rolled over at the recent high, diverging RSI, potential
for a double top after a parabolic move, and it hasn't touched its
50 day moving average in the last 35% move. Current prices set up a
short stab from here with a stop above recent highs and a target of
the 50 day moving average. That allows for about a 5:1 risk versus
reward. I like those odds and plan to watch it closely for a short
with in the coming days.
Click to enlarge
Emerging Markets (EEM) Battle Back to Neutral
After ending 2012 in style, the Emerging Markets lost steam and
began a multi week pullback to its trend line. In fact, in early
January I cautioned on a potential
(NYSEARCA:EEM) change in character. For many investors, the lack of
follow through in the Emerging Markets ETF has been frustrating.
Cheap money and a late year run higher had raised hopes… but it has
been all US Equities this year.
That said, in recent weeks, EEM has battled back. Looking at the
weekly chart below, you can see that although painful for many
investors on a relative basis, the pullback did not do any
significant technical damage. Although the June 2012 uptrend
(support 1) was broken, the longer-term trend from October 2011
(support 2) stayed intact. And the latest lift even saw last week's
candlestick poke above the downtrend line; however, one caveat: EEM
closed back on/below that line last week. As well, last week's
candle stick left a long wick, pushing up all the way to fully
backtest the broken June 2012 uptrend support (1). Follow through
to the downside would be bearish.
So where does that leave the Emerging Markets? Well, that long-wick
candle is concerning, so it may be wise to wait for a move back
above last week's highs. It would also be constructive if EEM could
retake and hold above the downtrend line. On the downside, keep an
eye on the longer-term rising uptrend (support 2) - that needs to
stay in tact.
Click to enlarge
Steady as She Goes
The pristine price action continues--breadth is better than 2:1
positive, the financials are leading (keep an eye on
(INDEXDJX:BKX) 59 on a closing basis) and the tape continues to
feel firm and perky. The last tangible grasp for the bears comes
into play in and around
(INDEXSP:.INX) 1650, per the chart below; if past performance has
any bearing on future results, a "back and fill" of that trend
channel would work to +/- S&P 1600
While I've been chilly -- thankfully,
there was some discipline nestled within my
-- these things happen if you trade for as long as I have (23 years
and counting). There was an equally compelling hot streak that
preceded the current cold snap but as the adage goes, you're only
as good as your last trade, and I own my missteps. I won't dwell
either, as profits reside in the ride ahead.
The level of lore is now S&P 1650, which is the upper band-tag
of the channel that has defined this rally since November. That --
59, on the close -- will help define the next meaty move, be it yet
another breakout or a retracement lower.
Again, all signs point to the former storm, but I don't think
anyone would be shocked to see a tape take a breather. Either way,
the tape will show us the way--and if we boogie higher still, I
will be stopped out of the second tranche of the S&P short I
added late last week, and limp back to the dugout to prepare for
the next inning.
As always, I hope this finds you well.
Click to enlarge
Long-Favored SunPower Breaking 52-Week Highs, Another Short
My long favored number-one name in solar,
), is finally acting like a top stock should and is breaking to a
fresh 52-week high as well as challenging multi-year highs. While
the froth in the group is evident, I am still respecting price
action and think this name could set up as yet another
)-type short squeeze. I've already bought and sold this one once
today (trading around my core position) but am now contemplating
and will likely be employing a buy stop strategy (rinse and repeat)
as I think it will see numerous breaks into fresh highs in the
) could also see a similar short squeeze but the % of float short
is much higher with SPWR, and the machines can run this one with
much more ease in my view.
Bull Market Behavior
Buyers in this market have been waiting for bears to sell, and then
they come in after lunch and push everything higher. In told, this
was a regular occurrence during the summer months in 1987 -- so how
many bears just perked up in their chairs?
If you want to look for exhaustion, then we need to see a bid at
the open and they take them into the lunch hour, and then jam it
into the close. If we start seeing this, then we know hope has been
given up and they want to own them. A few days of this and that
would get me concerned. A 4-7 handle drift and then consolidate,
which we have seen the last 75 handles, says nothing of
Much of this change in posture the market rotated out of over the
past 75 days will go unrecognized by the crowd. They are stuck
pointing at a top they called 2 or 3 years ago based on similar
metrics. Every metric has a life span and this action looks like
2004-2006. You could walk in and buy a. 2-3 handle dip in
(GOOG) and kick it out by the bell. Rise and repeat and it worked 3
out of 5 days a week. I would reference the mid-1990's or early
1980's price action, but needless to say I was not trading stocks
at that time.
A crude short looks attractive. The bond short is still attractive,
today's gap up was a good opportunity to fade TLT. The dollar long
trade is another one in its infancy.
Long-Term Vs. Short-Term
The honey badger stock market continues to disregard any weak
economic data, pushing higher today with leadership in defensive
sectors like utilities, consumer staples, and health care. Indeed,
markets have rallied in the face of their outperformance, which is
historically unusual, but I still think that it is important for
dividend-paying stocks to meaningfully and persistently
underperform for a real long-term uptrend in stocks to take place.
Cyclicals remains comparatively cheap and oversold, but by the same
token, the last 7 days have been extreme in dividend sector
weakness. I would not be surprised at all to see some strength kick
back into low beta-sectors. For a real move to take place in
cyclicals, which have badly lagged this year, the longer-term
direction in dividend stocks relative to the
should go lower.
Monday, May 20 is 90 degrees square 130.50.
So, a test/undercut of the presumed selling climax on April 15 in
gold (NYSEARCA:GLD) may be playing out as the volume at that time
dwarfs anything we've seen this year.
Once again, I would look to be a scale-in buyer near 130 GLD.
See GLD daily for 2013 with volume here:
Click to enlarge
Just a quick observation: I was struck by the number of comments I
saw this morning using the term "melt up" but in the future tense -
that is to say the melt up is yet ahead of us, not behind us.
Market tops and bottoms are moments of extreme extrapolation. What
is good or bad now will only get more intense from here.
That so many pundits are suggesting that we are only in early 1999
now with the real momentum yet to come gives me pause, particularly
as many of these same pundits were talking about the markets two
weeks ago as if we were in 1994.
Was That the Bottom in Bonds
Weak economic data continues to suggest that the bond market is
(still) much more right than the stock market, as yields on
longer-duration Treasuries fall after declining very hard for the
past two weeks.
The honey badger stock market continues not to care, however, as
many intermarket trends remains out of sync. Defensive sectors are
now very oversold themselves as money begins rotating into more
cyclical trades. The US Dollar remains an important issue to watch.
Should the recent surge reverse, commodities and emerging markets
will likely catch a strong bid. However, the Fed has let the cat
out of the bag as far as a potential end to QE, complicating the
overseas trade. Within bonds, Treasury Inflation Protected
Securities appear to be a good play for now.
Friday, May 17, 2013
Inflationary Pressures Are More Wishful Thinking Than
A quick screenshot of a random assortment of commodities shows
virtually all are down this quarter-to-date. (see chart 1)
So inflation isn't coming from commodities.
In spite of the "great" NFP data release, we aren't seeing real
wage inflation pressures. (see chart 2)
The average YoY change in hourly earnings is under 2% and has come
down from some signs of life early in the year. This comes from
that "great" NFP report, which frankly was really only okay and
mostly reduced fears that the job market had been falling off a
cliff, rather than showing any real "jump for joy" strength.
They were not bad numbers, but they were also nothing out of the
ordinary for the past 3 years, so it would be surprising if wage
inflation was suddenly a material concern at the Fed or for the
markets. The markets are almost desperate to have wage inflation,
but it doesn't seem real.
This leaves housing inflation, which is real. That area is doing
well, and at 40% of the CPI, it is important, but it has less
influence on the Fed's favorite measure and will struggle to stoke
inflation fears by itself. Without wage inflation (still hard to
get with so many people around the globe willing to work at a
fraction of the price) and commodity inflation, the "inflationary"
pressures seem more wishful thinking by the "growth" crowd than
reality. Growth and Inflation may be less correlated than many
Click to enlarge
Click to enlarge
Tesla and the Principle of Tests
In keeping with the Principle of Tests, yesterday Tesla tested
Wednesday's large-range reversal and turned its dailies down today.
It's worth noting that following an ORB this morning (a downside
break of the first Â½ hours range), TSLA squeezed higher before the
real directional bias reared its head.
Stocks have their own personality and TSLA has the squeezage issue
The behavior following this turn down on the dailies after a test
of the signal reversal bar will be important to watch for clues as
to the stock's position.
See daily TSLA from April and 10 minute for today here:
Click to enlarge
Click to enlarge