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.
Bullish on Apple
we walked through
the technical bull case in
AAPL turned its Monthly Swing Chart down in September on trade
below the August low. The turn down defined a low almost
immediately -- bullish behavior.
AAPL turned its monthlies back up on trade above its September high
of 507.92 on Friday. Importantly, AAPL closed above 507.92 on the
Friday weekly closing basis and is following through with
The action signals higher prices, especially with the 513 pivot
high from mid-August being convincingly eclipsed today. Remember
that 513 was 540 degrees up from this years low -- 540 degrees
being 90 degrees times 6 for a 6-sided cube.
So today's action in AAPL looks very meaningful.
Below, see a daily AAPL chart from June 28 to the present with its
Click to enlarge
And the Winner Is...
) is in the news today as its expected $13 billion penalty is
digested. A few top-line thoughts, in no particular order:
- Only seven companies in the
Dow Jones Industrial Average
(INDEXDJX:.DJI) earned more than $13 billion last year.
- $9 billion would be fines with $4 billion earmarked for
- This is only the civil probe; the criminal probe is a
separate issue for the bank.
- Two-thirds of the alleged abuses are from Bear Stearns and
Washington Mutual before Jamie Dimon got involved. (I guess they
weren't such bargains after all?)
- JPMorgan legal costs are upwards of $23 billion.
- Following the financial crisis, JP Morgan enjoyed three
straight years of record profits and the shares are up 72% since
the end of 2008 (vs. a 48% rise in the
KBW Bank Index
- $50 remains major support for the stock.
- Over on the grassy knoll, some posit that the reason Obama
focused on healthcare into his first term was so that banks could
reflate their balance sheet to the point where the government
could exact its pound of flesh. Whether or not that's true, I
don't know; what's clear, however, is that banks were not in a
position to pay these fines five years ago.
So, who wins here? In short, the lawyers, on the way in and the way
Bond, Badget Bond
While the US equity market celebrated the prospect of a debt deal
yet again last week, we saw an important reversal in long duration
bonds. At the same time, inflation expectations appear to be taking
another leg lower. The correlation between long duration bonds and
inflation expectations has been abnormally high this year.
Typically, the correlation is negative as falling inflation
expectations are deflationary and bullish for bonds. The
correlation appears to be rolling over from our studies, which
should mean a reconnect to the historical relationship and higher
bond prices is coming.
Bond, Badger Bond. Shaken, not tapered.
Medivation Exceeds Mark in PREVAIL Prostate Cancer Trial
Earlier this morning,
) reported data from its pivotal "PREVAIL" trial of Xtandi in men
with advanced prostate cancer (CRPC) who had not yet received
chemotherapy. The key data point is the "hazard ratio", which
measures the performance between all men who took Xtandi and all
men who took placebo. In this measure, Xtandi showed a hazard ratio
of HR=0.70, which means (roughly) men had a 30% better chance of
being alive by taking the drug than by taking placebo.
This figure is significantly better than seen with Zytiga,
Johnson & Johnson's
) competing drug. Since Medivation's Xtandi doesn't have to be
dosed with steroids, a major concern for prescribing urologists,
these data should secure Xtandi's position as the top drug in the
Traders often focus instead on median overall survival, which at
2.2 months for Xtandi is providing some drama to today's otherwise
stellar release. But doctors who control treatment guidelines and,
most importantly, insurers will not make this common rookie
mistake. Xtandi will be the drug of choice in prostate cancer
because of its clearly superior efficacy.
(INDEXSP:.INX) just broke out to a new all-time high above 1751,
despite (or maybe because of)
the lousy jobs report.
At some this has gotta end, right? Sooner or later, the economy's
going to have to catch up the market, or the market's got to slow
down to let the economy catch up.
But either way, this is some frustrating action, unless you've been
long and strong on the QE express, which would make you the smart
For the next step, I would pay close attention to the
Apple iPad event today. As of late, its products have been
more-or-less been perfectly leaked to/predicted by the press. In
the event Apple shocks industry observers with a major new product
offering, it could most certainly yank the indices up.
But at the end of the day, I think the 90-year old man smoking
three packs a day analogy holds true for this market. If someone
like that makes it to 90, don't bet against 95 or 100.
And it's the same with this market. If we could hobble up to 1754
with this economy, why isn't 1800 or 1900 or 2000 possible? Even if
you think it's impossible (I certainly have my doubts) -- consider
Conventional sentiment measures read bullish
, but it seems that even ardent bulls have some kind of caveat --
that it's all Fed-induced, it's all going to die one day very
badly, the real economy is dysfunctional.
There doesn't seem to be many true believers, where as in times
like 1999 or 2006, people did assume the good times would last
Can sentiment really be super-bullish when everyone's waiting for
the other shoe to drop?
Earnings and Announcements
A couple of my core individual stocks are having some interesting
results today, so I may be remiss if I didn't cover them a little
) - These guys make auto tinting glass and are getting all kinds of
contracts to have it installed as a new "safety feature" in cars. (
See my post from July 8.
) It's really starting to take off and their report shows it. Then
to top off the beat, the company gave us the +1 in raising
guidance. GNTX expects 20-25% growth in sales next year, and it
beat by putting up $0.38 per share versus the $0.32 expected. I
will continue to own this one as I expect it to continue for a
while. However, if you are a short-term trader, it is pretty
exhausted here and needs to rest. RSI is through the roof at 80+. I
expect sideways action for at least a couple of weeks here.
(ONVO) - Both Duncan Parker and I have mentioned this one recently,
and I love the path they are on. This is the next logical extension
of the 3D printing. This one is for medical use. The company
announced today that it has successfully shown that its printed
liver tissues have viability of upwards of 40 days and have
responsiveness to liver toxins and medicines. This has all types of
research applications, and the hope is that eventually we may be
able to print organs instead of depending on donors. I love the
long-term story here and so does the market. These types of wins
and announcements allow for additional funding at lower costs and
should continue to build shareholder value, regardless of expected
Both of these stocks are buried in a coffee can in my back yard
along with my fracking plays, and I don't plan to sell them any
Click to enlarge
Click to enlarge
I think the up move in Treasuries is done for now, 2.47-2.475% in
the 10-year was a logical stopping point and we kissed it today. In
addition, we're working a downward channel from the September peak
in yields. I think a move back to or near the top of the channel at
2.62%-2.65% is healthy now that positioning has become much longer
as the reallocation catch up game is back. .
This is as much a directional call as it is a risk management one
as I have leveraged exposure in munis (closed end fund). I'm
bidding for put spreads in
iShares Barclays 20+ Year Treasury Bond
(NYSEARCA:TLT). The area most vulnerable for a selloff is the
7-year, if you'd like specifics, because I think the curve should
flatten from here (the 30-year should underperform) and my other
exposure is between 7-10 years, I'm taking a bit of an overweight
position in the put spreads on a relative basis.
Worst case scenario, we remain overbought and hug the bottom edge
of the channel and my put spreads expire worthless, which would be
a net scratch or a very minor loss for me. I think this scenario is
unlikely given the economic outlook and the premium that is being
factored in for fiscal-related economic slowdowns.
See an hourly chart of the 10-year future below with RSI and a
daily chart of the 10-year yield channel below. I have a longer
Buzz that I'm working on with more specific intermediate-term
thoughts, so keep an eye out.
Click to enlarge
Click to enlarge
The UUP Is Pressing Into Key Intermediate-Term Support
As we speak, the
PowerShares DB US Dollar Index Bullish
(NYSEARCA:UUP) decline from its July 2013 high at 22.98 to today's
low at 21.33 is slightly longer than the decline from the July 2012
high at 23.14 to either the Sept 2012 low at 21.5 or the Feb 2013
low at 21.53.
In any case, equidistant downlegs have been achieved right as the
UUP RSI is registering a glaring momentum divergence.
This is a warning signal that the UUP decline likely is nearing
completion in the vicinity of 21.30 to 21.00 in the upcoming hours.
Click to enlarge
Option Gauges Neutral, Corning Unusual
Option gauges such as the put-to-call ratio and the
(INDEXCBOE:VIX) are running mostly neutral this morning. This comes
after both reached levels that could be considered indicative of
extreme complacency. Last Friday, the VIX dipped to 12.50, and its
most active trading vehicle hit 12.60, which was a new contract
low. The two measures of volatility had declined some 35% since
peaking near 20 on October 9. This morning, the put-to-call ratio
is 0.75, but on Friday, it was 0.46 -- the first time it fell below
0.50 since an interim top was reached on May 22. Past is not
necessarily prologue, but the market then proceeded to decline some
7% over the next six weeks, the only real correction the year.
(NYSEARCA:GLW) were up as much as 25% this morning. Now, it's up
12%, after news broke after yesterday's close regarding a deal with
(KRX:005930). Whenever these unexpected new events drive an
outsized move, I always look to see whether the options showed
unusual activity in which someone had a prescient "hunch." There
was in fact some very unusual activity in GLW options yesterday,
but surprisingly, it was all on the put side. Average daily options
volume in the front 3 months is about 11,000 total contracts.
Yesterday, over 19,000 puts traded versus just 6,000 calls. The
most active were the October $15, the November 1 $15.50, the Nov 8
$14.50, and the November 16 $16 strikes. As a side note, I have no
idea why this name has weekly options going out to the end of
November when more active names sometimes don't even get them
listed for earnings week.
These were all opening transactions as the volume, with the largest
being 10,000 of the $16 strike, easily swamped the existing open
interest. Also surprising and somewhat telling is that these puts
were all in-the-money yesterday, which suggests someone was
If it was for downside protection, one typically uses lower cost
out-of-the-money strikes. Maybe some smart bunny figures were
trying to throw regulators off the trail as they will always look
for unusual call activity prior to a big jump in price.
Thursday, October 24
May You Live in Interesting Times
Some curious developments seem to be unfolding in the Chinese
banking system. First, China's five largest banks tripled their
loan write-offs. According to
, China's five largest banks wrote off 22.1 billion yuan ($3.65
billion) of loans during the first half of this year. This is 3
times more than the 7.65 billion yuan the banks wrote off in the
first half of last year. Also, non-performing loans for the 5
biggest banks rose 6.8% to 349.9 billion yuan during the first half
of the year. On an annualized basis, NPLs are growing twice as fast
as GDP. Chinese banks have usually been slow in addressing problem
loans in the past, and some metrics like loan-loss ratios aren't
always reported. So, you really have no idea how bad those loan
However, I also
Chong Hing Bank Ltd.
(HKG:1111), a Hong Kong based bank, is being acquired by Yue Xiu.
Yue Xiu is a trading arm of the Guangzhou city government. And at
the same time,
Singapore's Overseas-Chinese Banking Corp.
is looking to buy
Wing Hang Bank Ltd.
Not to be outdone,
Agricultural Bank of China, Ltd.
(HKG:1288) may be looking to buy another Hong Kong lender, Wing
Hang Bank Ltd. In Yue Xiu's bid to purchase Chong Hing, we see the
local government (Guangzhou is very close to Hong Kong) making a
play to expand into lending as a compliment to its trading
activities. Meanwhile, OCBC is looking to gain entry into China.
Regardless of who's doing the bidding and why, valuations being
talked about look really high. Wing Hang has a price-to-book
multiple of 1.72 while Chong Hing is trading around a 2.18
price-to-book. Such high multiples put a company under tremendous
pressure to generate returns. For a long time, those returns were
being generated by lending to mainland Chinese firms. In fact, Hong
Kong retail lenders' loans to China grew 11% from the end of last
year, according to the Hong Kong Monetary Authority. That's 22% on
an annual basis and about 3 times higher than Chinese GDP.
Over the top valuations for banks, explosive loan growth and rising
problem assets, and questions about loan loss accounting are a bad
mix. So while some folks scoff at the idea that there may be
problems in China because nothing has happened yet, I wonder how
much longer they can stay so smug. And I also wonder whether or not
China will need to sell their Treasury holdings to stabilize their
Software Contrarian Ideas for a Fourth-Quarter
Every year, enterprise related technology companies have difficulty
meeting estimates during the third quarter, highlighted by dramatic
misses and stocks reactions. Unpredictable spending into the
federal fiscal year end, European sluggishness, and seasonal
fourth-quarter push-outs are usually the reasons. Additionally,
there also tends to be some kind of "drama" or external occurrence
that muddies the waters.
This is when the consensus labeling occurs categorizing these
companies as being legacy or secularly challenged. This has been
exacerbated this year due to the strong YTD returns of SaaS and
Internet related names.
Based upon my experience, taking advantage of this overly negative
perception can create very profitable results. For example, last
(INFA) missed in October, there was widespread belief that they
were done and that Hadoop was going to destroy them. By
mid-December on a bus tour, INFA "sounded better" about business
and the stock had a 25% rally into year end and has tacked on
another 25% YTD. Hadoop is not even mentioned as a threat anymore.
The point being made here is that the groupthink is often wrong and
creates opportunities. Software companies by their nature exhibit
lumpiness in results, especially those that haven't embraced the
SaaS pricing model.
Below are a couple of names whose setups into year end look
interesting because they are oversold and are now universally hated
and thought of as consensus legacy/old bad companies. While I do
not disagree with a lot of the challenges these companies face, the
view here is that selective names may offer a strong rebound
opportunity at this point into year end, especially if the message
indicates that "things are a feeling a little better" at some point
during this quarter at conferences and/or road shows. This list
US Equity Market Within Days of a Major Top
We are short several global equity indexes as of yesterday's close.
This is why:
(chart 1) closed yesterday (October 23) at 134.47, in the top 0.50%
of the data distribution over the last 15 years.
Click to enlarge
The last three readings above 134 were:
APRIL 20, 2010
three days and less than 1% from final top, and a 17% correction
FEBRUARY 18, 2011
the first of three tops that ultimately dropped the market by 20%
MARCH 12, 2012
two weeks and 2% from final top, and an 11% correction
The AAII Sentiment Survey came out today (October 24), showing a
in Bulls over Bears.
The second chart below shows the previous July 11 sentiment peak
was the first time since 2007 that an overbought Sentiment called
the top very precisely (2 weeks and 2% later).
Click to enlarge
Priors are marked in red circles below.
We believe this marks a regime shift - and the market's character
is changing to a bearish trend.
Our U.S. Equity Risk Model has been diverging for two years. We
used it to call the August and September tops in equities.
The blue horizontal line in the third chart below shows the recent
seven-year history of high-probability terminal/failure rallies
called by this model. We believe the current behavior falls
perfectly within the parameters of those previous terminal/failed
Click to enlarge
Friday, October 25, 2013
Twitter Prices IPO
Twitter has priced its IPO at $17-20, pegging its value at about
$11 billion after the IPO, assuming the deal goes through at $20.
Odds are it happens at a higher level than that.
The offering document says the company will get net $1.25 billion
from the deal on the 70 million share offering, or $1.44 billion of
the underwriters exercise options to buy 10.5 million more shares.
That's $17.86-$17.89 per share, which seems based off the midpoint
of $17-20, or $18.50, less IPO related costs of about 3.5%.
So let's assume the deal happens at $23. Twitter said every dollar
increase in the IPO price adds $67.7 million in net proceeds. So at
$23, the company nets an extra $305 million ($4.50 * $67.7), for a
total of $1.744 billion.
I did the math the other way as well, and assuming IPO costs of
3.5%, the company nets $22.22 per share ($23 less 3.5%) times 80.5
million shares for a total of $1.788 billion.
Last quarter Twitter had cash of $321 million, so assuming some
modest cash burn, the company should have around $2 billion in cash
the next time it reports..
Note that Twitter has preferred stock and convertibles outstanding,
but they will be converted into common stock with the offering.
So at a $23 price with 544.696 million shares outstanding, Twitter
has a market cap of $12.5 billion. Factoring in $2 billion in cash,
the enterprise value is $10.5 billion.
That's 22 times trailing twelve month sales of $474.3 million.
For comparison's sake,
(LNKD) is trading at 22X TTM sales, while
(FB) is trading at 20X and
(YELP) is at $27X.
Now Twitter is unprofitable, but as I wrote a couple weeks back,
it is growing a heck of a lot faster than its
I would consider Twitter to be extraordinarily high-risk, but to
me, as long as the broader markets hold up, this deal is something
I think investors will want to be part of. It's a
momentum-begets-momentum situation, and I'm okay with that.
In fact, I'm attempting to put my money where my mouth is by
applying for an allocation.
"There has been a lot of concern that stocks have gone too far
lately without a 10% correction. The fear is that, if the market
goes on too long without losing at least a tenth of its value off a
high, any pullbacks to come in the future will be a lot more
dramatic." . . Jon Markman, Markman Capital
I took the aforementioned quote from an
article on Yahoo! Finance
titled, "The Next 10% Correction Could Be 5 Years Away." Ut-oh, I
thought, this is the kind of stuff you tend to see at trading tops.
Of course, that fits hand and glove with something I heard here in
Toronto on BNN (the CNBC of Canada) where one talking head stated,
"Nothing can put the U.S. stock market down!" Ut-oh redux, because
it is just such statements that cause me to look twice over my
shoulder. However, my friends at Bespoke Investment Group released
a study this week that examines the S&P 500 (SPX/1752.07)
subsequent upside skeins without so much as a 10% pullback. To wit
(written 10-21-13), "The S&P 500 has now rallied 58.6% over a
period of 515 trading days since October 3, 2011 without declining
10% from a high. It's natural that the longer we go without a
correction, the more we'll hear predictions that a correction is
coming. But while 515 trading days without a 10% pullback is a long
time, it's not without precedent. Below is a chart highlighting
past rallies without a 10% correction since the index was created
back in 1928. The current streak of 515 days is admirable, but
we've actually seen two periods over the past twenty-five years
that were more than twice as long (see chart)!"
So it is now 518 days, and counting, but it still doesn't feel like
a 10% correction is in the cards. Indeed, the stock market's best
shot at such a correction was in the mid-July through mid-August
timeframe, but the Putin Syrian Solution arrested the decline at
about 5%. Still, I will say that my timing models are suggesting
another window of vulnerability coming in the mid-November into the
early December timeframe. Said timing models worked pretty well
last summer, even though we never got the 10% decline I envisioned,
so I would honor it again going into mid-November. Yesterday,
however, the markets were wooed by rumors of no Fed tapering . . .
ever! To readers of these missives, that should come as no surprise
because I was pretty adamant there would be no tapering at the
September FOMC, and likely, no tapering this year. In light of the
overbought reading, despite the Selling Pressure's Index new low
reading yesterday, it implies prices may stall in the sessions
ahead. Yet, while prices may stall/pull back, I think we are into a
new secular "bull market," whose thesis is defined by my friend Ed
Yardeni in the
. This morning that trend is again confirmed with the preopening
futures higher by about 6 points. Be optimistic my friends . . .be
Click to enlarge
It's a Gas, Gas, Gas
This morning, Elon Musk is taking a page out of Reed Hasting's book
(NFLX) from Wednesday here
See Musk comments from this morning
Perhaps Elon is as good a technician as he is a brilliant innovator
Daily Market Report
has a daily
(TSLA), which shows that the stock turned its 3-Day Chart down on
Wednesday for the first time since its vertical phase began.
Yesterday, TSLA traded above Wednesday's high turning the dailies
back up so that a second higher daily high today (which looks like
what is playing out in pre-opening trade) will put TSLA in its
first Minus-One/Plus-Two Sell position since its runaway move
This is occurring on a backtest of its overhead 20 DMA. At the same
time, there is now a well defined 3-point trendline at around 160,
which may be a Neckline with TSLA potentially carving out a right
Below, see a TSLA chart from the
Daily Market Report.
Click to enlarge