Buzz on the Street: A Bear Springs a Trap
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.
Monday, April 15 , 2013
Breakout Failure on the S&P? Take Some Notice
The S&P 500 (INDEXSP:.INX) took out some momentum levels today that could cause a bit of concern. I like to trade individual names for break outs through key levels, but if it turns into a "breakout failure," I take notice.
The S&P broke through a key level last week -- 1573-1576 -- and pushed up to 1597. What that does is, it squeezes shorts that have been rolling them up and it also baits in those who feel like they might be missing the move.
What is important after a breakout is measuring the validity of the break out. If it fails to hold and turns into a bit of a trap, take notice. So when 1574 gave way, I used it as a high-level stop on some positions. We are holding to 1562-ish by a thread, which is the 21-day MA.
The accelerated weakness in the commodities also has investors rattled and hearing footsteps. All-in-all, one of my rules is that I don't like to buy on Day 1 of a wide range engulfing bar, which is what we have today.
The last few times this year it happened this way, it didn't lead to much. I'd rather watch from the sidelines a bit.
After a harsh day like today, everyone will start chirping about what type of correction we might see. At this point nobody knows, but you don't have to know if you're flexible and measure levels.
Buy the Dip?
It looks like there have been multiple attempts to buy the Dip today. Here is my attempt at tracking on them on the S&P 500 today. While partially tongue in cheek, there is an element of truth to it.
We had weak economic data out of China, Europe isn't resolved, why this time QE will work for Japan is anyone's guess, and we have had a series of misses on the data side and so far earnings don't look that great relative to how healthy the economy supposedly was.
We continue to view 1,500 as a target on the S&P 500 and think 1.60% is reasonable on the 10-Year Treasury (INDEXSP:SPUSTTTR) .
Given the number of people I have heard today explaining how the US stock market is the best place to be (in spite of record highs), I think a quick shake-out is a real possibility. Maybe the DIP buyers will win, but if they aren't winning by 3:30, look for an ugly close as some decide to cut, and it is hard to look at the volatility in other asset classes and assume that US markets are safe from it.
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Between the Ticks
The Russell 2000 (INDEXRUSSELL:RUT) and Dow Transports (INDEXDJX:DJT) are both back below their 50 dma's.
The quick recapture and subsequent give-up of the 50 suggests the recent rally in both were test failures of their respective highs.
This is a sign that the S&P back below the key 1584 'square' is probably a significant event.
Tomorrow the S&P will likely turn its 3 day chart down in carving out 3 consecutive lower lows, something that, believe it or not has not happened all year.
If this plays out, and the index continues lower/accelerates lower it will coincide with a violation of a prior swing high---the March 'flat line' or Slim Jim.
This is something that has not occurred since last fall when the S&P stabbed back below the prior June pivot high.
More importantly, as shown last week, trade back below the March flat signals a Boomerang sell signal, the same pattern traced out in Apple ( AAPL ) at its September high.
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Tuesday, April 16 , 2013
The Legend of Turnaround Tuesday
Gonna keep this quick anddirtyclean as time keeps on slippin' slippin' slippin' into the future.
If there is margin selling out there today, it's in the Gold (NYSEARCA:GLD) complex, which is now $35-$40 off the best levels of the session. Meanwhile, over on the path of maximum frustration, stocks are trading at session highs , seemingly impervious to the correlation we flagged this morning (note: this isn't a daily "one-beta" dynamic; it's broader than that).
While I strayed from my discipline earlier--I was off the desk when my buy-stop was triggered on my second lot of 25%--I am going to sit tight with my current posture, which is now 50% of a full SPY (NYSEARCA:SPY) put position . This, of course, was rounded up from 5% exposure on the opening after I punted 95% of my risk into yesterday's red mess.
There is a school of thought that you can't time the market and perhaps there's merit to that, with upward of 70% of volume coming from R2D2 and C3PO. Still, my game-plan is to trade around a short bias under S&P 1580-1600 and I'll continue on that track until such time I'm stopped out or (perceived) conditions change. It could, of course, be worse-- it could be raining --so keep your right hand up and your spirits high as we continue to find our way.
May peace be with you.
ES Loses 2013 Support
ES (SPX futures) back under 2013 trendline support, so far confirming that April rally was a bull trap and Q1 trend is being reversed (chart). Bulls need a close above 1568.50 to negate that change.
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This morning's census data release of housing starts appears to show a "surge" in demand for apartments.
Actually, not really.
The chart below is a comparison of single-family and multi-family starts since 1964. Since 1994, apartment construction has been below historical trend as the mortgage market opened up to households who were always (and should have always been) renters. Consequently, apartment supply was insufficient coming into the financial crisis. The latest increase in apartment construction barely gets us back to the anemic pre-crisis levels.
Supply always is and will be the enemy to apartment markets, but we have much further to go (in most markets) before that becomes an issue. Any stimulus is good, but the economic stimulus (i.e. multiplier effect) from apartments is much less than single-family houses. Is this good news? Yes, but not as good as many may believe.
Lastly, look at the single-family line… We are still at the lowest levels in 50 years. If a renter cannot get a mortgage for a home today, what will happen when rates rise?
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Wednesday, April 17, 2013
Deflation Pulse Beats Faster
I put up a new article on Minyanville addressing the idea that the market seems to think $85 billion per month is not enough given now very clear deflationary behavior underway. Stocks have nowhere near priced in just yet on an absolute basis the severity of the deflation pulse in nearly every other area of the investable landscape. The collapse in relative price of small-caps must be respected, alongside bond yields, which indicate a major flight to safety is under way.
While the fear is on a continuation of gold's decline, I believe stocks are now the most vulnerable risk asset. So I continue to be cautious here, and I encourage you to check excerpts of the coming re-release of my father's book discussing bear market characteristics at intermarketanalysisandinvesting.com . This is how major declines can happen, when price suddenly realizes that the conditions are very different than what most think.
Our ATAC models used for managing our mutual fund and separate accounts continue to profit from the deflation trade, waiting on the next fat pitch. The compression of the yield curve is quite telling, and should not be ignored.
How Far Will This Apple Fall?
With today's price action, Apple runs the risk of breaking horizontal line support (created by the lower edge of the upside gap from January of 2012 and the short-term lows from earlier this year) at $420.41.
However, if you take a look at the wider view of AAPL, it could be a "normal" long-term downside correction for the stock. By "normal", I simply mean it may be nearing the end of a larger "ABC" correction to the downside. The wave "C" support level comes in at $390.90. Given it is a long-term correction, it's tough to assume that the support will be exactly $390.90 - so give the stock a little leeway around that level.
If the stock can find some solid ground at or near this $390 support level, it may be a nice reward / risk entry point for prospective bulls. I would probably use a stop-loss on any close below $385. In all humility, though, you should take all of this with a grain of salt as it's coming from your friendly, neighborhood forex / bonds / commodities specialist.
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Reloading on the Short Side
I'm not one to press -- at least I don't think I am -- but as I look around the financial landscape, and the inability for the breadth to improve with the futures, I've reloaded on my SPY September Puts (to 50% of a full position) with a stop above the trend-line (that has been in place since November). Through my lens, that comes into play in and around S&P 1558, so it's relatively tight and defined as these things go.
Markets that are weak all day with 2:1 negative breadth (or worse) tend to end that way; and if I'm wrong, and Snapper sizzles the shorts, my risk is a few handles.
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Thursday, April 18, 2013
Holding Microsoft Into Earnings
Microsoft ( MSFT ) reports earnings after the close today, and I wanted to quickly run down why I'm holding my $28.50/$29 call spreads into the report.
First things first: the PC industry has been a total train wreck since even before Windows 8 was released. But everyone knows that , and since analysts keep cutting earnings estimates and target prices, there's a nice negativity bubble surrounding the stock.
Secondly, while PC sales are pretty, Microsoft's enterprise business is pretty strong, and the company still generates a ton of cash flow. Plus, the 3.2% dividend yield makes the stock attractive as an income play or even as a corporate bond substitute.
Third, Intel ( INTC ) recently reported so-so earnings and guidance, and the stock is up since then.
And to make a profit, I don't need Microsoft to go up much -- at $29 I'm at maximum profitability on my trade, and I think Microsoft can rally to $29 in short order, even on a mediocre quarter with mediocre guidance.
Longer-term, I don't have a ton of confidence in the stock, but I think they'll hang on in the near-term just fine.
Somethin's a-Brewin' in TIPS
The 5-year TIPS auction was pretty atrocious, and I say that because the discount that was priced in over the past month didn't even make a difference. You might call this auction a borderline fail . The reason I say that is because indirect bidders, who submitted their relatively average $8.267b worth of bids, got filled on 99.88% of their bids. That is simply unheard of in any Treasury auction. Remember, for the most part, indirects, or foreign government sources, aren't buying for economic reasons. Directs didn't even bother showing up. In the post-auction trade, it looks like whatever dealers got they just dumped it right down.
I can't figure out if this is FX related, i.e. rebalancing after the Yen selloff or the "real asset" hedge getting unwound - TIPS have been a favorite trade for those seeking protection from "central bank money printing". Regardless, the trend is very clear, there is a move away from real assets. So I'm going to noodle it some more while I look back at some historical auction results.
Levels of Lore
This is an important zone for the market; the S&P 50-day is 'right here, right now' and the S&P 1540 is a level we discussed at length yesterday .
Market breadth is now 2:1 negative (this is why we don't count it as a tell until 30 minutes have passed) and the financials are heavy ( BKX (INDEXDJX:BKX) -1.1% vs. SPX -.6%).
Again, it's very early, but keep your eyes peeled and your right hand up as we continue to find our way.
As I will be making the commute into the big city in an hour or so, I have covered my remaining short-side exposure into this red mess (I abhor blind risk). Please remember that we each have unique time horizons and risk profiles.
Friday, April 19, 2013
Apple PnF Points to $320
On December 10, I posted a PnF chart of Apple pointing to a $310 price target and wrote the following:
"Jefferies lowers their price target on Apple to 800. The PNF chart lowers it to 310."
Here is that same PnF chart updated, pointing to 320, only a slight modification but keeping the longer term investor focused on the real trend. The great advantage of PnF charts which work well with stocks, but not so well with Indices).
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Turning It Around: Now Shorting Microsoft
Now that I'm done with my adventure on the long side with Microsoft, I'm back in on the short side.
I'm looking for some negative market exposure, and now that the stock's had a bit of a relief rally, I think it's set to stall out as people once again focus on lousy PC industry data and the company's weak position in mobile. And it certainly helps my case that Blackstone ( BX ) is dropping out of the bidding war for Dell ( DELL ), with one factor being weak PC sales (though Microsoft has a quite a strong enterprise business, the PC business dominates the news).
I'll stop myself out at $30.30-ish should the stock move against me. This is a pretty tight stop but I have no patience for losses, especially on short-term trades. If I'm wrong, I can live with being wrong in a small way.
LinkedIn Hovering Above Recent Support
Although LinkedIn (LNKD) is beginning to look tired, it is hovering above a confluence of important near-term support, so we'll give it the benefit of the doubt for now.
This support includes:
1) The higher lows trend line
2) .618 Fibonacci retracement
3) 50-day moving average
Note that although the stock price entered a period of consolidation, it is still 40% above its 200-day MA.
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