Buzz on the Street: Naughty Bears May Keep Santa Away
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 the 120+ posts seen on the Buzz & Banter this week:
Tuesday, December 10, 2013
Bearishly, Gilead Sciences ( GILD ) opened below Monday's breakout pivot point and immediately extended to a test of its 20 DMA.
However, in so doing, Gilead Sciences wiped out the past 11 days' range and the last 3 days of gains.
Notably, Gilead Sciences left a Gilligan sell signalon Monday , on gapping up to a new 60-day high and closing at or near session lows, a bearish News Reversal Day (reversing on good news). The Gilligan signal did a good job of telegraphing today's weakness.
Bearishly, Gilead Sciences has turned its 3-Day Chart back down immediately following a new high. This is occurring since Gilead Sciences is violating the last 3-Day Chart circled low from December 4.
Below, see a Gilead Sciences daily chart from October 29 with its 20 DMA.
Stabbing back below the prior swing high from late October with authority leaves Gilead Sciences in a weak position.
Gilead Sciences may be symptomatic of what I gall "Gapism," which is often times seen in several leading stocks when the major indices are carving out a high, leaving many players without a hoped for graceful exit.
Click to enlarge
Treasury Seasonality... No More
While I'm hammering out my main fixed income themes for next year, I thought about seasonality and the corporate issuance market. Last summer I took a look at the historical seasonality of Treasury yields since 1970.
Typically, Treasury yields tend to decline in the winter months because corporate issuance is slower during those months. New borrowing then picks up as the new year turns, particularly from financials. However, with a few exceptions, the corporate calendar doesn't have a season anymore. For munis and agencies yes, but corporates no. Because there isn't a lack of hedging demand in the rates market during the winter months, this would generate downward pressure on yields. No more.
With the advent of forward guidance in 2011 - where the Federal Reserve said rates will stay low for X period of time - it has pulled forward all sorts of corporate borrowing, fixed or floating. Unfortunately, not so for consumer borrowing. I'm very curious to see what will happen when rates rise for two reasons. How will corporate bond buyers react? My guess is no real difference unless there is market disruptions. The other side is the corporations themselves. Thus far, the majority of the issuance has been for financial engineering or repairing balance sheet by refinancing outstanding debt and lowering interest costs. The real growth will happen when companies take advantage of the borrowing for business investment or capital spending, presumably that would be the fundamental reason why rates would rise.
Wednesday , December 11, 2013
Adding MasterCard to My Potential Short List
Sure, MasterCard ( MA ) did a October 1 stock split. Yes, I think Apple ( AAPL ) should do one. Yes, I think Apple would and should rise on that move. But Apple is dirt cheap and severely undervalued. MasterCard is becoming quite overvalued, especially. on a PEG basis.
MasterCard has already risen a ton and is trading at a very full valuation after rising 3-to-4 fold from 2010 highs, which was also multi-bagger moves from the company's IPO just a couple of years earlier. All this is coming in front of the upcoming Square IPO, a rapidly growing Paypal, and a Visa ( V ) that is still better in my opinion. Plus, I think there will be a good amount of potential disruption in the coming yeas out of the biggest of the tech players.
My world view is that every one of the leading and largest techs are going to offer e-payment services. Out of this space will likely come another winner-take-all scenario.
Can Visa and MasterCard hold onto the oligopoly they currently
maintain? Sure they can, but if they do, it's going to be a whole
heck of a lot tougher decade than the prior one was. Moreover,
there is at least a decent betting man's shot that they won't
maintain the oligopoly.
So now, MasterCard is spiking off the October 1 stock split news, and simply put, this is setting up for another gorgeous stock to add to the short list. In the past, I have been a huge Visa and MasterCard bull, and I was a table pounder when Visa went public. I have also favored MasterCard after big macro-related market drops.
Besides my usual stock analysis, R&D, and market share work,
I know something a lot about the industry. I worked at Visa. I
rolled up the total company financials, led the finance team that
helped design the company's first multidimensional database model,
partook in the company's first bond issuance, etc.
Bottom Line: I know the credit card processing model business exceedingly well. And it may be in for some not so friendly changes in the coming years.
Click to enlarge
"If Santa fails to call, the bears will roam on Broad and Wall!"
. . . Lucien Hooper, a Wall Street icon
The aforementioned quote came to mind yesterday, not because I think there is going to be a major decline, but because I got so many emails from folks who are worried about just that; a major decline. As often stated, I don't think a major decline is in the cards. In fact, I believe any pullback we get from here actually sets up the fabled Santa rally. Admittedly, I would have preferred to see the market's decline, which began last week, not be interrupted by Friday's Dow Wow of some 198 points, but they don't operate the market for my benefit. Yesterday, we got some pretty good news, in that it appears a budget deal is at hand. For weeks I have stated the upcoming budget discussions were not going to be nearly as contentious as last October's, and presto, Paul Ryan and Patty Murray announced such an agreement yesterday. This is a two year deal to fund the government, eliminating the threat of another shutdown. Discretionary spending is raised above sequester levels by $64 billion over the next two years. Also on the good news side of the ledger, the Trucking Survey had its biggest surge in six years (there is a strong correlation, or R2, between truckers and GDP), the Christmas tree sales surveys leaped 12% (improving the outlook for Christmas merchandise sales), there is also a high R2 between the stock market's action prior to Christmas and merchandise sales (currently calling for +5% sales YoY), and the "good news" list goes on. On the downside, Residential Construction Spending has hooked down. It is hard to see how housing weakens much more without impacting the overall economy.
Surprisingly, the stock market turned a deaf ear to the good news yesterday. This should come as no surprise since the timing models have suggested a window of downside vulnerability between mid-November and mid-December. Yesterday the S&P 500 ((INDEXSP:.INX)/1782.22) moved back below its recent trading range zone of before last Friday's employment numbers. Said move also caused the S&P 500 to see its 10-day moving average (DMA) cross below its 50-DMA; and, you can read that as cautionary! While yesterday's decline was intense, it failed to register as a 90% downside day, meaning that less than 90% of total volume traded, and total points lost, came on the downside. That means that sellers tended to NOT be totally exhausted on the downside! This morning it is more of the same with the preopening futures marginally lower. So we wait, at least on a short-term trading basis. Longer term, I remain pretty bullish, yet in the short run, I think the outlook is sketchy...
Friday, December 13, 2013
Insys Subpoenaed by OIG
Friday the 13th came a few hours early for shareholders of Insys Therapeutics ( INSY ). Insys appeared in the top spot of my 4 Top Performing Biotech IPOs of 2014 story from two weeks ago.
In a terse press release after the bell yesterday, Insys disclosed the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) issued the company a subpoena. According to the release, the subpoena is connected to potential violations of HHS programs related to the company's sales and marketing of Subsys, its lead program.
Subsys, a version of the addictive pain killer fentanyl, is approved only for cancer breakthrough pain. If the company is marketing it for something else, then the federal government would certainly get involved. When Aegerion's (AEGR) CEO made some comments the FDA (which is part of HHS) saw as potential off-label marketing, the FDA sent a warning letter.
Given the OIG sent a subpoena, it's likely this is something more than simply minor off-label marketing. Widespread off-label marketing would attract OIG attention. So would the drugmaker or its employees giving kickbacks in exchange for prescriptions.
The OIG action is bad enough, but it's likely to get worse for Insys. Subsys is also regulated by the Drug Enforcement Agency (DEA) as a controlled substance. All of Insys' products are controlled substances, including a product whose FDA application was pushed back awaiting DEA action. If Insys indeed can't be trusted to market Subsys within the law, odds are low the DEA will look favorably on an application to sell a new drug. Shareholders also might have to worry the DEA will pull the company's licenses to manufacture their dronabinol products, too.
I outlined warning signs in my article. Despite a bad pedigree, failed drug launch, and an indefinitely-delayed NDA, investors bid this one up over $1B in valuation. That's likely going to get cut in half or worse today as investors flee what appears to be a very bad situation for the company.