Posts by Lawrence Lewitinn

  • A surprising explanation for why gold isn't rallying

    Lawrence Lewitinn at Talking Numbers 1 day ago

    Gold bugs simply can’t catch a break.

    Despite a full-blown currency crisis in Russia and increasingly volatile markets in the U.S., the price of gold has barely budged.

    The yellow metal has been about flat in the last 30 days and remains close to the $1,200 per ounce level. If it closed there, gold would be looking at a slight loss on the year, which would be its first back-to-back yearly loss since 1997.

    What’s keeping worried money away from buying gold? Ironically, the turmoil in Russia, which should be helping gold, could in fact be hurting it.

    “There is concern that Russia—one of the things that should be driving gold up—is in fact really hurting to defend its currency,” said Gina Sanchez, founder of Chantico Global and a CNBC contributor. “If they start to sell their gold reserves … the problems in Russia could lead to more depression in the gold price.”

    In other words, some gold traders fear Russia, one of the world’s top gold producers, may decide to sell some of its horde to buy rubles in order to prop up the currency.

    Gordon, a CNBC contributor, ties gold’s downside to the strengthening U.S. dollar. A strong greenback makes gold cheaper to buy.

  • Why this casino could be a winning bet

    Lawrence Lewitinn at Talking Numbers 1 day ago

    MGM Resorts’ miserable losing streak has finally come to an end, at least for one day.  And if one technician’s charts are correct, the stock could be a winning short-term bet.

    Until Thursday, investors in the casino stock were dealt a losing hand every single trading day this month. Despite its latest 4 percent rebound, MGM shares still remain off by 15 percent since the month began. That’s when China’s gambling mecca Macau reported a 20 percent decline in November revenues compared to last year.  About a third of MGM’s revenues come from its Macau operations.

    Two factors are cutting into Macau’s gaming revenues as a whole—Beijing’s crackdown on corruption and uncertainty in emerging markets. That means trouble for MGM, said Gina Sanchez, founder of Chantico Global.

    “MGM’s story in particular is very specific to what’s happening in Macau,” said Sanchez, a CNBC contributor. “This crackdown is not over. … You do have to be a little careful because [MGM’s] revenues are going to be hurt going forward.”

  • There might be a serious problem with transport stocks

    Lawrence Lewitinn at Talking Numbers 2 days ago

    You might think that falling oil prices are good news for transportation stocks. This makes sense, given that companies in the sector tend to use a lot of fuel. And indeed, as crude oil has plunged this year, the Dow Jones transportation average has performed nearly twice as well as the market this year.

    But FedEx’s earnings report indicates that the bulls may be getting a bit ahead of themselves. And that could put high-flying transport stocks in jeopardy.  

    One of the biggest components in the Dow Jones transportation average, FedEx slid nearly 4 percent on Wednesday, after the company missed earnings estimates. Perhaps more significantly, the shipping giant failed to boost its guidance for future quarters, even though many had predicted it would due to falling fuel costs. This could indicate that low oil prices won’t prove to be quite the boon that some have anticipated. And indeed, even as the S&P 500 rose 2 percent on Wednesday, UPS dropped 1 percent alongside its competitor.

    For one portfolio manager, the time has come to take profits in transport stocks, which are up nearly 15 percent since the market’s October low.

  • Here's why those 1998 analogies don't work

    Lawrence Lewitinn at Talking Numbers 3 days ago

    Lower oil prices, growing employment, stocks near record highs, worries about Russia. If all that sounds familiar, it’s because that’s what was going on in 1998, and the similarities have many traders drawing comparisons and predicting pain.

    But while 1998 ended as an up year for stocks—the S&P 500 gained 27 percent—it was volatile. The index saw a 20 percent dip during that summer. Yet despite the similarities, some traders aren’t buying the analogy.

    “I don’t think we can compare this year to 1998 in terms of price action,” said Mark Newton, chief technical analyst at Greywolf Execution Partners.  “Despite how ‘scary’ this all feels, U.S. indices remain incredibly resilient and have only given back 4 percent thus far versus 1998 when we saw 22 percent declines in S&P 500 from July into October of that year.”

    However, Newton sees a lesson for today’s market in the summer of ‘98’s selloff.

    “If anything, it proved to be an excellent buying opportunity that carried the market back up to new highs by the end of that year,” said Newton, who sees the S&P 500 as holding its long term trend in 1998 despite a bearish drop then.

  • The last 5 times this happened, stocks rallied hard

    Lawrence Lewitinn at Talking Numbers 3 days ago

    Should the “fear index” be renamed the “cheer index”?

    The CBOE Volatility Index (the “VIX”)—which is sometimes called the “fear index” because it tends to spike when the markets start to worry—is now trading above 20. While on the surface that would appear to be cause for alarm, it has in fact signaled a buying opportunity for stocks over the past year.

    The last five times the VIX traded above 20, the average return on the S&P 500 one month later averaged about 5 percent.

    The VIX, which is supposed to be the market’s estimate of future volatility in the S&P 500, tends to move in the opposite direction of the market. That means whenever the market pulls back—like it did back in late September and early October—the VIX moves higher for an equally short period of time.

    With the VIX closing Tuesday at 21, traders can take on a couple of positions, according to Mark Newton, chief technical analyst at Greywolf Execution Partners.

    “If the trend is intact and we’re in an uptrend, then usually anytime the VIX spikes over 20, it’s an excellent time to buy stocks and sell the VIX,” he said.

    However, Newton doesn’t see this trading strategy lasting forever.

  • Why you shouldn't expect rates to fall much lower

    Lawrence Lewitinn at Talking Numbers 4 days ago

    Bond yields are low ahead of a key Fed meeting but some market watchers don’t think they will go much lower.

    A global economic slowdown and fears of deflation particularly in Europe have been putting pressure on U.S. rates. Yields on Italy’s 10-year bond, for example, are at 2 percent while Spain’s rates for that same maturity are just 1.8 percent. Given those were two of the countries at the center of Europe’s debt crisis, buying the U.S. 10-year yield of 2.1 percent looks like a no-brainer.

    Yet if investors flee stocks for the safety of the U.S. 10-year bonds hoping yields will fall much further (bond yields move in the opposite direction to bond prices), they could end up being disappointed.

    “If we continue to see this selloff that we’ve recently been having in the U.S. equity markets, the rates could potentially hit and bottom at 2 percent,” said Erin Gibbs, equity chief investment officer at S&P’s Investment Advisory Services.  “We certainly don’t expect it any lower.”

    Likewise, the technicals also show the U.S. 10-year may bottom at 2 percent, based on the chart work of Craig Johnson, senior research analyst at Piper Jaffray.

  • Think it's bad here? These markets have been decimated by oil

    Lawrence Lewitinn at Talking Numbers 4 days ago

    Think it’s tough here? Check out what’s going on abroad .

    Since Oct. 1, the S&P 500 is up a little over one percent. But frontier markets – sometimes called “pre-emerging markets” because they aren’t as well established as the likes of, say, Brazil or India – have been downright decimated. The ETF tracking frontier markets (trading under the ticker symbol FM) has lost nearly 17 percent since the start of this quarter.

    While markets such as Kuwait and Nigeria are comparatively tiny, some investors watch them as an indication of risk appetite. And right now, that appetite for risk is nearly nonexistent.

    The culprit has been oil, which h as crashed of late and taken the frontier market with it. Oil - producing countries comprise nearly half of the frontier space.

    Country

    Percent of FM ETF

    Kuwait

    25.66%

    Nigeria

    12.65%

    Oman

    5.78%

    Kazakhstan

    4.78%

    TOTAL

    48.87%

    According to Erin Gibbs, equity chief investment officer at S&P’s Investment Advisory Services, frontier investors should brace for more pain.

    The technicals also don’t indicate a worry for U.S. stocks, according to Craig Johnson, senior research analyst at Piper Jaffray.

  • Oil has only done this twice before in the past 15 years

    Lawrence Lewitinn at Talking Numbers 5 days ago

    Oil’s price drop has been so dramatic this past week that it is now testing a major long-term trend level. And a significant break below that could spell trouble for crude.

    A barrel of West Texas Intermediate crude settled below $58 on Friday, the lowest it has been in more than five years. But something else is happening with crude that has caught the attention of many technicians.

    Oil prices are now testing their 200-month moving average. This has only happened twice before this century, and each time crude eventually rebounded from that low.

    But despite the rarity of such an event, some technicians are still staying away.

    “I’m not a big believer in moving averages,” said Todd Gordon, founder of TradingAnalysis.com. “They tend to be a little ambiguous. But what is not ambiguous is trend line support. It’s a very definitive point which traders can focus their attention on where and how to trade the market.”

    Oil’s recent drop means crude has broken below a 15-year uptrend, according to a Gordon’s quarterly chart of the commodity. Should oil close the month below $64 per barrel, Gordon anticipates even larger declines ahead.

  • How oil is wrecking the emerging markets trade

    Lawrence Lewitinn at Talking Numbers 6 days ago

    The U.S. market wasn’t the only place where stocks were getting pummeled over the past few days. Emerging markets have been getting slammed even more so.

    Last week, the S&P 500 sold off by 3 percent. Meanwhile, the ETF tracking emerging markets stocks (trading under the ticker EEM) sunk nearly 6 percent.

    Fingers are all pointing to one culprit: oil. The price of crude dropped below $60 per barrel to its lowest level in more than five years.

    Oil is a major factor for many of the countries represented in the EEM, like Mexico and Russia, according to Todd Gordon, founder of TradingAnalysis.com.

    Gordon notes that the 20-day correlation coefficient between crude oil and the EEM has increased since July from below 0 to a 0.40. That means there is a greater likelihood for the EEM to fall should oil prices continue to decline.

    But emerging markets will still have to contend with a stronger greenback. Though the U.S. dollar index fell last week, it is still up 10 percent in the past six months.

     

  • This 50-year chart shows rates are headed down

    Lawrence Lewitinn at Talking Numbers 7 days ago

    Stocks and crude oil aren’t the only things dropping in the market. Interest rates have also been plunging.

    The week ended Friday marked the biggest weekly decline in the U.S. Treasury 10-year rates in over two years. The bond’s yield, which serves as the basis for many loans in the United States, closed the week below 2.09 percent as investors sought the safety of fixed income assets. As bond prices rise, bond yields fall.

    Rates have further to fall, according to one bond market watcher.

    “The dollar is strong, commodity prices are softening, there is zero wage growth and we’ve got all sorts of uncertainty coming out of Europe,” said Mark Sebastian, founder of OptionPit.com. “Over the next six months we’re looking at a ceiling in yields at around 2.3 percent.”

    Sebastian believes that a continued selloff in the S&P 500 could bring more money going into bonds. “We could see the 10-year yield test the lows on the year at about 1.86,” he said. “I certainly think we’re going to test 2 percent before the S&P starts recovering and the yields start to ease a little bit higher.”