Posts by Matt Nesto
In the six-plus weeks since the Fed announced that they would begin tapering bond purchases, stocks have been barraged with a series of positive and negative developments. Emerging markets have stoked fear and demand for safe havens while consumer related industries have suffered.
“We’ve seen banks, healthcare and utilities doing the best here” since the Fed’s announcement on December 18th, says Paul Hickey of Bespoke Investment Group in the attached video.”We want to look at what’s doing well and whether that is a sign of things to look for going forward.”
One thing on everyone’s mind is interest rates, and more specifically, how much they might rise as a result of the Fed reducing its purchases in the bond market.
“You would expect banks to rally because higher interest rates are going to steepen the yield curve and increase net interest margins,” Hickey says.
At the same time he says “utilities are a little surprising [since] you would expect them to do poorly in a rising rate environment.” But as we’ve seen long term rates are actually down so far. In fact, the 10-year yield is at a five month low.
“It’s just the world we’re in,” he says.
Professional traders look to all sorts of crazy things to try to get their heads around the market: hemlines, cardboard box shipments, Presidential cycles, and of course the Super Bowl. As much as investors deride all of them, they still kinda sorta pay attention to them, if only for the fun of it.
To the point, Bespoke Investment Group’s number cruncher Paul Hickey set out to analyze the Super Bowl theory, which unequivocally has shown that when an NFC team wins, the S&P 500 (^GSPC) has rallied an average of 10% in the ensuing 11 months and was positive 80% of the time, which is more than double the 4% gains that follow an AFC victory.
As Hickey explains in the attached video, as much as 47 years of data sampling is sufficient, this year, he’s turned this fabled indicator on its head and says Wall Street really needs to see the AFC Champion Denver Broncos coming out on top. Lest you forget, this Sunday will mark the 7th Super Bowl appearance for Colorado’s famed “Orange Crush.”
After rallying 40% in three months and surging to a four year high, natural gas just got really cold, really fast.
“There’s just been an absolute moonshot in natural gas,” says Stifel Nicolaus ETF trader David Lutz in the attached video. “We’ve had two polar vortexes coming in so far. We’ve had a very cold winter, so you’ve definitely got weather momentum.”
It’s not like we haven’t seen any three to five percent dips along the way, because we have. In fact, if you use the U.S. Natural Gas ETF (UNG) as a reference, there have been ten different days in the past six months alone when the fund closed down 2.5% or more.
But as Lutz points out, until Thursday most gas traders had been short and sweating it, as the street’s hottest commodity just kept going up.
“Everybody said, ‘let’s get short natural gas, this is going to be a lay-up trade.’” Lutz recalls, pointing out that history was working against this hottest of all commodities too.
After bursting to a record high on New Year’s eve, January is quickly becoming a bit of a wipeout. Despite today’s positive move, the Dow Jones Industrials (^DJI) is down over four percent in 2014, as emerging market jitters rocked stocks in ways not seen in two years.
“The one rule of Wall Street that I always adhere to is, the crowd is always wrong,” says David Lutz, the head of ETF trading at Stifel Nicolaus in the attached video. “The market is going to do whatever causes the most people the most pain.”
While no one can say if or when this slump will end, Lutz will tell you that the tide has completely reversed in short order and that we are now definitely oversold.
“Only 3% of the S&P 500 (^GSPC) is now overbought,” Lutz points out, noting that just two weeks ago, “33-40% of the market was considered overbought.”
As for his pain trade thesis, Lutz says the first three weeks of trading saw a preponderance of short selling, where “12 of the first 14 trading session this year” saw more bearish bets than bullish ones.
More from Breakout:
There simply aren’t many places where investors can get 63% revenue growth, but when they find it, they pounce -- and pay up.
The example du jour is, of course, Facebook (FB) which has surged 20% to fresh all-time highs after posting fourth quarter results that blew the street away.
As my co-host Jeff Macke and I discuss in the attached video, Facebook’s growth and momentum put it in an elite class, to the point where more than a dozen analysts are scrambling today to upgrade their work in order to catch a company that is on the move.
Officially, Facebook beat bottom line estimates by four cents, but its top line surge to $2.59 billion is the source of all the buzz. To do that, the social media giant was able to show that it can indeed sell ads, while at the same time, do so on an increasingly mobile user base.
While some would argue that the stock, now worth $150 billion and bigger than Merck (MRK), is a little ahead of itself, there are several key metrics that would suggest that the company still has plenty of room to grow.
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“You know why divorces are so expensive?” country music legend Willie Nelson once quipped, “Because they’re worth it.”
While ending a marriage may seem unrelated to investing in stocks, the truth is, when it comes to picking winners, the good ones are almost always expensive. It’s why growth investors like Joe Fahmy, managing director at Zor Capital, say if you’re looking for the big action, you can’t be put off by the high price.
“P/E is a good measure for some of the older companies,” Fahmy says in the attached video, “but you can’t use these traditional metrics to value companies that are revolutionizing and disrupting our lives.”
Contrary to the 'never overpay' philosophy of famed value investors like Warren Buffett, Fahmy says history has shown time and time again that avoiding stocks simply because they aren’t (or are barely) profitable is to miss huge opportunity.
“When you look back at winners, the biggest winners throughout history almost always trade at a high premium,” he says, at 1.5 to 2 times the P/E multiple afforded to the market.
While this thinking might run counter to the mindset of many market watchers, a look at the data makes a strong case.
The team at Moneyshow.com oversees a stable of some 70 different analysts and experts. Their senior markets editor, Jim Jubak, was back on Breakout with a trio of special situation picks that they’ve chosen to highight as part of the 80 picks they have gathered on their site.
Crown Resorts (CWN.AX)
Jubak’s first selection is Austrlian gaming company Crown Resort and comes from David Dittman, the chief strategist for The Australian Edge. It’s about a $10 billion business that has risen more than 40% in the past year and currently owns two big casinos in Perth and Melbourne.
“What you’re really looking to get some play on is Asia,” Jubak says, explaining that Crown also has a 34% stake in Macau and have also just been granted a license to build a new casino in Sri Lanka that could open in 2015.
For more on their take check out MoneyShow.com here:
Some would call it a coincidence. That during Fed chief Ben Bernanke’s last FOMC meeting, two other central banks - Turkey (TRY=X) and South Africa - have taken aggressive steps to protect their markets and money.
The problem is, the intent of their rate hikes didn’t last long.
“What’s more telling is that the market is calling their bluff on both central banks right now,” says David Lutz, the head of ETF trading at Stifel Nicolaus in the attached video. “This has the making of a perfect storm.”
And it’s not just those two countries. Lutz says so far in 2014 we’ve had seven central banks act to shore up their currencies against what he calls a “triple whammy” of headwinds. Specifically, he says emerging markets (EEM) are getting squeezed by rising rates, falling commodity prices, and political instability and currency weakness in places like Thailand, Indonesia, India and Brazil.
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And just like that, the worst storm to hit the markets in 26 months appears to have come to an end, at least for the moment. All in, this temporary pause in the Dow’s (^DJI) climb amounted to a whopping 3.7% haircut, before reversing itself today. And this from an index that has doubled in the past five years.
“We’re getting some stabilization out of Asia,” says Jim Jubak, senior markets editor at Moneyshow.com in the attached video, “but it still depends on what the Fed does on Wednesday.”
Also of note is the fact that the slump ended on the very same day that the previously robust durable goods data also took a turn for the worse. Officially, the December reading on manufactured goods built to last at least three years saw a 4.3% decline last month, far weaker than the 2.1% gain economists were expecting. At first the news did not sit well with investors, but in no time, the big picture was back in play again, and bad was once again was good, at least as far as U.S. data is concerned.
More from Breakout:
“Frames and shades for whatever you do, wherever you go, and whoever you are.”
So reads the new promotional material for the revamped version of “glass,” Google’s internet-connected eyewear that have so far been limited to a few hundred dorky “explorers” who were willing to be the butt of jokes and ridicule in order to be technical pioneers.
But by adding four new frame styles - including sunglasses and prescription lenses - as well as vision insurance partner VSP, it’s easy to see that Google Inc. (GOOG) is starting to focus on the commercial potential of this obscure offshoot of a project.
As my co-host Jeff Macke and I discuss in the attached video, the key to successfully taking Glass mainstream will depend on style and price. So far the device has cost $1500 from Google and is going for as much as $2500 on sites like eBay (EBAY). But even if you had the money, the devices were only available on a limited test-marketing basis.