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, February 18, 2013
Markets closed for Presidents' Day.
Tuesday, February 19, 2013
Busy weekend for Japan (when has it not been recently?). In the minutes of the latest BoJ meting, a few members advocated extending the maturity of the BoJ's current bond purchases to 5 years from 3 years. I suppose this isn't a huge deal as the JGB 10-year trades to a yield less than 1%, but it follows the Fed model of open-ended purchases, extending maturity, so on.
Finance Minister Aso said that the BoJ's fund will not buy foreign bonds, bullish for the Yen. Though, this is opposite of Abe's line of thinking as he initially proposed it to the Japanese Parliament. It also has the strong support of one of his BoJ governor favorites, Iwata.
Abe has officially tabled the idea of removing the law that keeps the BoJ independent, saying that the BoJ and government need to work more closely together. But he put the BoJ on notice, if it fails to produce results then it will lose its independence.
All things considered, the JGB market hasn't reacted all that much to the move in the Yen. See a curve chart below with the yield changes from 3 months ago:
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Battles Lines Have Been Drawn
There is no doubt gold and silver are at a critical moment. First off, if history is the guide, 18 months of consolidation means something! Corrections are a function of both time and price, so remember that. It's pretty easy to see what's going on here. We just have to examine Friday's COT.
Gold: Commercials (banks) have been covering steadily, hedge funds have been aggressively shorting. It continues today. Last week showed approx. 66k large fund gross shorts and that number is definitely higher as I write. They are pushing to initiate the death cross, where the 50-day moving average penetrates the 200-day. A sell signal they say.
Silver: The uber greedy JPM desk continues to amaze me as they refuse to cover a morsel of their highly concentrated short. Their counterparts in gold pits are doing the opposite. Hmmm. I lightened up on my silver after seeing the report on Friday as there is possibility of extension to 28.50-ish, within the context of gold holding its important bottom established Friday. We have seen fresh lows in silver today, and gold is still relatively comfortably above its Friday panic bottom.
I am a reasonable guy. Long-term charts show the perfect entry to be the much talked about 1350 area and it's not out of the realm of possibilities that we go there. However, I still think there is a chance this is it. The gold COT showed very little long liquidation, but rather a buildup of shorts. It looks like there are two arguments here. I am sticking with the long bias provided gold holds its Friday low, or only penetrates it by a stop hitting morsel.
Welcome to the Greatest Show on Earth
Michael A. Gayed
This is one of the more confusing days for markets in a long time. As many followers of mine are aware, I began turning negative on equities a few weeks back after having been a raging bull throughout the late-November/Fiscal Cliff non-sense based on my approach to intermarket analysis. Various internals are not acting in a way that signifies as much relative excitement in the bull move as absolute price would otherwise suggest. Consider that bond yields are not rising in any real meaningful way. While the market appears strong, Utilities (XLU) and Consumer Staples (XLP) are up as much as Energy (XLE) and Financials (XLF). This is illogical. Utilities and Staples are bets on a slowing environment combined with higher volatility, whereby Energy and Financials signify the exact opposite. There is far more than meets the eye than Dow 14,000 to what is happening within the market.
Our ATAC models used for managing our mutual fund and separate accounts remain defensive until resolution occurs to signify all is well for a comfortable re-allocation back to stocks. Is the market in an uptrend? Yes. Are intermarket trends behaving like it is a bull market? Not so much. I will remain stubborn in sounding the correction alarm until price tells me otherwise.
Wednesday, February 20, 2013
Aruba Networks -- So Hot Right Now
I have the pleasure of bringing today's trade to you live from where the magic happens -- nowhere other than Minyanville HQ in the city that never sleeps. Gotta say, I'm blown away by all the (intellectual) talent around here. The financial industry has enjoyed a charming stigma that our news can only be served one way -- thick & dry. There's a healthy intangible energy in the office; that feeling of knowing something special is taking place. A serious atmosphere, no doubt, but one with the rare charisma of knowing its place in the world. For MV, that's a place that remembers to laugh every now and then. Cheers all and thanks for the hospitality!
It could be the unseasonably warm weather, or possibly the lack of need to display the local UV Index on the Weather Channel here in NYC, but I'm dreaming of somewhere warm where the Prickly Pear juice flows freely -- Aruba. More specifically, Aruba Networks (ARUN). There are lots of reasons to be a fan of the fundamentals/strategic positioning this turnaround story has been busy implementing. Most notably they're arguably the leader among a small group revolutionizing the "BYOD" movement a.k.a. "Bring Your Own Device." Most of us remember when we had to carry a certain "type" of smartphone for corporate communication purposes. Ask any corporate IT pro and they'll be the first to gripe about the complications of incorporating "flavor of the month" smartphones through corporate firewalls. Aruba's technology eliminates that headache for the IT department and another for the rest of us - carrying redundant cellphones cellphones. Ahem...
In the ARUN chart below an inverted head & shoulders pattern has been patiently consolidating for over a year. The length of the consolidation, as well as its articulate structure hint a powerful move higher is likely. Patience has been a virtue lately and in that vein I anticipate there's time still to slowly build a position in ARUN. I'd start by going long 1/4 here in the mid $22 range, adding 1/4 around $25, and should a slight pullback hold $23 add the final 1/2 to the position. Although I have copious confidence in this analysis it's always a good idea to have some sort of protective stop just in case. Mine are around the $20 area personally, but be sure to have some sort of stop consistent with the amount of risk you're willing to take. For the more risk-adverse, a stop near $21 seems perfectly reasonable. Once $26 is breached on strong "buy" volume the breakout will be confirmed. Current target profit is approximately $35 upon confirmation. In the interest of good trade management, taking some profits along the way is smart practice. In a perfect scenario - upon achieving the price objective I'll probably already have taken off half my position at a handsome profit to put to work in other trades. In reality, I'll probably wait too long and end up making less due to not having taken profit along the way... Well, I know what I'll be working on with this one...
Cheers and thanks again to the team at MV. You guys rock!
As an FYI, I plan to get long ARUN today. but I don't hold a position yet.
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I got this e-mail from a friend who's a civilian working for the military.
"Bummer. I just got the slides for my future. Sequester impact will be 22 furlough days for me and a 20% pay cut for the year ending September 30. Which by the way is half over so should this go through it will cost me one full year of tuition for one of the twins this year. So how does this inspire me to re-dedicate my efforts at public service? "
According to him, all the government agencies are not going to lay people off immediately, they are just going to cut everyone's pay by 20%. A layoff means you are actually terminated. A furlough is actually a forced leave without pay. You are still on the payroll just not being paid for two days of each two-week pay period, thus the 20% hit.
He says this looks to be across the board. All agencies, FBI, air traffic controllers, Justice -- everyone. The 22 days is critical because that is the maximum amount of furlough before actual layoffs have to occur.
The economic impact of this will be much greater than if actual layoffs occurred because those people would at least start collecting unemployment. The market is not pricing this economic hit, in my opinion.
To top it off, he says that it is illegal for him to use his Blackberry during furlough days so he can't even use to help out if needed.
So while this is about to start Obama is playing golf in Florida and Congress takes the whole week off. What a government...
Thursday, February 21, 2013
The Four-Letter Freaks!
Earlier this week--wait, was that really only a few days ago?--as we openly debated the merits of my S&P (^INX) short bet, I mentioned there were two elements working in the favor of the bulls. The first was the stellar price action (which shifted, proving once more that we must respect but never defer) and the second was the bullish cup-and-handle formation in the NDX (INDEXNASDAQ:NDX).
Revisiting the latter matter, and now that NDX 2750 has folded, NDX 2700 has emerged as the level of lore for traders galore. While most folks are monitoring the 50-day (NDX 2720), that isn't as technically significant as the lower band demonstrated in the chart below. It's an intuitive level for the bulls to make a stand; and past support (NDX 2750) is now near-term resistance.
Stair-stepping our way through the trading day may not be sexy but it certainly adds context to any risk management process. That's why we so often say, one step at a time as we together find our way.
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I favor a 10% off 10sma envelope for the VIX (INDEXCBOE:VIX) on the daily, and we have easily broken out of it. But these are extreme moves, and tend to retrace to the top of the band, in this case the 14.37 area today. If we ride the outside of the band, unlikely for too long as we did in December, then the markets can get quite volatile.
The VIX is a relative measure, not an absolute, so always look at it though the lens of current deviation.
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Whiff of Precious Capitulation
January was an N/R 7 month for GLD (GLD). In other words, it was the narrowest range month in 7 months. An N/R 7 implies an expansion in volatility in the next timeframe,
In this case the monthly.
There was a bullish down inside month setup but the volatility move broke to the downside.
An opposing bearish 3rd lower high on the dailies dominated leading a waterfall, which is the presumption from 3rd lower highs.
Failed setups (the bullish monthly setup) lead to fast and sharp moves. Cometh the gold washout.
Now there is a lot of chatter about how much lower GLD will go based on an approaching Death Cross where the 50 day dma crosses below the 200 dma.
A daily GLD from August shows that the inverse, a Golden Cross, nailed the high.
In the markets, often what everyone knows is not worth knowing.
Will a Death Cross define a low?
Note the Spike Volume Top in August mirrors what may be a Spike Volume Bottom yesterday.
149 is 180 degrees down and opposite the last swing high on GLD at 174 in October.
Turning to SLV (SLV) we see a possible mirror image foldback pattern.
Precisely 180 degrees/days ago in late August, SLV saw an inception of intense buying. Does this tie to climax selling and an inception of intense selling 4 days ago?
Like GLD, a Golden Cross defined the last swing high at 34.
90 degrees down from 34 is 28.
Interestingly, the major high at 48 in April 2011 is 90 degrees square yesterday, February 20.
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Friday, February 22, 2013
S&P Futures v. Oil
I just wanted to highlight that S&P futures are coming down off the morning's highs along with crude oil.
We've often noted on the Buzz how commodity volatility often precedes equity volatility, so keep your eyes peeled.
I attached two charts: an intraday chart of ES against oil, and a 10 day, 10 minute chart of the same so you can better see the relationship on an intraday basis. Notably, last Wednesday, a big whoosh down in oil preceded a drop in equities.
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Apple (AAPL) left an N/R 7 Day on the 7th day of a decline yesterday.
This suggests an expansion of volatility in the stock today/tomorrow and I have a cycle due Tuesday in AAPL.
So, it will be interesting to see if AAPL can gain some upside traction from this key area -- the high of the low bar day around 450 -- or whether it knifes through this level on a failure leading to an undercut of the 435 low next week.
The first tipoff to some upside would be AAPL being able to capture its overhead 20 dma with authority.
See daily AAPL here for year w/ 20 dma:
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Charter Communications and Comcast
Charter Communications (CHTR) reported this morning and hit or exceeded most numbers for financial and subscriber metrics. Guidance commentary indicates 2013 street estimates are OK. I had feared that capital spending, programming, and marketing expenses would be higher than the street following guidance from Time Warner Cable (TWC) Comcast (CMCSA), and DirecTV (DTV). Programming expense in 2013, in particular, looks surprisingly mild relative to my expectations and other cable and satellite companies.
I think this quarter will reassure the street on CHTR's growth plan. Given the high regard with which CHTR CEO Tom Rutledge is held, I no longer see a fundamental story justifying being short the stock. As a result, I have covered the short from last week at breakeven. At this point, I am more likely to go long CHTR again than short, but for now I have no positions. Comcast remains one of my largest positions. The stock has given up all of its gain off the NBC Universal buy in. I think that is incorrect and represents a buying opportunity.