So we have basically had 7 days of upward price pressure yet plenty of divergences out there in my eyes. A key one here is the new lows that spiked up yesterday although we were flat on the day. This is a major divergence in my eyes that is not a bullish at this stage for the rally hounds. It isn't really actionable but may be a leading indicator of things to come. 

Anyone else sick of the infotainment the mad man spews daily on CNBC?  Its only been a year for his new show and yet it feels like a decade with the amount of "Plays of the day" he has made.

I seem to remember the mad man across the water doing the same thing back in early 2k right before the internuts  busted up. Why pump every sub $5 stock every day is what I want to know? Oh right, because they are easily moved by such mentions daily and then they will crumble em hard just like VPHM did last week. I don't see Cramerica mentions going from 10 to 25 but I do see them go down hard. Oh how the mighty will fall again.

Is this the only thing we can use to get volatility in these markets?Crazy, nutty times indeed. Can't end in a nice way. I have seen this game play out before. What happens when real volatility comes back to these markets, not just the infotainment juiced picks of the day and chair throwing we see every day? Are you ready? Its coming.

 

 

Another sign that things are priced as good as it gets?

 

I expect with parity at it highest levels this years tourney should continue to be one of the most watched ever.  I also think the ad guys who came up with that Applebee's bit need to be shot. I mean what were they smoking when they said yes to their ad firms pitches?

 

The Big Ten again with a weak showing and no teams left in Sweet Sixteen. Football and Hoops lagging greatly in Big Ten country now for what seems like an eternity.

 

There seems to be four consistent themes I continue to see in this market

 

1. Stated Buybacks by Public Companies

2. Heavy Insider filings for 2ndary stock offerings.

3. Chasing of "Private Equities"

4. Delayed 10k's

 

I don't view any of these on their own as bullish items. But markets continue higher, SPX closes @ 1305, with 1340-50 in our sights.  Very strange times indeed as volatility continues to lag as we wait for the Fed Speak tonite. Not expecting much there personally, but we should be able to continue the rally at that point. I do think this market is running on empty but will give it the room to roam even with the above factors growing and just a piece of the overall puzzle.

Weekly Newsletter Contribution -- Week of March 20

I wanted to take a look at an issue that everyone and their great aunt have been discussing for the past few years,   Housing Bubbles.  I am in the camp that all asset classes get over- and under-extended and in the long term, I believe that housing will revert to a mean.  There is clearly froth in many housing markets in the US. There are also markets that are undervalued and offer opportunities as an investor. As an arbitrager, my job is to decipher the static and make a dynamic placement whether long or short in markets.

All that being said, and “bearing” in mind my personal longer term bearish outlook on the housing sector, I actually see the housing stocks index (HGX) as a low risk bet on the long side over the next few months.  Let’s take a look at the chart and see why. 

 

 

The HGX chart shows me that a breakout in housing stocks took place on a strong close this past Thursday, and you’ll see that where the chart crossed through the thin red line.  At the moment though, the index is now a little overbought, but I would buy any dips that put the index anywhere near $255-$265.  I would continue to buy any weakness in housing stocks until the old low near $250 is taken out.  This is what we call risk management. The shorter term favors the long traders here and although my bearish macro-outlook in housing still persists, this doesn’t mean we can’t break out the static from the dynamic and benefit as speculators in the interim. 

 

 

Open the book today to a pretty quiet environment. Futures are falling with GM bonds as they delay their 10k filing and show bigger losses than expected.  I notice a pick up in 2ndary and insider filings of many stocks this am. Interesting to note that in this no news environment for companies, the prices have been run up and then bam, the secondary and insiders dump more shares. Wall Street at its finest.

 

Filings: Finisar (FNSR) files for 34 mln share offering by selling shareholders... Time Warner Tcom (TWTC) files for mixed shelf... Prudential (PRU) yesterday filed for a mixed shelf... RBC Bearings (ROLL) yesterday filed for a 7 mln share offering, 6 mln by selling shareholders, 1 mln by the co... inVentiv Health (VTIV) yesterday filed for common stock offering... Copano Energy (CPNO) yesterday filed for a 1.4 mln share offering of common units by selling shareholders... Gold Kist (GKIS) yesterday filed for a mixed shelf... Puget Energy (PSD) yesterday filed for common stock offering... ON Semiconductor (ONNN) yesterday filed for a $95 mln convertible sr notes offering by sellling securtiyholders... Cell Genesys (CEGE) yesterday filed for 9 mln share offering by selling stockholders... Mellon Financial (MEL) yesterday filed for common stock offering by selling shareholders... Prudential (PRU) yesterday filed for a mixed shelf... Pricings: Ikanos Communication (IKAN) prices 5.75 mln share offering at $20.75/share... Universal Corp (UVV) prices 200k convertible perpertual preferred stock offering at $1000/share... Coeur d'Alene Mines (CDE) prices 24 mln share offering (increased from previously announced 22 mln) at $5.60/share... Apollo Investment (AINV) yesterday priced it's 15 mln share offering at $17.85/share.

The Bulls are running wild as the numbers hit the tape. The market had been weak before the 8:30 numbers today and now everyone in the futes markets are scrambling to cover. That's how I see it early this am, nothing else really exciting about the numbers the way I see them. They are again Godilocks numbers as it seems most numbers appear currently to market players. Just right . . . .

CPI came in as expected on the number.

Housing Starts and Building Permits were both higher, so we continue to see rising inventory.

Jobless claims were slightly higher and continuing claims were lower .

To me it is all static and Wall Street is pushing hard to get the retail investor back into the markets. Speaking with some of my local retail broker contacts, one told me just yesterday that usually at this point of a long rally period his phone would be ringing from clients that are clamoring to buy now and his phone is still quiet. New money is coming in but they are not chasing stocks here and don't feel all that enamored. So, with that in mind, we still have higher to go as I have suggested for some time. I still am not seeing the leadership, strangely it has been Metals and Energy and all commodties. Those have taken a breather and seem to be just resting at the current moment. Seems strange thinking higher commodities still would be the driver of this stock market but who knows. Strange times indeed.  Personally its a scary time to be generating big long term long position risk the way I see it. It's also dangerous to overshort the markets, but for selected names.  Even CAG a "real" stalworth company lowered their dividend today and warned, so let me see people aren't eating? 

Let em digest the opening recovery gap today. I would be willing to bet the strength continues through quadruple witching options expiration tomorrow, it is hoofish out there for sure.

We open up the day following a big trend day up yesterday. We have LEH hitting the wires, good numbers but not GS numbers like yesterday.  The stock is trading off today slightly.  There is not much follow thru so far premarket futures are flat. On my hourly inidcators we are no fairly overbought across the board on the indices.  We have a Ten year note that is oversold, and "breakout" levels across the board on all indices. So will we get big follow through or will we contain the markets again here? My gut says we are still 3 plus years almost to the day since the War Rally started in March of 03, and we have yet to have a significant pullback of 10% or more. This is not typical behavior and I think a turn is near to us for some change in trend. It still may take the bull rush and final blow off up to my 1340-50 target on the SPX so let's see how quickly they can gun em up.  Otherwise, I don't see much to get too excited about with the economy.  Retail numbers had biggest negative numbers in 6 months and although one month does not make a trend, I believe the slowdown in housing is already going to take its tread on the retail component in the near future and retailers seem pricey to me. Let's see if we continue up or roll over a bit today to correct the overbought conditions. I would be a seller of any significant strength on the open today.

Remember that Seinfeld where everything was opposite? With as many divergences as we have in this market, I think the smart play is to do the exact opposite of what you may think. Today we had worse retail numbers and the Homebuilders take off. Of course they were oversold and the press was beating the sky is falling on housing all day yesterday so that makes sense that they go up today.  Pretty much all asset classes are rising in concert again today, Gold, Oil, Stocks, Bonds, just buy em up people. 1306 on Spoos now and cruising to my 1340-50 target here hopefully soon. VIX is down to 10.61, what wall of worry everyone is continuing to collect premium and sell options. I continue to watch from the sidelines mainly as the setups just aren't there on either side of the tape for me. Get em up boys!!

The market dripped down to near 11 on the old VIX indicator. Not much good or bad to say about this market, however the VIX did give a market sell indicator, but as a stand alone it is not an indicator I use much to trade off. I would rather sell any big rallies. Can we just get this market out of its 1250-1300 range we have been in since late October?  I am a broken record and still looking for a high near 1340-1350 on the SPX where we will have full on risk associate with interest rates rising and higher stock prices at least in the marginal sense. There is no doubts that we will see a big sell off at some point between now and the end of the year, but contend we need to see a breakout higher. Until we get there, its time to sit tight and wait for the higher strikes or a real break under 1250. I know its not new and fresh, but sometimes the best trade is no trade and this market sure is not giving much excitement to the players at the table. Keep on passing until the setups show themselves.  I still see no leadership that excites me. 

My Weekly Newsletter Contribution:

 

Week of March 12-19 

 

Hedging Your Bets With Matt Davio:  Parabolic Destruction

 

When I step back and look at the last 3 years of the one-way rally we have had in the US and world markets, I am truly amazed that we have not seen a break down of significance (say a 5% to 10% move down). That is not normal.  But we are not living in normal times. We are living in a reflationary environment where all asset classes move in concert, propped up by the biggest governments and their easy monetary and fiscal policies.

After 5 days down in a row, Friday’s volatility on the traditional VIX again dove down under 12 as the markets rallied hard.   And while no real technical damage was done to the markets after those 5 down days, one thing that has started to ease is the CRB (commodity – oil, gold, copper, wheat, etc) index.  You can clearly see this in my first chart.

In particular, the commodities, which have been acting like tech stocks over the past 3 years, may finally be hitting the first wall.  Overall they have come off their highs about 10% and the daily charts have broken both the 50 and 200 day moving averages.

 

Now if we look closely at the 2^nd chart, you will also see the first break of the CRB’s parabolic move just beginning.   I really would be concerned about the overall market here, as I am not finding great leadership in other sectors as the CRB begins what could be its first roll over.  Without the leadership from the commodities and/or leadership and rotation into other sectors, the big picture starts to look weaker than advertised. 

 

 

The last chart to look at is the CRB index vs. the 30 year T-bond rate.  The first thing to know is that the CRB/30 year ratio is a loose leading indicator of future stock prices.  This is due to the fact that when the ratio is high and commodity prices go up and/or interest rates go down, liquidity increases and profit margins dwindle (due to higher commodity costs).  As the ratio lowers and commodity prices go down.

 

 

 

Now as you can see, we have been sitting near the top of the CRB/30 year chart over the past few years, yet the stock markets, bond markets, and the commodities have all risen. If the CRB Index indeed begins a pullback and the CRB/30 year ratio lowers, that should be a signal for a bullish scenario in stocks.  But with all asset classes rising without a major correction, and the CRB/30 year ratio still in the 95^th percentile of its range, I believe that a true bullish scenario for stocks is a far ways off.  Again, we come back to my theory that instrument pricing is indeed different under a reflationary environment.  That is, until people realize the risk associated with pandemic price inflation and adjust accordingly.

The Nasdaq first broke 5,000. The index reached its highest close on March 10, 2000 at 5048.62. Ah, good times those were.

Thirty-one months later, the Nasdaq closed at 1114.41, a loss of 77.9%.

It’s roughly doubled since then, although the Nasdaq is still over 55% off its high.

Assuming the average long-term growth rate of stocks, the Nasdaq should make a new high around May 2014.

 

 The AAII percentage of Bulls rose slightly to 41.21% this week from 40.94% the prior week. This reading is still below average levels. The AAII percentage of Bears rose to 30.77% this week from 29.13% the prior week. This reading is still around average levels. I expect bullish sentiment to fall next week.

Hedging Your Bets With Matt Davio:  The Haves and Have Nots

I want to discuss the big picture of the consumer as it relates to inflation, savings rates, and spending.  What first catches my eye, and is of paramount concern, is the true negative savings rates employed by the American consumer.  Encouraged by an aggressive Fed who lowered rates to 1% over the past three years, the consumer has ratcheted up debt and spent and speculated in real estate as well as goods and services.

Yet the recent retail numbers that came out yesterday were pretty uninspiring, save for a few isolated specialty retailers. You can see the consumer’s momentum waning in products like AAPL and DELL, which are trendy, and the stock prices of these names along with the flailing of WMT indicate the consumer is tired.

The homebuilding index put in a top last July and as interest rates continue to rise, it seems that further highs will be difficult to procure.   The Bush administration, all the while beating the drum for an ownership society, has successfully employed an easy money policy to get home ownership rates in this country to all time highs.  Over 71% of the nation “owns” their home. With home ownership levels about 10-15% above normal, supply and demand has driven the market to its top. Who is left to own a home?  Why speculate with prices so high, unless you are betting on every family owning multiple homes.  I just don’t buy it. And as a lessor, who’s is left to rent your rental property if 71% of the population owns their own home?  Talking to lessors I know, it has been difficult for the owners of rental properties to find quality renters even with prices being forced lower over the past few years.  They are selling their real estate at current prices because it doesn’t make sense to own anymore at current market prices versus rental prices and acceptable pool of renters.

Which brings us to this heady juncture.  With the combination of easy money becoming more expensive and consumers having to service their debt coupled with the  negative savings over the past 3 years, I am willing to bet that retail is not the place to be for big upside in the near-term.  Homebuilders, DELL, AAPL, WMT are already showing the writing on the wall. GOOG, the darling of momentum America, is now seeing tougher times as its stock price has come off nearly 1/3 from its all-time high.  There will be tougher times ahead for GOOG as they learn the lessons MSFT learned years ago – that super-mega-cap companies with slow growing, established revenue streams eventually lose their forward-looking premiums and plod along with the rest of their blue chip brethren.

Inflation is real for the average consumer.  Haven’t you seen it?  Look around….the rise in energy costs at home and for the car, increasing insurance costs, painfully expensive education for our children (who need it more than ever in this global economy)…heck, even stamps have risen 5.4% of late!   Couple that with increasing mortgage debt and interest rates and a negative savings rate and you’ve got a consumer that isn’t set to spend like he has the past few years.  With that being said, I am willing to sell retail stocks that have performed very well over the past few years and even consider shorting the broader index over the rest 06 and into 07.  I think there is a nice risk/reward setup on RTH the retail holders. I would expect the old high in July of 05 on RTH to hold as the high. I think there is a potential of 5-10% downside on the retailers. Here is the chart:

Phew, what a day, what a week, felt like a year today. I think volatility is hear to say and I for one and happy to see it. I also think we are approaching highs in this market and think we will see them by the 2nd qtr close in 06. I think this market is being distributed (sold) by the big players and the blow off top is inevitable and around the corner.  RIMM announces its settlement post market today, no big surprise there and I think that will also mark a high in that name.  This market just feels heavy and we will see how it all plays out over the next week/month/quarter/year. 

 

Not everyone is bullish on this market. In fact, corporate insiders have moved sharply to the sell side.

The latest week of data from Argus shows a reading of 6.8 sells for every buy. The record for this gauge was 7.0, recorded in December 2003 (on an eight-week moving average basis).

So what we have is the public jumping in big, with huge flows to the Schwab equity funds in January, while savvy insiders are selling heavily. Maybe things could hold up through option expiration day this month, two weeks from today (March 3), but that's going to be all the bulls can do, I think.

From The New Yorker 

This market continues to not be able to get a mini rally going in either direction as today we exploded back up after yesterday's market GOOG sell off.  Good to be patient in this market. As I see it, the setups are just as fast and fuious as the volatility index. Which is to say, they just aren't there for the time being.  Will we get to 1340-50 on the SPX, or was yesterdays break of the 1280 line significant look at the future moves of this market? I really  have no idea and continue to wait and see as this market grinds in place.  There really isn't much to say again today, so let's see if the market has a memory tomorrow or comes back in and flips back to the downside tomorrow.  Patience avoids 3 pokes in the eyes like Moe did to Curly.