Equities had a fairly odd 5 trading days last week with some fairly massive divergences within 2 sectors that drove much of the upside in Q1, Tech and Financials. The SPX closed up about 60bps on the 5 day period, while the Nasdaq saw it’s second consecutive week of losses (albeit fractionally).
I have to start with the banks as this is the sector that probably had the most to lose given its ytd price performance vs. general sense of uncertainty about their earnings/revenue growth potential in an environment that seems increasingly likely to be less agreeable to previous growth drivers……What I found fairly interesting was that while every large bank that reported in the last 6 trading days (JPM, WFC, GS, C, MS, BAC), all beat expectations handily, and half closed down (JPM, GS & BAC) on the week, while the half of the list closed up only about 1% on avg (WFC, C & MS). In general I think the banks traded horribly on the week, and the action in names like GS given the once “best of breed” status acting the way it is now, making 2 month lows, and quickly approaching a key support level, and MS not able to gain more than 1% on a week where the worst fears WEREN’T realized, is downright sloppy. And how could I not mention every day-trader from Buffett to Bove’s favorite, BAC, almost round-tripping the March $8 to $10 move, it seems almost downright comical as we head into a week that will likely be dominated by central bank mumbo jumbo and quickly approaching last year’s anniversary of a market top on May 2, 2011, just below current levels.
On the tech front the news couldn’t have been more divergent, where names like INTC, IBM and QCOM were trading within a few % of multi-years highs, and couldn’t deliver the forward guidance to keep things going, while MSFT & EBAY exceeded expectations and the stocks were rewarded. With out sounding to biased, I think the MSFT and EBAY news was probably a bit more company specific and had less implications for the broader tech space than the less than stellar guidance from INTC, IBM and QCOM. I guess this goes back to my comments from last week that solid Q1s were “baked into the cake” and to get a continuation of the ytd rally, we will have to see forward guidance that tops expectations, especially at a stage where many market participants are contemplating a soft spot in U.S. economic data, potential double dip recession in Europe and who the hell knows sort of “landing” in China. All this spells uncertainty to me, and heading into the last 2 Mays, uncertainty and complacency spelled serious selling pressure.
I would be remiss to not discuss AAPL and the stock’s under-performance on the week, the stock closed down about 5.5% last week and is now down a little over 11% since it’s Apr 10th intra-day all time high. There are lots of reasons being thrown around and none really interest me other than simple physics. This name has been relatively impossible to short and I would suggest that it will become increasingly difficult to do so as we head into Tuesday’s earnings, whether the stock is $540 or $640. While the stock may have been trading rationally based on simple valuation and growth metrics over the last couple months, I would contend that given it’s $530billion market cap, (that was north of $600billion 2 weeks ago) this was becoming an increasingly difficult proposition for the broad market given its rising influence in most major indices and ETFs. Maybe the fever has broken and the market will now rise or fall on the prospects of a much broader group of stocks.
If there is to be a next stage of the rally that has seen almost 30% gains peak to trough from the October lows, things will have to broaden out, and the breadth readings are telling us this is about to happen.
The chart below is readings of Bloomberg’s Composite New 52 Week High Index, vs the SPX and the VIX, and it makes me a tad nervous. The new high readings were consistently printing above 600, with many readings above 1000, when the SPX was spending a good bit of time above 1300 for most of the first 5 months of 2011 …….this year we have had ONE reading above 600. That jumble at the bottom right hand corner of the chart with the VIX and the new high readins consistently below 500 and the VIX at only 18, while the SPX hangs above 1350 without what appears to be a care in the world makes me think that this May could have some of the fireworks we have seen in the 2 previous years.