MorningWord: 5/8/12: Yesteday’s price action in European equities, was nothing short of impressive when you consider the political events in the region in the previous 48 hours. The headlines overnight Sunday were already written the previous week, and the region’s early equity market weakness late last week into Monday morning was a clear example of “sell the rumor, buy the news”. The gazillion dollar question at this point is, “how long do we hold em?”
Our equity markets essentially closed flat on the day, which was nothing short of a minor victory when you consider the SPX faced it’s potentially fourth consecutive lower close. There were clear pockets of strength yesterday, but our banks ability to quickly reverse course after a down opening and hold the gains for the better part of the trading day set the stage for for a stable session. As many readers know I am very focused on the banks and their ability to hold onto year to date gains while most are at least 10% off of their April highs.
We may get a clear test of investors faith in the sectors de-leveraging and new found “financial health” in the reaction to what is likely the most advertised ratings downgrade by Moody’s of the likes of MS in the coming weeks. The bank has gotten out in front of this issue and management has stated in sec filings and interviews with the press that they are prepared to post additional collateral and and has sufficient liquidity reserves to face a 2 or 3 notch downgrade. I want to be a continued seller of banks on rallies as we get nearer the summer months.
As for today, the question on most traders mind should be whether or not we get a repeat performance from yesterday? Just as I suggested in this space yesterday morning that I don’t think it is prudent to short a down opening after the weakness we have had over the last few days, I would probably stick to that playbook for this next couple hours……If our markets try to hold this morning then I think you have to let them breath a little, there is a decent amount of support in the 1365-1370 range. That said, if the Euro meaningfully breaks 1.30 vs the $ and Euro equities close weak, I would be inclined to press the short a bit and see if we can get a test of 1350 in the next day or so.
I will add one more thing, the price action in stocks like CAT should continue to spook investors. While the stock is still up a little more than 7% ytd, it is down about 16% from it’s February high. I am focused on CAT because it checks a lot of boxes for investment themes popular with investors since the Oct bottom: reflation of global growth, leveraged to U.S. recovery, healthy dividend payer, to name a few……but the stock sits at lows not since mid Jan and is sitting right on it’s 200 day moving average. Former market leaders like CAT are gonna have to firm up in my opinion or we could see a bit of swoon from some other multi-nationals like KO, MMM, MCD and UTX as investors lose faith in the pace of the recovery.
From ENIS: While the headlines are focused on European elections, European bailouts, and European politics, I prefer to watch price action. Price action is more valuable than headline news stories, “expert” opinions, or current events, as it lets the money do the talking. The strength of U.S. markets has been impressive over the past year, particularly relative to Europe (SPX has outperformed Euro Stoxx by 10% YTD), and just a glance at the headlines would offer myriad reasons why that’s the case. But price action is starting to offer signs that the U.S. might be on the cusp of underperformance, despite stories of renewed American dominance. The seeds of this trend have certainly not yet bloomed, but I point it out because my feeling is that most institutional investors are hiding in American stocks as a means of avoiding the European crisis. Whereas 3 months ago, the U.S. markets seemed to rally right after the European market close, in the last week it’s been more likely to sell off. It’s another cause for concern as the market toys with support levels established in the last 2 months.
BONUS: for those of you who missed the NY Rangers stunning game 5 playoff win over Washington last night, here is a clip I took from my iPhone of the tying goal with 6.6 seconds in regulation.
MorningWord: 5/7/12: If you missed last night’s post introducing Enis Taner, our first major editorial addition since launching the site in Q2 2011, please take a minute to get familiar with his background, as you will be seeing his contribution to RiskReversal.com early and often. For the time being Enis will be contributing some thoughts on fixtures like the “MorningWord” while also developing his own regular content in addition to contributing trade ideas and strategies. Now to the markets:
ENIS:
With the French and Greek elections dominating the headlines, it can be difficult to parse what matters on the morning after overnight futures and markets overseas made big moves. Intrade had the chances that Hollande would win the presidency last week at 90%, so the market’s reaction was more likely based on the two pro-EU program parties in Greece losing in dramatic fashion, potentially sending the bailout program back to the drawing board. The two parties combined won 149 of 300 seats, 2 seats short of a majority, though it would have been flimsy regardless. Asia traded quite poorly throughout their session, with the Nikkei falling to its 200-day ma, down more than 2.5%.
However, the positive developments this morning in Europe take a little bit of the overnight sting out of the news, and it’s important to remember that the market was down the last 3 days of last week, likely anticipating some of these negative developments already. European banks (SX7E index) rallied from near the March ’09 lows back to flat, and the Euro regained the 1.30 level. The levels to watch for support in SPX are the Apr intraday low of 1357, and the March intraday low of 1340.
DAN:
The dreaded financial “Twittersphere” lit up like a Christmas tree last night upon our futures diving more than 1% in sympathy with European equity futures and the Euro breaking 1.30 vs the $ for the first time in a meaningful way since January. The echo-chamber that is RiskReversal’s Twitter page was particularly dire as it relates to the potential for a EuroZone break up and talks of the abandonment of the common currency…….come on that is so 2011.
We are not economists and we don’t have a line into politicians or central bankers, so we are not going to have a ton to add on that front, but as experienced market participants I think it is fair to say that pressing last night’s futures on the short side, or puking out of longs after an almost 4.5% (including the lows of the overnight session) decline from Tuesday’s highs, might have been a bit panicky.
While many readers of this site know we have a generally unwavering commitment to the “Short-Side” of most trades, we do our best not to press tightly wound situations and usually wait for bounces to “lay them out”. This morning’s set up with Euro equities making up a good part of today’s losses (the French CAC is actually up on the day, more than 2% off of it’s lows) could be just that opportunity to “short on a rally”. We have some shorts on that should benefit from the increased uncertainty in Europe, specifically a May put fly in FXE, a May put Fly in MS and July put spread in Citi. We are going to keep a close eye on the May’s and will look to take some profits on half a position on anything that looks remotely like a “double” and let the other half ride. Additionally I don’t want to be too quick to try to short the market after last week’s late weakness as we could see a little “sell the rumor, buy the news” set up, and the last thing you want to do is get caught short in a nonsensical squeeze.
So we sit on our hands and wait to see how Euro stocks trade into their close and how our banks react to what could be increasingly murky situation in Europe as it relates to a potential flare up of their sovereign debt crisis based on the notion that new leaders in France and Greece will look to undo some of the austerity commitments that helped to secure aid for nations and banks in the region.
MorningWord: 5/4/12: Well people, after a relatively long boring week, it all came down to this mornings Jobs data, which after a slew of generally disappointing data both here and in Europe (excluding Tuesday’s ISM manufacturing), should leave most investors scratching their heads about the strength of the current phase of the “recovery”. I am not gonna bore you with the details (read here), but we continue to focus on the set up into this early Q2 data.
The other day we wrote about the impact of seasonality adjustments on economic data, with the thought that the extremely weak data points between Oct 2008 and Mar 2009 had continued to cause strong winter data beats and summer data misses. Yesterday’s non-ISM and today’s payrolls number misses are more confirmation that we’re likely to see more data misses from now until September, and it’s part of the reason why we have been recommending primarily bearish trades in the past 2 weeks. The wild card of course is central bank policy, and whether a new program after Operation Twist gets introduced. Regardless, that type of speculation likely means volatility will be higher in May than so far this year.
While this morning’s data doesn’t appear to be a disaster, all day long on CNBC I expect the debate will be to QE or not QE? I don’t have to add much on this front, but today’s market reaction to the weak data will likely be instructive to the next few weeks trading. With the S&P futures down about 40 bps, that puts the index down about 1.25% for the weak, which is by no means a disaster when you consider we are a couple % from the 52 week highs. The risk here is that those in the camp that the U.S. economy could “de-couple” from the woes in Europe may have to re-think that notion and come to the realization that the likelihood of the U.S. avoiding the negative affects any material slowdown is very slim. All of this uncertainty comes in the week that was the one year anniversary of last years HIGH for the year in the SPX. I am obviously keeping and eye on the banks, Euro banks are up a tad this morning, and will be interesting to see how they close and whether our banks continue to re-test key support levels.
BONUS: I saw We Were Promised JetPacks last night at the Bowery Ballroom in NYC, these guys rock, here is a clip from my iPhone of their opening song called “Short Bursts”. Enjoy, I did!
MorningWord: 5/3/12: Yesterday’s price action is U.S. equities after a lower open was fairly impressive when you consider they spent the balance of the day grinding higher to close near the highs of the day. This morning as I write at 9am, the S&P futures are up 10bps, down a tad from the session highs made after a better than expected jobless claims number.
European markets this morning followed yesterday’s afternoon rally in the U.S. higher on light news early on. European banks surprisingly have had a hard time holding their gains, considering they were down more than 3% yesterday, and they continue to flash the most prominent warning signal in the market. It feels like repetition, but we can’t understate the imprtance of the European banking system to global asset markets. The ECB held rates steady as expected, and the Euro just popped as Draghi said there was no discussion of cutting rates at the meeting. One interesting story overnight that portends more global bank regulation is the Justice Department’s inquiry into HSBC’s anti-money laundering controls. Look for continued cross-border actions by the Treasury department for tax evasion as well, as the government coffers need revenues.
As for today, there was some mixed same store sales data with names like GPS, M and TGT disappointing and trading lower in the pre-market, all of these stocks were trading within striking distance of 52 week highs. I want to keep a close eye on the sector as it has clearly been a space that investors have rotated to in the last couple months as they have been taking profits in bank stocks and a few other sectors that saw strong gains early in Q1.
Also the banks traded horribly yesterday with many like MS and C closing nears the lows of the session as the SPX closed near the highs. I may be a bit miopic at the moment but I am fully expecting a technical breakdown of this sector, stocks like GS through $110, MS through $16, C through $30 and BAC through $8. I really don’t care about JPM as investors view it similarly to AAPL, it is an outlier.
ISM non-manufacturing data out at 10am, this could be a mover given the other days report, and especially as investors get really for tomorrow’s highly anticipated Employment data.
MorningWord: 5/2/12: As earnings have taken a back seat to economic data and Fed Speak in the last week, it appears that we are likely to be in a slightly less predictable trading environment for the weeks to come. Yesterday’s rally in the SPX of 57bps was seemingly ok with decent breadth (the Bloomberg composite New High Index had one of it’s highest readings in almost a month), but the index closed down 65 bps from the mid-day highs. As we noted yesterday, small caps dramatically under-performed their larger brethren, with the IWM closing basically unchanged on the day down 1.73% from the morning’s highs.
All in all there was fairly broad strength in most sectors, with banks, retail and energy leading the way. It is interesting to note that AAPL’s opening tick the day after earnings was in fact the high and now the stock has re-traced almost 2/3rds of the explosive 1 day earnings move. The fever appears to have broken in AAPL and a re-test of the pre-earnings lows of about $555 seems like it is in the cards, and at that point your guess is as good as mine.
Stocks like CAT continue to disturb me a bit, at least from the standpoint of what it says about global growth. The stock sits just about 2% from a very key support level and I find it hard to believe that more market participants don’t view the price action in the name as more troubling.
While our ISM yesterday was better than expected, one of the first pieces of important economic data to surprise on the upside in weeks, it clearly caught many off sides thus causing a bit of a catch up rally, that frankly couldn’t stick. As I write at 9am, the S&P futures are down about 50 bps reversing yesterday’s entire move on a slew of disappointing economic data out of the Euro zone. Spanish equities are getting drilled this morning down about 3.3% on disappointing manufacturing data and higher than expected jobless rates across the entire region. The Euro is down about 80bps reversing much of the last week’s gains in one fell swoop. Listen people, this thing is coming undone, and soon, it just can’t keep limping along this way, last fall we saw band aids put on gaping wounds, and as many suspected Euro-Zone politicians and central bankers just kicked the can down the road. With elections in the coming weeks, Euro-Zone stability will take center stage. I continue to believe that the likelihood of our economy and markets being able to “de-couple” from a recession in Europe and/or political upheaval is not great, while many of our multi-nationals rely a great deal on exports to the region as a large portion of their sales.
I stick with my contention that one of the best ways to play a weakening Europe is short U.S. banks, and I will start to lay-out tactical shorts in names like KO, AXP, MSFT and INTC to name a few that could see hiccups to earnings visibility as we get deeper into Q2.
MorningWord: 5/1/12: If yesterday’s action lulled you to sleep, be prepared to keep snoozing this morning. Overnight most Asian markets were closed for Holidays, except the Nikkei which was down 1.78% after a few high profile earnings disappointments. Data out of China overnight should keep the answer to the question of hard or soft landing as “clear as mud” as the Purchasing Managers Index came in at it’s 5th straight month of expansion and the highest reading in a year but still at less than stellar levels that should inspire much confidence. The Shanghai Comp was closed overnight so we will have to wait to see the reaction from most Asian equity markets.
Sticking with the China growth “clear as mud’ theme, the Reserve Bank of Australia cut rates by 0.5% vs. the expected 0.25% cut, to 3.75%, sending the Aussie dollar down by almost 1%. This cut can be viewed as another sign that Chinese growth continues to slow, particularly affecting commodities demand (and hence Australian growth), but it can also be viewed in the context of central banks worldwide continuing to aggressively provide liquidity at the slightest sign of growth concerns. Interestingly, the Aussie stock market could not sustain a rally on the news, and remains a global laggard over the past 2 months.
On to Europe, equity markets are closed for May Day Holiday, but the Euro is trading at 3 week highs vs the dollar on what can only be described as a “no news is good news” sort of positioning.
Unfortunately the highlight of the day may be the Occupy Wall Street is gearing up for a day of fun here in the U.S. and particularly NYC where they are hoping to disrupt normal day to day activities of some of us hardworking, tax paying citizens…..Funny thing is these guys are still coming at all the “fat cats” here in the financial biz, and the irony is most in this biz have felt like crap about their career prospects and many just this morning are just waiting to hear their number called.
In my humble opinion, OWS has it wrong they are sitting out in front of the New York Stock exchange, which is a basically irrelevant institution, when they should be changing their sites a bit to our friends in Silicon Valley, particularly to those at 1 Infinite Loop who are hell bent on denying federal and local government their fair share of their enormous profits by paying less than 10% in taxes a year. As many of you have read in the last couple days, AAPL is engaged in tax schemes, like most other large corporations to be fair, with the sole intent of avoiding paying taxes through silly tax code loopholes. Whats most interesting is that the state of California which by all accounts has been a welcoming and accommodating home to hundreds (if not thousands) of technology companies over the last few decades, is basically now bankrupt and companies like AAPL are spending millions a year, to uncover every little trick in the book in an effort to avoid paying billions on technicalities. Without getting political it doesn’t seem right no matter which party you identify with, I buy lots of AAPL products with post income tax dollars, then pay NYS sales tax of close to 9% and these greedy u know whats pay less than 10% . Ok there is my little rant for the day, again not political, just cynical.
MorningWord: 4/30/12: Not a ton going on overnight aside from the strong showing by the Hang Seng up 1.7%, this close which matches the highest levels since mid March can largely be attributed to strong earnings in the banking and commodity sectors, sigh. As I write at 9am, Europe is generally in the red with Spain down about 1% with the DAX only down 17bps, but down about 80 bps from the morning highs.
With the bulk of S&P earnings occurring in April, the SPX is only down about 36bps on a month that saw some fairly divergent guidance going forward. We came into the month after a near historic Q1 from a performance perspective with relatively high expectations for corporate earnings…..the bulk of U.S. large caps delivered on a solid Q1, which by all accounts with the SPX up 12.5% coming into the month was a necessity to keep thing going. Guidance was a slightly different story, and I think fair to say that the jury is still out on whether or not the coast is clear as we head into what could be setting up as an uncertain summer.
May will start off with the usual May Day crap that appears to be the 2012 reboot for the “Occupy” crowd, ugh. While many were hoping these guys got bored and froze their butts off in city parks over the long winter, it seems like anarchists have some staying power. I don’t have a strong view on the merits of their “cause”, I just feel that it has never really been properly and succinctly articulated. So for now it just seems like a lot of smelly disgruntled peeps trying to aggravate my daily commute.
Most interesting move of the day is MSFT’s $300 million investment in BKS and what will be a new subsidiary around the NOOK e-reader product. While AMZN is down about a buck on the news, the more notable move is BKS’s pre-market surge of almost 100%. Shorts have been swarming around the name for months now with Bloomberg suggesting that almost 50% of the float was short. This is Exhibit A why most of the time, even when options are expensive, as it has been in BKS for months, that the best way to make a speculative contrarian bet is through options structures that offer defined risk.
Lot of economic data this week from Manufacturing to Jobs at the end of the week, with earnings reports waning, the general health of our recovery, both here and in emerging markets like China, and the situation in Europe are likely to dominate headlines for the weeks to come. With the SPX back in striking distance of the 52 week highs, and the VIX back at 16 we could be setting up for the perfect pre-summer opportunity to get long premium to express views, either for stock replacement, or out-right directional bets.
MorningWord: 4/27/12: We can debate and analyze and pick apart the internals of the market, but at the end of the day, the stock market’s broad resilience throughout the last week has been quite impressive. Overnight was no exception, as the Spanish downgrade by Standard and Poor’s caused a blip for a few hours, but the buyers held the fort and futures show a slightly higher open at this moment, even after a weak U.S. 1Q GDP print of 2.2%. Psychology’s contribution to performance is always interesting, as the U.S. market right now is in buy mode no matter the news, while the Japanese central bank does inject more stimulus (to 10 trillion yen as expected), but the market ends lower anyways as the Japanese have been trained to sell stocks on bounces for 20 years.
MorningWord: 4/26/12: I got to give AAPL a ton of credit, not only did they disclose Tuesday night that they seemingly brought great joy to 35 million people last quarter by selling them the only premium Smartphone (starting at $200) that is NOT 4G LTE compatible, but with the stocks almost 9% rally Wednesday did Fed Chairman Bernanke a huge solid as he took the podium for his scheduled post FOMC meeting press conference. AAPL’s stock performance and it’s large weighting in the SPX and the Nasdaq served as a little QE 2.5 for the broad market sending the SPX up 1.36% and he Nasdaq up 2.3%.
So I guess my main takeaway from yesterday is if AAPL can maintain the pace of iEverthing sales, and continue to pulverize their foregign competitors like NOK, RIMM and Samsung, and the stock goes to $1000 like all the Wall Street analyst wizards are suggesting, then maybe Mr. Bernanke will not have to “DO MORE”.
Ok that was a bit dramatic, but come on…….I know I sound like a bit of a broken record, but if the SPX is going to stabilize and make new highs, the rally will NEED to broaden out and be less reliant on a handful of names. In the Face of what appears to be economic data that is coming in slightly worse than expected (see this morning’s jobless claims), we will need to see better forward earnings clarity from U.S. corporations , especially at a time where it feels like Europe is most likely falling back into recession. Many will continue to argue for the notion that we are “de-coupling” a bit from the woes in Europe and a slowing China, ask CAT how that is going to work out for them if emerging market demand falls flatter than most expect.
U.S. bank stocks continue to worry me, many such as GS, MS and BAC are at fairly key support levels and I would argue that Q1 earnings might have been as good as it gets for 2012. Don’t forget that GS earnings expectations are suppose to rise 174% yoy, that means they have a ton of wood to chop, and any macro hiccups like last year could see the $12.36 earnings estimate in great jeopardy. I continue to believe these stocks will re-test unchanged levels on the year.
I am in the mindset that the little 4.5% peak to trough sell off from the highs this month, that now only sits at about 2.2% from the highs is a sort of calm before the storm. Over the next few days we are going to introduce some short biased trades that isolate July expiration, we want to leg into these trades and not get too far ahead of ourselves as complacency with little news could send us to new highs, then we really want to “lay into them”.
MorningWord: 4/25/12: Yesterday wasn’t a bad showing for equity markets that seemingly could have cared less about anything else other than AAPL’s fiscal Q2 earnings to be released after the market close. In a lot of way’s AAPL’s 2% loss on the day weighed fairly heavily on the Nasdaq, while banks, industrials, healthcare, telco and energy names all traded pretty well.
The S&P futures are trading up about 60bps after very a disappointing Durable Goods Orders number came in far worse than expected, which comes on a day where the UK’s GDP print officially confirms recession. While U.S. corporate earnings on the whole appear fairly solid for the period just ended, the uncertainty appears to lie more on the macro front as we head out of earnings season and into what has been a volatile couple months for the last 2 years, facing many of the same issues that we faced ranging from European Sovereign debt crisis, slowing worldwide growth and don’t forget our little debt ceiling drama.
As for this afternoon’s FOMC announcement, expectations aren’t exactly running very high, but watch the Euro and gold for a quick indication of whether markets view the language as dovish (higher Euro and gold) or hawkish. The FT.com had a nice preview of today’s meeting (here).
SO back to the main event, AAPL, the company crushed consensus estimates with and eye-popping 35 million iPhone units sold in the qtr, while iPad and Macs came in slightly below the whisper numbers. The stock is up close to 10% in pre-market, blowing though the implied move that ended up being about 6.5%. The options market clearly got this wrong and this is a very good example where often times a quantitative assessment can be aided by a little qualitative judgement.
I was reminded in the middle of the night last eve of why iPhone units beat so dramatically by some genius who apparently doesn’t agree with my generally contrarian view towards AAPL’s ytd move, DBM writes, “it would appear you got the Apple estimates WAY wrong! Like most, you forgot about the international growth”. But here is the thing, I don’t make “estimates” I am not an analyst, I make trades where I think the odds are in my favor. So “fading” the implied move as I did by selling an Iron Condor with weekly options will be a bad trade, but it certainly wasn’t predicated on any “estimates” of iPhone sales. Interesting thing is, this trade would likely make money 7x out of 10, but here we are in the midst of what will be the largest one day move in AAPL shares following an earnings event since Jan 2008. But I guess the main point here is if you a really bullish analyst or market commentator on AAPL, you don’t have to look very hard, just turn on the TV, open up your web browser, call your broker, or hell ask your cab driver. This is a mania, and I won’t play this game, that is not the value proposition here at RiskReversal, no, I won’t make apologies on some wrong way directional trades in the name, or in the above case wrong way % moves, I will just try to be right a lot more often than I am wrong. Thnx DBM for giving me the opportunity to address this issue.
As for today’s Price Action in the stock, I would expect the stock to settle in and those who were taking profits over the last 2 weeks for reasons ranging from carrier subsidies, to weak domestic carrier iPhone activations, to the simple law of large numbers are likely to come back into the fray. IN my opinion I think it is very likely that the stock finds a home somewhere around $600 this week which would be almost the exact mid point of the 2 week peak to trough range of about $644 to $555. The stock will need to base a bit before it can make a new all time high, which is most definitely in the offing.
As for today, will be interesting to keep an eye on Europe as it heads into it’s close prior to the FOMC announcement, on a day that Euro banks are bouncing nicely, the Euro Stoxx Bank Index (SX7E) is having one of it’s biggest rallies in weeks. I also want to keep an eye on industrial names like CAT and BA which reported better than expected Q1 earnings, if we see a bit of “sell the news” and AAPL can’t hold above $600, I would expect the broad market to follow. Personally I don’t see much to do in front of the Fed, but regardless of expectations for Bernanke’s press conference this afternoon I would guess that the markets will definitely move one way or the other.
MorningWord: 4/24/12: Yesterday’s action in Europe was about as bad as it gets and is very likely to portend a fairly rocky spring for the region, both politically and economically. On the flip side, our equity markets acted about as well as can be expected, continuing demonstrate impressive relative strength with the SPX closing down less than 1% on the day and at the high end of the daily range. Not Bad.
As for today, European equities got off to a decent start after Bond auctions in Spain, Italy, and the Netherlands all passed without much fanfare, but have since give back most of the gains as of 8:45am. Asia was mixed, with Japan lower and Hong Kong higher, with investors eyeing the Bank of Japan’s stimulus decision on Friday amid rumors of a doubling of the asset purchase program to 10 trillion yen (approx. $120 billion).
Speaking of central banks, the language in the Fed’s release will once again be the subject of much scrutiny, though no surprises expected this month. The reaction will be more important than the actual release. The FT.com has a great preview of tomorrow’s meeting (here).
As for Today, yesterday’s playbook probably still holds, U.S. banks stocks need to continue to show relative strength, and not start trading in lock-step with it’s Euro Cousins, if this starts to happen and we see stocks like BAC meaningfully below $8, or GS approaching $100, you can be sure that the SPX will once again be testing 1300.
Additionally, stocks like AAPL that are the “poster-child” for this year’s rally, need to remain orderly, or the Nasdaq’s out-performance will be very short lived as the stock makes up a disproportional amount of the index’s gains given it’s 12% weighting. As AAPL heads into it’s much anticipated fiscal Q2 earnings report tonight after the bell I would expect the stock to continue to be whippy, the stock has already traded in a pre-market range of nearly $18. This morning it traded as high as $579 and now as of 8:45 it is trading at $561. AAPL’s swings today, and we will get at least one rally most likely to up on the day, will dominate the Nasdaq trading as it is really the last tech titan to report in this cycle that has market moving implications.
Check back after the open, we will have a preview of the report and later in the day we will update the trade idea of selling a weekly Iron Condor.
MorningWord: 4/23/12: So much for all that enthusiasm early last week regarding Spain’s successful debt auction…..the bottom appears to be falling out with the Spanish 10yr yield briefly trading above 6% for the first time this morning since Nov. Spain’s largest equity index, the IBEX is down 20% on the year with all of these losses coming in the last month.
That chart is nothing short of frightening as it is within 2% of the 2009 low and apparently in a free-fall. But that is just Spain’s relatively insignificant equity market, to drill down a bit deeper would be to look at the European banking sector as a whole.
The most recent ECB data from Feb 2012 indicates that the total size of European bank balance sheets is 33 trillion euros. For comparison, the size of all U.S. bank balance sheets combined is around 16 trillion dollars, 33 trillion euros is approximately 2.5 times larger than all U.S. bank balance sheets
It is our opinion that the the investing community is incredibly complacent in the face of a financial crisis with much more far-reaching implications than the 2007-2008 crisis led by the weakness in the U.S. banking system. Meanwhile, European bank equity prices (SX7E) approach levels not seen since the 1990’s, the most glaring warning signal flashing bright red.
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Our futures are down about 1% as I write at 9am, vs the DAX down 3%. Our bank stocks hold the key in my opinion to our day’s trading, if they can hold then we likely hold, but I am still of the opinion that they are sales on rallies, that their Q1 earnings are likely as good as it gets for 2012 and that Europe appears to be on the precipice of a redux of last years credit crisis. Sorry to sound so somber on a Monday morning, maybe it’s the weather…..As many of you know I am not jumping on the bandwagon here, we are merely just starting to see some of the cracks emerge after a fairly complacent investment period, Operation twists, EFSFs and LTROs were like putting band aids on gaping wounds, kicking the can down the road can only prolong the symptoms, not cure the disease. I am not exactly going to press the opening, but look to short a rally, I had a lot of short exposure roll off with Friday’s expiration, and I am not going to compound my frustration with making a worse mistake of pressing a 1% down opening.