MorningWord 9/11/12: Trivial Pursuits

by Dan September 11, 2012 9:28 am • Commentary


MorningWord 9/11/12:  It’s kind of hard to start writing this morning next to today’s date, and not recognize the significance of it.  Eleven years ago today, at this movement, I had already been up and about for 8 hours as I lived in London.  We all have similar stories, most not particularly interesting, but my day started as usual with the mundane pursuit to prepare for a trading day that would not start for 10 days.  It wasn’t until about 8:48am that my desk started getting calls from trading desks in New York, (from salesman who covered me at Lehman Brothers and Merrill Lynch who offiiced in the World Financial Center, a stones throw from WTC), that something was up.  The odd thing was that at first, reports of a plane hitting the North Tower hadn’t seem to be a non-starter for the trading day, just merely a very unfortunate accident that happened to be very close to the heart of the financial capital of the world.  The moment the second plane hit the South Tower at 9:03am was the final acknowledgment that not only was trading to be halted, but the world as we knew it, was about to come to a complete halt.

Most mornings back then, my biggest concerns were preparing for the trading day, and navigating the obstacles to achieve that effort.  For a time after 9/11, most of that routine, or most routines that citizens of the world struggled with on a daily basis seemed a bit trivial, but sooner or later we got back to it, and now the memories of that day seem a bit more like a very bad dream than an actual world changing event.  One thing that will never change is the memory of the sacrifice of thousands of victims and their families, who still struggle daily, and of course of the first responders at all 3 sites of the attacks that day.  Today more than ever our thoughts and prayers are with those who made untold sacrifices.

Back to the trivial pursuit in preparing for the trading day on a day like today: Yesterday’s price action was reminiscent of the Spring, where it felt like we were in an NBA market, Nothing But APPLE, as Doug Kass coined it. AAPL’s early under-performance, mind you off of an all time high made right after the open, helped drag down the broad market for the balance of the day, only to close on the lows.  I have been making this point for a couple weeks now, and as recently as yesterday on my call in to the Fast Money Halftime show yesterday (below), AAPL really needs to introduce an innovative phone that people want, or this market could be in for a little bit of a re-tracement.  That said, any broad market volatility stemming from tomorrow’s iPhone launch event could be an interesting set up into the FOMC’s much anticipated meeting concluding Thursday afternoon.


I guess the most interesting price action yesterday was that of Spot VIX which was up more than 13% on the session after being unchanged at 1pm.  Talk about inversely correlated, the SPX was only down 1.5 points at 1pm when the VIX was unchanged, but AAPL was down 1% and would spend the rest of the day  falling another 1.6% to close down 2.6% on the day.

AAPL vs VIX vs SPX Sept 10th 2012 from Bloomberg


So for all that talk of a heavy event calendar in Sept, maybe it just started, it may be time to strap in and get ready for the ride, 1350 or 1500 here we come!




MorningWord 9/10/12: As a father of 2 young girls, I spend much of my weekends in a tug of war between the games that they want to play (that don’t really interest me) and the games that I want to watch (that don’t interest them).  My games, of the football and baseball variety, their games, are usually made up and make little sense to anyone taller than 4 feet 2 inches, but said games keep them entertained for hours, while seriously testing my patience (the joy of fatherhood!).  So as many of you parents can attest too, I spend little time watching my games, and lots of time refereeing theirs, often times suspending certain adult sensibilities.  More often than not, I thoroughly enjoy myself, while marveling at their creativity.

Lets play a little game here, lets assume you were dropped here from Mars, knowing nothing about assets other than the fact that if you own them, and they go up that is a good thing.  Lets assume that when faced with an image of the past performance of an asset you have you have no fundamental knowledge of what what got the asset to where it is.  If I were to post the following 5 year chart, not showing you what the underlying was it would be interesting to see what most of your reactions are.


Ok well this isn’t entirely a guessing game as u can see the ticker on the top, but my point is here, the 5 yr chart of the SPX, looks like it is off the races putting aside all other inputs.  Now most of you know that is impossible for me to do, and the reason I am playing this game this morning is because I have been racking my brain about how my short term macro thesis could have been so far off the mark.  The honest truth is that the reasons for the thesis are very sound and likely to be the cause of the next global market rout, but the sentiment and technicals of the market played out in way that I just didn’t respect.  Make no Mistake about it, the trade isn’t over, and I AM BY NO MEANS CHANGING MY TUNE, I am merely acknowledging the fact, that if the news gets better before it gets worse in the near-term, this technical break-out was years in the making of a series of higher highs and higher lows.  I am not a perma-bear, I am perma-cynical, and sometimes that suits me very well in the markets, and others (like now) not so well.  But as in any argument it is important to understand the game.  At this point in the game, sentiment shifted, the powers that be are taking unprecedented actions, and the technicals point to higher highs.  As evidenced by our light trading over the last couple weeks, we are in a digestion mode, we want to get the central bank stuff out if the way and then focus on earnings as we get into Oct.  SO for the meantime, I will be refereeing games that I don’t really want to play, with an eye towards respecting the inputs.




MorningWord 9/7/12:  Yesterday’s 2% rally in the SPX clearly highlights just how confusing the current market environment has been for those of us who like to over think things.  Since ECB chief Mario Draghi surprised the risk-taking world on July 26 by suggesting the central bank would do “whatever it takes” to keep the Eurozone together, the SPX is up ~7%, the DAX up almost double that and the sovereign yields of many of the Euro-zone’s debt-ridden nations down dramatically, problem solved, mission accomplished, pfew.  Draghi really should have given his press conference from an aircraft carrier off of the coast of Spain, Italy or Greece.

I hate being so snarky about something so serious, and trust me I do take my trading very seriously, but I often times find it nearly impossible to just jump on what seems to be the obvious trade, but make no mistake about it, it periods like this, when I am routinely getting kicked in the stones on the trading front, it is for one reason and one reason alone, I am over-thinking what appears to be obvious to many, big money and retail investor a like.

Which leads me to the part about rolling up your sleeves and doing work on names/stories where you think you can get a bit of an edge, whether it be fundamentally, technically, quantitatively, you name it.  Many of our themes this year have been correct, the timing of entry and exit have often been the biggest challenge in an investment climate that has been dominated by macro themes.  Since early summer we have been talking about the PC supply chain, from the makers, to components and software, and the effects of tablet cannibalization and the fales hope of a Windows8 fueled upgrade cycle.  Well just this morning, INTC cut their Q3 outlook for the second straight quarter citing weak PC demand, fine we get it no surprise.  But I guess my point here is that even when you are wrong on the macro, and continually stubborn, there are opportunities abound on the micro.  SO you won’t hear me whining because I have gotten the markets reaction to  central bank action wrong, I will again, and so will you, I can only do what I do best, identify a story that appears to be miss-priced, rundown my laundry list of inputs, determine conviction and then debate the best way to express that view with an eye towards finding the best risk/reward relationship.

The technical breakout in the SPX is powerful, and it may be just a tad to early to try to fade the move, but if INTC’s price action (down 17% off of the May highs, while the Nasdaq makes new 12 year highs) is any indication of the opportunities on the micro side of the market, than I am going to re-double my efforts to continue to fund them.




MorningWord 9/6/12:  There is a pretty good blog post detailing AAPL’s product announcements and and the stocks reaction into and out of the events from, and then shared by the likes of BusinessInsider and making the rounds on the Twittersphere this morning.


So the data above begs the question whether AAPL’s stock at all time highs is setting up for disappointment into next weeks Sept 12 iPhone5 Launch event.  I know this sounds a bit pedestrian, but with AAPL masking a ton of broader market weakness as the stock makes up 5% of the SPX’s weight and 20% of the NDX, the stocks reaction to the new smartphone could hold the key to whether the SPX can hold it’s gains and make new highs.  I obviously have no clue how this shakes out, but I would suggest that if the new iPhone looks remotely similar to the 4s, and the only real upgrades are 4G, sharper display, improved Siri, then watch out below.   But I also said this about the 4S launch and I was proved very wrong.  I don’t have a short position on in AAPL because this trade frankly just hasn’t worked, I have chosen to express this view through XLK Sept Put Spreads (here).