MorningWord 11/05/12: As good as the bulls felt about Thursday’s 1% equity rally, they must have felt a tad worse about Friday’s reversal of the gains. While Thursday felt a bit like a giddy, “Holiday week-ish” low volume move, Friday felt like an across the board “risk-off” sell off across multiple asset classes. To state the obvious, it felt bad to see AAPL down 3.3%, the SPX down 94 bps, the Nas down 1.26%, Gold down 2% & Crude down 2.4%. Investors spent the weekend trying to decide between a handful of potential causes; is the recent uptick in employment data so good that it’s bad for the hopes further QE? Does Romney’s tightening of the presidential race after the Denver debate make it any less likely that Bernanke will be leading the Fed’s printing press in 2013? Will a close election in swings states quickly catapult the nation into a massive legal battle over its outcome? Will the EuroZone crisis ever really be over as investors once again have to consider the outcome of a greek vote on some austerity measure? Does Q3 earnings and Q4 guidance confirm the notion of slowing global growth?? Oh and once we get by the election, we have the little issue of the fiscal cliff……I am sure a missed a few, but these were a few of the ideas/questions I saw floated over the last couple days to explain Friday’s price action.
I obviously have no clue as to the why, my guess would be that with the SPX up ~12.5% ytd, and so much uncertainty, with less than 4o trading days left in the year, investors are likely to shoot first and ask questions later. As Enis mentioned this morning in his MacroWrap, correlations are rising among risk assets, for equities in particular, we could see a continuation of the recent trend of selling past winners, as investors (pros and retail) fight hard to hold onto gains in what looks like an increasingly murky balance of Q4, at least from a news flow perspective.
On another note, AAPL had it’s first close below it’s 200 day moving average for 2012, the last time it threatened was Nov 2011, and the last time it closed below was June 2011. To speak of AAPL’s outperformance is a bit boring, but AAPL’s recent sell-off of approximately 18% from the Sept 21st, 2012 high is not unprecedented during it’s massive bull run of the last few years. This past April the stock made a new all time high of $644 an spent the next 6 weeks inching lower (with a few fits and starts), but ultimately bottoming after a peak to trough decline of ~18%. In 2011 AAPL, had an almost 15% peak to rough sell-off from new all time highs made in February to year lows in June. IN 2010, AAPL made a new all time high in April to have a peak to trough sell off of over 18% (including the Flash Crash lows this was actually higher). What what was consistent about all of these declines, was that they were all met with new highs in a matter of months.
SO I guess you get the point, the stock has had a tendency to quickly give back gains after making new highs, and then back and fill a bit. The real question investors need to ask themselves is this time different, will the recent sell off be the same gargantuan buying opportunity it has always been? While the fever has clearly broken, I would be surprised if AAPL does not make one more run to possibly $650 before the year is out, but the $600 to $650 range is likely to serve as a key staging point for both bulls and bears a like. The chart below shows $600 as the resistance/support level that the stock will need to breach and hold in order to not look like a broken stock below it’s long term trend line.[caption id="attachment_18976" align="aligncenter" width="490" caption="1 YR AAPL Chart from Bloomberg"][/caption]
AAPL is bid up about 1% this morning, a quick failure would obviously be a diaster for the bulls, and next stop would be $550, with $530 being the line in the sand for the stock to have to hold so that it does not become an all out disaster. While, we have not been fans of the AAPL story for some time now, we would likely be very inclined to play for a bounce in the $530/$550 range, and my assumption is that this week’s trading in the stock will likely determine this outcome.
MorningWord 11/02/12: Yesterday in this space I suggested that the after-market session was likely to be a bit more exciting than the day session with the likes of LNKD, SBUX and PCLN reporting, all with expectations of large moves one way or the other. Well I didn’t exactly hit that nail on the head as the broad market had a fairly healthy rally yesterday, for the largest gain on the first day of November in a decade (SPX up 1.09% and the Nasdaq up 1.44%), albeit on relatively light volume. The part I got right and where we decided to participate was the action expected in the aftermarket.
Yesterday we previewed earnings from LNKD, SBUX and PCLN, and our overwhelming theme was to not press the weakness in SBUX and PCLN, and look for a way to fade what we thought might be an overstated range in LNKD as a result of the ski high implied vol. I guess the most important take-away for readers is that, while we remain skeptical of some of the recent “green shoots” in the recovery, the timing of pressing shorts is becoming increasingly difficult as we get past mutual fund fiscal year ends, and some investors now start to focus on performance chasing and then marking of positions into year end.
This last point should not be lost on investors, as this week has already felt like a holiday shortened week, and we’re entering a period where we will get 2 more in the next 2 months. The week of Thanksgiving usually sees light volumes with the market quiet on Wednesday, closed on Thursday and open for a half day on Friday, and then Christmas Eve that falls on a Monday, Christmas day on a Tuesday and then New Years Eve on the following Monday. FOR TRADERS, THE REST OF 2012 IS GONNA START TO FEEL VERY SHORT. So price action could start to get a bit more accelerated in some situations. If you haven’t read Enis’s MacroWrap detailing the action in the VIX vs Realized Vol in the SPX, you should (here) as it could be instructive to what’s in store from a volatility standpoint as we head into next week’s election and then the debate/clash over the fiscal cliff which is likely to be the next hot button issue.
One thing is for certain there will be plenty of opportunities in single stock names though, yesterday’s rally was impressive, albeit on low volume as the Nasdaq rallied nearly 1.5% without 2 of its largest components, and huge winners on the year (AAPL up 20bps & AMZN down 30bps). If this becomes a trend, this could be a fairly positive force for the broad market for the balance of the year. I am not totally throwing out my near-term bearish leaning, but as readers know over the last couple months I have become far less evangelical on my stance, and I am much more focused on getting the micro right for the time being than the macro.
MorningWord 11/01/12: Yesterday’s trading felt a bit like the day after Thanksgiving, or Christmas Eve, few participants, light volumes and whippy action (less the holiday cheer of course). If you missed it most of the major indicies in the U.S. closed flat, except for the Nasdaq (down 36 bps) as too of it’s largest components, AAPL and AMZN suffered losses of 1.44% and 2.24% respectively. As Enis mentioned in his MacroWrap earlier this morning, there was a good bit of single stock volatility, which makes sense given the SPX’s almost 1% range, but masked by the index’s flat close. Sandy or not, this might have been the course for the last 2 months of 2012 anyway, where investors happy to have gains for the year lock in profits in front of a next week’s election and then the next hurdle of tackling the “fiscal cliff”, not to mention subpar expected earnings growth for the S&P500 that was apparent in Q4 guidance over the last few weeks by what seemed to be a majority of those to report.
All of this leads me to rolling up our sleeves a bit and doing some work on the micro. For instance LNKD reports this evening after the close (we will do a more detailed report later), the options market is implying about a 12% move vs the 9.46% avg over the last 5 qtrs since going public in 2011. LNKD is a fairly interesting story given it’s 70% gains ytd, and its nearly 140% gains from its IPO price. Since making a new all time high in Sept, the stock is down 14% in sympathy with other tech high-fliers like AMZN and AAPL, who have given Q3 results. The street remains overwhelmingly positive on the stock with 17 Buys, 9 Holds and No Sells, with an avg 12 month price target of about $133. Investors are decidedly less bearish on the stock than they were last year, with short interest down substantially to about 6% of the float.
SBUX is also reporting tonight, and this one could be interesting as the stock is essentially flat on the year after being up nearly 35% ytd in Apr after making a new all time high. SBUX is Exhibit A for a past growth leader feeling the effects of slowing growth domestically and worries about the rate of international expansion. The options market is implying about a 6% move vs the 4 qtr avg move of about 5.7%, which seems kind of fair given some of the volatility we have seen of late in other consumer discretionary stocks with similar exposure.
PCLN is also reporting this evening and this one is likely to be watched fairly closely after EXPE’s monster move last week on it’s results (up 15%). The options market is implying about a 9% move vs the ~9.5% move over the last 4 qtrs and it’s massive 17% gap lower after last qtr’s disappointment.
So even in a slow market, there will be stuff to do, we will be taking a closer look at all 3 of these names and will post our findings a bit later.