MorningWord 4/16/13: Taking A Look Under the Hood, It Aint Pretty – $IWM, $XHB

by Dan April 16, 2013 9:15 am • Commentary

MorningWord 4/16/13:  If you have ever been punched in the face you are not likely to forget the feeling for a very long time. Yesterday, for those that were long Gold and the last peeps to buy the highs in the SPX must have felt similarly.  With the VIX registering its largest one day increase ever, and the SPX having its worst decline of 2013, it is important to look under the hood and get a sense for the true technical damage that was done yesterday.

The Russell 2000’s failure to make new highs with the SPX suggests small cap stocks could be signaling a pause for U.S. equity out-performance.  Yesterday’s decline of 3.77% in the IWM, on massive volume demonstrated investor patience (or lack thereof) in holding some of the weakest issues in the market cap hierarchy.

IWM 1 yr chart from Bloomberg
IWM 1 yr chart from Bloomberg

The one year chart above shows the fairly precarious technical position the stock is in having broken the uptrend from the November lows, and now sitting right on near term support.

Looking at some of the specific sector activity doesn’t look a heck of a whole lot better.  Lets start with Homebuilders (XHB) which was one of the sectors that got us to new highs.  Yesterday’s almost 5% decline was one of the worst one day declines for the etf in years, coming at a time where many of the actual homebuilder components had topped weeks if not months ago, but was merely waiting for some of the retail components to join the party.  The one year chart below shows the uptrend that has been in place for the past year and how yesterday’s performance places the etf right on the uptrend, which is also on key near term support.


To further make this point look at TOL, a top ten holding in the XHB.  As I said above, this actual homebuilder topped out to make new 52 week highs all the way back in January and has made a series of lower highs and lower lows since.  Yesterday’s price action in the name was downright atrocious with a close down 7.7% on massive volume and quickly approaching 9 month support.  The 2 year chart below shows a similar pattern of the last few months last fall, the difference being then that it had held its uptrend line.

TOL 2 year chart from Bloomberg
TOL 2 year chart from Bloomberg

I guess I could go on an on, but the price action in many sectors and market cap weightings appears to be very similar.  I would add, though, that any divergent activity in the Banks would clearly be a positive as most U.S. banks showed very good relative strength for most of yesterday’s sell off on the heels of Citi’s results.   But to sum it up, this is not likely the dip you want to buy, until we get a better sense for U.S. corporate earnings guidance.

As I write at 9am, the S&P futures are up nearly 1%, I am hard pressed not to take one shot at shorting this open and play for a re-test of yesterday’s lows.


MorningWord 4/15/13:  Regular readers of this space know that I am the first guy to admit that I have no clue as to the real fundamental reasons that drive the price action in Gold (here is a good read from Mark Dow,  “A FrameWork for Thinking About Gold & Silver“, which is a good place to start), but I think it is safe to say that the shiny metal’s three day, ~10% decline through important support could be very telling for risk assets the world over.

Earlier this morning in his MacroWrap, Enis had a nice run through from a technical perspective and how the compressed volatility environment lead to an “escalator up, elevator down” situation in Gold & Silver.   While these 2 are catching all the headlines, there is some interesting action in crude this morning, at this morning’s lows, black gold was down ~6.5% since Thursday, and a little more than 10% from levels it traded at the beginning of this month.  Consumption commodities are obviously feeling the brunt as investors contemplate what slower growth from China looks like for the coming months (overnight China disappointed on Q1 GDP coming in at 7.7% vs 8% expectations).

All of this comes at time where the U.S. markets seem relatively immune to the continued credit issues in Europe and the relatively benign growth environment in emerging markets.  We have highlighted the SPX’s out-performance on more than one occasion this year and are of strong belief this is a very crowded “flight to quality trade” that could be particularly vulnerable.  Just this past week, George Soros predicted that Germany could enter a recession by the time the county has elections in the fall, could this be the final straw that breaks the camel’s back?

So once again after a great Q1, we head into a veritable Macro-ShitStorm so to speak.  Not to put too fine a point on this, but if U.S. corporate earnings disappoint and visibility is murky at best, then we could be in for the usual summer swoon.   I guess one thing that is important to remember when evaluating the risk reward of your current holds, is that IT IS NEVER DIFFERENT THIS TIME, and for those that think that the U.S. economy and the our risk assets will DE-COUPLE from those of the rest of the world only need to go back the GLOBAL credit crisis of the last five years to see the near impossibility of the potential for such a situation.  The obvious question is whether or not our economy can continue to power along (despite the disappointing March jobs data on Apr 5th), slower than expected growth from China, and the Euro-zone in perpetual stagnation.  IS our Fed’s monetary policy becoming increasingly less effective the longer it is in place?  I have no clue, but with U.S. equities at fresh all time highs and with all of these uncertainties abound, I am not sure buying the first 1-2% dip makes a whole heck of a lot of sense right here.

On the earnings front, we are focused on the following names this week, here are their implied moves and their 4 qtr averages:

  Implied  4 qtr avg
KO 2% 1.75
GS 3% 1.55%
JNJ 1.50% 1%
INTC 3.60% 3.38%
YHOO 3.25% 3.12%
BAC 2.60% 2.75%
EBAY 4% 7.25%
MS 3.70% 4.80%
GOOG 4.75% 4.40%
IBM 3.30% 4.10%
MSFT 3.20% 2.50%
GE 2% 2%
MCD 1.80% 2%


MorningWord 4/12/13:    #BitCoin – The Latest Sign of the Next Financial Apocalypse  

I am not sure about you guys, but I am getting a little tired of the first crap that I see on my Twitter feed in the morning, and the last turdlet at night about Bitcoin, and all the geniuses trying to parse out what this new phenomenon means for a world dead-set on debasing their hard currencies.  I am no economist and certainly no genius, but one thing is fairly certain to this market participant, the whole thing is a massive scam, and in a financial media environment that is getting a tad tired with daily “new all time high” headlines and “very special” programs on the price action, Bitcoin seems to be just the sort of story to re-engage the complacent investing public.

I don’t buy it, don’t waste a minute more on the topic (until I am done with my little rant of course), but if there has ever been a more obvious sign of asset bubbles popping up, this is it.  At some point in the next 12 months or so I suspect there will be a postmortem on why we failed at SPX 1600 (again) and the snarky ones will be pointing to Bitcoin as the “sign that the apocalypse was upon us”.  I’m just saying.  How that will help make you money you ask?  Simple answer, it won’t, but maybe just maybe it will shed a little light on some of the stupid goings on in the current investment environment.

Pivoting from fake investments, to real investments in single stock land, Enis had a great write up on his first impressions of JPM’s Q1 earnings results reported this morning (here).  There does not appear to be any fireworks in the report, but think back to a year ago this exact week, this was the time that CEO Jamie Dimon called the rumored losses in their CIO’s office a “Tempest in a Teapot”.

The “Disaster Dujour” is courtesy of India today, as INFY, one of the largest IT consulting firms in the world was down 20% in Mumbai (with its ADR following suit here) after issuing disappointing results and even worse guidance blaming an “even global recovery”.  I suspect this should weigh on some large cap tech shares like IBM, as it reinforces some of the sentiment displayed by ORCL last month.

In Sum, it will be very important to see how the financials act today in response to what appears to be generally benign results from JPM and WFC.   As we have mentioned on more than one occasion, it has been a seasonal pattern that banks get off to a strong Q1 stock performance only to give some of that back in Q2.

Also keeping a close eye on the retail sector which had a heck of a day yesterday with the XRT up 2% to see if this morning’s weak March retail sales data will cause a bit of a pause.