MorningWord 9/30/16: Wake Me Up When September Ends.

by Dan September 30, 2016 9:29 am • FREE ACCESS

It’s been a newsy week in financial markets.

Monday saw continuation of takeover speculation for Twitter (TWTR) and the stock has been able actually build on last Friday’s 21% gains, despite no news, and famed venture capitalist and prolific Tweeter, taking a break from the service early Monday morning:

My thoughts here: MorningWord 9/26/16: Twitter (TWTR) – SubTweet

Monday stock’s sold off and Treasuries rallied as fears of Donald Trump surging after a strong performance in the evening debate.

Tuesday saw stocks bounce and Treasuries sell off as Trump made a poor showing in the debate, leading some to conclude that his inability to talk substantively on policy, and resorting to behavior that many undecideds might view as un-presidential, will shift momentum in the polls back to Clinton. Tuesday’s financial market reaction is the first real evidence that investors in risk assets favor the status quo and the predictable.

My thoughts here: MorningWord 9/27/16: Save it for Your iVillage Blog, Lemon

U.S consumer confidence was hot in Sept, at its highest level since August 2007, but that piece of data didn’t not move WIRP, with the probability of a November 2nd rate increase at 17%, half of what it was on Aug 30th.

Wednesday a prior hero of the bull market, Nike (NKE) is showing kinks under its once polished armor (you see what I did there?), with futures orders below consensus for the second consecutive quarter, the stock is now down  16% on the year, and down 23% from its all time highs made in Dec 2015.

My thoughts on our bearish trade idea: Nike (NKE) Swoosh – Update

Wells Fargo CEO John Stumpf went before the House Financial Services Committee to be grilled on his bank’s phony account scandal.  There seemed to be few pleased with the bank and management’s explanations.  It’s my view that the negative rhetoric will only abate when we see high level resignations/firings, newly implemented customer safety checks and some sort of negotiated settlement.

Thursday, WFC closed at a new one  year low yesterday, below key technical support:

WFC 1yr chart from Bloomberg
WFC 1yr chart from Bloomberg

I guess more importantly, WFC has little technical support for another 10% below to $40, and then to the mid $30s. If you think the stock is cheap now, on what looks like to be merely a sentiment hit (as the losses of the sketchy business practices were a rounding error on the company’s $88 billion revenue base, but un-quantifiable from a brand perspective):

WFC since 2010 from Bloomberg
WFC since 2010 from Bloomberg

Oh and if the $150 billion in semiconductor M&A since the start of 2015 wasn’t enough, yesterday afternoon media reports suggested that Qualcomm (QCOM) is in talks to acquire NXP Semiconductors (NXPI) for $30 billion.  Semi stocks ripped sending the SOX up 3% in a straight line, NXPI up 17% and QCOM up 6%.  I suspect where there is smoke there is fire, here is why:

And Microsoft’s (MSFT) reorganization of its Artificial Intelligence, sharpenening the company’s focus on emerging technologies, per the WSJ:

Microsoft is racing to ramp up its capabilities in this area, where Alphabet Inc.’s Google division, Inc., Apple Inc., Facebook Inc. and many others are investing heavily. Mr. Nadella has made artificial intelligence a cornerstone of the company’s strategy to lure customers to its cloud-computing services.


“We are on the cusp of a paradigm shift in computing that is unlike anything we have seen in decades,” Mr. Nadella wrote in his email to employees about the executive changes.

Here is a great read from Wired on the lead up to these organizational changes: Microsoft Bets Its Future on a Reprogrammable Computer Chip

Lastly, Deutsche Bank’s (DB) death spiral (at least its equity) which has been going on all week. I don’t have much to add. I can tell you that it is my strong belief that no matter what happens DB will not have a Lehman Moment, meaning the bank will not go bankrupt. It may have a Bear Stearns Moment, meaning the equity gets wiped out, but the bank is bank-stopped by the German government, possibly with capital infusions by sovereign wealth funds or another banking institution. But I think it’s a safe bet that the global economy is not ready to let the dice roll on financial market anarchy.  That is not an endorsement to buy DB stock, but if you thought that any sort of back-stopping coupled with a negotiated settlement with our regulators could cause an epic near term short squeeze.

Well that was fun!  What will October bring? Oct 9th will be the second presidential debate, if Trump can’t improve (should be easy enough) then I suspect Clinton starts to roll and markets become ok with it. Oh and the little thing of Q3 earnings should kick off in the second week of Oct.

Could be a volatile month to say the least, yet options premiums seem fair, to possibly cheap. To add a little context to that statement, with the SPY at $215, the Oct regular 215 straddle (the call premium + the put premium) is offered at about $4.50, or about 2% of the underlying etf price, seems cheap-ish. If you bought the implied move in the SPY between now and Oct 21st expiration, you would need a move above $219.50 or below $210.50 to make money.