Equities Rally But So Do Bonds – What Gives?
by Market Montage - April 26th, 2013 1:26 pm
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Chris Burba (@ChrisBurbaCMT on twitter) just posted this interesting chart showing a major divergence between how bonds and stocks are acting. Normally bonds will sell off as equities rally as we go into ‘risk on’ mode. However this week even as equities rallied, bonds held quite steady and on a day like today are acting very strong. Yields continue to fall. Even as equities “honeybadger” their way up. So what gives?
Usually when there is a divergence between bonds and stocks people give the edge to bonds as the “smarter market”. So it’s plausible this is some sort of headfake in the equity market and bonds are giving us a warning. In any normal market that is the thesis I’d focus on as would the herd. But we are in a QE market. A global QE market. We are seeing strange things like Spanish and Italian debt yields plummet of late. Why? One potential reason in my mind is the Japanese money now flooding the world. That money is desperate for yield – so a 4% Italian bond looks juicy especially with the inherent backstop of the ECB. Even a 1.6% U.S. yield looks tasty in a relative sense.
So as with almost everything nowadays we have to try to figure out if the normal market signals that worked for decades are useless now under a global QE regime. There are only so many assets in the world to buy. If too much money is chasing them they get overpriced. That can work for stocks just as for bonds – which in the latter case would be showcased by a drop in yields. I don’t know the answer and none of us do as we are living in a great experiment of monetary policy.
As an aside, another fellow on twitter mentioned this morning that this is the first time in 17 years the U.S. market has not had a 5%+ correction in the first 4 months of the year. More strange and interesting things in our QE world.
*** One should note that since 2009 of course the bond market is not trading “freely” – so the price action of bonds since that time can always be called into question as their has been an almost persistent bidder in…
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Looking to Fill the April 12th Gap Down
by Market Montage - April 25th, 2013 8:13 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While it is not obvious on the chart on Monday April 15th the market gapped down, creating a hole between the close Friday the 12th and the open Monday the 15th. The reason we cannot see it on the chart is because the low of the 12th was below the high of the 15th but it is there just over 1587 or 158.65 in SPY ETF terms. With the gap up this morning it appears the S&P 500 will make an effort to make the full round trip in just under 2 weeks.
At this point some of the more bearish outcomes seem less likely as this powerful move has recaptured a substantial portion of the selloff and pushed the S&P 500 back into the channel it had been traveling since mid November. While that seemed to be a low probability outcome last week, these V shaped bounces are relentless under QE. The next step for bulls is to retest old highs and then push through them; the next step for bears appears to return to fetal position.
Yesterday was also a very interesting day in terms of sector rotation – we finally saw a break in most of the leading groups and rather than leading to a selloff, money simply went into beaten down cyclical groups. That is an impressive situation and why the indexes held in flat. Longer term it would be nice if those more cyclical groups actually became leadership rather than the defensive areas but whatever the case you have to tip your hat at the inability for this market to selloff in any meaningful fashion.
Speaking of QE – yesterday I wrote
On that note, as the economy slows yet again this spring I am going to be the first to put out the “black swan” of expanded QE sometime this fall. I might be early because if Bernanke leaves in early 2014 he might not want to make yet another move, but if Yellen takes over it’s almost a no brainer. Now that Japan has done a program 3x the size of the Fed (relative to their economy), the equivalent in the U.S. would be about $250B a month. So a push upward over 100B a month from the current 85B would now have…
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The New Market
by Market Montage - April 24th, 2013 9:07 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
This morning we have bad earning reactions from Amgen, Apple, AT&T, Procter & Gamble (down 2.5-5%+) and a quite poor durable goods orders number……
…..and the S&P is essentially flat. Remarkable.
While expecting a bounce of some sort coming off that one bout of heavy selling, seeing the “V shaped” move taking us back to early month highs in just 3 days is surprising. Now that head and shoulders top theory is starting to lose some steam. Maybe under QE, the 90% down days simply don’t mean squat. Certainly a lot of old rules seem to be on hold during QE.
Reviewing yesterday’s economic data after the close I was shocked just how bad it was across the globe (China’s PMI slowing again, European PMI horrible) – yet yesterday was one of the strongest days in Europe for the year as “bad is once again good” (i.e. this forces the ECB to cut rates again) and the U.S. ignored it all. The utter and absolute faith in central bankers is amazing.
On that note, as the economy slows yet again this spring I am going to be the first to put out the “black swan” of expanded QE sometime this fall. I might be early because if Bernanke leaves in early 2014 he might not want to make yet another move, but if Yellen takes over it’s almost a no brainer. Now that Japan has done a program 3x the size of the Fed (relative to their economy), the equivalent in the U.S. would be about $250B a month. So a push upward over 100B a month from the current 85B would now have cover. Of course the consensus is “tapering” down will begin sometime next winter but if this economy remains in stall speed of 1-2% why not expand.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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Some Hoax on Twitter About Explosion at White House
by Market Montage - April 23rd, 2013 1:15 pm
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Looks like the account for the Associated Press was hacked and caused a huge selloff (and now rebound) with a tweet about an explosion at White House. 1:08 to 1:13 the market did a full round trip of 12 points, wow.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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Bears Last Stand?
by Market Montage - April 23rd, 2013 10:10 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
After two 90% down days on huge volume last week, a move through current levels would be a complete egg on face moment for the bear case. We have now come to expect the low volume “V shaped” moves since 2009 and right now we might be in yet another one. After stalling yesterday at a 38.2% retrace of the selloff, once that was bested stocks quickly moved up and with this morning’s gap up are at the 61.8% retrace in a matter of 24 hours. This is roughly S&P 1574. The chart below is crowded but this also fits in very nicely with the major long term trendline that the S&P 500 has been riding since mid November – and finally broke a week and a half ago.
So if after a break of that trend line AND two 90% down days of major distribution this market simply shakes it all off and goes right back up as if nothing happens, you would certainly have some head shaking stuff. Very key level here with Apple reporting tonight. As a major NASDAQ component it most likely will rest on that stock’s shoulders.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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Perfect Fibonacci Retrace Thus Far
by Market Montage - April 22nd, 2013 11:23 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Markets rallied sharply first thing this morning before giving it all back. For Fibonacci fans (which I have been using a lot lately) the move from Thursday’s low to this morning’s high was a 38.2% retrace of the drop. Relatively speaking that is a weak bounce in the context of the type of things we have seen in 2013, and more broadly speaking during all the V shaped rallies. The rally has been on light volume (what else is new) after some heavy selling last week on the down days.
Bulls would like to at minimum recapture mid 1570s and then move on to new highs to make this all go away; bears are looking for today’s highs or at worst the 50% retrace to hold to start to show their first signs of getting the upper hand in 2013.
In economic/earnings news Caterpillar had a very weak report/guidance – the stock has been a poor performer all year as it’s very much tied to emerging markets + China which seem in slowdown (copper has been signaling that as well). And housing posted another disappointing data point, in a recent string.
Small caps continue to lead to the downside. In fact the Russell 2000 is now back to late January levels – giving back three months of gains. In many ways this is similar to 2012 when small caps began to weaken in March even as the larger cap indexes continued up on the back of fewer and fewer names – last year it was more of an Apple march.
People continue to hide out in large cap biotechs, utilities, and the like. However 80% of stocks tend to move with the general market so until a clear path is built it is difficult to trust much in this market right now. Further, large cap biotech is among one of the more “crowded” trades I can recall in recent memory based on what I see in the financial blogosphere, and twitter. As the current market “generals” it will be interesting to see their behavior in the near term, especially if the correction accelerates.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not…
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More Signs of a Bernanke Exit
by Market Montage - April 22nd, 2013 8:13 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
After the infamous hashtag #grexit to represent Greece exiting from the EU, let me be the first to stake the claim to #Benxit as it appears closer by the day. Normally this would cause the market to panic but considering Janet Yellen appears to be the front runner to replace Ben, and she is going to make him look like a hawk the Kool Aid should runneth over. The latest sign that Ben’s days are numbered is this notice that he will not be attending Jackson Hole this August. Jackson Hole being the place of some of Ben’s most momentous announcements. He is citing a personal scheduling conflict 4 MONTHS in advance. You know the type – like when you tell your boss you have a “dentist appointment” but it’s really a job interview.
- Greenspan’s final conference featured glowing reviews of his 18-year tenure, including a debate on whether he was the greatest central banker of all time. (how times change) Bernanke, a former Princeton University professor who has tried to make the Fed more collegial, may wish to avoid such accolades, as well as speculation about whether he will stay for a third term, according to Vincent Reinhart, a former director of monetary affairs at the central bank. “Greenspan’s last appearance at Jackson Hole was a series of love letters,” said Reinhart. “It could be that Ben Bernanke just didn’t want to do that.”
- The economics symposium in Jackson Hole, sponsored by the Kansas City Fed, is closely watched by investors for signs of changes in central bank policy. The last time a Fed chairman didn’t address the conference was in 1988, when Greenspan didn’t speak. “To be around the pool of potential succession candidates in August would be awkward,” Reinhart said
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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Fibonacci Everywhere
by Market Montage - April 19th, 2013 10:57 am
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
The market was stretched to the downside yesterday at its lows and hit the key S&P 1538 level which provided support twice earlier in the past 2 months. So going through to break it immediately after a 3%+ correction would have taken a serious amount of panic or fear. Instead starting at 3 PM after a quick undercut of that level they have been bringing the market back up, despite the IBM damage on the Dow.
The more one utilizes Fibonacci lines the more one sees how prevalent they are in the markets – either these are the magical numbers that rule our universe OR they are something the algos on Wall Street are really programmed to. Probably some combination of the two. Whatever the case as I peruse why the S&P 500 has bounced to where it has this morning, you can guess where we have stalled. Right at the 23.6% retrace of the drop from April 11th. If the bulls can push through this level the next stop would be the 38.2% which would be about 10 more S&P points. You can see where the 50% and 61.8% retraces measure to as well below: 1566-1573ish.
At this point in a correcting market long side plays are short and sweet as the action is very random and what worked yesterday (for example metals / mining / coal / oil) gets crunched today. Trying to catch 20 S&P points up when the potential lies for much more down is really for the daytrading set. The last holdouts remain utilities, biotechs, and consumer staples; if this is going to be a true correction of a meaningful sort they will eventually get to them too. We’ve had two 90% down days this week so that is nothing to sneeze at.
There is the potential of a very obvious “head and shoulders” top forming here. Granted, EVERY selloff has the potential for a head and shoulders top by nature, but in this case watch for some work in the 1540s-1560s in the days to come, this would create a right shoulder. *If* that happens and *then* 1538 breaks (the neckline if you will) there is a measured move down to 1480ish. But first the institutions will want to lift the market back…
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Key After Hour Reports
by Market Montage - April 18th, 2013 4:17 pm
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
A lot of names report tonight – the most market moving being IBM and Google. IBM is the largest Dow component and missed on the top line significantly. As always it is easier to (ahem) “manage” the bottom line [earnings] versus revenue. The stock is down significantly in after hours and if things don’t change tomorrow will pressure the DJIA. Google (GOOG) has been selling off for the past few weeks and hence had a low bar which it has passed = up a few % in after hours. Nothing fantastic in the report, it was average and the stock was beaten down recently. Other names of interest – Intuitive Surgical (ISRG) down significantly in after hours and Chipotle Mexican Grill (CMG) up significantly. Microsoft (MSFT) up some as well on a ho hum report.
Mixed bag but generally the early theme in earnings season is revenue growth is getting harder to come by and even with so many companies guiding analysts down on EPS we are not seeing a lot of shoot out the lights on the bottom line either. We’ll see if they can pump some life into IBM by tomorrow premarket as it will influence things.
Of course market bulls will yell about P/E multiple expansion due to QE and that’s been the winning idea for months. It works, until it doesn’t.
We are getting a lot of 3 PM rallies of late – a bit suspicious… today there was about a .45% rally between 3 and 3:45 PM. I think one day earlier this week we had a 0.4% rally in the same time frame. So this is not allowing for a purging type of selloff – more like a slow pull off of band aid.
1538 is very key as we saw today at 3 pm.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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Uninspired Bounce
by Market Montage - April 18th, 2013 2:32 pm
Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
While there was a quick and sharp rally off this lows 1540s level this morning of some 10 S&P points, it was of the extreme dead cat variety and has now given back all of it. This week we are seeing weakness in a lot of the high beta tech members like Google (GOOG), Linked (LNKD), Netflix (NFLX) which were the leaders of the first few months of 2013. And now today they have finally come for the last leaders outside of ‘pure safety’ (i.e. utilities) – the healthcare and biotech stocks.
I have been able to figure out how to put the 23.6% Fibonacci level on the stockcharts.com charts – and we are essentially there now. You can also see it is the bottom of mid March and early April ranges so extremely key.
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
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