MorningWord: 3/9/12

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MorningWord: 3/9/12 at 9:25am: Well there you have it, the all important Jobs data…..and unemployment holds steady at 8.3%, as payrolls were slightly better than expected and Jan revised higher.  Not that this comes as a huge surprise given the recent data that we have seen, but after a week that felt a bit like a yoyo in equities, today’s close could suggest the direction of the market for the balance of what has been a near historic quarter so far.  

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MorningWord: 3/9/12 at 7:45am:  If the price action earlier in the week was dominated by slowing growth concerns in China and the worry, then enthusiasm about Greece’s debt swap, the focus now is squarely in the U.S. economy, and specifically our employment data due out in an hour.  

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MorningWord: 3/8/12: {##34##}Pretty darn impressive action yesterday by equities the world over after getting off to a fairly meager start in the morning…..I was a bit fixated on the DAX’s anemic action in the morning after such a dramatic sell off the previous day, but it was U.S. equities driving the bus yesterday, making back about 50% of the previous day’s losses.

March 7th intra-day SPX vs DAX from Bloomberg

 

Asia was up fairly handily and Europe is rallying back soundly to the levels seen prior to Tuesday’s walloping.  Investor enthusiasm in the last 24 hours has been buoyed by reports that close to 60% of investors who hold Greece’s sovereign debt are getting behind the country’s attempt to restructure by reducing their 200 billion euros of sovereign debt by about half prior to tonight’s 10pm deadline (Greek time).  

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MorningWord: 3/7/12: Not much to add about yesterday’s price action in equities other than it was long overdue and confirmed by volume that was about 12% higher than the 3 month average.  I guess the biggest take-away was the relative performance of U.S. equities (SPX -1.54% & Nas -1.36%) to European equities where the the largest Index in the region, the DAX closed down 3.4% on its dead lows…..While the divergence is not that surprising given the source of the jitters, but the magnitude was fairly wide, with the  DAX now about 4.5% from the recent highs.  I guess the most troubling action is this morning’s anemic bounce after such a dramatic sell off, as of writing at 8:55am, the DAX is only up ~40 bps, while our futures are up about 50bps.  

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MorningWord: 3/6/12:2 nights ago it was China’s growth in focus, and over night the “slowing global growth contagion” spread to Europe.  Ok that was a little dramatic, but it’s kind of funny because it feels like we are about to go from a period of over complacency about any bad news to a period where mildly negative news is going to be amplified by the financial press.  Here is the deal, I am not a perma-bear, I just hope that markets act rationally more of the time, and that’s why I have missed the last month of this bull run. But, as I know well, just as markets can overshoot on the downside, they can do so on the upside and we have seen this happen on both sides of the coin since last summer. The likelihood of any investor nailing tops and bottoms most of the time ain’t great, so I will look to hit a little better than 50% in this endeavor.  

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MorningWord: 3/5/12:  The real story last week was the divergence between large and small cap stocks, the Russell 2000 closed down about 3%, while the SPX gained about 30bps.  Chart below displays this divergence fairly clearly while also shows the Russell about to re-test a key support level from last spring/summer.

Russell 200 vs SPX 1 yr chart from Bloomberg LP

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MorningWord: 3/1/12:  Well people, we almost had it yesterday…..IT being a real sell off.  Yesterday’s action in Gold down almost 5.5% was its worst day since late September and almost unerved the entire market.  The SPX closed 90bps off of the morning highs, near the lows of the day, and we actually started to feel a little panicky.  Key word being little.

Waking up this morning though, all is well in the world again, European equities are up across the board, with the DAX near the highs of the day up close to 1%, Euro down a tad, Gold bouncing a bit, crude practically unchanged and our futures rebounding 30bps.  

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MorningWord: 2/29/12: Doug Kass kind of nailed it on Fast Money a couple weeks back, “We are seeing a market that is far too focused on a few names – most importantly Apple – it’s an NBA market – nothing but Apple.    The SPX was up 34 bps yesterday while AAPL was up 1.84% and I think it is safe to say without AAPL’s out-performance and signaling the all clear for other large cap tech names like MSFT up 1.66% on the day and GOOG up 1.49% on the day that there is a good chance the broad market would have been down.   But the financial press loves round numbers and AAPL closing the day a billion shy of $500b in market cap and the Dow Jones closing above 13k for the first time since mid 2008 was like Christmas come early for those charged with telling us why the markets did what they did.

You guys know where I stand on this, I presume that you are not a frequent reader of this space because you are looking for the conventional consensus view, you won’t find that here.  I keep getting questions from friends, colleagues, readers, oh and perfect strangers whether I am just swimming up stream?? Well of course I am for now and the truth is I would be an absolute monkey if I just threw in the towel and reversed course.  Throughout my career I have never nailed a top (or a bottom for that matter) within 1% , it’s almost impossible and if one did it would likely have to do more with luck then skill.  The point here is that I have always been early and always will, and as a rule I tend to be contrairian, so I won’t be part of the herd.  Here is the thing, I don’t run a hedge fund or mutual fund, I don’t have a benchmark, like a lot of you, I just have my wife or husband looking over the monthly pnl reports!  But the name of the game is capital preservation, and as I have said here for most of the year, when wrong on direction, you need to be even more mindful of sizing…..my positions have become smaller and smaller so no one wrong bet puts me on the sidelines for a bit……and when the time is right, when most of the inputs that you use to inform your trading/investing decisions signal to pounce, then you do, with defined risk…….this is what I am in business to do is look for the most cost/risk effective ways to make bets in the market, I am not here to sell some BS long only mutual fund that after fees will likely lag its benchmark, or try to sell some hedge fund that promises great riches in a good markets and “less bad” returns in bad markets.   So if you want to hear the bull case pounded on an hourly basis, just turn the tv on, or read most financial press, and this wouldn’t be the site for u unless u want a little bit of skepticism to water down all the fluff out there.

So I think the important thing is to recognize the ideas that we speak about on the site are not meant to be an investment portfolio.  I look for situations where the market under or over-appreciates a situation and look for a defined risk way to play, or look to reduce exiting risk.  Think of RiskReversal as on add on to your existing reading that is not likely to follow the herd. There I got that off my chest.  IN the next couple weeks we will be introducing a new full time writer to the site who will hopefully be able to balance a lot of my stubbornness, stay tuned.

As for the “NBA market” I think at the multi year highs AAPL now serves as a bigger impediment than a catalyst for higher highs.  Next week (march 7th) the company will hold their iPad3 event, and if the product launch is disappointing I can only imagine this stock re-tests $500 quickly and possibly back the lows made in the mid $480s from that reversal mid month.  This is the most crowded to trade the planet has ever seen, and trust me we have seen this movie before, I can’t tell you when it is going to end but I sure Know How It Will.  Just remember people, when you start hearing daily that it is “different this time” it may be time to “Think Different”.

 

MorningWord: 2/28/12:  Yesterday’s reversal was just downright nasty if you were short and looking to finally press a move that appeared to be coinciding with a “risk off” opening.  Crude, Gold, Euro, equities the world over were all down, with bonds up and the VIX up 10%……… it appeared for the first time all year we would have a little sell off reminiscent of summer/fall 2011.  The combination of a New Home Sales number that was better than expected and the German Parliaments vote in favor of funding the 2nd Greek Bailout after the European close and BAM, the lows were in……the SPX closed at new 52 week highs, while the DAX closed almost 1.5% off of it’s lows.  Equities clearly have a bid to them as they approach levels not seen since the pre 2008 financial crisis, and it appears that it will take a bit more than some tough talk from the G-20 to get equities down and keep them down.  This morning our futures and European equity markets have reversed on the one two punch of the worst Durable Goods Orders print in almost 3 yrs, coupled with weaker than expected housing data from Case Schiller.  Our futures are down about 50 bps from earlier highs while the DAX is down about 1% from the morning highs.

Yesterday I posted on the IWM appearing at least on the open to be losing a bit of momentum relative to large cap stocks (read here) and breaking below its 20 day moving average.  This was  massive head fake and similar to that of Dec 19th, a date in which it made a similar move below the short term momentum indicator, and since then the index has been up a little more than 24% (not exactly proving the point).  I am going to keep a close eye on momentum, breadth and volume as we approach multi year highs, with out a single pullback this year of more than 57 bps, something has to give and soon, the whole rally feels a bit bubbly to me.  

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