Thursday, April 25, 2013

Wise Owl Wealth Mastery Market-Thoughts for 04-24-20132

 
 
 
This market continues to amaze with days of out-of the blue strong gains on no particular news. Spiking because Europe's economics were so bad the ECB may have to resort to QE is contra-logical thinking for me. Why celebrate bond buying in Italy and Spain simply because investors don't want to buy stocks when the Eurozone is slipping further into a recession...so it makes little to no sense but in these massively liquidity driven markets logic, fundamentals do not matter only the hope of more QE-matters. Don't fight QE from the FED, BOJ, BOE and potentially the ECB is the new mantra for this bull-crap-market as they can print money faster than traders can invest it in the various hot-money trades.
 
The indices didn't do much today but their refusal to drop was impressive. Breadth was OK with 3300 gainers to just 2150 decliners, and pockets of strength included solar (strange as that was) homebuilders. Even MSFT attracted some momentum. The news flow has not been particularly strong lately. Durable goods numbers were weak and Apple earnings were nothing to write home about. But there seems to be an underlying bid that isn't going away. The first quarter had slow but steady buying, and it looks that way again. Recent weakness is ignored fundamentals are ignored, and poor earnings have for the most part been ignored and sometimes I become a tad bit frustrated as to why I have to be so logical, and why I can't just hold my nose and buy crap as there always seems to be a greater fool lurking out there. I wonder why the bears even bother bringing up technicals, logic and arguments against this overly giddy market. They should know by now that reality doesn't matter as long as there is massive daily FED liquidity and buying power from the prop-desks of the TBTF banks. Cash just doesn't have any other place to go.
 
Today the SPX-500 traded flat (1578.79) in a very anemic volume tape after rising to OHR at 1583.00+/-, though yesterday the SPX-500 extended its rebound by 16+/- points to close at 1578.78. This is only 14 points below the historic high close at 1593, and just 21-points off of the magical 1600 level. Fundamentally prices at these levels makes no sense but we have to play the cards we are being dealt. The SPX-500 has been very jumpy of late....printing a doji or star today....a failure to hold above 1565+/- then 1560+/- would signal a top has been triggered... Support is at 1530+/- and overhead resistance is now back near the highs at roughly 1595+/- then very strong OHR comes into play at 1617+/-. A return to the 1595+/- level with a subsequent failure could be seen as a double top and a perfect setup for a sell in May event.
 
The Dow closed down today at 14,676 only 190 points below the historic high close at 14,865. That becomes the target for any more bullishness we have seen that many of the Dow components have already reported and that will remove a lot of stimulus from future Dow moves...if the Dow fails to hold the 20dsma at 14,644+/- we could see a brisk sell off to retest the recent lows at 14,444+/-. Typically once a firm announces and reacts to earnings the days following that reaction are lackluster and the firms tend to trade lower as investors take profits. This makes it harder for the Dow to maintain this pace and velocity. The remaining Dow components to report are as follows. XOM 4/25, CVX 4/26, PFE 4/30, MRK 5/01, DIS 5/7, CSCO 5/15, HD 5/21 and then HPQ on 5/21.
 
With April coming to a close (4-trading days left) I mentioned in the weekend report that their existed a potential for some window dressing into month end. Remember, April is historically the best month of the year for the Dow. That is a tough trend to fight in a FED liquidity-driven environment. However, May is the second worst month of the year for the markets so it will be interesting to see if the FED can and will keep the proverbial pedal to the metal throughout May.
 
The closer we get to May the more likely investors will become more cautious. However, when trends are as easily visible as the May declines the past three years they tend to do the opposite of what is expected. If everyone is standing on the same side of the boat it capsizes. If everyone is short entering into May there is a huge potential for a short squeeze. Eventually fundamentals will matter and the market will correct. The FED and lecherous TBTF friends can't hold it up forever without a pause for investors to reload.
 
The indexes and several sectors have again rebounded bounced back up to their broken uptrend lines from November-December. We now are patiently watching to see if the recent sell-off and another retest result in another selloff or if instead if the giddy bulls can run the indexes higher (maybe even another orchestrated well timed gap-run-romp). Yesterday we saw that equity futures had rallied a little more during the overnight session but then gave it up into the open. The rest of the day was spent slowly chopping higher and then ultimately a drop back to the previous close within a couple of ticks of testing the overnight high. The drop back down at the end of the day, after retesting broken uptrend lines might have been a first clue that the next leg down could start today "Thursday". Countering this argument is that there is a possibility that the market will be held up into the end of the month. Tomorrow will surely provide clues for future market tonality.
 
In another case of bad news is good news, the dismal Durable Goods number was good because it means according to the talking heads on CNBC that the FED will keep the pedal to the metal. Yes, we have a very distorted and extremely disconnected market place now from the real-world. The Durable Goods number dropped -5.7% in March, which was much worse than the expected and it was a complete reversal of the hyped February reading of 5.6% (which was revised down to 4.3%). Even excluding transportation orders (which are always volatile) the number came in worse than expected down -1.4% vs. expectations for 0.2% and it was a slight improvement from February's -1.7%, which was also revised down from -0.7%. Between the February revisions and the March numbers, there's no other way to view it as negative for the economy. And because it was such a dismal number the market rallied on a bad-news is good news as of course the all great FED will provide more liquidity!
 
I believe we are closing in on a real need for a reality check and soon I predict the bulls are going to be severely awoken to the real world and not the FED's Wonderland world. Even this week's massively hyped pro forma housing numbers showed a neutral bias at best but that didn't stop the home building stocks from rallying yesterday. I guess the bullish forces in that sector were just relieved the numbers weren't worse.
Once again bad-news-is-good-news reaction to Europe's negative economic news and our economic news is crazy but it's nothing new to us this year. Most believe that as long as the FED keeps running the printing presses full steam ahead 24/7 the market will be buoyed. But in reality all the FED is doing is making people THINK their money-printing scheme is working. In reality the only thing the FED has been accomplishing is keeping bullish sentiment high, nurturing bank profits, and creating other bubbles and therefore they are very interested in keeping the Ponzi scheme alive, known as the stock market....crawling higher.  The bottom line is that the FED's effort to increase the money supply and then the velocity of money is failing. They have no control over the money supply or its velocity. They've been losing the battle with money velocity since it peaked in 1997. They have increased their balance sheet but the money supply is actually lower than where it was at the beginning of 2011/2012. The only thing they've managed to do is jawbone the markets higher, making its participants believe in this all-powerful omnipotent FED. Once the market realizes their Emperor wears no clothes and never has there will be hell to pay.
 

 
The recent Hindenburg Omen and the Titanic Syndrome; the Hindenburg Omen signal a week of so back was the first one since August 2010, which was when the FED stepped in the way of a market crash with the announcement of their 2nd round of QE.
 
The rules for a Hindenburg Omen are:  
·        The daily number of NYSE new 52 week highs and the daily number of new 52 week lows are both greater than or equal to 2.8% of the sum of NYSE issues that advance or decline that day (typically about 84 out of approximately 3000 stocks).
·        The NYSE index is higher than it was 50 trading days ago. 
·        The McClellan Oscillator is negative on the same day.
·        New 52 week highs cannot be more than twice the number of new 52 week lows (though new 52 week lows may be more than double new highs).
The Hindenburg Omen signal is valid for 30 days and remains active as long as the McClellan Oscillator is negative. That means the current signal has been negated with McClellan Oscillator turning positive this week. Now we wait to see if another Hindenburg Omen will trigger soon (they tend to cluster together at market highs if a turn is really imminent).
 
The Titanic Syndrome is triggered when NYSE 52-week highs minus 52-week lows (NH-NL) turns negative within 7 days of an all-time high in equities. The chart below shows a reading of -35 was achieved on Wednesday the 4/17/2013 only 4 trading days following the NYSE high on 4/11/2013. It is of course common to see the NH-NL turn negative following a significant decline but the reason the Titanic Syndrome signal is a danger sign for the market is because it makes it clear that the new high was made on the backs of very few stocks. When new 52-week lows outnumber 52-week highs so close to an all-time high you've got to wonder how many stocks are not participating in the current rally. The NH-NL started diverging with price following the February high and can also be seen in the lower advance-decline highs since February, which is never a healthy sign for a rally (although it's not a trading signal by itself). So we've got some ominous signs for the market and another reason to be very cautious about playing the long side. The signals can be negated and not all Hindenburg Omen or Titanic Syndrome signals result in a market crash. But no market crash has occurred without first being warned by a Hindenburg Omen.
 

 
The market started off with a bang yesterday but you will not believe the reason (it was hyped that the Markit PMI for France was the reason) as it rebounded from 44.0 to 44.4 in March. I know you are probably shocked by the big gain considering anything under 50.0 is still in contraction territory, but this 0.4 gain was hyped as being extremely significant....and better yet the Markit Services PMI for France rose from 41.3 to 44.1. That was significantly better but still well into contraction territory (wow a better than expected crap survey number was the reason for a substantial rally in Euro-land.....Germany's manufacturing PMI came in at 47.9 and services PMI at 49.2. The Eurozone Composite Output Index was unchanged at 46.5 for April, also still in contraction territory. Markit stated "The survey is signaling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify in the coming months rather than improve." So where was the stellar news that lifted our markets...I did not gather such an Euphoric clamor from these numbers....well you have to think like a bail-out liquidity junky to understand why the markets were on their giddy path as now I am sure you know the answer to that question. The economic news was so bad that investors were sure the ECB would be forced to cut rates at the next meeting and possibly launch its own version of QE like our FED and now the BOJ have been embroiled in. European Commission president Jose Manuel Barroso was quoted as saying austerity "has reached its limits." Yes, the bad news was the good news in this crazy disconnected market world where fundamentals don't matter only Central Banker bailouts and massive money printing do. The world equity markets depend on the liquidity drugp pushers called the central banks rather than real growth and fundamentals.
 
Even more surprising yesterday was that bad news in China failed to suppress and sour our markets. China's Shanghai Composite fell 2.6% after the April HSBC Manufacturing PMI fell from 51.6 to 50.5 and very close entering contraction territory. Estimates had been for a minor decline to 51.4. The export index plunged to 48.6 and exports are a major portion of China's pro forma economy. Exports are in contraction and that suggests manufacturing will soon follow.
 
So the eurozone is slipping deeper into a recession and China is right behind them. European investors are so worried about the economy they have resorted to buying debt from Spain and Italy even though they are in the worst shape of any major EU economy. And I was amazed to see yesterday that the futures rally overnight on such news. What is wrong with this picture?
 
The market seemed excited that Spain sold 3.1 billion euros in 10-year debt. The yield dropped 22 basis points to 4.27% and the lowest level since November 2010. Italy's 10-year yield dropped 14bp to 3.94% and this was also the lowest level since November 2010. 
 
 
While US macro-economic data has been deteriorating rapidly of late (now at terrible and lackluster levels that we saw back in August of last year's prior to the market cliff-dive, we have often seen self-serving survey-based data providing some wild hedonic adjustments trying to mask the real weakness underneath to the hard-data. Hope and faith that a FED induced recovery is just around the corner provides just enough for many a lemming to hang in there as the indexes due to massive program-trading influences by the too big to fail banks is enough to tease the markets with the indexes at/near new all-time highs, its amazing what they (The FED, the primary dealers etc.) can do in a thin tape.
 
But... in the past two weeks, the surprises from US business cycle and survey-based indicators have plunged. In fact they have dropped at a pace only matched by the 2011/Q2 drop that required global coordinated central bank intervention to save the markets from an implosion. Perhaps even more interesting is the lower highs being made in the various indicators of the business cycle which confirm the fading reality of any spillover-effect from the central-bankers market manipulative efforts through QE.
 
Recent data clearly is showing slowing growth in the US and China, while Europe's recession is gaining steam into the cesspool of despair...also we have seen that Japan has recently announced a massive QE stimulus program, but it's not likely to grow much this year despite such monstrous manipulation efforts. The world's largest economies are quickly losing momentum....so it begs the question why are the markets still crawling higher  (More QE-needed, End-of-month performance chase underway and Central-Bankers making it so nasty to be invested anywhere else?)
 
Global economic bellwethers like Caterpillar, McDonalds, FedEx, AAPL, IBM and even PG have all recently cited the sluggish world economy as a challenge to their businesses models. We are clearly seeing a slowdown here, and it's real, and I'm seeing it everywhere.  Last week, the International Monetary Fund cut its outlook for global growth; as they now believe the world economy will grow only 3.3% in 2013; and I consider that prediction overly optimistic as I'm close to 1.7%.
 
The United States has been through several spring drops over the past few years, where the economy starts the year off strong (thanks to bogus and pro forma data), only to show significantly slowing a few months later. And once again that already seems to be the case in 2013 as the data economic flow is deteriorating.
 
Job growth waned, the factious housing recovery has lost momentum even with the pro forma numbers and consumers cut back on spending in March. New data released this week has shown, also American factories reporting their weakest growth in six months in April.
 
The government's across-the-board spending cuts have only just begun (will likely worsen in the weeks and months ahead), and will total $85+/- billion through September; and it will likely prevent the U.S. economy from growing beyond 2% this year. What about the end of the payroll tax holiday....will that also act like an economic anchor?
 
China's manufacturing sector also reported weaker growth as disappointing news follows earlier reports showing that the broader Chinese economy grew at a slower pace in than in the first quarter; as weaker global trade acts like a contagion. Whenever the U.S. and Europe are slowing, the domino effect hurts Chinese exports. Chinese authorities have also been reluctant to stimulate their economy, amid concerns about rapid credit growth and fears of an property bubble and commodity/food inflation.
 
The euro zone is still stuck in a nasty and deepening recession. Even Germany, the largest of the European economies, saw its services and manufacturing sectors contract in April (but their stock markets like ours ignored the contagion as they hope and pray for ECB rate cuts and QE type action).
 
Japan is the exception to the other large economies, in that the country recently launched a massive stimulus program. Known as "Abenomics," the brainchild of Prime Minister Shinzo Abe includes large public spending programs (which will help with job growth) and easier monetary policy from Japan's central bank.
However down the road this massive monetary stimulus should lead to higher inflation, but it is not clear that it will lead to stronger economic activity as yet (as we have seen in the US....QE helps the stock markets, CEO/CFO and insiders and the bankers, but it has only negatively impacted the poor and middle class)!  Japan's like the US's aging population and shrinking labor force signal more tepid growth ahead. Weak economic data could push more countries to enact even more crazy and ill-conceived stimulative policies
 
The $64,000 question is....is this a temporary economic malaise, or is the world's economy going to hell in a hand basket.....I bet we're going to get an answer to that sooner than later!
 
 
We have learnt nothing......nothing.... our economy is being ruined by FED and their massive money printing (markets love it though) and lack of regulations of how they dole out monies....imagine that we give primary dealers (the too big to fail bastard bankers) almost unlimited funds at 0.5% 1.0% interest without any guidance or restrictions on how they use these new-found riches....like to loan out the money to support home-owners not home-speculative buyers, to support small businesses and job creators, not to support the massive stock buy-back (EPS-masking) machines of big business, also these very same lecherous greedy to big to fail bankers/bastards do what they always do....they create another over-leveraged bubble chasing dividend stocks higher on massive leverage (another bubble) they use the monies to buy depressed / foreclosure properties, and then they rent them back to those they evicted (what a great world we live in)
 
This earnings cycle has been better than expected on top line EPS massaged earnings beats but there are significant contagions hardly anyone is addressing; before tonight's earnings we have seen as usual more than 67% of those reporting have beaten estimates on earnings thanks to massive cost cutting and stock buy-backs; however only 47% have beaten on massaged and lowered revenues, and worse yet only 28.25% have beaten revenue expectations. This is a horrible trend and it’s a terrible revenue statement and far lower than the average of 62% according to Thomson Reuters. That is the lowest level seen since the great recessionary debacle created by the too big to fail bankers and the FED and suggests significant trouble ahead.
 
A more troubling statistic is the guidance. The negative to positive guidance ratio is 14:1 compared to a historical average of 2:1. That is a MAJOR red flag for the rest of 2013. Europe is getting the blame but the sequester excuse is also showing up in many an earnings miss or lower guidance. As we move deeper into the earnings cycle this week and next the size of (market-cap) the firms declines as does the quality of earnings. The big blue chips have economies of scale and a lot of overhead that can be cut to improve EPS earnings. Smaller firms have a lesser and significance tighter work forces and far less expenses than their fat-cap blue chippers that can be reduced to massage earnings. They tend to be single focused. If they have slowing sales in one or two divisions they can't make up for it in the others. Current earnings growth is coming in at about 1.8% at this point in the cycle. That is well above the break even to -2% that many had predicted BUT the cycle is not over until the mid-cap and small-cap firms report. 
 
 

Wednesday, April 24, 2013

Another Flash crash on Tuesday shows just how fragile this market really is

 
 
Yesterday's mini-AP-Twitter Crash (if we can call it that) has brought the tough reality of just how much these markets are robotically controlled via high-frequency trading, how synchronized...and attached in a symbiotic relationship that they truly are embroiled in; the markets are not in the control of real investors, traders etc, rather they are being controlled entirely by mechanized bot-trading and the main-stream media wonders why mo, & pop investors are as skittish as long tailed cats in a room full of rocking chairs; and that many do not trust Wall-Street or the markets as they see them as rigged against them!
 
I have been for weeks now embroiled in analyzing and discussing the correlations between JPY carry trade and equity indices and after yesterday's swoon the correlations are extremely clear as the equity markets have become massive high-speed casinos all things I have discussed for years. But there is one potentially fascinating insight from the ongoing High-frequency mechanism associated with the lecherous too big to fail banks/banking sector...we have seen that jobs on Wall Street are becoming scarce as jobs losses have been picking up every-month and are now at an all-time low (as computers are now the supreme traders). Once again, it would appear that cost-cutting demands in order to make EPS numbers (and a government bailout backstop to over-leveraged crap investments from these too-big-to-fail bastards, as they have rightly assumed that no matter how bad they screw up they will get bailed out a win-win for their massive over-leveraged positions...and as such these actions seem to trump any real job creation; as who needs to create demand for services, products when you have the FED pumping in funny money every-day to prop-up the markets and the bankers positions!
 
The SEC and CFTC seem to have endorsed high-frequency and program trading as they always side with the big-bankers in their efforts to squeeze money from mom/pop traders and investors; they are certainly either incapable (or simply unwilling...maybe both) of comprehending the massive contagions surrounding this market trading strategy of the too big to fail banks and many a hedge fund.
 
Have the pools of so called liquidity really become so thin and shallow that just a single headline can cause such a wild sell-off in the ES, IWM, SPY etc all in a blink of an eye. We used to have a real market with deep liquidity with different types of investors where price discovery was real. We're seeing these mini crashes way to often and it's due to the structure of the NYSE, NSDQ etc. and how they cater to these algorithmic robot type traders. Only 4-6% of the flow is coming from institutions, 4-6% from hedge funds 9-12% from pension funds and day/positional traders etc, then the remainder comes in from robotic traders.
 
In my opinion HFT provides no benefit of liquidity, especially price discovery, and has no place in this market as it's an unfair advantage for the TBTF banks and their trading desks; it certainly hasn't helped to create real jobs just more job losses!
 

FORD Earnings were good; guidance not so

 
 
Ford Motor beats by $0.04, beats on revs; reaffirms FY13 pre-tax profit flat YoY; operating margin equal or lower  Reports Q1 (Mar) pre-tax profit of $0.41 per share, excluding non-recurring items, $0.04 better than the Capital IQ Consensus Estimate of $0.37; auto sector rev rose 11% year/year to $33.9 bln vs the $33.38 bln consensus.
                                                
For full year 2013, the company's guidance remains unchanged - Ford expects another strong year, with total co pre-tax profit about equal to 2012, operating margin about equal to or lower than 2012, and Automotive operating-related cash flow higher than 2012.
 
For Q1, Ford's wholesale volume and revenue were each about 10% higher than a year ago, driven primarily by strong performance in North America and Asia Pacific Africa. The decrease in total Automotive pre-tax profit and operating margin for the first quarter is explained by Europe and South America.
 
Ford generated positive Automotive operating-related cash flow of $700 million in the first quarter - the 12th consecutive quarter of positive performance - with strong liquidity of $34.5 billion unchanged from year-end 2012.
 
As part of Ford's previously announced strategy to de-risk its pension obligations, the co made $1.8 billion in cash contributions to its worldwide funded plans during the quarter. This included $1.2 billion of discretionary contributions, in line with Ford's long-term pension de-risking strategy.
 
North America:
Ford North America experienced strong growth in the first quarter, with wholesale volume up 17% from the same period a year ago, and revenue improving 20%. Ford North America's pre-tax profit, which was a record for any quarter since at least 2000 when the co began reflecting the region as a separate business unit, increased from the same period a year ago due to favorable market factors, offset partially by higher costs that reflect the company's investment in new products and growth, as well as higher pension and OPEB expense. These same factors drove Ford North America's operating margin of 11% - the fourth quarter out of the last five that the region produced double-digit operating margins.
For full year 2013, Ford's guidance for North America remains unchanged - the co expects strong performance to continue, with pre-tax profit expected to be higher than 2012 and operating margin of about 10%.
 
Europe:
The decline in Ford Europe's first quarter pre-tax results primarily reflected higher structural costs, including restructuring effects (principally accelerated depreciation), and higher pension expense due to lower discount rates. Market factors and exchange also were unfavorable. The company's European transformation plan announced in October 2012 is proceeding on track, with solid progress made during the first quarter of 2013. Ford's unprecedented product acceleration is on pace, with five new passenger vehicles and two new commercial vehicles introduced since the plan was announced. These new vehicles are off to a strong sales start. The company increased retail market share for the five major markets in Western Europe, which is critical to margins, residuals and brand health, and made strides on quality and customer satisfaction. Ford also made progress on cost efficiencies during the first quarter, including plans to restructure its manufacturing footprint within the region. The company's discussions are progressing with unions at Southampton assembly and Dagenham stamping and tooling operations in the U.K. toward closure mid-year. Discussions also are progressing at Ford's assembly plant in Genk, Belgium, where hourly employees recently ratified a package of proposed separation benefits, and salaried employees now have reached agreement on a tentative proposal subject to ratification. As the information and consultation process moves forward, normal vehicle production levels at the plant have resumed.
 
Full year 2013 guidance for Europe remains unchanged, with the co expecting a loss of about $2 billion. The outlook for the business environment in Europe remains uncertain. While it is possible that economic and industry conditions will begin to stabilize later this year, recent economic indicators are mixed. Despite the challenging environment, the company is progressing toward its goal of a profitable, growing Ford Europe by mid-decade.
 
Asia/Africa:
Ford Asia Pacific Africa showed strong growth in wholesale volume and revenue, gaining market share in this growing industry. Ford's first quarter market share for Asia Pacific Africa was 3%, a 30% improvement from a year ago; in China, the company's market share improved more than a percentage point compared with a year ago, setting a first quarter record of 3.6%. The improvement in Ford Asia Pacific Africa's pre-tax results and operating margin mainly reflected favorable market factors, as well as higher royalties and subsidiary profits. These positive factors were largely offset by the company's investments for future growth in the region.
 
For full year 2013, the company's guidance for Ford Asia Pacific Africa remains unchanged at about break even. While Ford expects to deliver strong growth in volume, share and revenue during 2013, costs will continue to largely offset these positive effects as the company continues to invest in an expanded product lineup, new plants in China and India, and people to implement the company's growth plan.
 

Why did we rally yesterday, it was on premise of ECB rate cuts and ECB QE-type action

 
 
 
The market started off with a bang yesterday but you will not believe the reason (it was hyped that the Markit PMI for France was the reason) as it rebounded from 44.0 to 44.4 in March. I know you are probably shocked by the big gain considering anything under 50.0 is still in contraction territory, but this 0.4 gain was hyped as being extremely significant....and better yet the Markit Services PMI for France rose from 41.3 to 44.1. That was significantly better but still well into contraction territory (wow a better than expected crap survey number was the reason for a substantial rally in Euro-land.....Germany's manufacturing PMI came in at 47.9 and services PMI at 49.2. The Eurozone Composite Output Index was unchanged at 46.5 for April, also still in contraction territory. Markit stated "The survey is signaling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify in the coming months rather than improve." So where was the stellar news that lifted our markets...I did not gather such an Euphoric clamor from these numbers....well you have to think like a bail-out liquidity junky to understand why the markets were on their giddy path as now I am sure you know the answer to that question. The economic news was so bad that investors were sure the ECB would be forced to cut rates at the next meeting and possibly launch its own version of QE like our FED and now the BOJ have been embroiled in. European Commission president Jose Manuel Barroso was quoted as saying austerity "has reached its limits." Yes, the bad news was the good news in this crazy disconnected market world where fundamentals don't matter only Central Banker bailouts and massive money printing do. The world equity markets depend on the liquidity drugp pushers called the central banks rather than real growth and fundamentals.
 
Even more surprising yesterday was that bad news in China failed to suppress and sour our markets. China's Shanghai Composite fell 2.6% after the April HSBC Manufacturing PMI fell from 51.6 to 50.5 and very close entering contraction territory. Estimates had been for a minor decline to 51.4. The export index plunged to 48.6 and exports are a major portion of China's pro forma economy. Exports are in contraction and that suggests manufacturing will soon follow.
 
So the eurozone is slipping deeper into a recession and China is right behind them. European investors are so worried about the economy they have resorted to buying debt from Spain and Italy even though they are in the worst shape of any major EU economy. And I was amazed to see yesterday that the futures rally overnight on such news. What is wrong with this picture?
 
The market seemed excited that Spain sold 3.1 billion euros in 10-year debt. The yield dropped 22 basis points to 4.27% and the lowest level since November 2010. Italy's 10-year yield dropped 14bp to 3.94% and this was also the lowest level since November 2010.
 
Bull-shit pro forma crap (positive) economics in the U.S. only added to the bullish premarket hysteria. The FHFA Purchase Only Home Price Index rose 7.1% for the February period. That compares to the 6.5% in January and estimates for 5.0%.  The New Home Sales for March came in at 417,000 compared to 411,000 in February. Inventories rose slightly but there is still only 4.4 months of supply in the market and that is right at a historical low. Sales were up 19% from the same period in 2012.
 
 
 
After-Hours or Pre-market trades
(after hours play)   To Lock in short-term CALL profits, I went SHORT 400 AAPL at $428.25 (after-hours)
(after hours play)   Sold remaining 1/2 of AAPL LONG from $385.95 at $428.20    Sold 1/2 of AAPL LONG from $385.95 at $425.00.
 
 
 

Tuesday, April 23, 2013

The real truth & not manipulated Housing data paints a dismal outlook

 
 
The Government says that we can not handle the truth
 
What is real is what we tell you is real....
 
When will the REAL housing numbers (please stand up and be recognized) will real numbers ever matter again as the UN-adjusted numbers **The real numbers** were a whopping 90% less than the hyped headline number of 417,000...as it came in at 40,000 (see link to report) Average sales price dropped from $310,000 last month to $279,000 this month  There is only an expansion of lies and misinformation being generated by data agencies
 
 
 
 
The pro forma BS housing market cooled off slightly in March as existing home sales dropped 0.6% to a seasonally adjusted 4.92 million units. This missed the consensus estimate which anticipated existing home sales rising to 5.01 million units.....now for the rest of the news...the actual numbers NOT seasonally adjusted came in at 386,000 (link) a far cry from the bull-shit headline number.
 
 
However, there was good news and bad-news mixed into the report, as the median price for a home resale rose 11.8% from the same period a year ago to $184,300...just another bull-shit pro forma number as the "NOT" adjusted number came in at $233,200(link).  Notwithstanding this crap-adjusted numbers on its face this is the largest increase since November 2005 and is attributed to a limited supply of available properties pushing prices higher....higher prices just results in a smaller pool of available buyers, as lending restrictions are very tight, and if home values rose 12% month over month with more Americans losing their jobs, amongst a deterioration in real-wage growth, and this year's readjusted tax-increase...the pool of new-home-owners will surely shrink!
 
 
 
 
 
 
 
 

T-Waves market thoughts (glimpse into our thoughts/insight) 04-23-2013

 
 
I sent this to my subscribers last night...a glimpse at our insight/ideas
 
The market volatility is increasing as dip buying strength appears to be quickly fading; yesterday the Dow did manage a recovery from a 90 point drop to end positive but it was due entirely to the strength in the Nasdog. IBM and Boeing were still dragging the Dow down but technology stocks led by AAPL, NFLX and GOOG were the lead sled-dogs helping to improve sentiment as the day progressed. CAT posted earnings that seemed to please the street even though they lowered guidance. In a contradiction of terms the CAT CEO said he was the most confident he has been over the past two years. Basically he said conditions are soft but may be bottoming around the world. CAT shares rallied $2.28 and helped to offset the $2.17 drop in IBM. As we near the end of the month we could see continued upward pressure (tape painting) but it appears the intensity is fading. The closer we get to the "sell in May" cycle the more cautious investors may eventually become with such pent up profits. Corporate earnings if we dare call them that are also a challenge with the ratio of guidance warnings to guidance upgrades running 14:1 and well over the 2:1 average...this is a very worrisome trend, as the outlooks are not good and this is going to translate into a weak market over the summer.
 
Dismal economics, lackluster earnings, European contagions and their recession, and the slow-down in China and the negative contagions surrounding the sequester are all going to weigh on the markets in May. Of course we have the FED and the Japanese central bank as supporting equities will continued QE program.
 
The global markets opened relative quiet today. Not much news of note came from Asia or European zones over the weekend or this morning save expectations for U.S. economic data and earnings. The U.S. pre market futures trading bias was positive all morning but started moving lower about 30 minutes into/before the open. After the bell we saw a sell-into-strength as I predicted into a crummy housing report but the indexes held then reversed through the 10:00 - 10"30 hour and the release of the existing home sales figures. The figures were disappointing but did not impact the market. In fact, the market seemed to shrug it off without even a slight blink.
 
Today was light on the economic front but tomorrow the data flow increases with new home sales and a reading of the housing price index. The big event on the economic calendar happens on Friday. We get the first estimate of 2013Q1 GDP. Estimates range from 2.0% to 3.5% and I am leaning toward the low end.
 
The biggie earnings player this week is AAPL.... Apple is on the list for earnings tomorrow. This is the most hated (not by me) by hedge funds and other high-beta players. The run up to $700 and drop to $400 was a stunning reversal for many to watch (we shorted at $690.00 via puts and covered at $420.00). Tomorrow the firm is expected to report earnings around $10.30 per share, well below the previous quarters $13.81. So it leads us to ask if expectations are super low and perhaps an easy mark for AAPL to beat. Just because the iPhone 5 is not as big a hit as expected Apple still makes some of the best devices and has one of the best operating systems for simplicity. I think Apple could easily surprise the markets and beat estimates. Even if Apple only comes in line with estimates it will still be a relief to many Apple investors; and it could lead to a short term relief rally in Apple.....
 
  • AAPL    Order to cover 1/2 at $410.25.......(4/19/2013)  I went   LONG  on  "AAPL"  at  $385.95   target   $410.50  then   $425.70  SL=$3.45 or  $4.25(hs)   
  •  (04/19/2013)    I bought   10 - CALLS   on   "AAPL"  the   MAY  18,2013  the $380.00's  paid  $22.00  SL=2.75
 
 
This week...ahead is going to be a full one for economic data and earnings; a lot of earnings releases to sort through and some very important economic data....will they be enough positives to lift the indexes back up to the recent highs...the Russell-2000 and MidCap-400 and the Transports may have begun their reversal but the SPX-500 and Nasdog and Dow have not. It is likely it will work its way up to retest the all time highs set two weeks ago before beginning any serious retreat.
 
Other early market events include China and European PMI numbers due out this week/tonight.
 
 
This tape (market tonality...the mid-day ramp....was very strange indeed today, as I expected the ramp, but the subsequent selling event into the close failed to materialize) I was seeing significant block selling and breath is reversing; my bias is to SHORT into strength 65:35 bias as earnings have been weaker than though on revenues,
 
Firms have beat on EPS, but its been on massive massaging of numbers **Stock buy backs**, huge short-term debt undertaking at historic low rates via the primary liquidity drug pusher "THE FED", firms are using lower effective tax rates, increased revenue from investments; they have not been making pension-payments or funding their programs......the distinct lack of real revenue growth shows that there is little real demand for their products, services etc......
 
This market could easily cough up a massive furball and retest the recent lows....and then make new lows which would likely trigger some redemptions (get out of dodge) phone calls and subsequent margin calls.....so be very careful buying the dips....today the today VIX could bounce at/off 14.05 (any pop a tad into the close a drop back to 12.75-13.00 could be a negative-market reversal point (a contrarian inflection point)....an area where I will look to buy index puts (MDY, IWM, SPY, QQQ) 
 
The Nasdog was strong today gaining 0.86% ...however the MidCap 400 and Russell 2000 as well as the Dow transports lagged significantly....one reason why I felt comfortable holding the ES, SPY short overnight!
 
Caterpillar (CAT), the world’s largest maker of construction equipment, reported first-quarter earnings and revenue that fell short of estimates. Earnings fell nearly 45% from the same period a year ago to $1.31 per share, while revenue dropped more than 17% to $13.21 billion; both measures came in below the earnings per share estimate of $1.40 on $13.71 billion in sales that many were expecting. The firm also slashed the high end of its 2013 sales outlook by more than 10% to $61 billion and guided 2013 earnings of $7.00 per share. This according to CNBC should have disappointed investors who based their models on the firm's prior guidance of 2013 earnings in the range of $7 to $9 per share. As I suggested could happen Caterpillar ended up trading higher by more than 3% during today's trading session....as most of what CEO Oberhelman spoke about was related to mining and commodities, and how they play a very important part in the firms future.
 
Even though mining had hit a rough patch in the last year, he was quite optimistic in the potential for the sector and how Caterpillar is positioned to capitalize on it. The highlight of Oberhelman’s interview was this quote on gold....please put on your investment thesis.....“Gold at $1,400 an ounce is still a pretty good price in the scheme of things long term, and that allows miners to reinvest.” Even though gold has plunged a whopping ~14% year-to-date, Oberhelman didn’t sound like a CEO who was worried over cutting their future forecast.  As I mentioned last week at $79.00-80.00 CAT was under-valued and shorts were unjustly pressing their positions as Oberhelman has always had extraordinary insight into what the majority of firms in the sector are doing to position their businesses beyond the short-term view.
 
The pro forma BS housing market cooled off slightly in March as existing home sales dropped 0.6% to a seasonally adjusted 4.92 million units. This missed the consensus estimate which anticipated existing home sales rising to 5.01 million units.....now for the rest of the news...the actual numbers NOT seasonally adjusted came in at 386,000 (link) a far cry from the bull-shit headline number.
 
However, there was good news and bad-news mixed into the report, as the median price for a home resale rose 11.8% from the same period a year ago to $184,300...just another bull-shit pro forma number as the "NOT" adjusted number came in at $233,200(link).  Notwithstanding this crap-adjusted numbers on its face this is the largest increase since November 2005 and is attributed to a limited supply of available properties pushing prices higher....higher prices just results in a smaller pool of available buyers, as lending restrictions are very tight, and if home values rose 12% month over month with more Americans losing their jobs, amongst a deterioration in real-wage growth, and this year's readjusted tax-increase...the pool of new-home-owners will surely shrink!
 
 
 
Following news that activist investor ValueAct Holdings amassed a mundane $2 billion stake in Microsoft (MSFT), shares jumped in my opinion an irrational 3.5% to its highest level in almost eight months. Although $2 billion is less than a 1% stake in the company, this move puts ValueAct among the top 15 investors in the firms...and this was worth a whopping 3.5-3.6%....I do not understand this irrational market as mush as I use to as many are being sucked into irrational herd behavior once again. 
 

Monday, April 22, 2013

More insight into NFLX's massive short squeeze 04-22-2013

 
 
NFLX on conference call.... Netflix in terms of comparing our Q1 net additions to last year's performance, it's worth reminding everyone of the change we made to our member definition as detailed in the January 2012 Investor letter in which we immediately excluded from our member count those members who are on payment hold. This more conservative definition translated into ~300,000 fewer net additions in 2012/Q1, so we would have reported about 2 million. Therefore, think of 2013/Q1 net adds as roughly comparable to the year ago period, a positive outcome (hardly bullish at all).
·        CEO Reed Hastings discussed shared accounts on the conference call. He said the firm is fine with an account being shared between immediately family members. There is little evidence of abuse of account sharing between non-family members (what a joke this is).
o   Currently each account can run two streams however, the firm plans to add a 4-stream plan. It does not expect the 4-stream plan to be a significant part of the business.
·        HULU and Amazon have been bidding more aggressively for content, raising prices higher for Netflix (when is this likely to stop?).
·        House of Cards showed a "gentle" impact on subscribers, with no major spikes. This is why the firm is not projecting a large spike in subscriptions surrounding the release of Arrested Development.
o   Management would not break down any viewer statistics for House of Cards. It was noted that P&L spending on original series is still in the single digit percentage.
·        CFO said company is "fine" on capital at this point given recent capital raise.
 
What is the apparent catalyst for the huge move after hours into my optimal short zone....it's not real growth or revenues revenue: the firm made $1.02 billion in sales in 2013Q1, precisely as much as expected It certainly wasn't the laughable actual under $1 million in real earnings or pro forma EPS from which the firm decided to exclude early debt extinguishment loss costs, but did not exclude the additional debt-associated liquidity on its balance sheet....the reaction after hours was a mega orchestrated short squeeze....the squeeze appears to be focused on what took the stock into the stratosphere the last time around just before the management realized it needed to generate some real cash: finding mystery subscribers, or specifically an increase in total members as of 3/31 to 36.3 million, up by 3.05 million in a mere 3 months, more than some had anticipated....but this number is just barely higher than the 2.95 million increase in customers the firm generated just a year ago so why the massive spike in after hours trading?   The rate of increase of international subs the alleged golden mine for Netflix growth was a mere ~1.00 million in 2013/Q1 less than the 1.2 million in 2012/Q1 and much less than the 1.8 million in 2012/Q4....so what are these idiot buyers if not shorts thinking....this user factious growth was in my opinion driven primarily by the free trial subscriptions as many who wanted to look at the House of Cards, program took a free-trial.  As my dad was so fond of saying "there is no free lunch"
 
Bottom line for Netflix (NFLX) is that their cash-flow associated with this once again rapid customer expansion is nonexistent; their own so called definition of Non-GAAP free cash flow which starts with operating cash flow, removes cash associated with DVD content library acquisitions, removes Capex and nets out other assets...came in at a negative $42 million and was $45 million lower than our positive $3 million in net income in the quarter primarily due to payments for Originals and non-originals content in excess of the P&L expense, partially offset by the loss on extinguishment of the debt (a financing activity) and non-cash stock compensation expense. Said investments that will continue to weigh on our cash flow relative to net income are Originals and non-Originals content (ongoing) and our Open Connect conversion (primarily in 2013).
 
So what is NOT responsible for the surge in the stock is real earnings and real growth or actual profits in cash. And since the firm plans on investing just as heavily in the future into so called original content we must if we are logical to expect cash to continue to bleed at a pace of $40-50 million/quarter or more. The $64,000 question then is: once the firm hits user saturation, and there are only so many people in the US and globally who will pay $7.99 a month to watch its content, original or recycled, how will it convert its profitability and start making real money and real profits?  Of course, for the time being this question is irrelevant for those short NFLX into today's close as NFLX appears to have discovered the magic of the Jeff Bezos laughable Amazon business model, where the worse the actual real profit bottom line is, the better the stock performs.
 
This is an NFLX movie I have all seen before June/July of 2011 when I was very bearish on NFLX then before the swoon started, and we all know how that swoon ended (NFLX dropped from $308+/- in July 2011 to $62.50+/- by November 2011.
 
 

Netflix NFLX This is a T-WAVES SHORT/PUT idea! 04-22-2013 (after hours earnings)

 
 
This is a T-WAVES SHORT/PUT idea! 
 
(16:56)  day/swing  after hours play   *200*   NFLX     I went SHORT the  NFLX  at  $221.75  (200)  target  $185.00 then  $170.75......SL=2.75 / 4.50 hard-stop
 
This is an T-Waves (A- play)    "NFLX"  is a SHORT play (day trade and potential swing trade) on a move into the ~ $227.95-229.00 level on a pop and/or a subsequent drop below $222.75  after we trade above (pop above this level) then we break down below this level or we fail to hold (or $219.75  it would also be a SHORT target $200.00 then $186.25  for a trade (swing/day)....... SL= 3.50+/- to $4.75(hs)
 
I will also be looking at taking a PUT play if we trade up into the 225-229  level of OHR using the May/June ITM/ATM
 
NFLX has a trailing P/E = 595.00  a forward P/E = 69.75
13.8% Short-interest with a small float wherein Institutions hold 94% of the float
 
I EXPECT institutions and hedge funds will be selling HARD into this pop
 
Netflix beats by $0.11, reports revenues only in-line; guides Q2 EPS in-line....NFLX reported 2013Q1 (March) earnings of $0.31 per share, excluding non-recurring items, $0.11 better than the consensus estimate of $0.20; revenues rose 17.7% year/year to $1.02 bln vs. the $1.02 bln consensus.
 
NFLX issues in-line guidance for Q2, sees EPS of $0.23-0.48 (I could drive a battle carrier group through this massive range) vs. $0.29 consensus estimate.
 
In Q2, guidance implies net income roughly flat with Q1 {how is this bullish} (absent another loss on extinguishment of debt). NFLX had a tax benefit (NOT repeatable) in 2013Q1 related to the retroactive reinstatement of the 2012 R&D tax credit, so higher sequential operating profit will be partially offset by higher sequential taxes.
  • Domestic Streaming Guidance
    • Total Members: 29.40-30.05 mln
    • Paid Members: 28.25-28.85 mln
    • Revenue: 665-673 mln
    • Contribution Profit: $139-149 mln.....this is terrible
    • Commentary: On a year-over-year basis, it expanded contribution margin over 600 bps on essentially flat marketing expense. Target remains to expand contribution margin on average about 100 bps per quarter.
  • New Revenue Plans for Multi-Member
    • In many households, Netflix is used by different family members, and we tested a "Profiles" feature that separates the activity of each individual. This enables us to offer more relevant personalized suggestions for each individual, and we expect to roll out profiles globally in the coming months. A few members with large families run into our 2-simultaneous-stream limit. To best serve these members, NFLX will be shortly adding a 4-stream plan, at $11.99 in the U.S., and it expects fewer than 1% of members to take it.
  • International Streaming Guidance
    • Total Subscriptions: 7.3-7.9 mln
    • Paid Subscriptions: 6.7-7.2 mln
    • Revenue: $156-170 mln
    • Contribution Profit (Loss): ($81 mln) - ($65 mln)
    • The Nordics and the UK/Ireland launch in Q4'12 and Q1'12, respectively, resulted in an elevated level of net additions in those launch quarters as co benefited from the initial growth of a new territory. In all markets, NFLX saw growth and improved profits or reduced losses.
    • International contribution losses improved $28 million sequentially, better than expected due primarily to less growth in content spending than forecast.
    • For Q2, co is not forecasting a substantial improvement in contribution losses because it is increasing it's international content spending in line with revenue growth.
    • NFLX plans to launch an additional European market during the second half of 2013. Will have more to say about this on our July earnings call.
  • Domestic DVD Guidance
    • Contribution Profit: $100-112 mln.
    • Commentary: Absent USPS rate increases, NFLX has been able to maintain DVD contribution margin as members and shipment volume decline. Co is anticipate continuing to be able to maintain the margins it sees in the first half of 2013 throughout the full year. Consistent with view last quarter, it does not foresee USPS service changes that will have a material negative impact upon us or our members for the remainder of 2013.
  • Consolidated Global Guidance
    • Net Income (Loss): $14-29 mln EPS: $0.23-0.48 versus $0.29 Capital IQ consensus
  • Capital
    • With the fundraising, NFLX finished the quarter with a little over $1 billion in cash and equivalents. Market conditions were attractive and it was pleased to add cash to increase reserves and afford the flexibility to invest in additional Originals. NFLX will convert the 2011 TCV $200 million convertible notes tomorrow (April 23rd) into the corresponding 2.3 million shares. NFLX reports diluted EPS as if the debt was converted, so oguidance for Q2 EPS already accounts for these shares, and there is no change to cash on hand from this conversion.
 
 
 
 
 
 
 
 
 
 
 
 
 

Apple LONG position (AAPL).....on Friday ahead of earnings we bought NO-NEGATIVE TRADES

 
 
Ahead of earnings....NO-Negative trades....
 
AAPL    Order to cover 1/2 at $410.25.......(4/19/2013)  I went   LONG  on  "AAPL"  at  $385.95   target   $410.50  then   $425.70  SL=$3.45 or  $4.25(hs)   
 
(04/19/2013)    I bought   10 - CALLS   on   "AAPL"  the   MAY  18,2013  the $380.00's  paid  $22.00  SL=2.75
 
 
 

T-Waves positional thoughts... and trading outlook for 04-22-2013

 
 
I sent this out-look to my subscribers premarket today....
 
T-Waves positional thoughts.....I expect the markets to drop (SPY to drop to 154.75) after the OPEN, then I expect a slow grind higher on weak volume into the 14:30-14:45 turn time, then another swoon on heavier volume to retest the lows and likely to make new-lows intraday
 
The market on Friday was dominated by the manhunt coverage all day and stocks were regulated to the background in national news coverage. Friday was option expiration and volume at 6.3 billion shares was roughly 2:1 in favor of advancer's. The expiration forced traders to close positions and after the big declines over the last week that position closure forced the indexes higher. There was very little stock news and very little in the way of economic events. The Regional Employment report for March gave us a little more input on the disappointing Nonfarm Payrolls report.
 
This week should be an inflection point for the markets if the major indexes are going to follow the same pattern as the past three years. This is the biggest week for earnings with 169 S&P 500 companies (34%) reporting earnings this week. After this week the outcome of the cycle will be known beyond a reasonable doubt. For the past three years the economics and the markets turned down in May and the economics have already gotten a head start as they have been rolling over as have the leading indicators. I know some analysts are calling for a continued rally in May; but in this extremely overbought market I'm very skeptical as there are far too many factors against such a continued rally this year. China, Europe, Sequester, Increase in Payroll-taxes, Debt Ceiling, etc. I keep saying eventually fundamentals will matter but so far only the insane FED hype has mattered. Investors are ignoring macro fundamentals and buying QE instead. The SPX-500 broke through uptrend support on Thursday and then returned to that level on Friday and now its once again over head resistance (the bulls will need to gap over this level as in theory this would be the perfect spot for a failure on Monday but the more likely path would be another attempt on 1,570 and a failure there. The setup is too perfect for the bad-news-bears and this is where they can get into trouble. They see the textbook chart patterns and bet it all on the expected failure. The market rallies, shorts are forced to cover and a new high is born.  The real market turning point will be a dip below the 1539-1540 level and a failure for the bulls to buy. That sets up a retest of 1495-1497 and the beginning of the summer doldrums. 
 

Friday, April 19, 2013

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Stephen Tetreault aka "BIG-Steve"
Stock Market Analyzer, Master Trader