Thursday, May 5, 2016
Joined Dec 4, 2012
195 Blog Posts

Hedge Funds Crying Over Spilled Milk

ibcbull

Any hedge fund that is crying about getting their tail kicked from February is crying over spilled milk of their own doing. Why?

The market was very oversold as the S&P 500 and other equity indexes came into their low on February 11th. A bounce was imminent and yet the majority of funds failed to adjust their beta on the short side, especially in the extremely oversold energy and material names.

Bulls and bears survive. Yet pigs get slaughtered. So many a pig got slaughtered. The ironic thing is that the slaughter failed to happen at the September low. Only  at the February low. Hmm… I wonder why?

On February 24th, we wrote here that the shorts had it good cementing gains of 15% in our work after hitting a peak of 20% some 10 days before. Adjustments could have been made but the “macro” traders felt this rally was just another ill fated rally.

From my perspective, the inability to make shifts at inflexion points is an ongoing problem that is due to spending too much time on stock selection and macro analysis and not enough time on risk management. You would think that those with a long short bent would try to identify the variables that happen time again when the “long/short tsunami” takes hold. I can tell you flat out they do not.

Remember the long/short tsunami is what happens when shorts rise more than longs. We will write on the long/short tsunami soon but for now will leave you with the thought that crying over spilled milk is no way to go through life.

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Getting The Test of 2050 On The S&P 500 Is Good

ibcfortuneteller

I think of the S&P 500 in 50 point increments as I concern myself with levels. So on April 19th support went from 2050 to 2100. It lasted two days. Before 2050 became support again.

As of this morning, we got the test of 2050 with a low of 2049.32. So if the S&P 500 continues to head below 2050 then support become 2000.

Last Friday, the S&P 500 wasted an opportunity to  test 2050. The low that day was 2052.28. I commented to several institutional clients that 2050 had to be challenged before this was complete.

My oversold indicator is now at 28.92. Officially, we are oversold. A move back above 30 is a buy signal.

So the good news is we are getting there, now we just need to be patient on the nibble to add to the long side. More on this as it unfolds.

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The Week Ahead: Federal Reserve B Team Out in Force This Week

mester

Geopolitical and Fiscal Events. Monday sees Federal Reserve San Francisco President John Williams speak at 5:00 p.m. EDT. Tuesday sees Federal Reserve Cleveland President Loretta Mester speaks at 10:30 a.m. EDT. At 7:00 p.m. EDT Tuesday, Federal Reserve Atlanta President Dennis Lockhardt speaks. Wednesday Federal Reserve President Neel Kashkari at 5:30 p.m. EDT. Thursday sees Federal Reserve Atlanta President Dennis Lockhart speaks at 6:15 p.m. EDT.

Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and construction spending, ISM Manufacturing PMI, factory orders, ADP Payrolls, Challenger Job Cuts, nonfarm payrolls and unemployment rate.

Earnings Releases. Notable releases include AIG APC PFE CVS BUD PCLN BABA MRK CI EXC.

Monday, May 2

March Construction Spending is due out at 10:00 a.m. EDT and are expected to rise to 0.5% from -0.9%.

April ISM Manufacturing PMI is due out at 10:00 a.m. EDT and is expected to fall to 51.4 from 51.8.

Tuesday, May 3

A Presidential Primary is held in Indiana. A victory by GOP Candidate Donald Trump could cement his nomination.

Wednesday, May 4

March Factory Orders is due out at 10:00 a.m. EDT and is expected to rise to 0.7% from -1.7%.

April ADP Payrolls is due out at 8:15 a.m. EDT and is expected to fall to 196,000 from 200,000.

China Services PMI is due out at 9:45 p.m. EDT.

Thursday, May 5

April Challenger Job Cuts is due out at 7:30 a.m. EDT. The March number saw an increase of 31.7%.

Friday, May 6

April Nonfarm Payrolls is due out at 8:30 a.m. EDT and is expected to fall to 200,000 from 215,000.

The April Unemployment Rate is expected to remain at 5.0%.

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Staying With Short On LinkedIn ($LNKD) But Buying Calls To Hedge

lnkdjw

I do not like the recent run up on LinkedIn ($LNKD).

However, I think it could be buy the rumor and sell the news. As such I am going to stay short BUT hedge the short.

Therefore, 1 May $124 Calls for each 100 shares. The cost of the call is $8.85. A more aggressive hedge would be to buy 2 calls per 100 shares.

If we get the drop I am expecting the stock could be at $90 tomorrow and we will give up some of the gain.

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Thoughts On $CMG Into Earnings. Cover Short

cmg pic

On April 1st, we recommended $CMG as a short here. The price was $465.15. It is now at $441.82 and has fallen from a peak of $447.27. So does the market know that a miss is coming?

Meanwhile, there have been 12,198 calls trading to 6,735 puts. Usually on earning one sees calls and puts pretty even. This is not even.

Our earnings momentum model from Options Research & Technology (ORATS) predicts that the stock will move by $19.44. So it could move up to roughly $464 or go to $424.

The company guided lower in March and the stock has fallen. As such, any news that is not awful could see a rebound. So the $64,000 question is “Should I stay or should I go”.

We are going to move to the sidelines and return sometime post earnings. For now we are out. Cover shares here for a nice gain. More after the close.

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The Week Ahead Is A Busy One With FOMC Meeting

ibcyellen

1.Geopolitical and Fiscal Events.

Monday sees President Obama meet with German Chancellor Angela Merkel and other world leaders including British Prime Minister David Cameron. Also, on Monday the IMF updates its outlook on the Middle East and Central Asia.

Tuesday sees several primaries including Pennsylvania, Connecticut, Maryland, Rhode Island and Delaware. Tuesday sees the FOMC being a two day meeting.

Wednesday sees the FOMC announce its latest interest rate decision.

Thursday sees the BOJ announce news about potentially more stimulus.

Friday see Federal Reserve Dallas President Rob Kaplan speak at 6:30 a.m. EDT.

2.Economic Releases.

Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and new home sales, durable goods, consumer confidence, Q1 GDP, personal income, Chicago PMI, Michigan Sentiment.

3.Earnings Releases.

Notable releases include ESRX HAL AAPL T FB CMCSA AMZN GILD XOM CVX.

Monday, April 25

President Obama meets with German Chancellor Angela Merkel and other world leaders including British Prime Minister David Cameron in Germany.

The International Monetary Fund (IMF) updates its outlook on the Middle East and Central Asia.

March New Home Sales are due out at 10:00 a.m. EDT and are expected to rise to 520,000 from 512,000.

Tuesday, April 26

There are GOP and Democratic Primaries in Pennsylvania, Connecticut, Maryland, Rhode Island and Delaware.

The latest short interest data from March 28th through April 12th for the NYSE and NASDAQ. During this period, the S&P 500 1.21%.

The Federal Reserve Open Market Committee (FOMC) begins a two day meeting.

March Durable Goods are due out at 8:30 a.m. EDT and are expected to rise to 1.9% from -3.0%. Then at 10:00 a.m. EDT, April Consumer Confidence is expected to fall to 96 from 96.2.

Wednesday, April 27

The FOMC announces its latest interest rate decision and there is no press conference to follow.

Thursday, April 28

The Bank of Japan (BOJ) announces its latest update update on monetary policy.

Q1 GDP (preliminary) is due out at 8:30 a.m. EDT and is expected to fall to 0.9% from 1.4% in Q4.

Friday, April 29

March Personal Income is due out at 8:30 a.m. EDT and is expected to rise to 0.3% from 0.2%. Then at 9:45 a.m. EDT, April Chicago PMI is due out and expected to fall to 53 from 53.6.

April Michigan Sentiment (final) is expected to rise to 90.2 from 89.7.

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Update On Thoughts On $CMG and $LNKD

cmg pic

This was a quiet week for me on the site as I had some travel to NYC for a good portion of the week. Full schedule with dinners each day left little writing time. In fact, I am back there this week for some more meeting.

Looks like I might have found the holy grail research product that maps out the entire internet and maps all search and social media activity. Image channel check by the hour? Pretty cool stuff no doubt. I am going to see what they can produce for me on Chipotle and LinkeIn.

I will write more on this in the coming weeks as I get more up to speed on the this titanic shift in technology but for now I wanted to update on existing positions in Chipotle and LinkedIn.

Chipotle was recommended on April Fool’s Day at $465.15 and fell to $434.06 on Tuesday before climbing on an upgrade by JP Morgan. I can live with this as since mid March there have been 5 downgrades to this one upgrade. I am not playing for a $30 move to the downside. Rather I am playing for a “valeant move”.

I ventured into a Chipotle on 43rd and Fifth at peak lunch hour last week. It was busy but no line out the door. There was no one over the age of 40 in the place. They have lost that market. Earnings are due next week on April 26th after the close. The consensus is a loss of $-1.05 and revenues of $863.77 million. I expect a miss on both counts. That said watch for me to hedge the position with calls in case the stock takes off from here. Above $480 and I will use May calls to hedge the upside.

On to LinkedIn. In the last week, it has risen from $107 to its current price of $116.61. Thursday the target was lowered at Evercore from $155 to $135. Earnings are due on April 28th. Estimates are for $0.60 on earnings and revenues of $827.69 million. That said watch for me to hedge the position with calls like Chipotle in case the stock takes off from here. Above $120 and I will use May calls to hedge the upside.

Here is an update on my current recommendations, opened and closed on this website since I began to blog here in 2012.

ibankcoinrecs

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Doha And ECB Along With Obama Overseas Visits To Dominate The Week Ahead

saudioilguy

1.Geopolitical and Fiscal Events. Monday sees Federal Reserve New York President William Dudley speak with no specific time listed as of this writing as does Federal Reserve Boston President Eric Rosengren at 7:00 p.m. EDT and Federal Reserve Minneapolis President Neel Kashkari at 12:30 p.m. EDT. Tuesday sees the Senate Banking Committee hold a hearing on Iran sanctions. Wednesday sees President Obama travel to Saudi Arabia. Thursday sees President Obama travel to Great Britain.

2.Economic Releases. Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and housing starts, existing home sales and leading indicators along with the Philadelphia Fed Survey.

3.Earnings Releases. Notable releases include PEP IBM JNJ PM KO QCOM GOOGL MSFT GE MCD.

Monday, April 18

Income Taxes are due for Federal, state and local.

Oil markets will be volatile post the Doha meeting today where efforts to freeze oil output are underway but Iran is refusing to cooperate.

The Reserve Bank of Australia (RBA) holds its latest policy announcement overnight.

Tuesday, April 19

March Housing Starts are due out at 8:30 a.m. EDT and are expected to come in at 1,170,000 from 1,178,000.

New York holds Republican and Democrat primaries.

The Senate Banking Committee holds a hearing on the role of sanctions under the Iran nuclear agreement.

Wednesday, April 20

March Existing Home Sales are due out at 8:30 a.m. EDT and is expected to rise to 5.30 million from 5.08 million.

President Obama attends a summit of the Gulf Cooperation Council in Saudi Arabia

Thursday, April 21

March Leading Indicators are due out at 10:00 a.m. EDT and are expected to rise to 0.4% from 0.1%.

The latest Philadelphia Fed Survey is due out at 8:30 a.m. EDT and is expected to fall to 9.9 from 12.4.

The European Central Bank (ECB) is out with its latest policy announcement at 7:45 a.m. EDT and no change is expected. A press conference follows at 8:30 a.m. EDT with ECB Head Mario Draghi.

President Obama goes from Saudi Arabia to Great Britain to meet with Prime Minister David Cameron over Brexit.

Brazil is closed for trading.

Friday, April 22

Passover begins and markets may see lighter trading than normal as Jews observe this holiday.

A Global Climate Change Treaty is expected to be signed at the United Nations for Earth Day.

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The Week That Was, A Little Shaky Like Jordan Spieth

jpieth

The week that was saw very choppy action. Monday was lower as was Tuesday. Wednesday was higher. Thursday was lower. Friday was higher but gave up a big gain. More important Tuesday, Wednesday and Thursday all saw closing changes of +/-1%. This is the first time we have seen three consecutive days moving more than +/-1% since February 11th through 17th.

Winners for the week were health care and energy as well as materials. Utilities and financials were lower for the week.

For the week stock indexes were lower across the board. The S&P 500 fell -1.21%. The Russell 2000 fell -1.82%.

Each week I track the spread between stocks with a strong technical rank and those with a poor technical rank. Stocks with strong relative strength rose on average fell -1.10% and those with a weak relative strength fell -0.80%. The conclusion is that investors selling recent winners.

Intraday action was all over the place this past week after an up one ended April 1st and a down one the week ended March 24th. Our confidence score on the intraday action was 44% after a strong week last week at 76%. The range is typically between 10% and 90%. Last week was the first losing week since the week ended February 19th.

Most sectors struggled for the week. The worst sector was Energy as noted. For the month there are no sectors in the red. For the past three months, financials and healthcare are still in the red losing -4.4% and -7.7% respectively.
The big worry for this week is whether profit taking will continue as we head into April 15th when taxes are due, though a technicality does not make them due until Monday, April 18th.  Last week we noted often there is some seasonal weakness during this stretch and that seems to be coming into play.
We get a ton of fedspeak from the B Team, i.e. Federal Reserve District Presidents. Economic releases are modest this week. Earnings kick off Q1 earningsas Alcoa (AA) starts the onslaught. Though for the week things remain modest.
Since the FOMC announcement in March, the dollar initially moved lower than rallied through March 24th before moving to another lower lower this past Friday. The U.S. Dollar is struggled to hold at current levels and moved to a new low this week.

Treasuries led by TLT rose 1.02%. Corporates led by LQD rose 0.29% while high yield led by HYG rose 0.18%.
Emerging markets (EEM) fell by -2.25% last week. Meanwhile Europe (EFA) fell frationally by -0.16%. China (FXI) also struggled dropping -2.26%.

Conclusion: Investors shrugged off weakness three weeks ago and were buyers of stock post Yellen’s comments two weeks ago. Then struggled this week. Failure to get back above 2050 could bring 2000 into play.  The bottom line is the stock market is starting to look like Jordan Spieth’s golf game, rather shaky.

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The Week Ahead Again Dominated By Fedspeak

ibcyellen

1.Geopolitical and Fiscal Events.

Monday sees Federal Reserve New York President William Dudley speak as does Federal Reserve Dallas President Rob Kaplan at 12:00 p.m. EDT. Also, Treasury Secretary Jack Lew speaks about the U.S. and global economy.

Tuesday sees Federal Reserve Philadelphia President Jeffrey Harker speak at 8:00 a.m. EDT followed by Federal Reserve San Francisco President John Williams at 3:00 p.m. EDT and then Federal Reserve Richmond President Jeffrey Lacker at 4:00 p.m. EDT. Last up on Tuesday the International Monetary Fund (IMF) issues its World Economic Outlook.

Wednesday sees the Federal Reserve issue its latest Beige Book. Wednesday sees Federal Reserve Atlanta President Dennis Lockhart speak at 10:00 a.m. EDT.

Thursday again sees Federal Reserve Atlanta President Dennis Lockhart speak at 10:00 a.m. EDT. Also, IMG Head Christine Lagarde speaks.

Friday sees Federal Reserve Chicago President Charles Evans speak about economic conditions and monetary policy at 11:30 a.m. EDT.

2.Economic Releases.

Releases of note this week include the weekly chain store sales, oil/gas numbers, mortgage applications and PPI, retail sales, CPI, industrial production and Michigan Sentiment.

3.Earnings Releases.

Notable releases include AA OZRK CSX FAST JPM SNDK WFC TSM C RAI.

Monday, April 11

The latest NYSE and NASDAQ short interest data is due out after the close. The data reflects from March 10th through March 28th. During this period, the S&P 500 rose 2.39%.

Tuesday, April 12

The International Monetary Fund (IMF) issues its World Economic Outlook.

Wednesday, April 13

OPEC releases its Monthly Update at 7:30 a.m. EDT.

March PPI is due out at 8:30 a.m. EDT and is expected to rise to 0.3% from -0.2%.

March Retail Sales is due out at 8:30 a.m. EDT and is expected to rise to 0.1% from -0.1%.

The Bank of Canada is out with its latest interest rate decision at 10:00 a.m. EDT.

The latest Federal Reserve Open Beige Book is due out at 2:00 p.m. EDT.

Thursday, April 14

March CPI is due out at 8:30 a.m. EDT and is expected to rise to 0.2% from -0.2%.

IMF Head Christine Lagarde speaks on the Global Policy Agenda

China’s latest GDP reading is due out at 10:00 p.m. EDT.

Friday, April 15

The IMF and World Bank begin their spring meetings in Washington D.C.

March Industrial Production is due out at 9:15 a.m. EDT and is expected to rise to 0.0% from -0.5%.

April Michigan Sentiment is due out at 10:00 a.m. EDT and is expected to rise to 92 from 91.

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