Market Thought... wall of weak worry

Given the current environment, a wall-of-worry is an odd statement.

The market kept pushing upward thanks to good jobs numbers and David Tepper's comments on CNBC.

So far, within May, the SP500 is up about 3.8%. The solid move took place while the VIX has been steady, very steady.

The recent move should have allowed the VIX to see substantial decline. A decline that would push the low 10s (historic lows) and new lows for the below trend:

Back in January I wrote my thesis on the market's 'new dynamic' pushing new highs. Based on the above, it appears the market is still climbing a wall-of-weak-worry.

This go around, the worry seems to be protecting gains versus protecting against a catastrophe.

Looking to short $goog

Reasons to come...

1.  Very very overbought, and accelerating from its already accelerated up momentum. (The momentum whores have control.)

2. Motorola looks to become about a $7 billion write down.  Motorola is dragging down GM and Operating Margins, and given Samsung's profit share of Android handsets, there appears to be no profits in sight.  Their Nexus brands are nice for the technocrats, but not making much head way in handset sales.

3. Search share has peaked.

But search is over, right? Or at least that is what Google declared at the I/O today.

Despite the language Google tries to use, the vast majority of their business comes from search. The only difference between now and a few years ago is that "search" is now defined by desktop, mobile, voice and their "Google Shopping" (paid results).

The bottom line is that voice search commoditizes desktop search (even if this push-pull is not yet seen w/in the data). And with Google pushing Google Now, voice search becomes an answer engine. There will be a transition to a new model of search advertising. That could be through paid listings or incorporating daily deals when asking Google Now for a restaurant.

Through out the I/O presentation, as we were all witnessing Google's transition into a closed-ecosystem predicated on a Google+ account, I kept thinking of the above transition.

Will the transition over come the law-of-large-numbers? (A $300Billion company w/ a 27 tailing multiple. The expected return for Google is about 20% higher then the second next highest multiple of the 10 largest US Corporations by market capitalization.)

4. Despite the above concern via traditional search, display and real-time-bidding are growing nicely for Google.  But is it enough to justify the future expectations currently priced into the market?

About 11 days ago, I noticed this tweet:

Over $400 Billion dollars in advertising will be online, but will Google be the beneficiary? At some level, of course they will benefit, especially with real-time-bidding.  But a huge chunk of that $800 (and subsequently $400) billion come from TV ads, and Google will only benefit from those via Google Fiber. (Assuming its profitable.)

TV channels will merge into Apps, like Netflix, but they will most likely keep their business model with respect to attracting ads.  (Google could become a new aged TV Guide, but so can Facebook, given their position in App discovery.)

5. Amazon is getting into the Ad game too.  With Facebook and Amazon in the game, bringing different information to the table, not sure what this does to pricing.

Google is riding awesome momentum, and should bounce around the upward trend. (This is why any shorts I take on will be a quick trade to any down side.) As the quarter approaches its quarter end, the momentum whores take their gains, and break the trend.

If/when Google cannot meet expectations of a $300B company to generate the premium growth the market is expecting, its multiple will normalize and decline.  If history is a guide, it will trade with a multiple between 16-19:

  

new dynamic... $aapl

Bottom is in.

The daily SMAs that were resistance have been breeched.

The major resistance of the 10SMA on the weekly was breeched.

The monthly is locked-stocked and ready to move from its oversold condition. Last time this level of oversold condition existed AAPL ran hard.

But the last run was also accommodated with an accelerating EPS. Apple is not in that position right now. Instead it has $60B in bids under the stock.

There are still plenty of technical resistance points before Apple approaches its historic trend line (seen in the weekly chart, near the high 500s). And typically, after a major break of resistance, there is some level of consolidation to be expected.  The consolidation maybe near around 430-440.

Not gonna be shy to add during the consolidation. The reasons:

1. IBM is the ultimate stock for financial engineering. Its multiple is near 14. (Prior to the financial collapse it was 16-17.)  Apple has embarked on the largest financial engineering project in history. That alone merits a trailing multiple higher than 10.  If it starts to trade like other well executed financially engineered stocks, its multiple will be higher. (So will its stock.)

2. If you were a business man that owned the most successful and profitable restaurant in NYC, would you sell it for 6 times earnings? Enough said.

3. A nice estimate of high-end addressable market was conducted by Benedict Evans suggesting the remaining size of the market is 1.6 billion, globally.  As a rough estimate (and ignoring re-fresh cycles and a push to 'best-of-breed'), the latest IDC estimate was that Apple controlled about 17% of all smartphone shipments.  Apple controls a much higher portion of the high-end market, but for the sake of conservatism, lets assume the iPhone captures 20% of the 1.6B. Thats about 320M new iphone customers.  Last quarter Apple sold 37.4 million iphones.  Thats about 1.5-to-2yrs worth of growth from new customers remaining.

There is enough growth within the iPhone and financial engineering for Apple to eventually get back to the mid 500 level.

Of course, the level of growth from iPad, iTV and iTune/iCloud should allow Apple to continue to trend near the high 500s.  New products are a bonus, and pending their uptake, allow Apple to continue the trend line on the weekly chart.

(NOTE: I mention iTV because the change in tone from the cable providers, developments with Aero and the potential that NFLX is proving to every channel provider in the world signals a change-is-coming.  And iTV is a prime staging area.)

$FB new dynamic

If the action holds, FB has breached its 3-4 month negative trend.

The new trading dynamic should allow FB to trade towards the low 30s.  Probably 32 before a new catalyst is needed to push it higher.

FB does not lack catalysts.  As a company, they just have to keep executing on their current trajectory. But their ultimate catalyst, and one that I think will take it well into a +100B market cap, is their leverage of local search.  Many many people use social as their local search engine, and FB simply has to tap it. Wonder was a proof of concept, and that was developed a few months ago. It is only a matter of time before FB does the same.

$fb mobile q-to-q ad revenue contribution

Q3 2012 14%, Q4 2012 23%, Q1 2013 30%.

It's growing pretty fast.

Market Thought... Sell in May?

The SP500 is riding high.

And despite a pretty crapy jobs number last month, the market has held up very well. At the moment, the market does not care. But when will it start caring?

Last year, despite a strong Q1 market performance, the "sell in May" rule of thumb rang true because economic data turned south. First it was the US jobs data, causing the Treasuries to collapse, which sparked the correction. Then the EU flared up, again. Even China gave us some crapy data.

Today, the SP500 is up about 8-9% since the beginning of the year.  The 10yr is at depressed levels. (Probably due to the weak jobs data and less then expected GDP.)

And China may have just broken their down trend.

This week will be interesting, as we will get more clarity from the this month's Employment Situation.

Scenario 1:

The jobs data comes inline or weak. Allowing the a treasury yields to that remain depressed. Earnings season passes, and the market has little economic incentive to push upward until data improves or next earnings season.  The market can chill sideways or start a correction.

Scenario 2:

The jobs data kicks ass. Leading to a treasury yield that can bottom, and break its short-term down trend. This could allow money flow into equities, and maintain upside.

absurd vs classy

The absurd:

  

The classy:

Enough said.