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Friday, August 31, 2012

Market Thought... consolidating

The market is consolidating.

The conditions are setting up to close out market protection soon.

 The VIX has come off its very low level, and the market has handled the move very well.

While the technicals are nice, ultimately the Employment Number next week will guide this market.

Despite the level to which the SP500 currently resides, multiples are still far from crazy.  My previous thesis, focusing on the Employment Number, highlighted within the blah-to-good post has not changed.

The Jobless Claims we have been seeing continues to suggest a 'blah' Employment Number.

The only caveat to the Jobless Claims is that the unadjusted numbers from recent weeks have been at their low-end, and generally declining. Since I am not an economist, I am not even going to try to pretend to know how this effects the Employment Number. (I am hoping it facilitates a solid number.)

Sunday, August 26, 2012

Europe Recession, China Stimulus

Anyone following the EU PMI data knows Europe is already in a recession. The EU composite PMI follows the GDP very closely.

(from Markit data)

The EU recession is no revelation, by any stretch of the imagination. What is more surprising is how long Europe has been able to squeeze out a positive GPD for so many months.  The manufacturing PMI has been in the shitter (below 50) for months.  And the recent Flash numbers has been awful.

Despite the crappy data, the Euro remains fairly resilient. IMO, this is an inefficiency.

Europe is China's largest trading partner, so the slow down in China does Europe no good.  But as China rolls out subtle stimulus, along with chatter of a $1.2 Trillion stimulus drive through multiple provinces,  China should be okay for the time being.  Which should help Europe too. ($1.2 Trillion is about 16% of GDP! But I do not see specific details on the stimulus yet.)

Friday, August 24, 2012

Facebook, yup.

Facebook improved their mobile offering. So now I will play it.

Obviously sentiment is not pretty. But now with a fairly slick mobile offering in play, Facebook is positioned for the post PC world, and all its possibilities.

Due to its really oversold condition, I will take an initial position.

Because its a broken stock with a botched IPO and insiders selling like mad men, Facebook is a show-me story.  With their adoption of a realistic mobile strategy, I am expecting FB to bottom, but I will be very surprised if there is enough sentiment change to push FB above 24-25 without evidence of financial improvement.

Since its IPO, the revenue trajectory is still in tact.

A faster, better user interface for mobile will lead to higher mobile ad rates, and should keep the trajectory going.

Thursday, August 23, 2012

Unadjusted jobless claims

These numbers are interesting:

Total for the week 310,121. (a decrease of 7,320)

Wednesday, August 22, 2012

subtle Chinese stimulus

The HSBC Chinese Flash PMI came in low. This should start to get the China bears brewing. Then again, there is a reason why the Shanghai index is near a 3 year low and completely under performing the SP500. The nastiness is portrayed by the FXI.

While there has been a lot of media chatter about the consistent monetary easing that China has done over the past few 6-8 months, there has been little mention of the subtle stimulus that is being provided. Over the past few weeks information has been trickling in:

1. $74Billion on rail infrastructure this year.

2. $372Billion in 3.5years ($106B/yr) on the energy grid and pollution.

3. Leveraging corporations. (Combining the easier ability for qualified foreign investors to invest in China's capital markets, the addition of a functioning bond corporate market in China can lead to meaningful growth.)

Other chatter I have observed is far more abstract, with leaders indicating China will step up when need be. The above are hard numbers, along with the credit easing that took and is taking place.  Seems like there will not be this grandiose gesture of stimulus out of China. Instead it will be this trickle of subtle information that will allow its economy to keep humming along.

Saturday, August 18, 2012

Market Thought... blah-to-good

Technically, the market is due for a hold up.  But when leaders like GOOG, AAPL, QCOM, IBM, CAT etc, keep pushing upward, a seemingly straight forward situation becomes more complex.

From the perspective of the SP500, I am cautious due to the low level of the VIX (in relation to the rally's trading dynamic).

Another reason I am expecting a consolidation, at least somewhat, is due to the rapid ascent of the treasury yield.

Its current level is resistance.

The above may hold some short-term sentiment perspective, but over the last 9 months or so the only data point that has truly mattered was the Employment Situation.  This data point has allowed stocks to trade at higher multiples from December 2011 to April 2012, and has allowed the market to trade at severely depressed multiples from April 2012 to present.

The recent Employment number was pretty good, along with the its respective Jobless Claims. The next Employment number is on Sept 7th. IMO, here are the obvious scenarios:

1. Good numbers - the market will keep rallying as multiples continue to rise. (Even though I sold out of Google 15 points ago, it has no business trading with a multiple below 19-20 in a non-recessionary environment. Similar can be said about a lot of names.)

2. Blah numbers - the market may trade sideways or allow stocks to trade on their own secular growth merits.

3. Shit numbers - compressed multiples will come back.

IMO, the current trend of the August Jobless Claim numbers are suggesting a Blah-to-Good number for August Employment, but leaning towards "Blah".  (The good aspect of the August jobless claim numbers is that they are at the bottom range of claims. The statistical lingo of "blah" is that the numbers are not continuing the down trend. :)

Just a side note: With the US economy improving, yield rates rising, US housing firmly improving and Europe removing the threat of a financial crisis, banks are just too cheap. From a market mechanics perspective, recent SEC filings suggest hedgies under own the banks.  If the conditions I just mentioned remain in place, at the very least, banks will approach book-value sooner-rather-than-later, with the big boys taking them there.

Sunday, August 12, 2012

trades... GOOG, GS, IBM, JPM, QCOM, FIO, the market

GOOG - After the nice rise, it has been consolidating near 640. I would like to re-enter near 630 or the 14 SMA.

GS - It is seeing some resistance at the 98SMA. I would like to add around 100-101. With US jobs improving (along with US housing in a firm recovery and EU crisis relatively off the table), financials should not be trading this much below book. (GS' book value is near 120-130.) Pending on the severity of a market pull-back, GS can see around 97.

IBM - I like it right now for a push to 202, but I think the SP500 is due for a consolidation/pull-back. So I do not know how that will effect IBM.

JPM - With a similar investment thesis to GS, I would like to add near mid 35.

QCOM - The stock is pretty overbought, but QCOM has a history of rallying with extreme overbought conditions. It is also still trading below the low-end of its trailing PE range, while the world is in one of the greatest computing transitions (mobile) in history.  The resistance levels I currently have on the below chart are weak. The real resistance should be near 68.

FIO - Their latest quarter suggested their software strategy is working, and it is able to distinguish them from the competition and provide some level of pricing power (which is lost via their partner-distribution).  I am not going to actively trade them yet, but I will keep a close eye of FIO again.

An interesting observation, before FIO reported, was that a previous post of mine specific to FIO, saw a  sizable increase in page views prior to the report.  The activity made me look into FIO again, and the quarter report got me really interested.

SP500 - The VIX is at the bottom of the range of the Vix/SP500 overlay chart. In the past it signaled to protect, and so I protected. Hopefully, the scenario will facilitate moderate level of declines to allow for the entries above. (Not expecting a large decline. I would be surprised it the decline is greater than 3%.)

Tuesday, August 7, 2012

Market Thought... protection, technical

Waiting to take on some short-term market protection via SPY puts. The move is purely technical. When the VIX (via the Vix/SP 500 overlay) entered the low end of its range, I will take it on.

(Not expecting big market down moves.)

Friday, August 3, 2012

Nice jobs report

Solid growth.

Private job growth at 173k, with gov continuing to decline (-9).

Ave weekly earnings were flat.

Jobless claims hold up current levels, Employment number should be like this going forward.

trades... GS, JPM

Financials just keep fucking themselves over and over again. Its almost as if the corporations like fucking themselves. (Maybe corporations really are people :)

Knight Capital lost almost half-of-a-billion dollars in 30minutes. WTF. One would think exhaustive stress tests mimicking real life market scenarios, and the worst-of-the-worst case scenarios would be used to validate or least beta test trading-algorithms, especially for market-making. But I guess not. (Or the code was replaced/manipulated just prior to implementation.)

Obviously this adds to the uncertainty of banks. (I mean seriously, a bank bear could not have asked for a better set of circumstances culminating into today's uncertainty.  Fuck-ups from hedging-gone-wrong, blatant manipulation (libor) and now technical issues thats striking at the core of a company's operation.

I am all for less regulation, but these banks/financials are just taunting the regulators with their fuck ups.  On the flip side, bank valuations are already factoring in a lot more fuck ups.

Stocks like JPM and GS are trading 20-30% below book value. With continued firming of the US housing market and the ECB (with Hollande and Merkel) firmly supporting the Euro, book value is pretty legitimate. 

Earnings power will continue to suck until treasury yield start to rise (due to increased economic activity). But the trading thesis is still not for earnings, its for a reversion to book value. (If the Employment Situation starts to improve, we will get higher yields, which will add the earnings thesis to the bank trade.)

I am getting ready to add to GS and JPM.

They are both sitting on SMA support, after breaching negative trends. If the jobs number is so-so then the continued negativity can bring the sector down.

Wednesday, August 1, 2012

trades... QCOM, IBM

Looking to add to QCOM and IBM.

QCOM - If the market wants to go down, I will be looking to add around 57. (It may re-visit the level briefly.)

IBM - If given the opportunity, I will be looking to add near 192.

Since I already have a core position in the above names, I would love it if they simply went up. But I would also like to add on a fear induced consolidation.