Editor’s Note:
In this series of articles, we include important or interesting
videoclips with our comments. This is an article that expresses our
personal opinions about comments made on Television and in Print. It is
NOT intended to provide any investment advice of any type whatsoever.
No one should base any investing decisions or conclusions based on
anything written in or inferred from this article. Investing is a
serious matter and all investment decisions should only be taken after a
detailed discussion with your investment advisor and should be subject
to your objectives, suitability requirements and risk tolerances.
1. Don’t Overthink!
This dictum is a David Tepper favorite and one he articulates whenever he is on FinTV. We forgot it last week when we parsed President Obama’s comments to CNBC’s Steve Liesman and wondered whether he was signalling his dissatisfaction with Dr. Janet Yellen. Whether he was or not is now immaterial. Because President Obama appointed Dr. Yellen to succeed Chairman Bernanke as the new Fed Chair. This is a big relief for financial markets. After all, she is reputed to be even more dovish than Bernanke.
2. Launch of a rocket rally for Q4?
The last explosion in the U.S. stock market was on Wednesday, September 18, the day Chairman Bernanke stunned the markets by not tapering. The Dow jumped 147 points to 15,676 and the S&P jumped 20 handles to 1725. The U.S. stock market began selling off the next day and that decline continued until this past Tuesday, October 8 when the Dow closed down 159 points to 14776 & S&P down 20 points to 1655.
On Wednesday after the close, came the rumotory of a deal on the debt ceiling and the rocket was launched. The Dow exploded up by 323 points to 15126 & the S&P by 36 points to 1692. This was almost twice as large as the rally after the non-taper announcement on September 18. And unlike that rally in September, this Thursday’s rally continued on Friday with Dow up 111 & S&P up 10 handles to 1703. These two days reversed the entire decline from Monday 9/23 to this Tuesday 10/8. Amazing! The big question is whether this week has launched the big Q4 rally?
We will wait for the debt ceiling deal to be signed & delivered before we touch that question. The Debt ceiling does not need to be extended until next Thursday. And that leaves enough time for another act of the political circus early next week.
3. CNBC Fast Money vs. CNBC Fast Money Half Time
We respect and love timely calls that make money. This week, we heard two calls that proved to be spectacular winners. One was from Paul Richards of UBS on Tuesday on CNBC Fast Money Half Time report:
- “I think it will get slightly worse before it gets better. I think we go into Friday, the weekend, we have nothing. Come Monday, you could have a brilliant buying opportunity for this market.”
So Paul Richards said buy S&P at 1650, Buy Dollar-Yen at 96.60 & Dollar-Swiss at 0.9. This was a great call for those who listened to the “buy S&P at 1650” because the S&P fell to 1648. But this call was bad for those who listened to “Monday, October 14 being the brilliant buying opportunity”. Because they missed the huge rally on Thursday & Friday.
In contrast, look at what Roberto Friedhandler of Brean Cpital said on CNBC Fast Money on Wednesday:
- “3-day move in the volatility VIX …; TRIN spiked over 2; so you are oversold here; big jump in the fear index; you had a sentiment shift; weak hands bought in September they are going to be shaken out. I think it’s going to be a good opportunity. S&P closing here at 1655 is a great level to be buying it here“
- “we’re one headline away from a short term resolution and you get a real gap up in the market.”
No two-ways about this call. If you listened to him and bought SPY after-market on Wednesday, you made a great trade. A really spectacular call. Now isn’t this Friedhandler call on Wednesday more timely and more accurate than the Richards call on Tuesday?
But CNBC FM 1/2 trumpeted the Richards call on Thursday-Friday and brought back Paul Richards on Friday. In contrast, CNBC FM didn’t even remind its viewers about the Friedhandler call. They totally ignored the great call that was made on their show, the best call of the week.
What’s going on? Is Scott Wapner, host of CNBC FM -1/2, more aggressive in marketing his show than Melissa Lee, host of the evening CNBC FM? Or does the management of the CNBC Fast Money favor its afternoon edition over the 5 pm edition? Inquiring minds want to know.
4. U.S. Equities
Given his terrific call on Tuesday, we have to begin our guru-opinion section with Paul Richards on Friday on CNBC FM -1/2:
- “I wouldn’t buy it here. I think we get to 1705, 1710 on a resolution, and then we sit. Because the markets are forgetting that at this time in a week, we might be sitting and looking at the payroll data.And that’s really important. we’ve been waiting for this 200,000 number for, what, six months? and we keep looking at the weekly claims and we don’t get that 200 critical number, but if we did, then the market’s going to be talking about the Fed and tapering and everything else again, back to the economy, back to the Fed.”
This is what makes Paul Richards a good listen. He changes his stance when conditions change. He said to buy at 1650 and after a wild & crazy rally, he advises caution.
This year has been very bad for many technicians who turned bearish in the midst or near the end of what turned out to be a smallish correction. This sentiment was best expressed by Ryan Detrick of Schaffers on Friday afternoon:
- Ryan Detrick, CMT @RyanDetrick – I really like reading IBD, but you have to feel bad for them. As soon as they turn bearish – this happens. Been that way all of ’13.
This sort of happened to Lawrence McMillan whose recent sell signal got cancelled this week:
- “Equity-only put-call ratios moved to sell signals recently, and have been accelerating upwards ever since. This upward move solidifies their intermediate-term sell signals. Both of the breadth oscillators we follow moved back to buy signals, as a result of Thursday’s monster rally. $VIX completed a buy signal yesterday as well. This has the potential to be a very powerful buy signal.”
- “In summary, the violent rally of Thursday was extraordinary. An $SPX close above 1695 would give technical confirmation of these buy signals from $SPX itself. Lacking that, the bears may take another run at things next week”
Tom McClellan remains negative in his Friday’s article New Highs’ Divergence:
- “We are observing a huge divergence now between the daily number of new 52-week highs on the NYSE and what price indices like the SP500 are doing. In the past, divergences like this have been followed by more significant declines than what we hav
e seen thus far.” - “A couple of other notable divergences are also shown in that chart above, and each led to a more significant price decline than we have seen thus far. But the apparent divergence in early 2013 was overcome by new highs surging ahead, and erasing the divergence. That has not happened yet in the current instance”
- “The magnitude of the divergence we are seeing now in the number of new highs suggest that the market is due for more than just a pullback to its uptrend line.”
Ryan Detrick told Maria Bartiromo on Friday’s CNBC Closing Bell that he is bullish for the balance of Q4 and prefers US small caps. His tweet on Friday afternoon was clearer:
- Ryan Detrick, CMT @RyanDetrick – Remember, since 1950 avg. yr makes a major bottom in October. Then rallies hard next 2 months.
Mark Newton had a different message in his Friday afternoon tweet:
- Mark Newton @MarkNewtonCMT – To sum up, Trend next 3-5 days still likely positive, but prefer to wait consoldation into early Nov before attempting to chase any Q4 Rally
5. U.S. Treasuries
Treasury yields rose a few bps this week but generally behaved fine. The 30-year auction went off very well with a high bid to cover ratio of 2.64. The consensus on FinTV remains that yields will go up sooner or later, mostly sooner. The consensus view was expressed by Robert Albertson of Sandler O”Neill on BTV Surveillance on Friday morning:
- “where rates should be neutral not tight – Fed funds at 2% ; 10-year at 4.5% . There is no way to prevent that 4.5% from happening . The FDIC just sent a circular around to all banks saying we would like you to test your portfolios for a 300-400 bps spike in rates; that tells you something”
- “I am worried about how; if they go up in a sloppy fashion, it is going to be a bumpy ride; every time they reset they are going to reset higher”
This consensus makes the next two calls notable.
John Brynjolfsson of Armored Wolf with Scott Wapner of CNBC Fast Money 1/2 on Thursday:
- Wapner – “the 10-year yield is going to get as high as, what? between now and the end of the year?”
- Brynjolfsson – “I think it’s going down towards 2% by the end of the year. especially with Yellen coming in”
Michael Gayed of Pensionpartners on CNBC Closing Bell on Friday:
- “we’ve been playing the emerging market play which has been very strong, especially since fourth quarter started. and we’re rotating into longer duration bonds in our mutual funds. A couple things happening here. Emerging markets have alpha momentum. What’s at risk is beta. If you look at the reactions yesterday and today, bonds never sold off despite all this optimism of a deal. this suggests this isn’t really about Washington. This may be the issue of PE expansion whereas if earnings don’t expand,the e becomes expensive; we may be at a juncture where the stock market says there’s no reflation, no kind of sense that things are kind of working that much based on Fed stimulus and may be we may sell off.”
Tony Crescenzi of Pimco on CNBC on Friday:
- “Fed is projecting at the end of 2016, 3 yrs from now, a policy rate of just 2% .. that means rates may go up but they will do so slowly very gradually. No big increase in rates because there is a very strong linkage between the 10-year Treasury & other yields and that FF rate“
- “Inflation which is extraordinarily benign at 1.2% yr/yr in terms of the rate Fed watches – it is the lowest level since record keeping began in 1960. The Fed tells us they wont raise rates till that inflation rate moves towards 2% and that will take couple of years because it lags the business cycle by that amount”
6. Gold
Gold had an ugly week. It was down 4 of 5 days this week and Friday morning was a breakdown. As CNBC’s Sharon Epperson reported:
-
“Gold lost $25 in two minutes on Friday morning,
as the gold market experience a massive surge in volume that triggered a
halt in the middle of the plunge. The move took gold down to a
three-month low, and was felt across the commodity markets.” -
“It
appears to have been an order to sell 5,000 gold futures contracts at
market,” Eric Hunsader of Nanex told CNBC.com, … “About 2,700 went off and tripped the stop
logic, halting gold futures for 10 seconds while liquidity replenished.
When enough liquidity returned (after 10 seconds), the balance of about
2,300 completed.”
Who is selling? Miguel Perez-Santalla of BullionVault told CNBC on Friday evening:
- “the private investor is coming in and still buying it at this point, with the drop yesterday, we saw a increase on the buy side. … no, central banks are not sellers; the fund managers are liquidating their positions. that’s why you see the GLD losing a lot of inventory.. where we, our marketplace at bullion vault is retail based so they are increasing their positions.”
- “I don’t see it dropping any lower than $1,050, mining costs and production and bringing it to manufacturing gets you to that price level with most of the producers.”
Rich Ilczyszyn of iiTrader.com on CNBC Street Signs on Friday afternoon concurred:
- “big investors we’ve talked to since the beginning of the year have been decreasing their net long positions. And I think that’s the big reason the market is down. We’ve seen allocations drop from around 12% to 5% to 2% and less with guys that manage 8 to $10 billion because they’re forecasting better economy and higher rates in the next one to two years, I think that’s the reason the markets fell.”
Naturally you would expect traders to be negative on Gold. And the entire trading desk of CNBC Options Action was negative on Friday:
- “the last gold bubble we had from 76 to 1980, it was up 600%, a rise similar to the one we actually experienced up to the highs in 2011. it then fell back about 34% or so, had a little bounce. and then just went straight down. it ended up falling about 70%. if you think it’s fallen a lot, and that’s a buying opportunity, you better prepare yourself for what can happen when a commodity turns against you”
- “I actually shorted it yesterday. to me if this thing in Washington gets cleared up, we go back to this complacent market environment we’ve been in most of the year, gold gets crushed. when it broke 1300 back in June it went to 1200, I think we probably will see that off this technical pattern that just broke the neckline at 1300, the head and shoulders.”
But one solitary brave voice spoke up and said he had sold GLD puts on Friday morning to take advantage of the gift of fear generated by that single huge sell order in Gold. That man was Jon Najarian of Option Monster, a CNBC FM 1/2 trader.
Then why didn’t the Fast Money website highlight this brave bullish call? Forget highlighting the call. They didn’t even post it on their website. Did Jon Najarian screw up by going against the rest of Fast Money gang or does Fast Money not care about Gold when stocks are rallying? Strange are the ways of CNBC.com.
A more detailed and fundamental buy recommendation came from John Hathaway of Tocqueville Asset Management on October 9, 2013. A couple of excerpts are below:
- “We believe the gold market is set up for a major advance, but recognize that the timing of a turn has been elusive and frustrating.”
- “What is certain to us is that market reversals of the kind we anticipate require a tolerance for the pain that it takes to be invested at the low, and that money on the sideline will be paralyzed and unable to act until metals and share prices have advanced strongly”
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