World’s Ugliest Chart: NASDAQ

Posted on October 22, 2012 by macromon

Led by the ugly correction in Apple and Google’s 10 percent swan dive after its earnings release, the Nasdaq has broken its uptrend and key support at around 3040, which has held since mid-August.   The index managed to close on Friday just above its 100-day moving average.

Apple’s earnings release on Thursday will be the key factor in determining the Nasdaq’s near term direction.   Unlike Google, which had run up almost 40 percent since its last earnings report, Apple is in the middle of a pretty nasty correction, down over 13 percent from its Sept 21 high of 705.07.

The stock broke key support at 623 on Friday and it looks ready to test the 200-day moving average at around $583,  about 4 ½ percent lower.   Apple’s RSI is approaching a 12-month low and is setting up for a nice pop going into earnings.  If the stock continues to trade sloppy on decent earnings and revenue,  ” Cupertino, we have a problem!”

This has been a year of the bear trap and the many of the ugliest technical and oversold stocks/indices/currencies have tended to reverse and give facials to all but the most nimble of traders.  Last Monday, for example,  Japan’s NIKKEI looked ugly and ready to break to new lows only to reverse and trade 5 ½ percent higher for the week.

Will this continue?  We have no freaking idea and are just trying live by the 11th commandment:

Those who remain flexible shall not be broken (i.e., go broke). 

Discipline trumps conviction!

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Global Trend Indicators

Posted on October 21, 2012 by macromon

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Spain’s Rajoy enjoys mixed victory in regional vote – AJ

Posted on October 21, 2012 by macromon

ILBAO, Spain — Voters in Spanish Prime Minister Mariano Rajoy’s northwestern home region of Galicia have given their support to his handling of the economy, but those in the turbulent Basque region handed a major victory to nationalist and separatist parties at the ballots Sunday.

Rajoy’s Popular Party increased its absolute majority in Galicia, where austerity measures were introduced even before he took power as prime minister last year, with 41 seats in a legislature of 75.

In the Basque region, the Basque Nationalist Party — or PNV by its Spanish initials — took 27 seats while the separatist Bildu party claimed 21, giving pro-independence candidates their second-largest majority in 34 years of democracy.  – AP

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Week in Review

Posted on October 21, 2012 by macromon

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Weekly Eurozone Watch: Sovereign Spread Flop

Posted on October 19, 2012 by macromon

Key Data Points
German 10-year Bund 15 bps higher;
France 1o-year 9 bps tighter to the Bund;
Italy 36 bps tighter;
Spain 40 bps tighter;
Belgium 11 bps tighter;
Portugal 62 bps tighter;
Ireland 17 bps tighter;
Greece 174 bps tighter;
Large Eurozone banks up  1-9 percent;
Euro$ up 0.53 percent.

Comments
Italy, Ireland, Portugal, and Greece 10-year yields at lowest weekly close of the year;
EU leaders agree on timeline of banking union;
Merkel and Holland  now appear more divided than Merkozy;
Asturias became the 8th Spanish region to seek a bailout and the Balearic Islands said it needed €355m;
Greeks euphoric as they move one step closer to winning next tranche of aid;

Click here for a nice timeline of the Eurozone Crisis

Source:   Guradian

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The Political Black Swan

Posted on October 19, 2012 by macromon

Fiscal cliff collides with a replay of the Bush v Gore 2000 fiasco.  Not good.

We noted in an earlier post today Governor Romney has moved ahead of President Obama on the Real Clear Politics electoral map for the first time of this presidential campaign.  The Governor has also opened a 7 point lead in the Gallup national tracking poll of likely voters.

We recognize that 19 days is an eternity in politics, but the underlying dynamics with states moving in and out of play and the tightening of polls in the battleground states has increased uncertainty,  at least in our opinion,  on who will be the next POTUS.

It appears to us that the momentum is in Governor Romney’s favor, but we do not have a good sense of the political dynamics on the ground in the states that really matter, such as Ohio, Nevada, and Colorado.

As traders we are always nervous and looking for potential disasters on the horizon.  We are becoming increasingly concerned the way this election is shaping up.   Imagine, for example,  if Governor Romney wins the popular vote and President Obama takes the electoral college, or vice versa.

We see the President’s probability of winning the election on Intrade remaining above 6o percent while Governor Romney opens a fairly significant lead in the daily Gallup tracking poll (see below).  WTF?

The Black Swan?   The fiscal cliff collides with a replay of the Bush v Gore 2000 election fiasco.  Total disaster.

The resulting political paralysis coming at such a critical time as the country edges toward the fiscal cliff would collapse confidence and suck markets into a black hole that nobody knows how they would look coming out the other side.   Recall the nonlinear dynamics of 2007-08 financial collapse.  Greece?  Wiemar?   Who the %#@& knows and let’s hope and pray we never do.

This isn’t our base case and the probability of such a scenario is relatively low.  But, we believe it is such a high impact event that everyone, including and especially the politicos in Washington,  should be aware, afraid, and have a contingency plan.

We’re always nervous but growing more so as November 6th approaches.  Stay tuned.

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Foreign Affairs: China’s Political Transition

Posted on October 18, 2012 by macromon

More perspective on a very important global event.

Managing Editor Jonathan Tepperman interviews Eurasia Group analyst Damien Ma on China’s political transition, economic slowdown, and social inequality. Ma unpacks U.S.-Chinese relations, the Diaoyu (Senkaku) Island dispute, and the potential economic consequences of the Chinese political handover.

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Swan Diving in MoMo Land

Posted on October 18, 2012 by macromon

Take a look at Google and Chipotle Mexican Grill after missing earnings.   We like Google over the longer term as it is one of the world’s most innovative companies.  But going long into earnings after an almost 50 percent run-up in three months?   Come on, that’s asking for trouble, no?  Bulls eat, bears eat, pigs get slaughtered.

As for Chipotle,  we’ve traded small amounts  in the past and found it too illiquid for us.  Once the momentum deflates in these high flyers its tough to regain traction, which is reflected in the chart below.  Furthermore, we don’t know beans about its fundamentals, but David nailed this one!

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Romney Takes Electoral College Lead At Real Clear

Posted on October 18, 2012 by macromon

This is the first time we’ve seen Romney take the lead in the electoral college at RealClearPolitics.  The governor has also opened up a 7 point lead in the national Gallup daily tracking poll among likely voters and seems to be picking up huge momo.

No political statement and you know our view on how a definitive Romney victory affects the market,

No political statement here.  We just think the equity market ramps hard into a Romney victory.   After all, to paraphrase Keynes,  it’s not who we think is the best looking candidate is in this beauty contest, we’re just trying to anticipate what average opinion expects the average opinion thinks of both candidates.   Got it?

We also recognize the margin of error in the polling data and it may just be statistical noise.   We do believe the enthusiasm levels are lower in the Obama camp,  however, and the polls may be over estimating the President’s  support.

One note of caution.  We have a growing sense there is about a 30% probability that President Obama wins the electoral college, i.e., presidency,  and Romney wins the popular vote.  In terms of political and market stability — a total disaster.   Strap yourself in.

Finally,  we believe with most the outcome of the election all comes down to……………..

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China manufacturing model under threat – Reuters

Posted on October 17, 2012 by macromon

Put this on the your inflation and profit margin watch.  And start monitoring prices at Costco and WalMart, which we see already ticking higher.  Also see our past posts.

Companies like Foxconn, which assembles most of the world’s iPads and iPhones, are struggling to find workers to fill their massive facilities as more young Chinese shun the factory floor. Jane Lanhee Lee reports. (October 17, 2012)

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