Sunday, June 24, 2012

Preview of earnings & macro data 6/25-6/29

Unreal to know that after this week, we will be halfway through 2012 and heading into another round of earnings, time sure does move fast…

On that note, we begin to preview a semi-busy week ahead. I will be heading across the pond to England on Thursday evening to take a couple summer classes, while keeping my fingers crossed may be able to see some Olympic action in London. Six weeks over there, then its back home for less than a week, then back to school for fall semester, once again, time flies.

In looking where the S&P has moved this week (some wild moves, but was expected on the back of Bernanke’s comments and further monetary policy) we were relatively unchanged, down half a percent. Investors and traders were hoping for QE3 but got an extension of operation twist instead. The Fed will now sell short-term bonds and buy long-term bonds to drive yields down, which will last throughout the rest of this year. When all is said and done, Operation Twist I and II will span a total of 16 months. Once again, not solving any of the problem, but just buying time until the end of the presidential election.

I mentioned in my last post about watching 1,349 in the spoos, we got there and seemed to be resistance (1,357 is last wks hi). Since we broke down Thursday after a Goldman put a short position on to 1,285 and Moody’s putting out an onslaught of downgrades after the bell, we broke through many support levels, including 1,333 in the S&P cash (H/T to Steve Grasso on CNBC for pointing that out), we can now use the 1,349 as resistance again. The next support level I am eyeing is 1,314 at the close on June 14th, beginning a mini-rally. My thoughts are we will slowly melt down to here, possibly under 1,300 in the spoos, but watch Thursday evening/Friday cash session we could reverse quick to get those end of the quarter/month markups in (last June we rallied 50 pts into the close of the month).

Above a chart of the S&P futures

We have a moderately busy week for macro data:

-10:00AM EST New Home Sales Prev. 343K  Consensus 350K
   - Measures the number of newly constructed homes with a committed sale. With the amount of housing data we got last week, clearly we have not seen a bottom yet and this is still a very sluggish sector. Notice in chart below we still continue to bump along the bottom.

-10:30AM Dallas Fed Manufacturing Prev. -5.1 Consensus 0.0 (range -11.5 to 2.0)
   -With the Philly Fed printing a very disappointing number, I would not be surprised and am leaning toward a lower than -5.1 print.
-9:00AM EST S&P Case-Shiller Home Price Index
   -20 City M/M  Prev. 0.1%   Consensus 0.4%   (range 0.2% to 1.0)
   -20 City y/y Prev -2.6%   Consensus -2.3% (range -3.1% to -1.6%)
-Chart below shows a slight uptick, but still very weak.

-10:00AM EST Consumer Confidence Prev. 64.9 Consensus 63.5 (Range 58.0 to 66.3)
   -A survey of 3k households in the US to see the individual attitudes toward economy. With the wild swings and disappointing data  we have gotten the past few weeks, I would not be surprised for this to go under 60, bringing us back to Dec. ’11 lows. (Seems to track the S&P pretty well)

-10:00AM EST Richmond Fed Manufacturing Index Prev. 4 Consensus 5 (Range -2 to 5)
   -Weighted avg. of business conditions in Richmond area (shipments 33%, new orders 40%, and employment 27%) Surprising that only a few months ago this was near 17, but worsening market conditions in other cities have driven down this index as well. Expect more disappointments.

-8:30 AM EST Durable Goods Orders
   -New Orders M/M Prev. 0.2% Consensus 0.4% (Range -1.0% to 1.0%)
   -Ex transportation Prev. -0.6% Consensus 0.8% (Range -0.5% to 1.5%)
-This is a measure of new orders with domestic manufacturers for immediate or future delivery. Notice the slow bleed to below 0% (growth slowing) could very well happen in the next few coming months, definitely think it will happen this year.

-10:00AM EST Pending Home Sales Prev. -5.5% Consensus 1.2% (range -1.6% to 4.0%)
  -From last month’s disappointment, we are expected to finally see some signs of relief, from existing home sales.  

  -8:30 AM EST 3rd and Final Read of Q1 ‘12 GDP
    - Real GDP Prev. 1.9% Consensus 1.9% (range 1.7% to 2.3%)
    - GDP price Deflator Prev. 1.7% Consensus 1.7% (range 1.7% to 1.9%)
-I expect this to be a bit below 1.9% consensus seeing that economic activity has slowed drastically since last read, could be as low as 1.5%

-8:30AM EST Jobless Claims Prev. 387K Consensus 385K (range 378K to 390K)
   -To me it looks like we have a straight shot to 400K in the coming weeks as long as the data continues to disappoint. The big number comes out next week.

-11:00AM EST Kansas City Fed Manufacturing Index Prev. 9 Consensus 4 (range -2 to 11)

-8:30AM EST Personal Income and Outlays
-Personal Income M/M  Prev 0.2 % Consensus 0.3 % (range -0.2 % to 0.3 %)
-Consumer Spending M/M Prev. 0.3 % Consensus 0.0 % (range -0.3 % to 0.3 %)
-PCE Price Index M/M Prev 0.0 % Consensus -0.1 % (range -0.2 % to -0.1 %)
-Core PCE price index M/M Prev 0.1 % Consensus 0.2 % (range 0.1 % to 0.2 %)

-9:45 AM EST Chicago PMI Prev. 52.7 Consensus 53.1 (range 50.0 to 55.1)
  -We are in a tight range from 50-55, expect further downside as we get even closer to 50 and will eventually break below by the end of the slow growth summer.

-9:55 AM EST Consumer Sentiment Prev. 74.1 Consensus 74.1 (range 73.5 to 79.0)
  -Less accurate than consumer confidence, done by Univ. of Michigan in surrounding area, 500 households on financial conditions.

Important earnings for the last week of the second quarter:

-Apollo Group

-H&R Block

-General Mills

-Family Dollar
-Research in Motion

-Constellation Brands
-Finish Line
-KB Homes

Looking at General Mills, they have been a very stable and defensive name to own right now. With revenue and income growing 20% y/y, their demand will be stable enough to continue to grow. Important to note they too on an extra $1B in long-term borrowings in last quarters report, but should not be viewed as a big issue. Comparing GIS to Kellogg (K) and the S&P consumer staples, over a 10 year period (these are names to buy and hold generally, and I am a long-term investor) they have outperformed Kellogg and S&P Consumer staples. General Mills gives you a slightly higher yield at 3.1% compared to the consumer staples at 2.7%, but lower than Kellogg at 3.5% (higher yield in Kellogg due to underperformance in shares). I would be long GIS here, be a buyer of less than expected numbers, but would watch the $35 level if the report is very bad, a technical breakdown is possible at those levels. Analysts expecting 58c a share on $4.11B Revenue.

Another solid point to General Mills, they have increased their dividend every year since 2004 from 14 cents to currently 31 cents. Over that time, shares have also more than doubled up 54%.

Next I want to discuss Lennar and KB Homes. Both are homebuilders, and in my opinion, for the time being and probably the next several years, are the worst place to park your money. We have already discussed and seen the macro numbers for housing and there are no drastic signs that housing has made a turnaround. Yes, there may be some upward revisions due to seasonality, but the main point is, this sector will continue to drag, and so will these stocks. I am actually very surprised at how much these names have run up in the past 2 years on hope of a turnaround, not so much KB, but Lennar. (KB Homes does mote of their business in the south). I would be a seller of both, and would look more toward the home improvement names like Home Depot and Lowes.

Above a 6yr performance...speaks for itself…value trap at the least.

Nike I want to look at next. This has been a monster stock for the past couple years, but with most of their business coming from other countries, especially China, Nike may be running a bit out of steam. 100.00 was a key level to hold last week and it broke and closed below that, so on a technical basis, it is vulnerable for further downside. We got a death cross (50DMA below 100 DMA, see pic below) last Thursday; I expect a breakdown to the next level of 93.38 (Dec. ’11 low) then 90.28 (Nov. ’11)

Also looking At Family Dollar and Constellation brands for solid reports and would be long these names, might take a small long position in Constellation, I will let you all know via twitter @peter_eller10. Have a great week everyone, good luck trading. 

Sunday, June 17, 2012

Weekly Macro and Earnings Preview 6/18-6/22

Previewing the week ahead following Greek elections which took place yesterday afternoon/evening, we are in for an interesting week:

The S&P is currently forming an inverse head and shoulders pattern with key levels marked in the picture. The white horizontal line would be my ultimate upside target to break out of the range (roughly 1,277) and possibly hit new highs in the coming weeks. Buy the rumor, sell the news. I am still bearish, but anything could happen. People were on edge waiting for Greece and their elections, now that that is over with and the “good” party won, there could be some short term euphoria, how long will that last? I’m thinking a couple days, maybe hours?

For macro news this week, we have a few announcements (Graphs obtained from Bloomberg):

-10:00AM EST NAHB Housing Market Index Prev: 29 Consensus: 29
    NAHB measures present sale of new homes, sale of homes expected in 6 months, and the traffic of buyers in new homes. The graph below shows the index is at a fove year high, but still bumping along the bottom.

-8:30AM EST Housing Starts
     -Starts Prev: .717M  Consensus .720M
     -Permits Prev: .715M Consensus .736M
These numbers are the starts of building/excavating of a new home. As we can see below since the housing bubble burst, this is down almost 75% from the peak. Any increase in this number is generally bullish for equities.

-12:30PM EST We get the announcement from Ben Bernanke and the FOMC about the Fed Funds Target rate. Prior and Consensus is 0-.25% which should stay in place until late 2014 as stated in several months prior.

-8:30AM EST Jobless claims Prev: 386K  Consensus 383K
   -Notice below slight uptick in claims these past few weeks as equities more down, these charts are known to be highly inversely correlated.

-9:00AM EST Flash PMI Manufacturing Index Prev: 53.9 Consensus 53.8
   -This is a new indicator, releases about a week before the actual results, gives a general preliminary reading on US manufacturing for the month.

-10:00AM Existing Home Sales Prev: 4.62M Consensus 4.57M
     -Keeps track of the home resale market (homes that are previously constructed, then sold) the graph below shows how we still have not bottomed yet, but in the process of doing so..hopefully..

-10:00AM EST Philadelphia Fed Prev: -5.8 Consensus: 0.5
   -Highly correlate with ISM manufacturing, anything negative signals contraction, chart below shows last couple readings have ticked below 0.

-10:00AM EST FHFA House Price Index  Prev: 1.8% Consensus: 0.6%
   -This week we get a slew of housing numbers, so watch these carefully, any sign of an uptick could be reversed down drastically, I still believe we have not hit bottom yet. This measures price of single family homes from data obtained from Fannie Mae and Freddie Mac.

-10:00AM Leading Indicators Prev: -0.1% Consensus: 0.0% 
     -Index of 10 economic indicators showing overall economic activity.

Preview of Earnings for the week ahead:

Barnes and Nobles
Discover Financial
Jefferies Group
Jabil Circuit

Bed Bath and Beyond
Red Hat

Rite Aid

Darden Restaurants
Carnival Corporation

Lets take a look at Discover (DSC)

The last few earnings reports have been fairly good, net income up 20% y/y. Comparing this to Visa (V), we can see that there is slight underperformance, but Visa has a wider market, their profit margin being up 10% y/y while DSC is about flat. I am bullish long term the credit card/debit card companies, people are generally using more plastic than paper today, so these companies will profit and that they have.

Below is a YTD performance of DFS, V and the S&P 500.

Notice the broader market is up 6% while DFS is up nearly 38%. Surprisingly, I still think that this has room to run, with a solid growing income stream and a 1.2% yield, I would be a buyer here before the report, even if it does surprise to the downside. Yearly EPS of 4.40 trading at 33.00 = a very low and cheap p/e multiple. I would not be surprised in the coming months to see some aggressive buying into DFS up toward the low-mid 40’s.

Next I want to look at a 100% domestic name, Darden Restaurants (DRI) all of their 1,860 restaurants which are composed of Red Lobster, Olive Garden, Longhorn Steakhouse, The Capital Grille and Bahama Breeze are located in the US. If you are a long the US dollar, this is a great way to hedge against international growth, as well as obtain a 3.3% dividend yield while you wait. Since these tend to be more of luxury restaurants, comparing them to Consumer Discretionary is the best indicator. They have outperformed nearly 2% YTD, while the XLY dividend yield is less than half of DRI’s. I can’t stress steady income streams enough in the amount of risk we are seeing recently, especially with Europe. Buy Darden to get 100% out of European exposure.

Last, looking a name I will be actively trading this week, Rite Aid (RAD).

Not looking at fundamentals here, but strictly a short-term trade if I can get it for the right price. Markets will probably flush down a bit this week on a flat week last week (futures drifting lower as I type Sun. evening). 1.00-1.10 looks to be where I want to enter, hoping for a pop up.

I will probably be back into the 3xDirexionETF’s again this week, broke even twice on TZA last week, and a great hedge. Downside to watch in the spoo is 1,323 (6/8 close) that would be our pivot, then 1,311.    1,300 held very solid last week, but that may not be the case this week.

Catch me on twitter @peter_eller10 for daily updates.

Tsipras or Samaras?

Markets were on cruise control this past week ahead of the all-important Greek Elections which take place tonight. The ultimate question is will there be a Grexit or not? What will happen to the Euro? We won’t know for sure once whoever gets elected but knowing of their ideology toward fiscal/monetary policy it seems that this is what COULD happen:

-Alexis Tsipras, probably the most feared man to the Greek citizens fight now, all for Greece leaving the EZ, left wing (liberal) party member and pro-Drachma. If he wins, we could see markets react sharply to the downside initially in electronic trading Sunday night into Monday.
-Antonis Samaras, more of a calm and collective to the citizens, wants to keep the country together, stay in the EZ, pro-bailout, right wing (conservative) party.

Who I want to win is Tsipras, what the Greek citizens want to see is change. Yes, they want to stay in the EZ and keep the currency, but sometimes departing and starting again might be the best thing. Tsipras wants to get job growth back and is all for getting growth back to the public sector to battle the 20%+ unemployment.

Who will probably win is Samaras, so many Greeks are all for sticking together and fighting through the battle, whether it means several rounds of bailouts, more funding, and higher taxes. They are biding their time until full on Armageddon will hit their country, no one will come to the rescue and they will default, it is inevitable.  

What choice would you make? The first round of exit polls begin at Noon eastern, it should be one for the history books. 

Sunday, June 10, 2012

Could this fix US/European deficit spending?

Welcome back guys, and what a crazy past couple weeks we have had. The macro data that I posted 2 weeks ago really put the markets in a tailspin. We saw the S&P 500 go from 1,318 on May 25th down to an intraday low of 1,267 on June 4th. The unemployment numbers that came out on June 1st fell way short of expectations, less than half of what major economists and analysts had expected (69K v. 150K). That was not the only reason, Europe was still crashing daily on concerns of Greece, Spain, Portugal, Italy. Government bond yields were soaring, investors were not sure if they would be solvent within a short period of time.

Though just this past week, we saw a big reversal. With Europe out of the picture, and England not trading for a few days due to the Queen’s Jubilee that kept the markets fairly quiet. Lack of US macro data and light volume also gave us the 180 reversal many were probably looking for.

This Saturday we learned that Spain got a 100B Euro bank bailout (equivalent to 1.5T dollars in terms of percentage of GDP). We have known for a while now that things there were in pretty rough shape, the EU was meeting and there was speculation something would get done. I can say that this is not fixing the problem but putting a band-aid on yet another seeping wound. You teach a man how to fish, you can’t keep giving him fish, he will always come back for more without working. This was Spain’s problem; they had a fiscal crisis, no one wanted to negotiate, so they got a bailout. What will happen next? More bailouts?

We, as humans need to act intelligently and figure out the problem. The citizens voted for these people to not beg for more aid, but put in endless hours to protect the good of the people. Government in Spain, Greece, and the US have not done their job, it is time to throw them out. With the Greek elections next weekend, I expect to see some major reform happen, if there is no fiscal plan, I’m just plainly saying they will go bankrupt. Germany basically has had them and the rest of the insolvent countries on life support for quite a while now, and they want no more.  

I promise I’m not going to go all Peter Schiff here but the US does have its share of fiscal issues as well. If the tax cuts do not continue through ’13 we could basically see catastrophe in the stock market. The problem is we spend too much, and as we continue to spend like we do, debt will continue to grow higher than GDP and we MAY end up like Greece, Spain etc. The thing is, the US treasury market is still in high demand right now, telling bond buyers that our debt is safe. We don’t know of a plan or what the plan is to cut out spending down over the next few years but something has to be done.

My plan is to simply say: ok we messed up, we need to cut spending right now AND increase taxes. Yes, both need to be done, but this will not last forever, maybe only a few years, enough to balance the budget and decrease debt to a more desirable level; below 100% of GDP. Install a flat tax rate; simply put everyone is paying the SAME RATE on EVERYTHING. So, this would solely depend on your income (those who make more pay more, those who make less pay less). I would impose this on consumable goods, federal, state…anything with a tax, quick and easy. As the national debt (hopefully) goes down and the budget (again hopefully) gets balanced, the rate can be adjusted. Also, to encourage consumer spending, I would use 1 day a month as a tax holiday.

We cannot keep growing our debt, here or in any other country, it will eventually become unattractive to creditors. Those creditors who bought will lose over time, they have a chance at not being repaid. The most honest way is to default, clean up and start over again. Yes, it will hurt but it WILL get better. Inflation is the more dishonest way, too much liquidity flooding the system would harm anyone who was not involved directly in the default (bondholders, gov’t employees) by decreasing the value of their savings.

Off that topic now, as far as US equities/oil/dollar this is what I’m seeing the setup this week:
-Thursday I bought TZA, sold Friday midday to close out position flat
-TZA is Direxion x3 bear on the Russell 2000, so it trades inverse to the market x3 (if the S&P was down .5% this would be up 1.5%)
-I did not want to go in short over the weekend, was thinking something big might happen this weekend which did.
-ES_F futures opened up 1% Sunday Evening
-I believe rally won’t sustain, and will fade throughout the week (need to hold 1335 in the ES_F short term resistance, then 1,363 is next up)

A look at ES CL and 6E

Macro data out this week could also make a significant difference in what happens:

-7:30AM EST NFIB Small Business Optimism Index Prev. 94.5 Consensus 94.2
-8:30AM EST Import and Export Prices Export Prev. 0.4 % Consensus 0.1 %
Import Prev. -0.5 % Consensus -1.1 %
-2:00PM EST Treasury Budget Prev. $59.1 B surplus Consensus $-125.0 B deficit

-8:30AM EST Producer Price Index Prev. -0.2% Consensus -0.6%
-8:30AM EST PPI less food + energy Prev. 0.2% Consensus 0.2%
-8:30AM Retail Sales Prev. 0.1% Consensus -0.2%
   -Less autos: prev. 0.1% Consensus -0.1%
   -Less autos and gas prev. 0.1% Consensus 0.4%
-10:00AM EST Business Inventories Prev. 0.3% Consensus 0.3%

-8:30AM EST Consumer Price Index Prev. 0.0% Consensus -0.2%
   -Less Food + Energy Prev. 0.2% Consensus 0.2%
-8:30AM EST Jobless Claims Prev. 377K Consensus 375K

-8:30AM EST Empire State Manufacturing Prev.  17.09 Consensus 13.8
-9:15AM EST Industrial Production Prev. 1.1% Consensus 0.0%
   -Capacity Utilization Prev. 79.2% Consensus 79.2%
   -Manufacturing Prior 0.6% Consensus -0.3%
-Michigan Consumer Sentiment Prev. 79.3 Consensus 77.5

No big earnings news out this week, but will be fully trading and watching markets.

Catch me @peter_eller10 on twitter for updates.