Tuesday Afternoon Tick Tick Tick Tick.........?
Boom?
Not today, obviously.
Dow up $34, Naz and S&P for all intents and purposes flat.
What you won't hear much (other than Bob Pisani - he's usually pretty straight) from CNBC - S&P 500 had 265 decliners, 196 advancers (the rest unchanged). The DOW was 14/16, with all 30 points of the advance coming from IBM. Take IBM and HON out, the DOW is down 15 instead of up 30.
Data - Existing home sales came in below estimates. Consumer confidence was two points below estimates. I've been talking about this, but people don't want to hear it - earnings reports have shown building consumer credit stress in the form of increased credit card balances. Its all over the financial sector, if you look. Will they stay out of confidence numbers? Of course not.
More ominous is that more consumers think its harder to find a job now than a month ago, and of course the ever-present issue - gasoline prices. They're pushing $3 basically everywhere now, and expectations are that we'll see four dollars this summer.
What's my canary in the coal mine? Consumer credit. That's the whole shebang in this market right now, if your focus is on consumer spending. If the consumer gets stressed and stops spending, the party's over. That's pretty much the deal, as I've noted, and indicators keep piling up.
You'll likely hear the NAR (that'd be the real-estate salesmen trying to sell you a house at an overinflated price) try to spin this as "oh its not that bad." Really? Let's look at that for a second. This data was for March. It takes 30-60 days to close an existing home sale. That means that the "subprime mess that will remain contained(*)" hadn't hit until the very end of the reporting period, because essentially all of these contracts were written in January and February. In other words, when this number was generated it was still easy to obtain credit for subprime and ALT-A loans - a door that slammed shut in MARCH.
So the best way to interpret the data on "Existing Home Sales" for March (reported today) is that next month's data is really going to suck, because April's closings will, for the first time, more reasonably reflect the changes in the marketplace for mortgages. And of course the June report will be from the "depths of Hell", as it will all be in there by then. Of course April Confidence can be reasonably expected to be even worse than March's was.
As I've previously noted, essentially the entire advance in the S&P's earnings so far has been overseas. Look here in the United States, earnings suck - and that's being nice. In fact, if you wanted to look at it from an earnings perspective in the United States, we are in a recession right now!
You wouldn't know this from the market's price response, of course. Yet today was yet another session with no leadership and one in which the obvious and clear weak data - right "in your face" - was shrugged off.
This is no longer a "subprime" story. It is now a general housing story, and quickly is becoming a consumer story - witness TARGET saying their sales will not hit forecasts, not to mention GM's warning on auto sales.
And therein lies the risk, because when the consumer goes in the toilet, so does the economy.
Now you'd think "I'll just invest in developing markets where all is booming like gangbusters and all will be good."
Not quite so fast, dude. A birdy (thanks Phil) tweeted on my shoulder this afternoon and told me to look at the option traffic in EEM today (Emerging Markets ETF), June.
Someone traded fifty thousand PUTs on the $105 strike, well north of the open interest.
That is a five million dollar bet that the EEM (Emerging Markets Index ETF) will decline by more than 20% in the next month and a half.
And by the way, that bet looks un-hedged too - I couldn't find a vertical or counterbalancing trade.
That made me sit down and ponder for a minute.
This sort of thing could be a hedge. It has traded in a range of $82 to right near $125 - but don't think its been straight up, because it most certainly has not. Indeed, last summer there was a big swoon - down to the $82 level.
Is this just a huge (5 million share) insurance policy? Or is someone with a lot of money who is sniffing around and not liking what they smell? Difficult to know... but $5m isn't money you throw down the toilet without a damn good reason.
Now there was also a lot of PUT interest traded today on the SPY May contracts. But this sort of activity isn't all that unusual on that issue - options on SPY are one of the most-heavily traded on the exchange, as its a very common leveraged play against declines - or advances - in the index.
The only other unusual traffic I saw was on the QQQQs - there was an awful lot of traffic there on both sides - but that may indicate a straddle being taken, as you could get a decent one centered around the $46 strike pretty reasonably. In fact, I might take one of those tomorrow..... you need a 4% move (in either direction) to make money on it, but if we get a big fat plunge (or a huge breakout) this would pay big.
I see a few other decent plays in the ETFs in the short term but I'm not going there for now. Nothing looked all that out of the ordinary - just the usual option speculation and hedging.
Now here's the other canary that may be about to keel over. That's the bond market. It looks to be heading in the tank. This is extremely bad, because a selloff in bonds leads to higher real interest rates, whether we like it or not! There is absolutely nothing that Bernacke can do about it either, because a price drop in existing bonds is beyond his ability to control through liquidity injection.
Rising real interest rates burn everyone equally. They dry up liquidity, perhaps very rapidly. They increase the cost of money already borrowed on anything adjustable, which is all your credit cards, adjustable HELOCs, adjustable mortgages, etc. It also hits corporate paper issuance and commercial construction.
This, on top of a weaker consumer, can easily tip the balance......
Oh, and let's not forget that CapEx - capital expenditures - has been strongly down of late. That's corporate spending - while its strong on outside-US expenditures, its definitely not inside the United States.
One data point on the other side, just to be balanced. Amazon just reported, and did very well. The only cautionary part of that number is that its very difficult to get a clean read on Amazon, as they continue to add new areas of merchandise and various affiliate deals (Amazon is not just books any more; you can now buy damn near anything through them, but the actual fulfillment isn't theirs - they just take a commission), so exactly how much of this is a broadening base and how much is organic growth is difficult to determine at this point. I will take a gander through the financials and see if I can get to the conference call this evening in the hopes of understanding how much of this is organic and how much of this is from spreading the "web" across more area. In any event this is good for their stock, but whether it means anything for the broader economy is far more difficult to call.
Caution remains advised, and if anything, the flashing yellow light is getting brighter and brighter - and more "in your face."
Not today, obviously.
Dow up $34, Naz and S&P for all intents and purposes flat.
What you won't hear much (other than Bob Pisani - he's usually pretty straight) from CNBC - S&P 500 had 265 decliners, 196 advancers (the rest unchanged). The DOW was 14/16, with all 30 points of the advance coming from IBM. Take IBM and HON out, the DOW is down 15 instead of up 30.
Data - Existing home sales came in below estimates. Consumer confidence was two points below estimates. I've been talking about this, but people don't want to hear it - earnings reports have shown building consumer credit stress in the form of increased credit card balances. Its all over the financial sector, if you look. Will they stay out of confidence numbers? Of course not.
More ominous is that more consumers think its harder to find a job now than a month ago, and of course the ever-present issue - gasoline prices. They're pushing $3 basically everywhere now, and expectations are that we'll see four dollars this summer.
What's my canary in the coal mine? Consumer credit. That's the whole shebang in this market right now, if your focus is on consumer spending. If the consumer gets stressed and stops spending, the party's over. That's pretty much the deal, as I've noted, and indicators keep piling up.
You'll likely hear the NAR (that'd be the real-estate salesmen trying to sell you a house at an overinflated price) try to spin this as "oh its not that bad." Really? Let's look at that for a second. This data was for March. It takes 30-60 days to close an existing home sale. That means that the "subprime mess that will remain contained(*)" hadn't hit until the very end of the reporting period, because essentially all of these contracts were written in January and February. In other words, when this number was generated it was still easy to obtain credit for subprime and ALT-A loans - a door that slammed shut in MARCH.
So the best way to interpret the data on "Existing Home Sales" for March (reported today) is that next month's data is really going to suck, because April's closings will, for the first time, more reasonably reflect the changes in the marketplace for mortgages. And of course the June report will be from the "depths of Hell", as it will all be in there by then. Of course April Confidence can be reasonably expected to be even worse than March's was.
As I've previously noted, essentially the entire advance in the S&P's earnings so far has been overseas. Look here in the United States, earnings suck - and that's being nice. In fact, if you wanted to look at it from an earnings perspective in the United States, we are in a recession right now!
You wouldn't know this from the market's price response, of course. Yet today was yet another session with no leadership and one in which the obvious and clear weak data - right "in your face" - was shrugged off.
This is no longer a "subprime" story. It is now a general housing story, and quickly is becoming a consumer story - witness TARGET saying their sales will not hit forecasts, not to mention GM's warning on auto sales.
And therein lies the risk, because when the consumer goes in the toilet, so does the economy.
Now you'd think "I'll just invest in developing markets where all is booming like gangbusters and all will be good."
Not quite so fast, dude. A birdy (thanks Phil) tweeted on my shoulder this afternoon and told me to look at the option traffic in EEM today (Emerging Markets ETF), June.
Someone traded fifty thousand PUTs on the $105 strike, well north of the open interest.
That is a five million dollar bet that the EEM (Emerging Markets Index ETF) will decline by more than 20% in the next month and a half.
And by the way, that bet looks un-hedged too - I couldn't find a vertical or counterbalancing trade.
That made me sit down and ponder for a minute.
This sort of thing could be a hedge. It has traded in a range of $82 to right near $125 - but don't think its been straight up, because it most certainly has not. Indeed, last summer there was a big swoon - down to the $82 level.
Is this just a huge (5 million share) insurance policy? Or is someone with a lot of money who is sniffing around and not liking what they smell? Difficult to know... but $5m isn't money you throw down the toilet without a damn good reason.
Now there was also a lot of PUT interest traded today on the SPY May contracts. But this sort of activity isn't all that unusual on that issue - options on SPY are one of the most-heavily traded on the exchange, as its a very common leveraged play against declines - or advances - in the index.
The only other unusual traffic I saw was on the QQQQs - there was an awful lot of traffic there on both sides - but that may indicate a straddle being taken, as you could get a decent one centered around the $46 strike pretty reasonably. In fact, I might take one of those tomorrow..... you need a 4% move (in either direction) to make money on it, but if we get a big fat plunge (or a huge breakout) this would pay big.
I see a few other decent plays in the ETFs in the short term but I'm not going there for now. Nothing looked all that out of the ordinary - just the usual option speculation and hedging.
Now here's the other canary that may be about to keel over. That's the bond market. It looks to be heading in the tank. This is extremely bad, because a selloff in bonds leads to higher real interest rates, whether we like it or not! There is absolutely nothing that Bernacke can do about it either, because a price drop in existing bonds is beyond his ability to control through liquidity injection.
Rising real interest rates burn everyone equally. They dry up liquidity, perhaps very rapidly. They increase the cost of money already borrowed on anything adjustable, which is all your credit cards, adjustable HELOCs, adjustable mortgages, etc. It also hits corporate paper issuance and commercial construction.
This, on top of a weaker consumer, can easily tip the balance......
Oh, and let's not forget that CapEx - capital expenditures - has been strongly down of late. That's corporate spending - while its strong on outside-US expenditures, its definitely not inside the United States.
One data point on the other side, just to be balanced. Amazon just reported, and did very well. The only cautionary part of that number is that its very difficult to get a clean read on Amazon, as they continue to add new areas of merchandise and various affiliate deals (Amazon is not just books any more; you can now buy damn near anything through them, but the actual fulfillment isn't theirs - they just take a commission), so exactly how much of this is a broadening base and how much is organic growth is difficult to determine at this point. I will take a gander through the financials and see if I can get to the conference call this evening in the hopes of understanding how much of this is organic and how much of this is from spreading the "web" across more area. In any event this is good for their stock, but whether it means anything for the broader economy is far more difficult to call.
Caution remains advised, and if anything, the flashing yellow light is getting brighter and brighter - and more "in your face."
Discuss this entry (registration required to post)
