April Bull and Baird Blog

April 17, 2013

Equities start the day lower as the Great April Roller Coaster continues. Talk about a weird few days right? On Monday we melted down like Nazis staring at the Ark of the Covenant and on Tuesday we ripped like owning stocks reduces your waistline. Whoa, what the heck is going on here? Well I’ll tell you, because if there’s one thing you need in life it’s another guy who watches flashing numbers and acts like he knows everything. We’ve sauntered up to the cliff (the approach of what is normally a seasonal slowdown) and can’t decide whether to jump or stand our ground. Jumping would entail leaving the market and betting that another summer swoon is imminent. Standing your ground would be fading a typically strong seasonal trade and hoping to be out of consensus. Want further proof of that theory? Overnight there was speculation that Germany might catch a downgrade and that “story” sent the Dax (as well as most of Europe) screaming for cover. That’s the kind of stuff you would expect to see if the tug of war between jumpers and standers is ramping up. It has no basis, no substance, no attribution, yet it weakens the knees of one crowd and emboldens the other. The bigger problem is that this kind of price action typically isn’t good for a trend. Sustained uptrends don’t usually see pukes one day and miracle hangover cures the next so if you are in the standing crowd you best hope Big Thunder Mountain is coming to an end (man do I love that ride. Hearing my 5yr old girl scream with glee on it is like God whispering happiness into your ear).

After the open it was right back to Indiana Jones and the Negative PnL Crusade as we melted 1.2% in the first hour. One of the biggest losers was AAPL (-5.5%) after CRUS pre-annnounced negatively (makers of custom audio products that go into AAPL devices) and Digitimes warned on iPad mini shipments. Weird world for the big fruit. It currently trades at a lower valuation than DELL, whose main product (PCs) just showed the steepest decline ever for a single quarter. Not to mention its market cap is approaching 35% cash. The other big losers were earnings related (TXT -13%, BAC -5%) or tech related (CRUS -15%, TER -6%, MU -4.4%). By the way, a barrel of oil is down 11% since early April. That has to be a good thing for the bull view right? It’s not being talked about much with Gold and Copper being the soup du jour but input costs falling is always a welcome sign. The selling continued unabated thru lunch where we landed on 1,545, down 2%. Tug of war here people, 1,542 is going to be a major level to watch (the 50day MAVG, we haven’t traded below that all year). Can you believe all of that fits into one item now?
We managed to rally off the lunchtime low but didn’t get all that far. We closed at 1,551, down 1.4%, and we’ve now had 3 straight days of >1% moves. So here’s how I see it: the battle for the trend is officially on and you should probably let it play out before committing any troops. A break below the 50 day is a clean reversal and I’d probably need to see new highs to think everything is fine. I like commodities falling but I don’t like price action in bonds or stocks like GS (always a nice gauge of risk). Too many cross currents, no man’s land right now, stick with what you got and let’s wait for the signal. Final Score: Dow -94bps, S&P500 -143bps, Nasdaq -199bps, Rus2k -179bps.

News Highlights:  

• After hrs earnings movers: SCSS -8%, SNDK -5% (as of 4:15pmET)
• Beige book was out today and the Fed noted a housing improvement: “Residential real estate activity continued to improve in most Districts, and some Districts, including Cleveland, Richmond, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco, noted increased momentum since the last report” Still remains an important underpinning of the bull case.
• If you are a budding analyst, or a sucker for conference calls (I mean who isn’t), this website is for you!
Wonderfully well written article in the Guardian about Gold’s recent crash. This section is so good: “The great thing about the market is that it's usually very direct. The market is like that guy, sitting in his basement, watching sports on his 50-inch TV. He responds to direct inputs: food, touchdowns, homers, fumbles. To him, the long term goes as far as mourning if his favorite player is injured, because then the player can't be in games anymore. He does think about "fundamentals" like whether his team has the right lineup. But he doesn't often think really long term: it's nearly impossible for him to get distracted by worries about, say, whether steroid use is compromising the integrity of baseball or whether sports still represents the same values it once did. He is not introspective. The market is not capable of introspection. It is only capable of action: up, down or sideways. It doesn't go inward”
• If you are marketing shampoo how do you overcome this?
• I wish I could explain this chart. It feels like the economy is improving (looking at Transports and Housing) but 10yr yields never seem to lift. I’m sure the easy thing to say is “the Fed is the reason for both charts”
This is easily the best dinner table I’ve ever seen.
• So I found this great place for us to fly fish in the mountains. Peaceful, serene, great views. Oh make sure you bring an umbrella…
• Easily the worst news I’ve heard since Twinkies went under: Forget Gold, the Gourmet-Cupcake Market Is Crashing.
• All of a sudden I feel like the laziest, most out of shape person on the planet (I’m easily in the running)

We’ll end tonight with another one of those crazy wingsuit videos. This time it’s a guy flying thru a hole in a mountain. I can’t believe how dangerous this is, at one point he’s committed to flying thru it and nothing could possibly stop him if something went wrong. Breathtaking.

Have a good night.