Rosenberg Takes Other Side of Abby Joseph Cohen's Call (Bear Market Rally)

David Rosenberg (former Merrill economist, now at Gluskin Sheff) was featured on Fast Money taking the other side of Abby Joseph Cohen's bullish call. He believes "we may be in the midst of the mother of all bear market rallies" (quoted by Melissa Lee). Like Denninger he mentioned the 2002 inventory build.
"If I remember correctly in the opening months of 2002, under similar, not the same but similar circumstances, which was an inventory build that we know in 2002 was never backed up by an improvement in consumer demand which was why GDP growth by the end of 2002 was 0, and the stock market surprisingly hit its lows....."

Abby Cohen: In a New Bull Market, Sees 1050-1100 Target on S&P

What financial collapse six months ago?? Erase that from your head. The economy now runs on the reflexivity of market prices. Today on CNBC Abbey Joseph Cohen, investment strategist at Goldman Sachs, told viewers that we are in a new bull market and that the recession could have ended in March, exactly when the market bottomed. She also expects to see the S&P to hit 1050-1110 by year end and a stair-step recovery (slow, not V shaped). She likes tech, energy and financials (why not, Gov subsidized balance sheets w/ free steep spread income?). Full Story at CNBC.com.

Gold Spot Eyeing $1,000, GLD at Inflection Point (2 Year Chart)

Traders have a big decision to make on the price of gold here... $GLD is forming a symmetrical triangle formation which means judgment day is approaching. Below is the 2 year chart and the Gold/US Dollar relationship. Since May, Gold and the US Dollar moved inversely (gold up, dollar down) once the safe have bid collapsed and fiat-flationary forces took hold. If deflationary pressures continue with low inflation expectations and decent real yields, Gold's time to shine above $1,000 might be on hold. However if this new bull market (according to Abbey Joseph Cohen) puts pressure on prices or expectations going forward, Gold would probably be a great hedge. Remember that monetary policy could also throw the currency markets a curve ball. Rates have nowhere to go but up. Watch to see if Gold gathers momentum and breaks through resistance. I'd wait for the set up to play this on the long side with put protection, or vice-versa (short). Or as BNY Convergex Group says, buy options on gold as volatility increases (chart below). No recommendation. Watch the chart.

SLV SEP $14 Puts Active, 20,000 Contracts

Wow h/t CrimsonMind. After I saw that GLD DEC 75-85 Put spread I checked out Crimson Mind and saw that 20,000 $14 SLV Puts traded at 0.50 with 628 open. $SLV is currently at $14.49. This could be a quick flip or a massive hedge on a long position. Either way watch for a move in $SLV, and the $14 level.

GLD Dec OTM 75-85 Put Spread, GDX Dec 45 Call Active

**Updated w/ GDX call activity

GLD is at an inflection point on the 2 year chart. It looks like someone initiated a Dec 75 - 85 put spread today and it is trading at $94.66. Is someone hedging there? At 2:30 1 million shares hit on $GLD raising it from $94 to $95 in a minute so something is up. Looking at the Gold Miners ETF ($GDX), 22,000 DEC $45 calls traded at $2.80 with 1,324 open and GDX closed at 40.85. Option activity is all over the place. Here's a good explanation: Gold GLD ETF implied volatility to rise (Forbes).

Economic Update From The Shed (Aug 5)

FYI, new video out from WalStreetPro2... Parental advisory explicit content.
"The *** recession's over huh? That's why 39 million people got food stamps in June, which is up 20% from just a year ago. Oh everything's ok though. People on food stamps is part of the economic recovery, you know?"

Jefferson County Volatility, Interest Rate Swaps to National Guard

This report comes to you from the DV muni bond division. Municipal volatility continues in Jefferson County, Alabama. See other municipal posts at the bottom.

If you remember this post from late 2008, Jefferson County was hit hard by a bunch of external forces that ruined them financially (auction rate security freeze, rate spike, recession, downgrades, interest rate swap default etc). To this day they are trying to stay out of bankruptcy with $3.9 Billion of sewer debt they are unable to service. Bond insurers are also threatening to sue the County for failing to disclose pertinent financial information on the 2003 sewer "refunding" deals (Bond Buyer). S&P is threatening to downgrade their sewer revenue bonds to default if they fail to pay principal or interest (WSJ). It seems like they are already insolvent..

SPX Relative Strength index, Chaikin Money Flow At October 2006 Levels (8/09)

Here is a closer look at technicals on the $SPX continued from the ETFs Above 70 RSI post. The Relative Strength Index (RSI) and Chaikin Money Flow oscillator are hitting highs not seen since October 2006 on the S&P. The CMF oscillator measures the strength of the accumulation/distribution line. For a better explanation visit Stockcharts.com Chart School: CMF.

From the chart below you can see that once the head and shoulders breakdown failed, traders and investors rushed into the S&P 500. The RSI, CMF and volume all made strong moves..

SPX (S&P 500) 3 Year Chart (Stockcharts.com)

Related:
Nasdaq Volume Highest Since Oct 2008 ($COMPQ) (June 23, 2009)

ETFs Above 70 RSI: SPY, DIA, QQQQ, RUT, XLF, XHB, IYR, KRE, HYG (Aug 4)

There are a few ETFs trading above 70 on the RSI (relative strength index). ETFs I included below are SPY (S&P 500 SPDRs), QQQQ (Nasdaq 100 Trust), RUT (Russell 2000 Index), DIA (Dow Diamonds Fund ETF), HYG (iShares iBoxx High Yield Corporate Bond) XLF (Financial Select Sector SPDR), KRE (SPDR KBW Regional Banking), IYR (iShares Dow Jones US Real Estate) and XHB (SPDR S&P Homebuilders).

Relative strength could overshoot and/or prices could move higher while strength declines, that would be the negative divergence to look out for. The RSI should also dip below 70 for confirmation. For more information on the RSI (relative strength index) Stockcharts.com and Investopedia have information. Here are chart snapshots you can find at Stockcharts.com. Also watch that 38.2% Fibonacci retracement level on the $SPX at 1,014.

XHB Dec Call Option Up 30 Percent In Eleven Days, RSI Alert

The $XHB DEC 16 Call was active again today with over 30,000 contracts traded. If you remember my post on July 27 I wrote that 42,000 calls traded at the DEC $16 strike. To be exact 39,864 XHB Dec 16 Calls traded at 0.575. OptionMonster mentioned that it could have been a "ratio trade".

On August 3, 30,000 contracts hit the bid at 0.75 with 85,243 open (ht crimson mind). If a hedge fund bought 30,000 contracts at 0.575 and flipped it at 0.75 eleven days later that is a 30% profit, or $525,000. This is assuming the trade was solely speculative based on the price and volume. It could have been new money or part of a spread.

Denninger Looks Back At 2001 Bear Market Rally, Inventory Drawdown (CNBC)

On July 31, Karl Denninger (market-ticker.org) was featured on Dennis Kneale's show on CNBC. He first discussed the Q2 GDP number. He then talked about the 2001 bear market rally where hope led to 30% losses from the peak. The 2001 bear market rally was fueled by an unexpected drawdown in business inventories. The most recent GDP report showed a record decline in inventories (economist reactions).. Will we see a 2002 redux? I provided the change in private inventories chart below from the St. Louis Fed. Look at the massive decline. Denninger and others believe this will lead to higher Q3 GDP. It will be interesting to see how the supply/demand equation plays out and if the replenishment overshoots.

Pimcos El-Erian: July Stock Rally Sugar High Built On Assumptions, Sees 2% GDP

When the bond guys start making calls on equities, something has to give here. Pimco's Mohamed El-Erian, who manages $750 billion in bonds with Bill Gross, believes the July stock market rally was built on assumptions and on a sugar high. The Nasdaq is up 57% from the March lows and continued to rise with the better than expected Q2 GDP number.
"So as investment guys we look at the rally in equities, especially what happened in July, and you get a feeling that the equity market is now on a sugar high. Assumptions are being made, assumptions are being made on things like.. corporate profitability can continue to be driven just by cost cutting, that's not true you need revenue growth. Assumptions are being made that the stimulus is going to have a permanent affect, that's not true just look at what happened in China today. The Chinese equity market was down 5% on talk that some of the stimulus may be withdrawn. And finally an assumption is being made that the stabilization of housing is sufficient to get this economy going again. It's not sufficient, it's necessary but it's not sufficient. So our feeling is that the July part of the rally was a bit of a sugar high"

Skyworks (SWKS): Smartphone Growth, Aug Call Option Up 740% Since Feb

SWKS is up 140% since we covered it in early February and currently trading at $12/share. Skyworks builds wireless semiconductor solutions (power amplifiers, front end modules, RF subsystems, diodes) for devices across different markets (smart phones, handsets, infrastructure, wimax, rfid, automotive, medical etc. skyworksinc.com). They continue to capitalize on the high-end smart phone trend with Samsung, Sony Ericsson, Motorola and LG all 10% customers (Nokia in the high single digits)-Q3 call.

Revisiting Arbinet Corp, Broke Above $2.0 (Small Cap $ARBX)

Sometimes DV looks at illiquid small cap stocks and analyzes price valuation comparables and historicals. More often during times of growth and small cap buyouts (2005) with ThinkOrSwim Group the lonely exception (analysis pre-2008 TD Ameritrade buyout). Full disclosure I do not own ARBX. I've been watching this stock tank since the IPO. I'm revisiting Arbinet Corp after this post on April 3. Arbinet is a global telecom minutes exchange and call router. From their company overview:
"Arbinet is a leading provider of innovative voice and IP solutions empowering communications companies to create the most efficient and valuable global interconnections. Arbinet manages business relationships, backoffice operations and call routing for Members who route through Arbinet approximately 2% of the world’s international voice traffic to more than 1,300 destinations worldwide." Arbinet.com.

Recession Is Over According To Newsweek, Obama Responds

The cover of Newsweek.... Get your party hats on. Barack Obama responded to this Newsweek article during a speech in Raleigh, North Carolina (video below).


"The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims...... Read full article"