Professional Documents
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2011 04 19 - Earnings Beats Pair With Strong Eurozone PMI & Canadian CPI Data To Lift Risk Back Higher
2011 04 19 - Earnings Beats Pair With Strong Eurozone PMI & Canadian CPI Data To Lift Risk Back Higher
The
S&P
rallied
0.57%
on
the
day,
closing
at
its
HOD
and
looking
very
constructive.
As
I
mentioned,
the
bounce
off
of
the
100d
looks
quite
bullish
and
today’s
follow-‐through
from
yesterday’s
intraday
reversal
is
a
good
sign
for
risk.
The
1295-‐1300
level
that
marked
yesterday’s
low
looks
like
it
could
be
representing
the
shoulder
line
for
an
inverse
head
&
shoulders
development,
as
the
February
low
was
less
than
a
point
away
from
yesterday’s
pivot.
A
break
through
resistance
at
1340
would
confirm
the
pattern,
which
targets
S&P
1430,
almost
9%
higher
from
today’s
close.
With
earnings
season
starting,
there
are
plenty
of
catalysts
for
this
pattern
to
play
out
and
I
think
we
could
see
a
breakout
into
new
highs
by
mid
next
month.
A p r i l
1 9 ,
2 0 1 1 |
1
Manufacturing
data
out
of
the
Eurozone
today
showed
continued
improvement
this
month,
with
the
sub-‐index
up
to
57.5
vs
57.0
expected
and
the
composite
index
at
57.8
vs
57.0
expected.
The
data
release
early
this
morning
sent
EURUSD
rallying
off
the
lows
and
the
cross
didn’t
look
back
all
day,
up
about
130
pips
since
PMIs
came
out.
German
data
was
especially
strong,
with
April
manufacturing
PMI
coming
in
at
61.7
vs
60.0
expected,
up
0.8
from
last
month.
Despite
weakness
in
the
services
data,
the
strength
of
the
manufacturing
figures
relieved
concerns
of
an
imminent
slowdown
as
the
boost
to
exports
from
crisis-‐level
EURUSD
starts
to
give
way
for
more
normalized
exchange
rate-‐based
conditions.
I
continue
to
be
bearish
on
the
Eurozone
on
a
longer
term
horizon,
but
given
the
tailwinds
to
risk
and
inflation
pressures
popping
up
in
commodities,
I
think
USD
will
continue
being
sold
for
the
time
being
and
EUR
has
a
lot
to
benefit
from
that.
The
Fed
is
not
going
to
be
hiking
anytime
soon
(a
third
of
investors
and
economists
recently
polled
by
Bloomberg
think
QE3
is
happening,
in
fact—
though
I
disagree),
while
the
ECB
is
one
of
the
more
vocally
hawkish
CBs
right
now,
and
its
effect
on
rate
differentials
is
very
supportive
for
the
euro.
Coming
out
of
a
crisis,
“policy
arbitrage”
is
a
great
strategy
to
employ
in
macro,
as
the
crisis
sets
a
new
baseline
interest
rate
regime
all
over
the
world,
but
the
different
times
it
takes
for
different
central
banks
to
begin
hiking
again
sets
up
big
opportunities
in
carry
trading
due
to
widening
rate
spreads
between
opposite
policy
CBs.
I
think
rates
should
continue
to
drive
EURUSD
higher
for
the
near
future,
and
the
recent
breakout
through
(and
yesterday’s
successful
retest
of)
the
1.42-‐1.43
level
is
bullish
from
a
technical
standpoint.
I
remain
long
EUR
vs
USD
&
JPY
and
holding.
Meanwhile,
USDJPY
has
retraced
almost
four
big
figs
this
month
after
an
almost
1000
pip
rally
sparked
by
the
Bank
of
Japan’s
new
liquidity
injections.
I
noted
yesterday
that
the
155d
could
provide
a
zone
for
USDJPY
to
bounce
off
of,
after
being
the
S/R
level
that
the
February
&
March
highs
sold
off
from.
It
is
currently
bouncing
off
of
the
38.2%
Fibo
retracement
from
recent
cycle
highs,
and
with
risk
assets
looking
bullish,
JPY
could
see
a
lot
more
selling
pressure.
Not
to
mention
the
Bank
of
Japan
has
given
the
all-‐clear
for
injecting
as
much
as
liquidity
as
is
needed
to
prevent
the
yen
from
surging,
especially
as
March
exports
saw
a
2.2%
decline,
which
was
double
the
contraction
the
consensus
expected.
USDJPY
78-‐80
is
definitely
the
line
in
the
sand,
as
it
marked
a
significant
low
back
in
1995,
and
a
very
similar
sharp
hammer
off
of
that
level
marks
the
low
USDJPY
has
rallied
from
since
last
month.
If
history
repeats
itself,
USDJPY
will
be
breaking
back
out
of
its
consolidation
by
next
month.
A p r i l
1 9 ,
2 0 1 1 |
2
Since
S&P
cut
the
US’s
AAA
rating
outlook
to
negative
watch
yesterday,
the
UST
market
has
actually
rallied,
but
this
may
not
be
as
counterintuitive
as
it
seems.
After
all,
S&P
did
the
same
thing
during
Clinton’s
administration
during
a
budget
impasse,
and
although
nowadays
structural
concerns
weigh
on
US
creditworthiness
just
as
much
as
more
acute
political
factors,
I
think
the
reaction
to
the
news
may
have
been
a
bit
overblown.
After
all,
ratings
agencies
tend
to
be
lagging
indicators
more
than
anything
else.
The
S&P
news
adds
little
new
to
digest
and
the
long-‐term
unsustainability
of
the
current
US
debt
trajectory
is
not
only
widely
acknowledged,
but
is
now
becoming
a
central
political
issue
that
will
likely
be
a
big
factor
in
2012
elections.
Curve
steepeners
have
outperformed
since
the
headline
hit
the
wires,
likely
due
to
the
spiked
political
environment,
which
could
lead
to
further
near-‐term
fiscal
consolidation
and
dampers
to
growth.
However,
I
think
the
biggest
driving
force
behind
US
rates
is
the
Fed.
And
with
the
Fed
having
yet
to
suggest
any
continuation
of
QE
past
this
iteration’s
completion
in
June,
I
doubt
we
will
see
QE3,
at
least
anytime
soon.
I
do
think
rates
stay
low
through
this
year
and
most
(if
not
all)
of
next,
but
if
we
see
any
more
all-‐out
quantitative
easing,
I
don’t
think
it
will
be
unless
we
see
dramatic
risks
to
growth
and
not
until
mid-‐
to
late
2012.
Since
2008,
the
Fed
has
telegraphed
its
policy
actions
very
blatantly
and
has
allowed
the
entire
investment
community
to
load
the
boat
with
USTs
ahead
of
the
implicit
at-‐any-‐price
QE
bid,
as
well
as
offload
the
same
govys
back
to
the
Fed
during
the
actual
easing.
This
time
around,
assuming
no
surprise
QE3
this
year,
there
is
no
bid
to
front-‐run
and
I
think
US
yields
could
head
much
higher,
especially
in
the
back
end
of
the
curve.
This
could
be
supportive
of
risk,
especially
because
one
of
the
few
USD
crosses
that
would
rally
on
higher
US
rates
would
be
USDJPY
(due
to
BoJ
being
the
only
competition
to
the
Fed
on
low
rates)
and
a
declining
yen
always
helps
to
support
risk
with
some
carry
funding.
Expect
more
steepening
unless
and
until
we
see
some
risk
aversion.
A p r i l
1 9 ,
2 0 1 1 |
3
One
risk
asset
I
am
getting
bearish
on,
at
least
on
a
relative
basis,
is
copper.
Chinese
property
prices
are
finally
showing
some
MoM
declines,
with
Beijing
residential
real
estate
price
growth
cut
by
a
quarter
in
March.
Regular
readers
will
know
I
am
bearish
on
Chinese
property
and
consequently
the
commodities
that
are
involved
in
China’s
property
boom,
like
copper.
Just
last
week,
Chinese
CPI
came
in
at
5.1%
YoY,
and
the
PBoC
has
signalled
more
tightening
ahead,
which
will
likely
be
the
catalyst
for
property
prices
to
begin
their
long
descent,
in
my
opinion.
As
the
new
Five
Year
Plan
begins,
with
domesticizing
consumption
at
the
top
of
the
checklist,
further
fixed
asset
investment
growth
and
money
supply
growth
will
be
muted,
if
not
reversed,
and
there’s
just
no
way
to
continue
this
credit
boom
without
sacrificing
the
consumption
power
of
the
Chinese
households.
There
is
a
very
significant
precedent
to
China’s
$3t
in
FX
reserves
and
30%
consumption
share
of
GDP:
1980s
Japan,
which
had
a
similar
reserves
size
to
global
GDP
and
household
consumption
contribution
to
GDP.
Not
to
mention,
the
1920s
US
also
had
a
similar
cache
of
reserves.
Both
Japan
and
America
were
bubbles
in
those
respective
time
periods,
and
both
crashed.
Turning
back
to
copper,
however,
it
is
interesting
to
note
that
after
a
meteoric
rally
in
2009,
led
mainly
by
China’s
massive
late
2008
stimulus
package
(as
well
as
overarching
risk
appetite
thanks
to
QE1),
copper
spent
most
of
the
first
half
of
2010
chopping
sideways,
until
QE2
led
to
a
sharp
rally
to
new
highs.
However,
now
we
have
a
much
different
scenario,
as
China
is
on
a
rather
dramatic
tightening
campaign
and
QE3
seems
very
unlikely.
I
think
copper
could
be
one
of
the
big
underperformers
this
year
in
commodities
space,
and
although
it
is
too
early
to
try
to
call
a
top,
I’m
watching
for
a
break
of
the
channel
support
trendline
below
to
trigger
a
short
entry
for
me.
The
key
level
in
the
grand
scheme
of
things
is
likely
the
$3.60-‐$3.65/lb
zone,
a
breakdown
through
which
would
be
a
very
bearish
signal
to
me.
Such
a
breakdown
would
have
reversed
the
entire
QE2
breakout
in
copper
prices,
and
will
likely
see
some
high
volume
shorting
from
my
PA.
A p r i l
1 9 ,
2 0 1 1 |
4
Moving
over
to
precious
metals,
silver
continues
its
meteoric
surge
that
was
sparked
all
the
way
back
during
last
summer’s
Jackson
Hole
speech
by
Bernanke,
which
was
the
big
telegraphing
of
QE2.
I
have
written
extensively
about
the
merits
of
gold
and
silver
during
one
of
the
most
uncertain
sovereign
credit
environments
in
recent
memory,
and
although
I
continue
to
like
gold
at
current
levels,
I
think
silver
is
at
risk
for
a
sharp
correction
eventually.
Silver
stocks
are
already
lagging,
in
fact,
which
is
a
bearish
divergence.
EM
tightening
will
be
a
big
factor
regarding
this,
especially
as
silver
has
much
higher
industrial
sensitivity
than
gold.
Furthermore,
as
the
chart
below
of
the
silver
ETF
SLV
shows,
we
are
now
on
the
third
consecutive
support
trendline
of
higher
slope,
which
is
an
acceleration
that
usually
ends
in
a
sharp
reversal.
I
was
bearish
energy
&
commodities
in
the
summer
of
2008
for
this
exact
reason.
Contributor
Aaron
Murphy
also
sees
worrying
technicals
in
silver’s
chart,
comparing
it
to
the
mechanics
of
a
rally
during
the
dotcom
bubble.
He
also
employs
trendline
slope
analysis
in
drawing
his
conclusions.
A p r i l
1 9 ,
2 0 1 1 |
5
Turning
over
to
equity,
I
mentioned
yesterday
that
I
liked
cloudtech
a
lot
at
current
levels
and
today
VMware’s
after-‐hours
earnings
beat
provided
some
vindication.
VMW’s
Q1
profit
jumped
60%
YoY
and
its
Q2
guidance
also
exceeded
consensus
estimates.
The
stock
was
trading
up
12.48%
after-‐hours
and
will
likely
break
out
to
new
highs
in
the
next
few
weeks
in
my
opinion.
I
also
mentioned
AAPL
in
yesterday’s
note,
as
the
strong
reversal
hammer
right
off
of
the
115d
on
high
volume
seemed
especially
bullish
to
me.
Sure
enough,
AAPL
followed
through
with
another
1.81%
in
gains
today
and
looks
poised
to
make
a
run
for
$400.
The
155d
is
a
great
moving
average
to
use
for
context
on
Apple’s
chart,
and
it
provided
significant
support
and
a
terrific
buy
point
last
August,
marking
the
cycle
low
before
a
50%+
rally
over
the
next
six
months.
NFLX
is
another
monster
stock
I’m
long
and
continue
to
be
bullish
on.
It
has
been
making
a
terrific
base
since
mid
February
and
is
now
poised
for
a
breakout
attempt
through
$250.
A
successful
rally
through
that
level
should
send
the
stock
to
$300
in
no
time,
in
my
opinion.
NFLX
is
a
great
chart
and
the
mini
cup
&
handle
base
it
has
been
making
is
very
constructive.
A p r i l
1 9 ,
2 0 1 1 |
6
Back
to
cloud
names,
Rackspace
is
one
of
my
favorite
cloud
stocks,
given
its
dominance
in
cloud
storage,
and
its
chart
is
backing
up
the
thesis
with
very
bullish
technical.
Since
breaking
out
late
last
month,
RAX
has
been
basing
in
a
tight
consolidation
and
now
looks
poised
to
continue
its
march
higher.
A
breakout
through
$45
could
send
it
to
$55+
quickly,
and
I
expect
much
higher
prices
than
that
over
the
course
of
the
next
two
years.
Amazon’s
push
toward
music
cloud
lockers
will
lead
to
inevitable
competing
products
from
Apple
&
Google,
and
my
expectation
for
a
revamp
in
software
this
summer
from
Apple
(including
for
iTunes)
leads
me
to
believe
cloud
storage
will
go
mainstream
by
the
end
of
the
year
and
(in
my
personal
opinion)
setting
off
a
bubble.
As
great
as
tech
(both
large-‐
and
small-‐cap)
looks
to
me
right
now,
commodity
plays
are
where
the
trading
volume
has
been
in
equity
over
the
past
couple
months.
Natgas
is
making
a
serious
bottoming
push,
as
it
approaches
the
apex
of
a
massive
triangle
it
has
been
building
since
the
2008
crash.
As
I’ve
noted
in
previous
pieces,
multi-‐year
post-‐crash
consolidations
rarely
resolve
to
the
downside,
especially
after
a
crash
like
2008’s,
which
led
to
several
paradigm
shifts
in
the
investment
community.
With
oil
prices
creeping
up
and
natgas
benefitting
from
some
good
substitution
power,
I
like
the
commodity
and
am
bullish
stocks
connected
to
it,
particularly
Sandridge
Energy.
SD
has
already
risen
dramatically,
more
than
tripling
since
last
summer,
but
if
natgas
is
bottoming
out,
SD
has
a
lot
more
room
to
run.
After
correcting
in
a
sideways
base
since
the
Japanese
earthquake,
the
stock
looks
ready
for
primetime
again
as
it
bounces
off
of
its
55d.
A
break
through
$14-‐15
should
send
it
much
higher.
A p r i l
1 9 ,
2 0 1 1 |
7
Ferts
are
also
looking
bullish
here,
and
the
ags
ETF
MOO
appears
to
be
making
a
nice
inverted
head
&
shoulders
pattern.
It
is
important
to
remember
that
although
China
and
much
of
EM
are
hiking
(some
dramatically),
food
and
energy
tend
to
be
some
of
the
most
demand-‐inelastic
items
in
the
world,
particularly
in
countries
that
import
most
of
their
food
&
energy
(like
China).
As
such,
commodities
like
silver
and
copper
are
likely
more
at
risk
of
tightening-‐induced
selloffs
than
ags
and
energy.
POT,
one
of
the
biggest
names
in
ferts
space,
looks
especially
bullish
here.
After
breaking
out
through
the
very
significant
$50
level
at
the
beginning
of
this
year,
POT
has
bounced
around,
consolidating
its
late
2010
gains,
and
successfully
retested
that
breakout
level.
The
retest
showed
a
strong
hammer
reversal,
right
off
of
the
155d
once
again
(like
AAPL),
and
after
today’s
big
4%
rally,
the
cycle
low
appears
to
be
in
and
the
triangle
consolidation
seems
ready
for
resolution
to
the
upside.
Rounding
things
out
in
equity
space,
I
refer
back
to
the
cloud
stocks,
specifically
VirnetX,
which
provides
real-‐time
communications
services
across
multiple
platforms.
This
is
a
classic
“bubble”
stock,
rich
in
valuation
and
expectations,
but
as
I’ve
said
before,
I
think
the
cloud
bubble
is
just
beginning
and
won’t
really
take
off
until
later
this
year.
In
the
meantime,
VHC
has
a
terrific
chart
and
since
breaking
through
significant
long-‐term
resistance
at
$20
early
this
month,
it
has
retested
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the
level
and
found
a
nice
bid
there.
Today
brought
a
12.41%
rally
in
the
stock
on
strong
volume,
and
it
looks
poised
to
attempt
another
breakout
to
new
highs
soon.
I
think
this
could
be
a
real
high-‐flier
if
my
bubble
predictions
turn
out
correct,
and
I’d
be
a
buyer
even
if
I
didn’t
think
cloudtech
was
ready
for
a
massive
(albeit
unsustainable)
run-‐up.
From
a
technical
perspective,
I
see
$30
in
the
cards
soon
for
this
stock,
and
eventually
$40-‐45
this
year.
On
the
following
page
is
an
updated
trades
&
positions
sheet.
Because
the
majority
of
the
top
half
is
comprised
of
trades
left
over
from
earlier
(before
I
took
a
hiatus
from
my
commentaries)
that
were
not
stopped
out,
there
is
an
artificial
appearance
of
a
very
high
hit
rate
in
my
trades.
It
is
important
to
remember
that
trades
that
are
stopped
out
are
removed
from
the
sheet,
so
it
is
only
as
good
as
the
positions
Mr.
Market
doesn’t
stop
me
out
of.
With
that
said,
I
think
readers
will
be
pleasantly
surprised
to
see
how
the
positions
(if
any)
they
took
from
my
commentaries
are
doing,
particularly
in
stocks
like
AMRN,
TITN,
&
SINA.
Readers
will
also
likely
be
surprised
at
the
very
net-‐
long
nature
of
current
holdings,
as
well
as
the
high
number
of
equity
positions
(as
opposed
to
my
bread
and
butter,
FX).
The
charts
are
only
letting
me
get
long
at
this
point,
and
the
few
names
that
I
do
short
keep
getting
stopped
out.
Tomorrow brings:
• March
German
PPI
(2:00am:
6.6%
consensus
vs
6.4%
prior
–
YoY)
• Bank
of
England
Minutes
(4:30am)
• March
US
existing
home
sales
(10:00am:
2.5%
consensus
vs
-‐9.6%
prior
–
MoM)
• US
crude
oil
inventories
(10:30am)
• Q1
Australian
PPI
(9:30pm:
1.0%
consensus
vs
0.1%
prior
–
QoQ)
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Trades
&
Positions
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10
Trades
&
Positions
(cont’d)
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