Bill Cara’s Blog for Jul 9, 2012
CTA Trading Desk Morning Report
[7:00am ET] Good morning, Geoff here.
A trader needs to use his/her experience to anticipate the positioning of assets.
A trader needs to use price confirmation to position assets.
Those two statements are diametrically opposed but that is why trading is referred to as an art, not a science. Yes, there are firm trading rules based on mathematics, but sometimes experience can be just as valuable.
So, if you look back at my morning notes, you will see positive statements regarding energy and material stocks prior to their pop higher. I don’t like to give trading specifics on these pages but you could probably tell that we were adding to positions going into last weekend (Bill actually mentioned our relative weighting to the S&P 500 in his WIR 8 days ago and this prior weekend). Those positions had firm stops on them but those stops were not needed because the stocks popped.
Truth be told, I was feeling pretty darn good about those trades being placed in anticipation of the pop but before price had risen. That meant that we did not have to chase the trade as others had to.
However, within a few days, we had to go back to price confirmation as the US Dollar strongly reversed course. In the chart that I posted on Friday, I showed you how the dollar moved to new highs which turned our short-term “risk on” view on its head.
Yes, our long-term view is that central banks will do whatever is necessary (read; money printing) to stave off deflationary pressures and those actions will drive commodities and especially gold, higher. But, a rising dollar will place downside pressure on those same assets in the short-term. The same forces that may drive the dollar up and gold down in the short-term will drive the dollar down and gold up in the long-term which makes things difficult. The risk of getting kicked out of the long-term gold bull due to short-term drawdown concerns is rising. The same goes for the other commodity markets.
So; we could not ignore a new high in the dollar and had to pare back on the position sizing of those assets before the weekend in a short-term trade. Fortunately, by placing those trades early, we were taking gains and not losses but truth be told, I’m a little perturbed that the dollar threw a wrench in the trade – in the short-term at least.
With Spanish bond yields at roughly 7%, it is make or break time. If the sovereign debt vigilante shorts continue to win, the euro will fall and the dollar will rise – so, we had to be aware of that possibility and take our small profits off the table before they became losses.
Should those same sovereign debt shorts get squeezed out of their positions; the euro will rise leading the dollar to form a double top. In this case, we will move back to overweight various commodity producing stocks.
In other words; it’s all in the dollar.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||11.51 (0.59%)||Components, Chart, More|
||9.90 (0.45%)||Components, Chart, More|
||3.91 (0.12%)||Components, Chart, More|
||2.22 (0.03%)||Components, Chart, More|
||0.52 (0.17%)||Components, Chart, More|
|^OSEAX||OSE All Share||457.10
||0.24 (0.05%)||Components, Chart, More|
||0.47 (0.15%)||Components, Chart, More|
||12.37 (0.20%)||Components, Chart, More|
||13.29 (0.23%)||Components, Chart, More|
||18.00 (1.96%)||Chart, More|
||3.70 (0.26%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||651.98
||13.12 (2.05%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara 100 Company research notes from brokers
July 9, 2012
Bed Bath & Beyond(BBBY)
Credit Suisse report
OUTPERFORM G. Balter
CP: US$61.85, TP: US$91, CAP: US$14.4b
Investments, Cost Plus Should Regenerate Growth Back To Mid Teens; Lowering Estimates
We recently visited with BBBY, which allowed us to better appreciate what makes this retailer so dominant, and to understand how recent acquisitions fit into future growth while also reviewing near term challenges.
After a few years of above trend growth driven by competitive closings, strong product drivers and an improved consumer, we view the near term as a reinvestment period for better growth in 2013 and beyond. At 12x earnings, there is, we believe, good value in the name, as even in this slower year we envision double-digit growth.
What makes BBBY so successful? It is a combination of employee empowerment and a management not willing to rest on its laurels. This is a retailer that comes to market allowing the store manager to treat the store as their own, merchandising to the market. Combine that with a management team that assumes the worse each quarter, and one gets the success of
BBBY, a success unmatched by but a handful of retailers.
The investment issue is balancing that success with the challenge of the Internet. Specifically, can BBBY translate its unique customer service strengths to maintain above-average returns as more volume moves online?
Near term, we expect the lack of a visible hot product, investments to fight AMZN, and integration costs of recent acquisitions will limit earnings growth. That is reflected in the valuation. However, beginning with Q4, or possibly middle of next year, we see potential for midteens growth, which makes this quality retailer one of our favorite names to own. We are
lowering our ’12 estimates to $4.59 (from $4.67) to reflect purchase accounting amortization from Cost Plus as well as the inclusion of February for Cost Plus. We are lowering our F2013/F2014 EPS estimates to $5.30/$5.85 (from $5.34/$5.91).
Vad’s Catch of the Day
Kaimu’s Sound Money
Deron’s Daily ETF Analysis
From March through Late June of this year, the S&P Select Consumer Staples SPDR ETF (XLP) consolidated, forming a potential support base for a breakout. On June 29th, XLP broke out from this base to set a new 52 week high. Further, this breakout occurred on a substantial uptick in volume. Over the past two sessions, XLP has pulled back and could provide a buying opportunity on an undercut of its 10-day and/or 20-day moving averages. We are monitoring this ETF closely for the formation of a reversal candle that could serve as an entry pivot in XLP.
UNG reversed sharply on high volume yesterday and now appears in jeopardy of testing the June 28th swing low. Based on Friday’s poor performance, we are making a judgment call and exiting UNG at the market on the open. It’s always difficult to gauge market action when volume is light. Last week’s market action was further complicated by the holiday shortened trading week. Our market timing model still reflects a buy signal but we now need to see better price action from our open positions. Ultimately, in trading, price action is all that matters.
The commentary above is an excerpt from The Wagner Daily newsletter, which we have been publishing since 2002. Subscribers to the full version receive our exact entry and exit prices for swing trades of the top ETF and stock picks, access to our market timing model, and more. To get started today, sign up for your 30-day risk-free trial to our Wagner Daily stock newsletter or visit our trading blog to learn more about our proven technical trading strategy.
Cara on the Metalminers
Cara on the International Markets
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report