Melt Up Scenario

 Market Overview for 11/11:


Stocks eked out small gains yesterday on volume quite a bit lower than Monday. Typical for a Holiday session; Banks, institutions, and the Bond markets were closed. Stocks did extend all-time highs, with the Standard & Poor’s 500 Index advancing a fifth day, as gains in homebuilder shares helped offset losses among industrial companies. Remember the good showing of some Home Builder as well as construction ETFs on Friday (Weekend Warrior).

After the close, shares of Fossil Group (FOSL) shot up 15% on better-than-expected Q3 results, Better-than-expected quarterly results also boosted YY (YY), D.R. Horton DHI) rose 2% in heavy trading after reporting mixed quarterly results.

Sector & Asset Class Watch:

Screen Shot 2014-11-11 at 6.38.40 PMA quick look down column G (Year-to-Date) says that of the top 10 only two are not down on the year at this stage. A good deal of short covering and bottom picking going on. The bottom picking may work out over time, just too early to tell in my humble opinion.

Of the two up on the year (just barely though) the moves over the previous months worth of trading is what has brought them back to even:

Screen Shot 2014-11-11 at 6.45.10 PM


Interesting juncture, right at resistance defined by previous high points. However, note worthy is the relative out performance recently. Very tempting, you think? Also take a look at the relative strength rankings improving, from a month ago to two weeks ago to today. This could be a future leader.

Melt Up Scenario:

One of our members, on occasion, will forward me (a day or two late, probably to avoid terms of use), Jon Markman’s Strategic Advantage newsletter. Sometimes I feel it has more to say than I do and makes my day just a little bit easier 😉

Courtesy of Jon Markman Traders Advantage:

While it has become fashionable in some investment circles to pooh-pooh the fairly vertical ascent since mid-October, and argue in favor of a reversal and decline, I am not sure that is the right interpretation of events. It looks in many ways more like a classic “melt-up,” which is an often discussed but rarely witnessed market event that combines steady but unflashy short-covering and the enticement of investors on the sidelines with cash burning a hole in their pocket.
Have you ever been to a Vegas casino and stood on the perimeter of a hot craps table, where there are some handsome men and beautiful women throwing the dice and whooping and hollering as money is being won from thin air? You almost can’t help but stop and look, and perhaps even lay a chip on the Hard 8; it’s mesmerizing and thrilling, and can last much longer than probability theory would allow you to expect.
That’s part of the melt-up scenario, but in this case it is not gambling per se as investors are reacting to real-life phenomena that for some reason has not broken through sufficiently in the media — particularly since the meme that supposedly explains the GOP victory in the midterms is that the economy was “weak,” which is ridiculous.
Cornerstone Macro on Monday laid out the twin tailwinds for the United States in 2015, which I have been discussing here for a while: Lower commodity prices and lower short-term interest rates make the global reflation trade.
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Nancy Lazar, head economist and founder of Cornerstone, notes that “prior to every major upturn in U.S. and global economic activity, commodity prices and global short rates declined. So, these recent moves are very supportive of growth in 2015.” That’s her chart above.
She notes that on the commodity side:
  • Brent oil declined 2.9% week over week, and has plunged 27.5% from its June 2014 peak.
  • Gasoline futures prices declined 1.6% week/week, and have plunged 31.7% from June peak.
  • Ag and livestock prices fell 1.0% w/w, and are -18.2% from May 2014 peak.
On the global short rate side:
  • Developed world short rates (weighted by GDP) are down 18bp from April 2014 peak.
  • Emerging world short rates are down 41bp from their April 2014 peak.
  • Global short rates are down 18bp from their April 2014 peak.
Nancy, who is a very smart, nice, Wall Street pioneer and dynamo, goes on to argue that these tailwinds are particularly supportive of U.S. growth for 3 reasons:
  • U.S. households and small businesses have already cut their leverage significantly, e.g., private debt as a percentage of GDP has declined from 169% of GDP in 2009, to 144% in 2Q of 2014.
  • The U.S. banking system has recovered, and is working.
  • The U.S. has long-term drivers of growth, such as housing, capital spending and oil exploration and production.
  • And the outlook for the U.S. consumer is improving, with income gains accelerating. Lifted by a strong gain in the workweek and a solid gain in employment, nominal income probably rose a strong 0.6% month over month in October. The three-month average of real income has increased at a 4.6% annual rate, the fastest in 4 years, which is a good backdrop for consumer spending in the fourth quarter, particularly for holiday sales.

Today’s Reports and Earnings: (NYSE:WUBA), Beazer Homes (NYSE:BZH), Canadian Solar (NASDAQ:CSIQ), Cisco Systems (NASDAQ:CSCO), Dillard’s (NYSE:DDS), Macy’s (NYSE:M), NetApp (NASDAQ:NTAP), NetEase (NASDAQ:NTES) and WuXi PharmaTech (NYSE:WX) are among some notable companies reporting earnings Today.

Talking Points and Killing the Need for Passwords With Biometrics: 

Uber: Congress’ New Private Driver (HPS)
Best Business Schools 2014: By the Numbers (Business Week)
As oil prices drop, Wall Street takes one for the team (Fortune)
The 20-Year Bull Market (Crossing Wall Street)
A history lesson, and why Europe should try to be more Canadian (Cam Hui)
Rich people are splurging on million-dollar homes again. Here’s why. (Washington Post)
QE isn’t dying, it’s morphing (Nomi Prins)
Revenue Softness Worries Stock Investors (WSJ)
Charting a strong bull trend with room to run (Barron’s)
Dear Senator Ted Cruz, I’m going to explain to you how Net Neutrality ACTUALLY works (The Oatmeal)
Man and Uber Man (Vanity Fair)
Retirement Planning: Millennials vs. Boomers (Research Affiliates)
The Massive Economic Benefits Of Self-Driving Cars (Forbes)
Significance of Secular Market Should Not Be Underestimated (Washington Post)
The Stock Market Doesn’t Care About Elections (NYT)
Best Immigration Policy Is More Immigration (Bloomberg View)

Killing the Need for Passwords With Biometrics

Have a Great Day!