Stock market action finally became interesting for a change today, both on and beneath the surface. First of all, the SPOOs [S&P 500 index futures] were weak overnight, for no particular reason, though the mainstream media tried to make up several excuses ranging from Argentina's default, to new problems at Banco Espírito Santo, to a decline in Adidas shares, and finally — my favorite — the supposedly hawkish comments out of the FOMC (which could just as easily have been construed as dovish).
Follow the Bleeder
In other words, in my opinion, the market may (emphasis: may) have exhausted itself and is finally just ready to head lower. On the other hand, perhaps stocks lost ground because bonds were weak again and, more importantly, didn't really bounce much, even as the market lost over 2%. Stocks and bonds are rarely ever weak together in the modern era of activist central banks, but down the road we will eventually see that movie on a regular basis.
One stock I have had my eye on today is Micron Technology, which lost 5% thanks to Samsung boosting production. The reason that matters is because I like to use MU as a litmus test for what folks are willing to believe. Recently there has been the school of thought that there would be a new discipline in the memory food chain and too much capacity is a thing of the past. Never mind that SanDisk had to reduce its guidance when it reported as a consequence of already weak prices, though it laughably blamed its problems on not enough capacity.
Today's Special: Leg Up of Lam
The crosscurrent to Micron was Lam Research, an equipment supplier to the very same DRAM and flash memory industry, which initially rallied 7% (before closing just 3% higher) due to its success at the game of beat-the-number. If you ask me, much of the chip sector is a ticking time bomb due to weakening demand (read: saturation in many products, combined with weak worldwide GDP growth) and excess capacity. Nevertheless, I am hoping to buy puts on at least some of my targets before third-quarter earnings are released, assuming the action sets up the way I want it to.
As I noted, the early going today was different from what we've seen for quite some time. It is just one day, but perhaps it is a sign of exhaustion, though I don't want to make too much out of one day's action.
Turning back to the action, the "usual" afternoon rally was AWOL today and stocks were sold, instead losing 2% and closing on the low.
Miners Fly, But Not Like Agnico Eagle
Away from stocks, green paper was flat and fixed income was slightly weaker, even as stocks declined. (Meanwhile, the junk bond sector [HYG] continued its recent thrashing.) Gold and silver lost about 1%, but in the mining sector there were crosscurrents as well. Last night New Gold, Goldcorp, Agnico Eagle, Yamana, and Barrick all reported results, and in the aggregate they all looked pretty good. The trading in the miners was interesting today because most of the stocks behaved OK except for AEM, which fell 10%, I assume because it is expensive and has rallied so much in 2014 (i.e., it had likely attracted some hot momentum money).
Positions in stocks mentioned: long GG calls, long AEM, long AEM calls, long NGD, long NGD calls, long SNDK puts, short SNDK.
Related:
Axel Merk: Stocks Are In Bubble Territory – Central Banks Have Compressed Risk Premiums
