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ramifications if long-end USTs begin a downtrend, especially


considering the marginal foreign buyer seems to have
disappeared for now (save for a few hedgie proxies out in the
MARKET COMMENTARY BY NAUFAL SANAULLAH
Caribbean).

Monday, October 18, 2010

After-hours theatrics from Jobs & co

Lazy Monday today as the only significant dataflow to


mention was the US September IP figure, coming in at -20bps
vs +20bps consensus, although that didn’t stop equities from
rallying another 70bps. After-hours, however, Apple guided
below consensus and announced mediocre iPad sales figures,
13% below expectations. Margins underperformed and,
combined with the undercutting EPS forecast but slightly
above-consensus top-line guidance, they don’t look to be Global currency shifts continue heating up as Asian/emerging
improving soon. Unsurprisingly (and as has been mentioned CBs soak up USDs to depreciate their currency, but
in ShadowCap pieces prior), competition from Android- consequently driving down real yields, pushing UST QE on the
equipped smartphones was a big catalyst. The earnings back of MBS prepayments as increasingly likely (an
report sent AAPL nosediving 6% AH and indices following suit. approximately 150% chance of QE 2.0 is priced in at this
point), driving USD down further. As noted in the last two
The S&P rallied 0.70% today and remains stuck in its 1162-
pieces, however, the DXY seems to have hit significant
1181 range, while the diamond/symmetrical triangle pattern
technical support and if the posturing (and real
continues targeting April highs. We are approaching a
interventionism) from emerging CBs continues, the whole
55d/200d bullish cross in the e-mini futs, although July’s
situation could hit a breaking point soon.
bearish “death cross” called the low almost to the day, so it
will be interesting to see if there’s a contrarian signal Brazil in particular is making moves to slow appreciation,
developing in these trend-heavy DMA crosses. I remain while the MAS tightened on the back of a 19.8% decline in
neutral on equity for now (although the uptrend has me Singapore real GDP sequentially. At this point I’m looking for
buying on dips if a gun is put to my head) but may be a canary in the coalmine to get short the BRIC/emerging
tempted to dabble short if we break into the 1150s, although trade, and my eyes will be on China in the event CNY starts
1150 support looms right below. Below 1150 I’m short, above selling down, though it is very unlikely in the near-term (all of
1181 I’m back to long in the near-term. this would be bullish MXP).

Chinese property prices continue higher, but AUDUSD is


finally finding some selling and my short is paying off (for
now). I still see it about 200 pips rich in the near-term but
without a significant catalyst out of China, I don’t see the big
long-due mean-reversion anytime soon in Aussie dollar.

Triangle pattern developing in long bonds, as today saw more


long-end steepening even after supply has been digested.
30yr yields corrected a bit back down, but the volume in 30yr
bond futures (as well as ETFs like TBT) suggests this is a dead
cat bounce and the 10s30s steepener trade is on. Obviously
very significant global economic (if not geopolitical)
EURUSD is down another 50 pips today, and I am maintaining
my top call in this cross, although sizable selloffs may not
occur until we see some trend consolidation and reversion.
Once euro dips back into the 1.37 handle, people may start
watching the selloff a bit more closely. A sooner-rather-than-
later move down to these levels would be quite bearish
considering current positioning. I remain short EURUSD and
long French strikes.

Had a nice talk with a buddy of mine over at Goldman’s SSG


desk, both of us extolling the virtues of getting long non-
growth blue chips as dividend yield spreads to recent
borrowing costs scream equity value as long as cash flow
streams stay up. Sharp readers may have noticed that theme
behind my MSFT buy noted last night. Food for thought, even
if most of it is stolen from the conversation and thus second-
hand thesis-izing.

Contrarian chart enthusiasts may be getting encouraged into


In equity, besides the AAPL news that sent the Nazzy down a the bearish PM trade after today, with volume lagging on the
full percent after-hours, it was a pretty boring day except for bounce post-high volume selloff. My repeated drivel
Capital One dominating consensus earnings, as well as my regarding the USD/gold & silver connection remains my
short position, after-hours. VMW down sizably AH should also thesis, and I remain short silver futs even after today’s bullish
weigh down on techs with AAPL. In the meantime, I got long a hammer reversal. A selloff down to 19.50 is not out of the
few nice charts (a couple with some good fundies to back question (although neither is a rally up to 40+ in the longer-
them) to get my equity beta on. My favorite of the three is term).
Veeco, the quickly growing LED maker that Kovner added a
5%+ stake in about a month back.

Of course, all that really matters is King Dollar, so for your


perusing/enjoyment/humorous-merriment-at-the-expense-
of-the-middle-class…
Short /ZB | 133’24 | stop 135’15 | +2’26
Short BAC | 13.32 | stop 13.75 | +7.36%
Short WFC | 26.00 | stop 27.00 | +4.35%
Short ISRG | 285.10 | stop 295.00 | -0.17%
Short BLK | 179.89 | stop 182.20 | +1.88%
Short COF | 40.04 | stop 41.20 | +7.02%
Short VMW | 80.00 | 83.20 | +2.06%
Short PNC | 51.94 | stop 53.75 | -2.06%
Short AKS | 14.20 | stop 14.95 | +0.85%
Short EUR/SGD | 1.8220 | stop 1.8330 | +100 pips
Short GBP/SGD | 2.0740 | stop 2.0900 | +15 pips
How can you not be near-term bullish this chart? (Besides the Short GE | 16.73 | stop 17.50 | +2.87%
whole ZIRP-plus-QE thing; consider it the status quo of the Short /SI | 24.30 | stop 25.10 | +0.00%
future). Long MSFT | 25.40 | stop 25.00 | +1.65%
Long AMZN | 159.10 | stop 152.00 | +2.80%
And last but not least, got long some cattle futures (chart play Short EUR/USD | 1.4060 | stop 1.4210 | +145 pips
+ uniquely expressive diatribe against the stronger-willed Short AUD/USD | 0.9935 | stop 1.0005 | +60 pips
vegan community) and USDJPY (technically extended and Short AUD/SGD | 1.2865 | stop 1.2955 | +0 pips
fundamentally approaching a turning point) today. Short NZD/USD | 0.7575 | stop 0.7610 | +40 pips
Long EUR/NZD | 1.8530 | stop 1.8300 | -45 pips
Short CAD/CHF | 0.9500 | stop 0.9610 | +105 pips
Short EUR/CHF | 1.3435 | stop 1.3510 | +85 pips
Long ZSL | 17.58 | stop 17.15 | -1.48%

NEW TRADES

Long MIPS | 9.90 | stop 8.90


Long VECO | 39.00 | stop 36.30
Long JCP | 32.55 | stop 31.85
Long /LE | 100.51 | stop 99.50
Long USD/JPY | 81.26 | stop 80.90

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DISCLAIMER: Nothing contained anywhere in this commentary, including


analysis and trade ideas, constitutes or should be construed as investing or
financial advice, suggestion, or recommendation. Please consult a financial
professional and do due diligence before engaging in any purchase or sale of
securities.

OPEN TRADES

Long /ZN | 125’15 | stop 124’20 | +1’12


Short APOL | 51.90 | stop 54.00 | ++28.19%
Long AGU | 80.00 | stop 75.00 | +7.66%
Short STRA | 160.00 | stop 165.00 | +18.81%
Short ESI | 67.31 | stop 73.15 | +13.45
Long MEE | 35.35 | stop 34.30 | +0.59%
Long TBT | 32.65 | stop 31.80 | +2.76%

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