Over the years, at varying times, there are different correlations between bonds and equities. Most of the time, lower interest rates mean good things for stocks. There is no desire for runaway inflation (ala the 1970’s). However, there are other times such as the immediate-term era we are in the midst of in which the correlation does not follow normal circumstances. There are two main reasons. First, what if inflation is not a worry but rather deflationary pressures are upon us? With job growth anemic and demand for most products down, many companies have been selling their wares at discounted prices. It is plausible that the bond market could be telling us that these pressures are only intensifying particularly with the recent sell-off in the precious metals. But my point for day traders is the 2nd reason: fear of risk. For the past several sessions, there has been an almost perfect inverse correlation between the direction of bond and equity prices (with yesterday the first time the correlation broke definitively in awhile). Basically, as people sell stocks, they’ve been buying bonds and vice versa. Ergo, a key to tracking stock prices as we enter earnings season will be to track bonds to see if entities sell bonds to put money back into riskier asset classes such as equities. Thus keep your eye on the 10-year much less 30-year bond yields as they have tended to lead the stock market over the last few weeks for a clue of any major intra-day move to come.
Markets in Asia were weak overall with Tokyo off 1.1% and Hong Kong 1.5% after some negative economic news out of China. In Europe, prices are definitively mixed with London down 0.3% and Frankfurt up 0.1%. Gold and oil are both modestly higher with the dollar a bit weaker. Bonds are also quiet. Futures are generally higher. This morning, JPM is notably holding up well with AAPL negative albeit off of its lows, GS up on rumors of imminent settlement with the SEC, and AMZN well lower. A mixed bag. But gotta go with the odds and trend as the winning streak looks set to continue. Look for a modest upside session pending anything coming out of JPM’s conference call. Focus on all the stocks just noted, the financials, the other big cap techs, the small caps in the news such as VRNM, and the myriad of earnings plays.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
TSLA- closed near a high
MON- closed near a high
ADTN- closed near a high after posting good earnings
DCTH- closed near a high
FUQI- closed near a high
ARNA- “New England Journal of Medicine” published results of two-year BLOOM trial showing Lorcaserin caused significant weight loss in working much better than the placebo
IGTE- closed near a high after announcing good earnings
SMT- coming public in IPO of 38 million shares at 17
CPBY- decent revenue guidance
NTY- acquired by Carlisle Group for 55 in cash
NYM- acquired by Prosight Insurance for 25.75 in cash
GS- rumored to be in talks to settle with SEC
FCS- decent earnings
VRNM- announced an agreement to sell its cellulosic biofuels business for almost $100 million
GWW- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
LSTR- lukewarm earnings
OPNT- earnings warning
WTNY- closed near a low after warning of large write-offs
BMTI- closed near a low after announcing a share offering (which will take place at 8.50/share)
AAPL- to discuss iPhone 4 issues in conference call tomorrow morning
AMZN- downgraded by Bank of America to neutral’ from ‘buy’
Earnings:
THURS JUL 15 BEFORE
FCS GWW JPM
NVS NXY
PPG TCB
THURS JUL 15 AFTER
AMD CBST GOOG
JBHT PBCT PLCM
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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