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Traders scratching their heads over ‘completely bizarre’ stock moves

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Explaining moves is ‘exercise in futility,’ investor says.


From Bloomberg:

As a turbulent December in equity markets draws to a close, there’s one idea traders and investors can agree on: these are not usual times, especially for this time of year.

It’s “completely bizarre,” says Stephen Innes, head of trading for Asia Pacific at Oanda Corp. “It’s incredible just how harmful markets veer when sentiment slides.”

Innes has been taking profit on some winning investments, and snapping up blue-chip stocks whose valuations have dropped in the December sell-off, but for the most part he’s keeping his money on the sidelines. Like many other traders in Asia, he’s been watching events play out in the U.S. from a distance, amazed at what he sees.

The S&P 500 Index posted its biggest upward reversal since 2010 on Thursday, a day after the gauge capped its largest advance since 2009. Despite the two-day gain, the measure is still down almost 10 percent in December alone. “I’m on the golf course,” Innes says about how he’s responding. “As I have been most of the week.”

Mark Matthews, head of Asia research at Bank Julius Baer & Co. in Singapore, says two “golden rules” have been broken. First, since 1945, December has produced the highest average gains of any month, he says, but this month is set to be the worst of the year. Second, since the 1970s, the S&P 500 has never slumped when earnings growth was more than 10 percent, according to him. But as a long-only investor, Matthews is planning to ride it out. “I remain invested through good times and bad,” he says. “Not being invested, over the long term, is like betting against the house in a casino.”

Over in Sydney, Sean Fenton is scratching his head. “It’s certainly unusual for this time of year,” the portfolio manager at Tribeca Investment Partners says of the market moves. “You see people take holidays and sort of shutting up shop, not surges in volatility.” Fenton, like Matthews, says he’s hunkering down, betting that the U.S. economy is robust and the sell-off will bottom out. For this time of year, he’s “probably a little more focused on the market,” he says, but that doesn’t mean he’s got reasons for the moves. “Trying to explain short-term movements in the markets is an exercise in futility because generally it’s pretty random,” he says.

Over in Sydney, Sean Fenton is scratching his head. “It’s certainly unusual for this time of year,” the portfolio manager at Tribeca Investment Partners says of the market moves. “You see people take holidays and sort of shutting up shop, not surges in volatility.” Fenton, like Matthews, says he’s hunkering down, betting that the U.S. economy is robust and the sell-off will bottom out. For this time of year, he’s “probably a little more focused on the market,” he says, but that doesn’t mean he’s got reasons for the moves. “Trying to explain short-term movements in the markets is an exercise in futility because generally it’s pretty random,” he says…

Continue reading at Bloomberg…


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Charts reveal buying opportunities in some Chinese stocks

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The stocks of a few top-notch Chinese companies may have already bottomed as a result of the U.S.-China trade dispute and could soon be buying opportunities for investors, a top chartist tells CNBC’s Jim Cramer.

Cramer, who has been steering investors away from Chinese stocks for the better part of the dispute, said he wouldn’t blame anyone for thinking Chinese investments were too risky, especially after China announced that its economy grew at the slowest pace in nearly three decades last year.

But when he checked in with technician Dan Fitzpatrick, the founder and president of StockMarketMentor.com and Cramer’s colleague at RealMoney.com, he started to see things a little differently.

“Fitzpatrick has a really interesting thesis: He thinks the current weakness is already priced into many of the largest, highest-profile Chinese stocks,” Cramer said on Tuesday. “Looking at the charts, he believes they’ve already bottomed [and] they’re not going to take that bottom out, which means dips, like the one we had today, … should be treated as buying opportunities.”

Cramer, host of “Mad Money,” explained this phenomenon: because the stock market is “a forecasting machine,” it tries to predict what could happen six to nine months from now. So, when China released its latest economic data, it should’ve already been baked into most stock prices.

“The market will almost always peak before the economy peaks,” Cramer said. “It will almost always bottom before the economy bottoms, and that’s what Fitzpatrick’s predicting with some of the better Chinese stocks.”

First, Fitzpatrick analyzed the daily stock chart of JD.com, a Chinese e-commerce company. His take? The stock just made a “totally buyable double bottom” pattern at $20 a share, and, so far, has held above that level, Cramer said.

Fitzpatrick also noted that JD.com’s stock managed to hold above its 50-day moving average after trading above it earlier in January, which signaled to him that JD.com could be ready to rally higher.

But the most important signal is coming from the stock’s moving average convergence-divergence indicator, or MACD, which detects changes in a stock’s path before they happen. That indicator has been soaring since September, which, coupled with the stock’s relative inaction, is usually a signal that a stock has “a lot more upside,” Cramer said.

“Still, Fitzpatrick says that the stock is kind of caught in the middle of no man’s land” between its $21 floor and its $24 ceiling, where it peaked earlier this month, Cramer said. “If the stock pulls back any lower, it could stay stuck down there for a while.”

However, if the stock can break through the $24 level, and Fitzpatrick believes it can, then it could climb as high as $29, the “Mad Money” host continued. Fitzpatrick would buy in as soon as it passes the key $24 threshold.

Also on the table for Fitzpatrick was the stock of YY, a Chinese entertainment streaming platform-meets-social network. Like JD.com, its stock formed a double bottom pattern and climbed above its 50-day moving average in recent months.

“Right now, YY’s trading at $68 and change. Fitzpatrick likes it as long as it holds above the 50-day moving average” of $65, Cramer said. “Now, the stock has a ceiling at about $70, but if it can break out above that, Fitzpatrick thinks it’s smooth sailing to $85.”

All in all, while Cramer has been wary of Chinese plays, it’s always worth examining “the other side of the trade,” he told investors.

“After today’s brutal, in-part-China-driven sell-off around the world, it’s worth considering whether some of these Chinese stocks may be in better shape than you’d expect,” the “Mad Money” host said. “The charts, as interpreted by Dan Fitzpatrick, suggest that the best-of-breed China internet [stocks] like YY and JD.com may have already bottomed, although Fitz says you should wait for more of a breakout before you start buying either stock.”

“I don’t know if he’s right, and I don’t recommend buying any Chinese stocks because of the trade turmoil,” Cramer continued. “But when just about everyone’s negative on a particular group, it’s always worth giving the other side of the trade some serious consideration.”



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Charts suggest lower volatility, higher stock prices ahead

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The market’s fear gauge is signaling that stocks will see less volatility and higher prices in the next few months, CNBC’s Jim Cramer said Tuesday after consulting with a top volatility chartist.

The fear gauge, also known as the CBOE Volatility Index or the VIX, tracks S&P 500 option prices to measure near-term expectations of volatility, or the chances that the stock market will endure dramatic swings in the near future. When the VIX rises, it tends to mean investors are growing concerned about the market and making bets to protect themselves.

But the VIX has been trading lower since it peaked in December amid a marketwide sell-off, suggesting that fears about the market are subsiding. To make sense of the action after the late-2018 fallout, Cramer asked technician Mark Sebastian, founder of OptionPit.com and resident “Mad Money” VIX expert, for his input.

Sebastian, who also works with Cramer at RealMoney.com, said that while the nature of the VIX has changed, it’s still helpful in predicting what’s next for the market. And, right now, it’s quite positive, he told the “Mad Money” host.

“Sebastian thinks it signals that this earnings season may be a bit of snoozer, with a bullish bias, as the market gradually pushes higher over the next few months,” Cramer said. “The Volatility Index may not be working exactly like it used to, [but that] doesn’t mean it’s useless, and based on the current action here, he thinks the stock market has more room to run.”

To reach this conclusion, Sebastian reviewed how the VIX acted over the course of 2018. Plotting it against the S&P 500, he noted that during the market’s breakdown in February and March, the VIX acted normally: surging when the S&P plunged, and making a lower high when the S&P dropped again, which signaled that the market had bottomed.

But in November, the VIX barely budged when the S&P got crushed, Sebastian said. Normally, that means that stocks are bottoming, but in December, the S&P collapsed again. The VIX only lifted in late December, after the S&P had fallen several hundred points, and didn’t even reach its January peak despite the fact that the entire market was selling off.

“Sebastian says the fourth-quarter decline was different from anything else we’ve seen in the last decade. Since 2008, when the stock market experienced a major sell-off, that’s always been accompanied by a huge spike in the VIX,” Cramer explained. “If you were only looking at the fear gauge, it seemed to be saying that the garden-variety sell-off at the beginning of last year was worse than the total meltdown at the end of last year.”

And, according to Sebastian’s analysis, the trading instruments that Cramer railed against in February — the ones that profit when the VIX does down — were behind the unusual action.

Specifically, securities like the VelocityShares Daily Inverse VIX Short-Term exchange-traded note, or the XIV, which imploded while the VIX stayed calm, “[represent] a sea change in how volatility is going to work going forward,” Cramer said.

“The crazy price action from a year ago left a bad taste in traders’ mouths,” he explained, adding that fewer money managers are likely to hedge their positions using VIX options after seeing 2018’s swings.

“In this new environment, hedge funds will no longer be racing to cover their short positions, which means that the VIX is probably going to signal that there’s less volatility going forward,” Cramer continued.

But that doesn’t mean that the VIX has become a less useful measure, Sebastian argued. The VIX’s tepid action in late December and early January was likely a precursor to the higher prices stocks are currently enjoying, he suggested.

So, as more money managers steer clear of risky VIX trading products and more still unwind their hedges, the fear gauge’s recent breather is signaling a peaceful few months ahead for stocks, Sebastian said.

Cramer’s take? “Even though I’m a little flummoxed that the VIX really didn’t work, I agree with Sebastian. I think we go higher.”

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer’s world? Hit him up!
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Questions, comments, suggestions for the “Mad Money” website? madcap@cnbc.com



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Medtronic CEO pushes back on criticisms it has a ‘spotty record’

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Medtronic CEO Omar Ishrak pushed back Tuesday on a Barclays research note that said the U.S. medical device maker took a “step back” following disappointing comments on the company’s outlook from Ishrak at the 2019 J.P. Morgan Healthcare Conference.

The medical device maker has “the strongest pipeline that we’ve ever had in this company,” Ishrak told CNBC’s Jim Cramer from the 37th Annual J.P. Morgan Healthcare Conference in San Francisco, California. “We innovate, we create new markets and we disrupt our own market,” he added. “We think these are game changers for health care.”

Shares of Medtronic sold off Monday, closing down 6.5 percent to $82.45 each after Ishrak said during an investor presentation that the company could expect sales to be at the mid-point of its full-year range of 5 percent to 5.5 percent. The company is experiencing softness in its top-selling cardiac and vascular unit, which makes defibrillators, pace-makers, heart valves, and stents.

Barclays analyst Kristen Stewart late Monday cut her price target on the stock to $104 from $113 and reiterated her overweight rating. In a note to clients, Stewart said she wasn’t surprised by the sharp stock reaction and characterized Ishrak’s comments as “cautious.”

“If it isn’t one thing, it seems to be another when it comes to Medtronic,” Stewart said. “Medtronic has had a somewhat spotty record when it comes to providing guidance and has been affected by a series of one-off events over the past year and a half.”

Ishrak said the note did not accurately reflect his comments.

Medtronic’s stock is down about 4 percent over the past 12 months and down 9 percent year to date.

Wall Street analysts have had some concerns regarding questions of the safety of paclitaxel, the drug used in commercially available drug-coated devices, which Medtronic make. Medtronic has said they are working with the U.S. Food and Drug Administration on that.

Additionally, Medtronic, along with the rest of the medical device industry, could face new regulations from the FDA, which seeks to change how the device manufacturers bring their products to the market.

Advanced Medical Technology Association, or AdvaMed, the industry’s lobbying group, has pushed back against the agency.

Despite weakness in the cardiac and vascular unit, Ishrak told CNBC the company is focusing on introducing technologies such as Micra, a new kind of pacemaker that is implanted directly into a patient’s heart and is less invasive than current methods.

Ishrak also touted the company’s $1.64 billion acquisition of Israel-based Mazor Robotics, a maker of guidance systems for spine and brain surgeries.



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