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This is One Giant Margin Call

Doug Short over at Advisor Perspectives recently posted a chart detailing how NYSE Margin Debt skyrocketed through the second half of 2013 and into this year:

margin

After an 8% correction in the Nasdaq this seems a little bit of a "hindsight trade," but it serves to establish what kind of correction we are dealing with.

If you're an investor that is using margin on a trade, what stocks will you be in?

Coke? P&G?

Hardly.

If you're chasing 2013 returns in 2014, there were a few distinct pockets that you would plow money into-- namely Biotechs and high beta Nasdaq names.

Speculators speculate.

This idea, combined with the fact that the rest of the world's markets are doing fine, lead me to believe that this pullback is a function of reversion, both fundamentally and technically.

Perhaps some of these stocks are selling off hard as reality around earnings sets in.

And the significant outperformance US stocks saw in 2013 is starting to normalize as the rest of the world plays catch up.

My conclusion is that (at the moment) this selling is not due to a systemic risk but instead a investor deleveraging of the strongest stocks in the strongest market.

 

The 6-Month Turnaround for NBG

News is floating out this morning that Greece will be having a debt offering.

It's the first long term debt to come out since the bailout a few years back.

What are the terms?

5 year duration, running about 5%. Not bad.

And it appears to be oversubscribed. Lots of investors want in.

I'm not a bond guy. But when I see risk appetite for something like this, I start to look for proxies.

An example would be GREK - which is an ETF that looks at companies in Greece. But its top holdings are a Coke subsidary, a telecom, and a sports bookie. Not a fan.

The best bet here for a proxy is going to be NBG - National Bank of Greece.

Here's the chart:

nbg

What we've got here is a massive 6 month base. Measured move off the breakout is around 2 points, which isn't bad off a stock trading in the 5's.

This is one of those opportunities where there is news driven risk combined with a solid technical pattern. If the stock reclaims the 6's then the buyers will be solidly in control. This thesis is wrong if we lose about 5.25.

 

It's All One Big Stealth Rotation

For some reason, any whiff of market distribution is met with heightened fear.

That somehow, this is it. This is the big one.

And if you're only looking at domestic assets, that's what it feels like.

NDXDAILY

But while you're staring at the Nasdaq and Dow Jones, there's been a massive rally in other assets.

Stuff like emerging markets.

EEM

And China.

fxi

What does this mean?

Money is flowing out of domestic equities and into international equities. It's that simple.

What does this really mean?

As it stands right now, this isn't a global "risk off" kind of event.

And why should it be? The only major political risk (Ukraine) is cordoned off, and the tapering by the Federal Reserve is already obvious and potentially priced in.

From my view, this has just been one big time-based correction, in the context of a long-term uptrend. 

Unless the sellers regain some initiative, it won't be long until the uptrend reasserts itself.

Falling Like a Ton Of BRICs

The Fly is out with a piece talking about bond yields, the Asian contaigon of 1997, and Russia.

Summing it up, the investment prospects don't look great right now. But what about the rest of the BRIC's?

For those unfamiliar, BRIC stands for Brazil, Russia, India, and China. These 4 countries contain high-octane economies and represent a shift in power away from traditional Western ideas.

And back in 2010 when Europe was about to implode, I would have agreed with that. But what about now?

Let's take a look at some charts:

EWZ - Brazil ewz

RSX - Russia rsx INDY - India indy FXI - China fxi And for Good Measure... EEM - Emerging Markets eem

Unlike the rip roaring bull market we've been experiencing in domestic equities, the rest of the world's stocks are well off their highs and some are in full blown downtrends.

The question now is: which side will "catch up"? Will we see domestic equities sell off as weakness finally encompasses the globe, or will the fear finally blow over and we see growth return to these countries?

No easy answers here, and my opinion could change 3 times in a week. But with the way the S&P has been acting lately, my opinion is starting to tilt towards the former.

What this Battery Rally Feels Like

We've currently got low float, low cap names in the battery/alternative energy space running.

And they sure are running hot.

BLDP, FCEL, PLUG to name a few. Have a look at the chart of PLUG:

plug

Here is where it gets crazy.

Total amount of shares float in PLUG is 104 million. Yesterday, the stock volume was twice that.

This heavy volume feels like daytraders and investors alike jamming orders in without much liquidity to take them in.

So what does this feel like?

Back in mid-2009 there was a play on super small cap chinese ag names. Stuff like CAGC, HOGS, SEED, and FEED (now FEED.Q). They were amazing traders and the upside momentum was unstoppable.

...until it stopped.

This is the point where I come in and say it's not different this time, and these battery stocks all have the signs of blowoff tops.

And before the arguments come in from the "investors"...

Remember your timeframe.

You can be bullish long term and bearish short term. In fact, most of the arguments I've seen on social media between bulls and bears have been a miscommunication of what timeframe they're looking at.

Yes, it's very possible that these names are the wave of the future, and next-gen power technology will help get a smarter power grid and less reliance on "dirty" fuel.

But when a stock has seen more price appreciation than the Bitcoin rally, you may want to reconsider the risk-reward to the long side here.