Mark Yagalla's Blog, page 3

Market Update for June 4

On tap for today we have:

2:00 AM EDT UK Halifax House Price Index
07:00 AM EDT Bank of England Interest Rate Decision
08:30 AM EDT US Initial Jobless Claims
10:00 AM EDT Canadian Ivey PMI
10:30 AM EDT Natural Gas Storage Data
12:00 AM EDT FOMC Member Tarullo speaks

In forex, I'll be trading the GBP/USD, GBP/JPY, and the EUR/USD crosses. I have no positions in the British Pound yet. It will all depend on the data and what BOE head Mark Carney has to say. The EUR/USD will also be looking for any clues on the Greece situation. Keep an eye on German Bunds as well because the rise in yields has gotten the market rattled. I'll also be watching the nat gas market. Nat gas has support at 2.599 and that's the area I'll be watching after the report comes out.

As always, good luck and happy trading!

Market Update for June 1

Well it's good to be back in the saddle after a week off. I needed a week off to recharge my batteries. I also moved into a new condo. I'm all settled now and I'm quite happy. Last week was the perfect time to get away as it was a holiday shortened week anyways in the US.

The item on everybody's mind each trading day continues to be Greece and whether there will be a Grexit or not. Greece needs to make a number of debt payments this month. As I said in my prior updates, I'm really tired of Greece overshadowing the markets. I believe it would be in all parties best interests if Greece were to leave the euro.

In terms of this week, the markets will be focused on four market moving events. We have a number of central bank meetings. On Tuesday we get the Reserve Bank of Australia's decision. On Wednesday we have the ECB and Thursday we get the Bank of England. On Friday we have the US employment report.

To start this week and the month of June, we continue to see a stronger US dollar. The yen made fresh lows last week. The euro bounced of the 1.08 level. The Aussie looks set to test the .75 level. It should be an interesting week nonetheless.

On today's agenda, we have:

03:50 EDT French Manufacturing PMI
03:55 EDT German Manufacturing PMI
04:30 UK Manufacturing PMI
08:30 EDT US Core PCE Price Index
08:30 EDT US Personal Income and Spending
09:05 EDT FOMC Member Rosengren speaks
09:30 EDT FOMC Member Stanley Fischer speaks
10:00 EDT US ISM Manufacturing Data

In the commodity markets, wheat prices tumbled last week on favorable weather. There's no shortage of wheat globally and US wheat prices are higher than other producers such as Russia, Canada and Romania. Both corn and soybeans look bearish as well with favorable weather keeping planting on schedule. Absent any weather, the grains look to remain in a bear market.

Oil prices rallied on Friday. I read news headlines that said it was because of a bomb attack on Saudi mosque. Another headline said it was because the rig count dropped again. My take is that the $56.50 level held. What can't go lower must go higher. We had a wave of short covering that sent prices higher. Nothing more, nothing less. In the natural gas market, it's a dog with fleas. Don't buy the drop in prices. In the precious metals market, it's all about the US Dollar. We'll see how the Dollar reacts this week to the data and that will determine how the commodity markets fare.

Right now I'm not seeing any trades that I want to put on. I'm not seeing any breakouts or breakdowns that I like. It's a data driven market and I will be closely watching the data to determine my next trades. In terms of stocks, I'm looking at a few new ideas and will be posting updates over at Seeking Alpha.

As always good luck to everyone and happy trading!

Macro Today – May 22

Today is all about speeches from the heads of the major central banks. US and Canadian data comes out at 8:30 AM ET.

4:15 AM ET Mario Draghi
7:00 AM ET Mark Carney
9:30 AM ET Mark Carney
9:30 AM ET Kuroda
9:30 AM ET Mario Draghi
1:00 PM ET Janet Yellen

I'm really not expecting them to say anything new, but you never know. Either way, the forex markets will be listening for any clues to their next move. After a strong start to the week, the US Dollar (NYSEARCA:UUP) has paused waiting for news to determine direction.

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The strongest market right now in the forex markets is the British Pound (NYSEARCA:FXB). British retail sales gained 1.2% and are 4.7% higher than they were a year ago. This is good news for the British economy and the Pound. I'm expecting the British Pound to continue trending higher.

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The S&P 500 (NYSEARCA:SPY) looks set to make new highs. As I said yesterday, the bull trend in the US stock market is too strong and trying to short is too risky. Every dip has been a buying opportunity. Unless traders book profits before the long weekend, I expect the S&P 500 to end the week on a high note. Volume should be light as most traders head out for Memorial Day.

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As I said yesterday as well, Treasury Bonds (NYSEARCA:TLT) have found support this week and bounced yesterday. The bond market appears to be paying attention to weaker US economic data and the likelihood that a rate hike isn't imminent. Sales of previously owned homes fell 3.3% in April and a weaker Philly Fed Survey contributed to bond buying.

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Commodities

WTI (NYSEARCA:USO) and Brent (NYSEARCA:BNO) rallied on the back of stronger gas (NYSEARCA:UGA) prices. The summer driving season is about to start and RBOB Gasoline futures have risen from $2 on Tuesday to $2.08. Gasoline prices typically rally in the spring and this year was no exception.

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The other factor that helped oil prices was the dollar's rally slowed down. Because of this, the oil market was able to extend Wednesday's gains after supplies dropped more than expected.

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Natural Gas (NYSEARCA:UNG) prices rose after inventories rose by 92 bcf, which was less than the 97 bcf the market had anticipated. However, it's still not enough to get me bullish on this market.

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The Gold (NYSEARCA:GLD) market is stuck between a rock and a hard place. It held the critical $1200 level early in the week. To me, it's been a boring market with no clear direction. The dips have been bought and the rallies been sold.

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I said yesterday that the market I was watching the Wheat (NYSEARCA:WEAT) market. Boy was I right as Wheat rallied. Rainfall in the central and southern Plains has forecasters concerned that too much moisture could damage the crop. In Russia and parts of Canada, it's dryness that has forecasters concerned.

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Corn (NYSEARCA:CORN) prices are trying to rebound while Soybeans (NYSEARCA:SOYB) made new overnight lows. I'm on the sidelines in both markets.

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Bottom line

I expect to see position squaring ahead of the long weekend. Volume will be rather light, which could create some wild swings. As always, good luck and happy trading!

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of this writing, I am long futures on the British Pound, CBOT Wheat, and RBOB gasoline. My positions can and will change at any time depending on market conditions.

Themes: market-outlook Stocks: BNO, CORN, FXB, GLD, SOYB, SPY, TLT, UGA, UNG,USO, UUP, WEAT

Macro Today – Seeking Alpha

This week has been all about US dollar (NYSEARCA:UUP) strength. This has lead to weakness across all commodity markets as we've seen precious metals, crude oil, and grains give back their gains. It all started in the beginning of the week when the ECB said that it was going to front load its bond purchases this month and next. Wednesday's FOMC minutes seemed to temper expectations for a June rate hike, which caused the US dollar to back off its highs. However, traders renewed their focus on a Greek exit. I really wish Greece would exit the euro and be done with it. I'm really tired of reading about Greece every day.

To read more, please visit Seeking Alpha.

Macro Today – May 21

Market Commentary – May 20

As I said yesterday, it was a US Dollar strength story. The euro, the pound, the Aussie, and commodities all got taken out to the wood shed. I think it's too early to make a call one way or another. I don't know if this trend is going to continue or not. That's why I'm not putting on any trades in the forex market and I'm in a holding pattern right now. When I'm not sure what to do, that's the only place I want to be. I'm not seeing any trade setups I like at all.

As of 5AM Eastern, we're seeing a slight bounce in the energy complex. The laggard is natural gas, which staged a major reversal yesterday. I love reversals. They are one of my favorite trades to put on and I got short nat gas yesterday. I think we're in the beginning of a move lower for nat gas and I'll remain short with a trailing stop to protect profits.

In terms of WTI, today we have inventory data. I'll be keep an eye on the 1 month low of $56.99. If we take out that price, we're heading to $55 and possibly lower. I would not be buying WTI or Brent at these levels.

In the grains complex, corn and wheat gave up all of their gains from Monday. The weakness is being lead by Soybeans, which made a fresh 1 month low at 936-4.

All eyes will be on the FOMC minutes today at 2PM Eastern. Keep an eye on the 30 yr Treasury and its one month low of 151-04. That's key support for Treasuries. A breakdown there and we're heading lower.

In terms of stocks, I posted an article on Seeking Alpha yesterday on McDonald's and why the stock isn't a short. I guess my article scared the shorts as the stock rallied $2.66 to $100.68. I also posted an update on Integrated Device Technology here on my blog. I'm still expecting higher prices this year. They just delivered a great quarterly earnings report and I think next quarter will be a great one as well.

That's all for this morning. Be sure to check out my book Wall Street Joyride on Amazon. Good luck to everyone and happy trading!

Why McDonald’s Is Not A Short

McDonald's (NYSE:MCD) is one of those companies that just can't get any love. It seems people either hate it or have no comment. The headlines in the news are quite dire. I see the words "turnaround, deteriorating, struggling" in many of the headlines. I've even seen headlines calling McDonald's a short. I'm sorry, I just don't get it. What am I missing?

To finish reading, please visit Seeking Alpha.

Integrated Device Technology – Still Expecting Further Gains

Integrated Device Technology (NASDAQ:IDTI) continues to deliver for its shareholders after posting a strong FQ4 report. I alerted Seeking Alpha readers of the company's potential over a year ago when shares were trading at just $10.55. I said that the company would benefit from 4G rollout and its exposure to LTE. As you can see, my thesis proved correct.

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FQ4 results

The company posted EPS of $0.29, which beat expectations by $0.03 and was more than double the $0.14 the company earned last year. Revenues grew 33.5% y/y to $158.35 million. This was $0.48 million higher than the consensus estimate. Operating margins reached 29% and FCF accounted for 27% of revenues on a ttm basis. Gross margins on a non-GAAP basis improved to 62.9% from 61.1% last year. Total revenues for FY15 rose $88 million, or 18%, to $573 million. CEO Gregory Waters said on the earnings call, "we grew our revenue in fiscal year 2015 substantially faster than the industry."

Big potential in wireless charging

Revenues in the wireless charging segment came in at $4.5 million in FQ4. While not a huge number, it's important to consider that this segment only had $1 million in quarterly revenues when I first wrote about IDTI on February 9, 2014.

There's a lot of potential for growth in this segment considering that IDTI's wireless products are now found in wearables, table lamps, smartphones, and intelligent charging pads. IKEA is now using IDTI's products in its tables and lamps. Samsung has integrated the products into its mobile devices. IDTI's new Wireless PowerShare allows one portable device to wirelessly charge another. This is revolutionary technology and was a hit at the Mobile World Congress in Barcelona.

On the company's earnings call, CEO Gregory Waters forecast wireless charging revenues to increase 57% next quarter. That would put sales at $7 million for the quarter.

Look for continued LTE and 4G expansion

A primary market for IDTI is China. As I said in my prior article:

"IDTI is benefiting from the continued rollout of 4G/LTE. IDTI's primary product is its RapidIO product, which is being used by every major OEM in the space. The rollout is still in the early stages and I'd be remiss if we didn't stress the growth potential in China, which desperately needs to upgrade its network to allow for better data transmission."

China's largest carriers just announced tariff cuts which will boost 4G phone sales. Reuters said "the measure is expected to generate a mass migration of customers to 4G contracts." This is good news for IDTI and will help drive sales of IDTI's RapidIO products.

What's most interesting about this is that sales in this segment declined 7% in FQ4 from FQ3. This came as there was a slowdown in China and North American wireless infrastructure spending. With the lowering of China tariffs, I see the sales decline reversing and spending ramping up again. Considering that in FQ4, 46% of total revenues came from wireless infrastructure, a meaningful pickup will move the needle for IDTI.

Shares still attractive

IDTI remains well-managed with a pristine balance sheet. The company has $555 million in cash and no debt. This equates to $3.74 per share in cash. IDTI will return a portion of this to shareholders with its new $300 million share buyback program. Last fiscal year, IDTI spent $79.2 million on share repurchases.

Over the last five years, IDTI has traded at an average P/E multiple of 33.9. Currently, shares are trading at just 19.7x next year's earnings. The average for the industry is 21.6. Considering IDTI's superior margins and revenue and income growth, IDTI deserves to trade at a premium to the industry. Analysts agree with me as well with themedian price target for shares being $25.

For FY17, IDTI is expected to earn $1.25 a share. If IDTI traded in-line with the industry and I put a 21.6 multiple on the stock, I'm looking at a price target of $27. At the rate IDTI continues to perform, I certainly think shares deserve to be trading much higher. With a PEG ratio of just 0.49, I remain bullish and recommend accumulating shares on any pullback.

Morning Commentary May 19

Market are reverting back to US Dollar strength and Euro weakness. This comes as ECB members have pledged to speed up QE buying this month and June. The UK posted negative inflation data and is now in a state of deflation. Germany's ZEW survey came in weaker than expected. All of this is pressuring the euro and contributing to the US Dollar rally.

 

The US Dollar strength is also impacting the commodity markets. Gold, silver, crude oil, and the grains have all sold off from yesterday's rally. Right now, I'm not seeing anything I want to do in the markets. Sometimes the best trade is not making one and that's where I stand.

Good luck and happy trading!

Market Commentary 5/18/2015

Today there's a lack of news to drive the markets. Here's what I'm looking at.

Gold

Silver

Gold and silver are getting ready to break out. Both are just starting to catch up to the US$ weakness.  Traders are massively long the dollar and short the euro. Further unwinding of this position will propel gold and silver higher.

Corn & Wheat

The grain complex has been in a bear market for the past year. Paul Tudor Jones says that he has made most of his money on market turns. These two markets look to be setting up for a turn and there could be a lot of money made here. My only concern is the weakness in soybeans. As an experienced grain trader, I look for the entire grain complex to be moving in the same direction.

Week ahead

Tuesday

UK and EU inflation data
German ZEW survey
US housing data
Japan GDP

Wednesday

BOE minutes
US crude inventories
FOMC minutes
Chinese manufacturing data

Thursday

German manufacturing data
UK retail sales
US jobless claims
US existing home sales
Philly Fed manufacturing data
Nat gas inventories

Friday

German GDP
US inflation data
US manufacturing data

Seeking Alpha

Over at Seeking Alpha, I just submitted the bull case for McDonald's. Now I'm working on an update on Integrated Device Technology (IDTI). The stock is currently trading at $21.98 and I recommended it to investors last February at $10.55. It's one of my largest positions and I remain bullish on the company.

Bottom line

That's pretty much it for now. If anyone would like to sign up for my trade alerts, email me at markyagalla@gmail.com. The first month is free and then it's $500 a month thereafter. Happy trading and good luck to everyone!