Variable Rate World, Part 2: Mortgage REITs Get Crushed

by John Rubino, DollarCollapse.com:

Mortgage REITs are companies that borrow money to buy mortgage backed securities (MBS) and earn the spread between their cost of funds and the yield on their MBS. When interest rates are going down and MBS are performing well these guys make fortunes. But when interest rates go up and bond prices fall, their excessive leverage kills them. They were, in fact, among the earliest casualties of the housing bust just a few years ago. Now they and their memory-impaired investors are back in the same mess:

REITs Deepening Bond Losses as Leverage Forces Sales
Annaly Capital Management Inc. (NLY)’s Wellington Denahan, head of the largest mortgage real-estate investment trust, told investors less than three months ago that reports REITs could threaten U.S. financial stability were as misleading as the media frenzy over shark attacks in 2001.

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Stock 'fear gauge' flawed, Citi equity trading chief says

Investors seeking to predict the magnitude of share price moves at times of market flux may get a faulty steer from a closely watched "fear gauge", one of investment banking's top equity traders has warned.

Citi's (NYS:C) Mike Pringle, global head of equity trading at the third-biggest U.S. bank, told Reuters that the VIX volatility index (^VIX), is now as much a traded asset as it is a guide to investors seeking protection from losses.

The VIX reflects Standard & Poor's 500 (.SPX) options prices and, therefore, expectations of future market moves. The idea is that as people become fearful of losing their money, they are more willing to buy a put option as protection.

At the moment, it remains at very low levels.

"A big mistake the market makes is looking at the VIX as an indicator of stock market risk. Why? Because it's an asset class and it's more traded for yield than protection," Pringle said.  (more)

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3 Reasons the Tech Sector’s In Trouble & One Glimmer of Hope

It’s not just PCs – the whole tech industry complex is having a rough year.

Everyone knows PC sales are in the dumps, displaced by tablets and even smartphones. But higher-end hardware, software and services were supposed to keep the rest of the tech sector cranking. Not happening. Oracle (ORCL) missed analyst estimates in its most recent quarter. Accenture cut its guidance for the rest of the year. Both reports prompted Goldman Sachs to slash estimates for IBM (IBM) ahead of its earnings. SAP (SAP) or Hewlett Packard (HPQ) could be next.

FLOPPING ABROAD
Sales in China and other emerging markets are tanking. Oracle said sales in Asia-Pacific were down 7% last quarter and Accenture projected weakness in Latin America for upcoming quarters. That’s part of what prompted Goldman’s IBM downgrade.  (more)

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Chart of the Day - Costar Group (CSGP)

The Chart of the Day is Costar Group (CSGP).  The stock has both a Trend Spotter buy signal and  96% technical buy signals.  In the last month the stock hit 17 new highs and is up 16.54% for that period.  I found the stock near the top of the New High List when sorted for frequency.

They  provide information services to the commercial real estate industry. Their wide array of digital service offerings includes a leasing marketplace, a selling marketplace, sales comparable information, decision support, contact management, tenant information, property marketing, and industry news. They have three assets that provide a unique foundation for this marketplace: comprehensive national databases; large research department; and large number of participating organizations.

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Abuba Networks ARUN: Beaten-Down Small Cap Looks Poised for a Powerful Breakout

Buying on weakness and selling on strength is the hallmark of the professional trader. While the average Joe investor attempts to buy stocks as they are climbing higher, the professional quietly waits for prices to drop in order to enter positions.

Obviously, not all declines should be bought. Sometimes a falling stock just keeps on falling until it's close to zero. Professional traders call the attempt to buy stocks that keep dropping trying to catch a falling knife.

The question is how does one tell the difference between a falling knife and a simple pullback that should be bought? Here are three ways to help you tell:

1. Determine what caused the pullback.
If the pullback was caused by a one-time special situation, like an earnings warning, negative rumors, or even the selling of shares by an institution, this can create an opportunity to purchase shares at a discount. However, if the negative news comes in waves or something fundamental changes at the company, this could mean that prices will continue lower.

2. Watch the 200-day simple moving average.
The basic rule of thumb with the 200-day simple moving average is that shares that are in the process of dropping and are below that moving average should not be purchased. This can act as a line in the sand between buying and selling pressure. If shares are below the 200-day moving average and start to climb higher, this can be a buy signal depending on what caused the pullback. (more)

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Those Who Bet Against the Bull Now May be Sorry

With public optimism strong over Q2 earnings expectations, stocks opened higher Monday. However, the first few minutes of trading saw the high of the day, and the major averages flatlined for the next six and a half hours.

A lagging technology sector, driven lower by a 3.62% plunge in Intel (INTC), lost 0.1%. But money flowing from bond sales continued to drive stocks higher rather than earnings since some analysts estimate that over half of the S&P 500′s companies will miss their Q2 forecasts.

At Monday’s close, the Dow Jones Industrial Average had gained 89 points at 15,225, the S&P 500 rose 9 points to 1,640, and the Nasdaq gained 5 points to 3,485. The NYSE traded 906 million shares and the Nasdaq crossed 396 million. Advancers outpaced decliners on the Big Board by 1.6-to-1, and on the Nasdaq, advancers were ahead by 1.3-to-1.

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Each of the major indices has closed above its 50-day moving average and received a strong buy signal from its MACD.

Conclusion: The bulls are in charge of the market despite some technicians’ continued complaints of low volume, narrow breadth, etc. I was surprised to read that one noted and highly respected analyst is predicting a double-top between S&P 1,650 and the May 22 intraday high of 1,687.18.
But I was also reminded of Joe Granville’s warning that to act on a formation before it is executed is the most common mistake of technicians. And our readers have seen me say that to anticipate a formation is gambling against the trend.

The trend always takes precedence, and it is up until proven otherwise.
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Catamaran Corp (NASDAQ: CTRX)

Catamaran Corporation provides pharmacy benefit management (PBM) services and healthcare information technology (HCIT) solutions to the healthcare benefits management industry in North America. The company operates in two segments: PBM and HCIT. Its PBM services include electronic point-of-sale pharmacy claims management, retail pharmacy network management, mail and specialty pharmacy claims management, Medicare Part D services, benefit design consultation, preferred drug management programs, drug review and analysis, consulting services, data access, and reporting and information analysis. The company offers RxCLAIM, an online transaction processing system to provide online adjudication of third-party prescription drug claims at the point of service, as well as payment and billing support and real-time functionality for updating benefit, price, member, provider, and drug details. It also provides RxBUILDER, a Web-based interface for formulary creation and maintenance; RxPORTAL, which allows customers to interact with the patieny’s formulary and drug history; and RxAUTH, a prior authorization (PA) management solution for automating PA process.
Please take a look at the 1-year chart of CTRX (Catamaran Corporation) below with my added notations:
CTRX has been holding a very important level of support at $46 (lavender) for almost the entire duration of the 1-year chart, and you can see that $46 had also been a resistance prior to that back in August. No matter what the market has or has not done since September, the stock has held that $46 level. CTRX is approaching $46 again and that should provide another bounce higher, but if the overall market sells-off, CTRX could break that support.
The Tale of the Tape: CTRX has a very strong level of support at $46. A trader could enter a long position at $46 with a stop placed under the level. If the stock were to break below the support, a short position would be recommended instead.
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