Interdum stultus opportuna loquitur...

Thursday, August 26, 2004

Sound and Fury... Where?

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Recall that I write sometimes about the market feeling "slippery" in one direction or the other? Last night was one of those nights when it was not slippery in either direction - except when program trades slammed the thing upwards for seconds at a time.

Last night was never going to result in a decline of any magnitude, despite a worse-than-expected outcome for New Jobless Claims which came in at 343,000, slightly above the 340k expected by the expectorators.

Why no decline? Simple, silly! The Fed did a massive repurchase. Some of it was earmarked to replace an outstanding 14-day repurchase that expired today (or expires tomorrow.. I don't care which).

The Open Market Operations desk did two repurchases. the first - the one which encouraged me to get an early night - was announced just minutes after the new jobless claims data. That one was an $8b, 14-day job, with $7.05 billion in T-backed collateral. It was also issued at a few basis points under the Fed Funds rate.

All of that made me think "Bugger this, I'll get an early night... no decline tonight, and me with a selling bias".

Ticker-junkie that I am, I then thought maybe I would just keep an eye on the thing for a few minutes... see how it was travelling, and watch "The Dream" with my idols, Rampaging Roy Slavin and Haitch-Gee Nelson. (I don't say "haitch" so I have to write it to remind myself).

The "usual" 11:50 (our time) repo number crossed the wirtes, and it were a mind-number, I tells ya. It put the seal of approval on the 40-winks idea.

An $11 billion overnight repo, $9.8b of which was in T-backed, and performed slightly above the Fed Funds rate.

No way. Was the Fed expecting the market to all apart?

When I got up this morning, imagine my surprise; no "flagpole" on the charts, no massive bursts of TICK > 1000, the Dow basically flat and a decline in tech... but overall, a flat boring day. Where was the son et lumiere?

There was the odd high TICK reading - but the entire day's action took place within a 5-point range on the S&P futures.

Those sorts of days are usually terrific for people like me (who try and buy support/oversold and sell resistance/overbought). They are murder for "breakout traders" (people who buy breakouts of the high, and sell breakouts of the low).

Intraday breakout trading is usually the first adventure of the newcomer. It's fun when it works, but that is usually about 20% of the time - because otherwise your stops have to be too loose.

The market is a great place to learn, but the most expensive lesson is that of overtrading; everybody knows the "You got to know when to hold 'em... know when to fold 'em" line from Kenny Rogers' The Gambler. But the two last phrases are equally important - "know when to walk away, know when to run".

The problem with breakout trading is that you never know when to walk away.

Last night there were 2 breakouts of previous intraday highs. Each stalled less than a point above the previous high (the first "printed" exactly one point higher, but anyone who relies on being able to sell the offer is kidding themselves).

And immediately after making those new intraday highs, the market fell away three points. It chopped breakout trades to pieces.

Wanker Watch

Today's "Wanker of the Day" award goes to CSFB's New York wankers, who - desperate for something bullish to help them sell stocks (and collect those precious ticket clippings) -seized upon the "fact" that, on average, stocks go up in the week following the Republican National Convention. What the...?

Now, consider just how feeble that analysis must be. There have only been 32 RNC's since stock market data was collected (1871). When you consider all the confounding factors - war, depression, oil shocks - that supervene over something as trivial as the election cycle of a second-rate country (U.S.A., 1870-1917) or a middling meddler in global affairs (U.S.A., 1920-1944), you can see that once you control for things there is simply no explanatory power left in the data.

Honestly, the wanker at CSFB who thought that up, ought to be run out of town on a rail. Then he ought to go and work in marketing for a shampoo company - that analysis ranks right up there with that mind-clenching slogan for some or other hair product... "the beauty of health".

And now... the numbers.

The Dow Jones Industrial Average lost 8.33 points (0.08%), closing out the day at 10173.41 points; the broader S&P500 Index gained 0.13 points (0.01%), finishing the session at 1105.09.

Over at Times Square, the Nasdaq Composite lost 7.8 points (0.42%), to close at 1852.92, while the larger-cap Nasdaq100 Index dropped 5.19 points (0.37%), to end at 1383.98 points.

The broader stock market measures were more bullish than the Dow: the NYSE Composite Index gained 8.01 points (0.12%), closing at 6439.8, while the broadest measure of US equities, the Wilshire 5000, dropped a scant 2.06 points (0.02%), finishing the session at 10721.63.

NYSE Volume was pretty feeble at 1.02 billion shares, and Nasdaq Volume was also modest, with 1.18 billion shares crossing the tape.

Dow Jones Industrial Average10173.41-8.33-0.08%
S&P500 Index1105.090.130.01%
Nasdaq Composite1852.92-7.8-0.42%
Nasdaq100 Index1383.98-5.19-0.37%
NYSE Composite6439.88.010.12%
Wilshire 500010721.63-2.06-0.02%
NYSE Volume1.02bn--
Nasdaq Volume1.18bn--
US 30-year bond yield5.02%-0.03%-0.57%

Internals and Sentiment

On the NYSE advancing issues beat out decliners by 1817 to 1461, almost in reverse proportion to the Nasdaq where losers trumped gainers by 1769 to 1216.

Advancing volume was also in the ascendant on the NYSE, beating volume in decliners by 553.56 to 446.97. On the Nasdaq declining volume outpaced volume in advancing issues by 357.09 to 165.02 (note: the advance-decline numbers for the Nasdaq look kooky; that's because they're not double counted, unlike part of Nasdaq Total volume).

On the NYSE 59 stocks posted new 52-week highs, and 10 hit new 52-week lows. In tech-land there were 40 stocks which posted new 52-week highs, and 30 hit new 52-week lows on the Nasdaq.

Advancing Volume (m)553.56165.02
Declining Volume (m)446.97357.09
New Highs5940
New Lows1030

Sentiment indicators are still flashing "Orange Alert". Yesterday's brain-bursting explosion in call buying subsided today (as did the ludicrously high single-day A/D reading), but option volatility indices are still showing profound complacency.

I will do a full sentiment workup over the weekend. Suffice it to say that I remain on a shorting bias, although last night I slept like a baby; with all that Fed repo juice in the tank, I thought "Chance of decline tonight ... Zero. Sleep after painting house yesterday... priceless". God I hate slogans - and not just because they are part of the advertising industry (which is the biggest scam in the history of commerce, relying as it does on the failure of business to distinguish between revenue and profit... I will write something about that later today).

Anyhow... the put-call ratio rose a tad to 0.70 and the A/D line softened considerably on both exchanges.

Equity Call Volume(m)1.7-0.28-14.22%
Equity Put Volume(m)1.18-0.16-11.9%
CBOE Volatility Index14.91-0.07-0.47%
CBOE Nasdaq Market Volatility Index21.60.190.89%

Bonds rose at the long end, with the benchmark US 30-year bond yield shedding 0.029 points to 5.021%.

UST 2Y (yld)2.46-0.088-3.45%
UST 5Y (yld)3.401-0.05-1.45%
UST 10Y (yld)4.211-0.054-1.27%
UST 30Y (yld)5.008-0.038-0.75%

The Banks Index gained 0.11 points (0.11%), finishing the session at 98.65; within the index,

  • the Derivative King - JPMorganChase gained $0.01 (0.03%) to close at $39.45; and
  • Citigroup gained $0.16 (0.35%) to close at $46.46

The Broker-dealer Index gained 0.99 points (0.78%), finishing the session at 127.35; the ticket clippers lined up as follows -

  • Merrill Lynch gained $0.30 (0.58%) to close at $51.75
  • Morgan Stanley Dean Witter gained $1.01 (1.98%) to close at $51.99
  • Goldman Sachs gained $1.09 (1.21%) to close at $91.12
  • Lehman Brothers gained $0.80 (1.07%) to close at $75.40

The Philadelphia SOX (Semiconductor) index lost 3.88 points (1.01%), finishing the session at 380.4

  • Triquint lost $0.08 (1.96%) to close at $4.00
  • Micron Technology lost $0.20 (1.66%) to close at $11.83
  • Intel lost $0.18 (0.82%) to close at $21.77
  • Altera lost $0.38 (1.94%) to close at $19.18
  • JDS Uniphase lost $0.09 (2.81%) to close at $3.11

Other indices popular with the beta-chasers were down, with the

  • Biotech Index lost 3.07 points (0.61%), closing at at 498.04
  • the Hi-Tech Index lost 1.42 points (0.33%), to 427.66

Gold dropped $1.80 (0.44%) to 407.50, and the Gold Bugs Index dropped 2.15 points (1.05%) to close at at 203.18. Silver actually added a nickel or so, finishing at $6.61 per ounce. The Gold and Silver Index (XAU), lost 0.86 points (0.91%) and closed at 93.3.

PHLX Gold and Silver Index93.3-0.86-0.91%
AMEX Gold BUGS Index203.18-2.15-1.05%

Oil lost another 1%, dropping 44 cents a barrel to $43.18. This was no impediment to the Oil and Gas Index (XOI) which gained 4.06 points (0.65%), finishing the session at 625.08, and the Oil service stocks (OSX) Index gained 2 points (1.88%) to close at 108.52.

Reuters CRB274.75-0.05-0.02%
Crude Oil Light Sweet43.180.41-0.94%
AMEX Oil Index625.084.060.65%
Oil Service Index108.5221.88%

Currencies-wise, the US Dollar index softened a little bit, due mostly to gains in the Aussie dollar and the Yen.

US Dollar Index89.36-0.12-0.13%
Australian Dollar0.7035-0.002-0.28%
Swiss Franc1.2726-0.0007-0.05%

In Europe things were far more interesting than previous sessions: the surrender monkeys had a fit of enthusiasm, with France's benchmark CAC-40 Index stacking on 34.58 points (0.96%), finishing the session at 3629.84.

Not to be outdone, the German DAX-30 Index gained 43.4 points (1.15%), finishing the session at 3832.28, while the Poms joined the mood, lifting the FTSE-100 Index by 42.3 points (0.96%) to close at 4453.9.