Interdum stultus opportuna loquitur...

Wednesday, August 25, 2004

The Sound of Thundering Hooves...

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The Fed did a decent sized repurchase ($7.5bill, overnight, with $7.064bn in T-backed). That meant da Boyz had plenty of hot sauce for the market tamale.
Prior to the open, some economic data came out; durable goods orders had a better-than-expected result, thanks largely to a 100% increase in the purchase of passenger aircraft.
Anybody who has read my stuff before will realise that I never look at the overall number; the only number in that report that I care about is non-defence capex ex-aircraft. While that measure grew, it slowed from the previous period.
Anyhow, the market didn't respond to that one little bit. Take a look at an intraday futures chart; not even a blip as the data came out.
More ominous was a sharp decline (6.4%) in New Home Sales; and that decline was from a previous month which was revised downward a whopping 8.9% already!!! Talk about "government statistical massage"; revise the previous number down by nearly 10% - hoping nobody looks at that - to ameliorate what is an absolutely appalling number otherwise. Without the revision (that is, taking the NEW data and putting it into an Excel spreadsheet that contains last month's data, and comparing the two), the decline was 14.7%.
It means sod-all for the equities market on a day-to-day basis, but it is a symptom of a broader "nasty" that is waiting down the pike.
Median prices for new homes also fell 2.4% during the period... which, let's remember, is a month. All those housing nuffnuffs who are buying-to-let on 100% margin with adjustable rate mortgages, should have just heard their wake-up call about now... So anyway - the market opened pretty weak on the back of those two numbers - although Boeing was chugging along nicely thanks to the view through the rear-view mirror (plus an announcement that Singapore is buying 31 new aircraft). Why folks would buy BA based on last month's aircraft orders is beyond me, but there you go.
At midnight (shortly thereafter) something changed. The equities market stabilised at around the levels of yesterday's low. As the chart shows, a CCI divergence gave a "heads up" to anyone who was holding short; price declined to a new low but the CCI failed to confirm. to anybody who bothered to look, this was a "whiff of grape".
A little intraday triangle that had been forming resolved to the upside, coinciding with a crossover on the MACD. Then it was on for young and old, pretty much to the end of the session.
Mid-session, Crude oil futures started accelerating downward, despite a drop in inventories. And the equities market - fueled no doubt by nuffnuffs who buy this whole "equities are now a synthetic crude oil short" rubbish - took off in a flagpole advance. Wave after wave of very high TICK readings (>1000) slammed the market higher, indicating that someone with a decent sized wad of cash was buying stocks at the offer... the herd was on the charge.
The afternoon strength was always going to be hard to trade given my current selling bias - especially given the intraday technicals... so I went back to bed. Simple, really; pick a side and trade that side... and if it's the wrong side, either change sides or look away.
I will say it again, though - never trust a rally that starts at lunchtime on a day that has low volume anyhow.
The Crude market is massacring newbie oil "experts" - part of the new herd of would-be commodity traders. That doesn't surprise me one iota. The crude oil market is thin, and the big boys love it when fresh meat walks into their killing floor. Once everybody thinks new highs are a "given", it's time to "gun some stops" and shake out the weak hands. As I said yesterday, Blind Freddie saw this "giveback" coming...
Reviewing the past few days, it's interesting to note what has happened to the QQQ. I was a little bit wary of the requirement to change bias (although it's been working early in the session), mostly because QQQ had not yet reached a genuine overbought level, and had not gone up to "kiss" its overhead moving averages. Well, it has now done the first, as the chart below demonstrates; the raw %R is well into overbought territory. It has also registered overbought on the ROC - although it's still not overbought on my smoothed %R.
Sentiment continues to reflect a high rather than a low: there were masses of equity calls bought last night (equity call volume was up a staggering 20%) and the equity put-call atio has dropped to 0.66.
The VIX has dropped again, registering a reading usually associated with a top. The advance-decline numbers are also at levels which are more likely to stop a rally; advances-declines (the "A/D line") is over 1300 on the NYSE and over 1100 on the Nasdaq. Furthermore, volume is 3-1 in favour of advancers on the NYSE and almost 5-1 on the Nasdaq.
Sentiment & Internals
Equity Call Option Volume (m)1.980.3521.31%
Equity Put Option Volume (m)1.34-0.02-1.81%
CBOE Volatility Index14.98-0.35-2.28%
CBOE Nasdaq Volatility Index21.41-0.56-2.55%
Advancing Volume (m)885.49472.29
Declining Volume (m)291.995.5
New Highs6837
New Lows1042

The Dow Jones Industrial Average gained 83.11 points (0.82%), closing out the day at 10181.74 points; the broader S&P500 Index gained 8.77 points (0.8%), finishing the session at 1104.96.

In Tech-Nirvana it was all, like, "Happy Happy Joy Joy". The Nasdaq Composite gained 23.83 points (1.3%), to close at 1860.72, while the larger-cap stocks fared even more better with the Nasdaq100 Index adding 19.39 points (1.42%), to end at 1389.17 points.

The broader stock market measures rose about in line with the Dow: the NYSE Composite Index gained 49.28 points (0.77%), closing at 6431.79, while the broadest measure of US equities, the Wilshire 5000 gained 85.32 points (0.8%), finishing the session at 10723.69.

NYSE Volume was reasonably light at 1.19 billion shares, and Nasdaq Volume was also a bit below average, with 1.31 billion shares crossing the tape.

Dow Jones Industrial Average10181.7483.110.82%
S&P500 Index1104.968.770.8%
Nasdaq Composite1860.7223.831.3%
Nasdaq100 Index1389.1719.391.42%
NYSE Composite6431.7949.280.77%
Wilshire 500010723.6985.320.8%
NYSE Volume1.19bn--
Nasdaq Volume1.31bn--
US 30-year bond yield5.05%-0.02%-

Bonds rose at the long end, with the benchmark US 30-year bond yield shedding 0.02 points to 5.05%. Shorter maturities lost ground; in effect the yield curve flattened a little bit.

US 2Y (yld)2.4660.021
US 5Y (yld)3.4550.009
US 10Y (yld)4.267-0.006
US 30Y (yld)5.049-0.015
The Banks Index gained 0.7 points (0.72%), finishing the session at 98.54; within the index,

  • the Derivative King - JPMorganChase gained $0.85 (2.2%) to close at $39.44; and
  • Citigroup gained $0.38 (0.83%) to close at $46.30

The Broker-dealer Index gained 2.53 points (2.04%), finishing the session at 126.36; the ticket clippers lined up as follows -

  • Merrill Lynch gained $0.41 (0.8%) to close at $51.45
  • Morgan Stanley Dean Witter gained $1.15 (2.31%) to close at $50.98
  • Goldman Sachs gained $2.50 (2.86%) to close at $90.03
  • Lehman Brothers gained $1.43 (1.95%) to close at $74.60

The Philadelphia SOX (Semiconductor) index gained 4.01 points (1.05%), finishing the session at 384.28

  • Triquint lost $0.04 (0.97%) to close at $4.08
  • Micron Technology gained $0.13 (1.09%) to close at $12.03
  • Intel gained $0.28 (1.29%) to close at $21.95
  • Altera lost $0.10 (0.51%) to close at $19.56
  • JDS Uniphase gained $0.08 (2.56%) to close at $3.20

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

  • Biotech Index gained 10.2 points (2.08%), finishing the session at 501.11; and
  • the Hi-Tech Index gained 7.13 points (1.69%), finishing the session at 429.08

Gold gained $1.69 (0.42%)helping the Gold Bugs Index to add 5.98 points (3%), finishing the session at 205.33. Silver gained 1.7c (0.26%) and together Gold and Silver Index (XAU) gained 2.5 points (2.73%), finishing the session at 94.16.

Gold ($/oz)409.31.690.42%
Silver ($/oz)6.631.70.26%
PHLX Gold and Silver Index94.162.52.73%
AMEX Gold BUGS Index205.335.983%

Oil got smacked, dropping $1.70 a barrel (3.77%). Despite this, the Oil and Gas Index (XOI) gained 2.79 points (0.45%), finishing the session at 621.02, and the Oil service stocks (OSX) Index gained 1.41 points (1.34%), finishing the session at 106.52.

Reuters CRB27500%
Crude Oil Light Sweet43.611.71-3.77%
AMEX Oil Index621.022.790.45%
Oil Service Index106.521.411.34%

Currencies were a mixed bag, but the Japanese Yen finally got its groove going (see? I am hip...) and started to line up with the rest of the basket.

US Dollar Index89.45-0.08-0.09%
Swiss Franc1.27260.00020.02%

In Europe, things were reasonably quiet. France's benchmark CAC-40 Index gained 0.88 points (0.02%), finishing the session at 3595.26. The Germans (or "ze Chermans" as I like to say) were a bit more enthusiastic, with the DAX-30 Index adding 17.88 points (0.47%), finishing the session at 3788.88.

The Poms had a similar ennui to the French, and the FTSE-100 Index gained a measly 4.1 points (0.09%), finishing the session at 4411.6.