Interdum stultus opportuna loquitur...

Wednesday, September 22, 2004

Synchronous Decline? Perhaps not just yet...

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Federal Reserve Open Market Operations

The Fed's OMO desk did a sissy little baby girlie $4.5 billion overnight repurchase, with a lousy weenie $3.9 bill in Treasury-backed issuance. That pretty much ruled out any decent sized Repo Pump or Midnight Moonshot.

Economic Statistics

The only data release last night was the MBA Mortage Applications number, which was up slightly to 456.6. the Refinancing component of the index was up slightly more sharply, rising 4.5% (although it's pretty volatile).

This just shows that the US mortgage market is reacting to every little downtick in 10-year interest rates (that's the rate that most mortgage writers are "cued" to). And the fact that people are looking to refinance means that they are taking out equity (no data on that yet, but that's what is happening). Mortgage rates have dropped 50 basis points in the last couple of months, as the yield curve has flattened.

US Markets

Before the open, some twat downgraded CSCO. Look in the InvestorWeb archive and you will see what I was saying about CSCO when it was over $60 - but you can't find it under my byline because someone has replaced my name with a generic Research title.

I think that's pretty funny, but I'm not sure how legal it is for archival material to be edited like that. It also raises questions over all other research on the site, if things can have their content, but not their date, retroactively altered. After all, if you can change the byline with no change to the date, why can't you change the recommendation? I'm sure ASIC will know.

Anyhow... CSCO got smacked for a little over 3%, and it sent a shudder through tech stocks. On the heels of the P&G downgrade yesterday (which sent a shiver through consumer staples stocks), a tech downgrade was not hugely welcome.

With a little over five minutes to go, the Dow had its fourth dip below 10100: previous efforts had resulted in a quick "push".

The index hit 10100.77 at 4:17 a.m. our time, and then rallied 25 points in as many minutes. It hit 10099.67 at 5:21, then rallied 15 points in 5 minutes. It hit 10099.15 at 5:31 and then rallied 17 points in 7 minutes... are you seasick yet?

Finally, at 5:53 it hit 10097.38 - its session low - and bounced to close at 10109 and change.

Every time the index broke 10100 - or threatened to - there was 990N, the quasi-mythical account that sticks 3000 lots on the bid in the S&P futures whenever things look shaky. In order to get the Dow above 10100 after 5:53, it was necessary for the "show bids" to exceed 5000 lots (briefly). under normal market conditions, the total bid/offer quantity rarely exceeds 1500 units.

Anyway, 990N was obviously "on the save". Then as soon as the cash market closed, the S&P futures made a new low for the session. So despite what looks like a bad session, there is still plenty of lipstick on the pig: it could have been much worse.

The DJIA lost 135.75 points (1.33%), closing out the day at 10109.18 points (and only a push in the last four minutes got it back above 10100). The broader S&P500 lost 15.74 points (1.39%), finishing the session at 1113.56.

Over at Times Square, the Nasdaq Composite lost 35.47 points (1.85%), to close at 1885.71, while the larger-cap stocks fared worse with the Nasdaq100 losing 31.69 points (2.21%), to end at 1404.22 points.

The broader stock market measures fell: NYSE Composite Index lost 84.66 points (1.28%), closing at 6548.56, while the broadest measure of US equities, the Wilshire 5000, posted a loss of 148.59 points (1.35%), finishing the session at 10861.63

NYSE Volume was reasonably solid, with 1.38 billion shares crossing the tape, while Nasdaq Volume was about average, with 1.6 billion shares traded.

Nasdaq Composite1885.71-35.47-1.85%
NYSE Composite6548.56-84.66-1.28%
Wilshire 500010861.63-148.59-1.35%
NYSE Volume1.38bn--
Nasdaq Volume1.6bn--
US 30-yr yld4.78%-0.07%-1.36%

Market Breadth & Internals

On the NYSE declining Issues outpaced advancers by 2310 to 1007, for a single-day A/D reading of -1303; and Nasdaq losers outpaced gainers by 2273 to 775. Those levels are usually followed by a short-term bounce, but the major stock indices were so overbought that any bounce tonight is likely to fade as soon as any Repo Pump is finished.

On the NYSE declining volume outpaced volume in advancing issues by 1157.15 to 212.09 million shares; that is simply ridiculous at over 5:1 in the decliners. On the Nasdaq the situation was a little less gloomy: declining volume outstripped volume in advancing issues by a ratio of about 3.5:1, with 676.26 million shares traded in losers versus 193.78 million shares in stocks that rose for the day.

72 NYSE-listed stocks rose to new 52-week highs, and 17 posted fresh 52-week lows, while on the Nasdaq there were 37 stocks that hit new 52-week highs, and 34 which fell to fresh 52-week lows. The number of stocks hitting new 52-week highs has been slowing recently on both exchanges, and the abnormally-low recent numbers of fresh 52-week lows seems to be on the rise a little.

Advancing Volume (m)212.09193.78
Declining Volume (m)1157.15676.26
New Highs7237
New Lows1734

Market Sentiment

For the bears, today's equity put-call ratio (PCR) should be worrisome. Call writing fell sharply and put writing rose significantly: the PCR hit unity (i.e., a value of 1).

That means that smart money (da Boyz) is selling loads of puts, and aren't selling nearly as many calls as they were recently. And for every option written, there is a buyer - most of them are newcomers to the market, and most of them will go broke.

Anyhow - what I am getting at is that a put-call ratio of 1 is about the level usually associated with the market making an interim low; that is slightly screwy considering the market's overbought condition (now almost two weeks old) which generates my selling bias.

At the end of the day, it's possible that this number is - like Monday's - a "blip" and nothing to worry about as far as the Ursine crowd is concerned. But along with the whacky advance-decline stats, it should make people look to trade an early bounce tomorrow. Whether the bounce sticks or not is another story entirely.

Volatility - as measured by the VIX and VXN - is still low enough to presage a serious decline, and the ratio of the SPX to the VIX is still in a Crash region (it's above 75, having hit 82 yesterday).

Other sentiment indicators - like the Bullish Percent Indices (or BPIs) - have bounced from the August 13 low, but there are numerous interesting divergences.

The BPI for the entire NYSE has hit 62.5 (meaning that 62.5% of all stocks on the NYSE are showing point-and-figure BUY signals), and the BPI for the S&P500 is also above 60. Both posted lows in the high 40's.

Meanwhile the BPI for the Nasdaq Composite remains at 43; its swing low was under 34. The situation is similar for the Nasdaq100 - which set its BPI low at just over 25 and has risen to 45; note that both major tech indices are under 50%, indicating that leadership during this recent oversold bounce has actually been narrower than the previous bounce this year.

Digging further still, the BPI for the S&P Information Technology Index has failed to break 40, while that for the S&P Financials Index has risen to 66 - that is, two thirds of financial stocks are showing point & figure buy signals. That shows that the rally is getting long in the tooth.

All charts of the BPI - except the financials - show a pattern of declining highs and declining lows; that means that each bounce has had progressively narrower leadership - a sort of "circling the wagons", and a dead-set sign of distribution. Add that to the obvious distribution pattern in the Dow (lower highs and lower lows for months) and you've set the scene to absolutely blindside an excessively complacent market.

Equity Call Volume1.89m-0.42m-18.26%
Equity Put Volume1.89m0.26m16.14%
CBOE Volatility Index14.741.087.91%
CBOE Nasdaq Volatility Index21.060.763.74%


There was an across-the-board rally in bonds last night, with the 10-year being the star. the yield curve flattened again, and 2-year notes are yielding less than 0.75% above Fed Funds - which is just ridiculous, and on an inflation adjusted basis it means that 2-yrs have a zero-to-negative real return. The benchmark US 30-yr yld dropped 0.066 points to 4.777%.

UST 2Y (yld)2.449-0.01-0.33%
UST 5Y (yld)3.239-0.033-1.01%
UST 10Y (yld)3.976-0.07-1.66%
UST 30Y (yld)4.773-0.068-1.4%
The Banks Index lost 1.37 points (1.38%), finishing the session at 97.77; within the index,
  • the Derivative King - JPMorganChase lost $0.25 (0.62%) to $39.85; and
  • Citigroup lost $1.27 (2.78%) to close at $44.38

The Broker-dealer Index lost 4.28 points (3.3%), finishing the session at 125.27; the ticket clippers lined up as follows -

  • Merrill Lynch lost $1.87 (3.53%) to $51.10
  • Morgan Stanley Dean Witter dropped $3.66 (6.99%) to close at $48.72
  • Goldman Sachs shed $1.51 (1.59%) to $93.39
  • Lehman Brothers lost $0.18 (0.23%) finsihing at $79.57

The Philadelphia SOX (Semiconductor) index lost 12.01 points (2.97%), finishing the session at 391.74

  • Triquint lost $0.14 (3.37%) to $4.01
  • Micron Technology lost $0.42 (3.29%) to close at $12.34
  • Intel lost $0.66 (3.13%) ending at $20.42
  • Altera lost $0.74 (3.54%) to $20.18
  • JDS Uniphase lost $0.15 (4.21%) to close at $3.41

Gold & Silver

Gold weakened by $2.50 (0.61%) to $407.50. The Gold Bugs Index dropped 1.12 points (0.52%), to 213.24 points. Silver rose $0.01 to close at $6.36 per ounce. The Gold and Silver Index (XAU) lost 0.56 points (0.58%), finishing the session at 95.81 points.

PHLX Gold and Silver Index95.81-0.56-0.58%
AMEX Gold BUGS Index213.24-1.12-0.52%


Oil was firmer, rising by $1.12 per barrel, closing at $47.96 per barrel. Despite this, the stocks in the Oil and Gas Index (XOI) were mostly offered. The XOI dropped 7.33 points (1.05%), finishing the session at 688.43, while the Oil service stocks (OSX) Index was less affected losing 0.13 points (0.11%), finishing the session at 118.4 points.

Reuters CRB279.251.250.45%
Crude Oil Light Sweet47.961.122.39%
AMEX Oil Index688.43-7.33-1.05%
Oil Service Index118.4-0.13-0.11%


US Dollar Index88.70.380.43%
Australian Dollarar0.70680.260.45%
Swiss Franc1.25950.00560.45%

European Markets

France's benchmark CAC-40 Index lost 39.03 points (1.05%), finishing the session at 3692.11; the German DAX-30 Index lost 48.67 points (1.22%), finishing the session at 3942.35; and in the UK, the FTSE-100 Index lost 16.1 points (0.35%), finishing the session at 4592.3 after setting a 2-year high earlier in the session.