Interdum stultus opportuna loquitur...

Saturday, October 23, 2004

Dow: A New Low for the Year...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

Before I get to the market stuff, I've got to get a nagging issue out into my little corner of cyberspace.

I am highly suspicious of this recent "child porn" "sweep. There. I've said it.

Folks are no longer sufficiently scared by "terrorism" (read: the only way the Third World can try and force the First World to back off), so it's time for a new bogeyman. And everybody loves kiddies and is viscerally appalled by anyone who would do harm to them.

This "kiddie porn" imbroglio (or even frisson) strikes me as a very obvious government-agency-as-protector-of-the-innocent exercise. It is aimed at keeping housewives in a state of high anxiety and making the general public view government enforcement agencies as soething other than the means by which government arrogates to itself the exclusive right to organised violence.

Ask yourself how easy it is to "push" data to someone's PC.

Ask yourself how easy it is for folks with malevolent intent to get access to an individual's credit card number and make a false-flag "subscription" to a kiddie porn site.

And what happens if ANY of the people who have been very publicly rounded up, is INNOCENT? They might get off at trial, or even be released beforehand - but their reputations will be screwed FOR THE REST OF THEIR LIVES in such a way that they could never be compensated.

The other thing that is accomplished, is preparing the public consciousness for further erosions in due-process protections and the presumption of innocence. We are alredy at the stage where any man who so much as speaks to a child who's not his, is looked at askance by all onlookers. That is just wrong (especially since most child abuse takes place in the home and a good proportion of offenders are women.)

Notice where the "sweep" was concentrated? The United States, and here (thanks to Howard's leadership in the "conga line of suckholes" of second-rate countries who will always brown-nose the United States.)

And finally, it appears that several dozen of the accused have a few characteristics in common - which have nothing to do with pornography.

OK.... time to upgrade my firewall and buy some more tin-foil to make my hat thicker.

Federal Reserve Open Market Operations

The Fed's open markets operations desk said "No soup for you" last night, performing an uninspiring $2 billion over-the-weekend repurchase, with $1.906 billion in Treasury-backed collateral.

With no liquidity to slosh into the system, da Boyz had to play with their own money - and you seldom get a decent market move when houses like the LynchMob are required to put their own capital at risk.

Economic Statistics

The data slate was empty last night; nothing to report. Next week sees a bit of a slew, however; GDP, Durable Goods, Chicago NAPM, Fed Beige Book and so forth.

Now if I as a real cynic, I might assume that all of the forecasts for those datapoints will be "lowballed" so that the sputtering US economy "beats expectations" in the leadup to the Election (which is now... what.. 10 days away?).

It would set the stage for an equities rally next week (or maybe even just the last few days of next week) which might - might - save the Bushistas from being thrown out, given the one-news-cycle attention span of Americans.

Major US Indices

It was pretty much one-way traffic from the jump last night; and that traffic was down.

One highly notable exception, which gives the lie to any talk of this downswing being over yet: Google.

Google's earnings report gave the faithful additional excuses to treat the stock like it's 1999/2000. GOOG posted earnings of 19c a share, more than double the previous year. It rose 15.4% last night to $176, and is up over 100% from its IPO issue price of $80.

That's right, Virginia... 19c a share (83c for the year is forecast) and its trading at $176, for a PE of a hair under 200 on a forward basis. And the options market (both calls and puts) is experiencing an avalanche of Google turnover. My money will be on the puts, but not yet. But when GOOG weakens, there will be a small fortune to be had as it corrects back down to $25-$40 where it belongs.

Enough about Google (I love what it does, by the way). The rest of the market is conforming to expectations quite nicely. I have been somewhat apprehensive - given the high put volume recently - that there might be a bounce, but thankfully we took out the year low (in the Dow) before sufficient oversold conditions were developed (and I reiterate - you will not see a meaningful bounce if the Fed isn't pumping money into the repurchase market).

If anything, there is now a good technical case for a renewed resynchronisation to the downside. The tech indices have squirted up on every little glimmer of hope that has been shed; the Nasdaq is nowhere near oversold at this point, and call volume in technology and internet stocks is very high.

Last night was pretty lopsided; only one Dow component rose for the session (Caterpillar, which had fallen 4% the previous session). Apart from CAT, MAcDonalds was unchanged, and that was yer bloomin' lot (Damn! What a time to let slip that I watch The Gardening Show on the ABC).

Recall what I had said last night about Microsoft's earnings (that they weren't that flash) - the market had already given me some signs of agreement (after-hours falls in MSFT). That fall held during the day session, which was a relief (for me) and resulted in MSFT breaking below a little trend channel that has been moving support for the last month. The software giant now sits right at the top of a little congestion range that developed from early August to mid-September; a break below that would be very danger.

When all was said and done, the Dow Jones Industrial Average shed 107.95 points (1.09%), closing out the day at 9757.81 points; the broader S&P500 slid 10.75 points (0.97%), closing at 1095.74.

Over at Times Square, the Nasdaq Composite dipped 38.48 points (1.97%), to close at 1915.14, while larger-cap technology issues fared worse with the Nasdaq100 losing 36.54 points (2.48%), to end at 1438.25 points. That gave back all of the little squirt of the last couple of days, but still left the Nasdaq100 with a gain of 8 points (0.55%) for the week.

Likewise, the Semiconductor Index (SOX) gained 3.7% for the week despite an awful shellacking last night. The difference is, that the SOX did not fall past the previous session's low.

NYSE Volume was pretty solid, with 1.47 billion shares traded, while Nasdaq Volume was above average, with 1.73 billion shares changing hands.

Nasdaq Composite1915.14-38.48-1.97%
NYSE Volume1.47bn--
Nasdaq Volume1.73bn--
US 30-yr yld4.753%-0.017%-0.15%

Market Breadth & Internals

On the NYSE declining Issues beat out advancers by 2080 to 1173, for a single-day A/D reading of -907; and Nasdaq losers exceeded gainers by 2005 to 995. That looks too lopsided, and Monday is might see an early bounce - especially since the market has no memory over the weekend; if you look at intraday data there is money to be made on the long side on Monday morning, more often than not. Market participants are like enthusiastic goldfish; they come to work on Mondays with a song in their hearts and very little in their brains (I hated "Finding Nemo", but Mondays always remind me of the Ellen de Generis character).

On the NYSE declining volume was greater than volume in advancing issues by 979.93 to 438.42 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 662.98 to 258.31 million shares. Now that is interesting; notice how volume is not particularly tilted given the very skewed advance-decline numbers - the volume tilt on both exchanges was only slightly greater than 2:1 to the downside.

103 NYSE-listed stocks rose to new 52-week highs, and 28 posted fresh 52-week lows, while on the Nasdaq there were 81 stocks that hit new 52-week highs, and 51 which fell to fresh 52-week lows.

Advancing Volume (m)438.42258.31
Declining Volume (m)979.93662.98
New Highs10381
New Lows2851

Market Sentiment

Odd that such a down night should also see a falloff in put volume; that said, put turnover has been particularly high these last few sessions.

The volatility indices are still very low, which means that options are cheap (because option prices are an increasing function of volatility); a spike in volatility could see out-of-the-money option prices increase (for while) as a result of volatility premium increasing at a rate that more-than-compensates for time decay. Keep in mind also that market bottoms - real, solid, tradable for more than a few days bottoms - do not occur when volatility is this low.

Equity Call Volume2.49m-0.24m-8.78%
Equity Put Volume1.76m-0.26m-12.69%
CBOE Volatility Index15.280.745.09%
CBOE Nasdaq Volatility Index21.3614.91%
Equity Put-Call Ratio0.71-0.03-4.28%
SPX-VIX Ratio71.71-4.389-5.77%


In the early going, it was looking particularly good for short positions in the 30-year bond; entries made at the 14 & 1/32 price were up by 13 ticks - which is nothing to be sneezed at (at $31.25 a tick, that's $406.25 on a $2025 initial margin).

That price - which was the price at which ZB04Z was trading when I posted yesterday's Rant - was seen again right at the open of the Globex/ACE session of the electronic overnight market (7 p.m. Chicago time), so it could definitely be taken as an entry price.

There was a pretty big rally off the lows in bonds that took the December contract from 113 & 20/32 all the way back above 114 and as high as 114 & 13/32. I don't know how other folks play, but if any intraday bond trade is up more than a quarter point, I shift my stop to break-even. But since that wasn't explicitly said beforehand, I'll assume that I'm still arrying one ZB04Z short from 114 & 1/32 (the market closed at 114 & 6/32).

Anyhow - it was simply a function of weakness in equities, rather than inherent strength in bonds.

The Lehman 20-year iShares (TLT) also had a rally in the afternoon, and a bid that was put in at $70 for TLTWK would have been triggered in the afternoon if it wasn't cancelled (it should have been cancelled, since equities weakness was specifically cited as countermanding any entry).

Anyway... if I had been awake I would not have removed the bid - so I'm prepared to acknowledge 2 TLTWK bought for $70 apiece. (I've got a feeling these are going to sting a bit).

After some significant early weakness, bonds rallied late and closed up along the curve, with the yield on the benchmark US 30-yr yld shedding 1.7 basis points to 4.753%.

UST 2Y (yld)2.499-0.04-1.65%
UST 5Y (yld)3.246-0.035-1.07%
UST 10Y (yld)3.974-0.03-0.72%
UST 30Y (yld)4.753-0.017-0.36%
The Banks Index declined 0.65 points (0.67%), to 95.91; within the index,
  • the Derivative King - JPMorganChase lost $0.23 (0.61%) to end the session at $37.47; and
  • Citigroup shed $0.39 (0.91%) to end the session at $42.56

The Broker-dealer Index declined 0.1 points (0.08%), ending the day at 129.96; the ticket clippers lined up as follows -

  • Merrill Lynch declined $0.25 (0.48%) at $52.25
  • Morgan Stanley Dean Witter slid $0.38 (0.78%) closing at $48.32
  • Goldman Sachs dipped $0.77 (0.82%) to end the session at $92.70
  • Lehman Brothers slid $0.06 (0.08%) to end the session at $78.66

The Philadelphia SOX (Semiconductor) index declined 13.82 points (3.38%), to end the session at 395.16

  • Triquint shed $0.48 (11.54%) ending the day at $3.68
  • Micron Technology lost $0.32 (2.7%) at $11.53
  • Intel lost $0.39 (1.8%) at $21.30
  • Altera declined $0.94 (4.14%) at $21.77
  • JDS Uniphase dipped $0.17 (4.78%) at $3.39

Gold & Silver

Gold is bouncing every time it pulls back intraday. That points to too many novices in the market. I would be approaching any entry to the gold market with absolute caution at present; watch for some chicanery - such as large-lot selling during the Asian session in forward-months (which will drive the front-month down through arbitrage, making others carry the weight of puching the market down in the more-liquid front month).

After dipping to $423.20 intra-session, Gold rallied, then softened, then rallied again. By the close it had added a paltry $0.10 (0.02%) to $425.60 per ounce. That's not a particularly good sign given the weakness in equities, although gold bulls with an eye on intraday action will see a series of higher highs and higher lows intra-session.

The Gold Bugs Index lost 1.3 points (0.56%), at 230.55 points.

Silver rose $0.03 (0.41%) to close at $7.33 per ounce. The Gold and Silver Index (XAU) gained 0.13 points (0.13%), ending the day at 102.36 points.

PHLX Gold and Silver Index102.360.130.13%
AMEX Gold BUGS Index230.55-1.3-0.56%


It just keeps on climbing. Reversal days - like the session earlier this week when Oil set a new high, only to reverse by $2 a barrel - are simply buying opportunities... or so ze Chermanz would have you believe.

It's not time to take a contrarian punt against oil - yet. But I would not be initiating any new longs at this level either. The market is starting to show divergences on medium-term charts, and pretty soon there will be a shakeout.

The market is like that: any time anything looks like a "slam dunk" which will enrich any schlub who ponies up the margin, it's time to take the opposite bet. As Marc "Doktor Dooooom" Faber has said most eloquently - good investors walk a lonely road. Few people wanted long oil positions in the $19-$20 range (I did), and few people wanted long Euro and Gold positions in the 85's (Euro) and $270s (Gold).

Nowadays everybody sees CL (Oil), GC (Gold) and EC (EURUSD) longs as tickets to the big time (although I would argue that the shakeout from $1.29 down to $1.19 in the Euro probably scared a lot of new traders witless).

There has only been one decent correction in EC, and one in GC, and no real pullback of any note in Oil. I think we're seeing an intermediate top (think "Silver's move after it hit $8.25"), but there is no sense in shorting yet.

Does this look sane to you?

Oil was firmer, rising by $0.47 per barrel, closing at $55.15 per barrel.

The Oil and Gas Index (XOI) gained 2.15 points (0.3%), at 707.53 points.

The Oil service stocks (OSX) Index slid 1.12 points (0.91%), closing at 121.77

Reuters CRB287-0.25-0.09%
Crude Oil Light Sweet55.150.470.86%
AMEX Oil Index707.532.150.3%
Oil Service Index121.77-1.12-0.91%


The weakness in the US dollar index is starting to get too much coverage. Like any market in which the "pundits" are all on the same side of the boat, the smart thing to do is to watch for a very stiff move against the direction in which the pundits are betting.

The first target I have mentioned in these Rants, is 82. That's only three "bad" sessions away (but we have had enough bad sessions recently to permit a bounce). Thinking a bit harder, I would expect the USDX to bounce - hard - from close to that level (either side of it, and possibly even a quarter-point above it - just to confound everybody who is waiting for 82).

Longer term, the US dollar is headed back to where it was in the 1980s.

US Dollar Index85.95-0.18-0.21%
Australian Dollar0.740.00330.46%
Swiss Franc1.211-0.0064-0.53%

European Markets

France's benchmark CAC-40 Index lost 0.36 points (0.01%), to end the session at 3687.17; the German DAX-30 Index gained 1.08 points (0.03%), at 3935.14; and in the UK, the FTSE-100 Index declined 2 points (0.04%), to end the session at 4615.4 points.