Interdum stultus opportuna loquitur...

Wednesday, October 27, 2004

Here's That Bounce (see Friday)

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

I think I know why people find those "Left Behind" novels so riveting - those are the religious-whackery nutball-job books about the impending Rapture and Armageddon.
Being left behind must be one of the most terrifiying things... and I can really feel it. By being too much of a cheapskate while trying to get hold of the $89 December expiry puts over Live Cattle, I've been left behind in a big way. I was keen to get those options at $1.90ish, but they've never even looked like it - and at the moment they're at $2.85 having been as high as $3.15. Like I said, I should've just sold a futures contract rather than trying to be an options smartarse. As Joe Dolce mused in one of his e-letters (the one where he poked fun at Left Behind) I need a good swift kick in the Left Behind.
Economic Statistics
One significant data point last night - the Conference Board's Index of Consumer Confidence. It was significantly worse than expectations; the consensus guess was for confidence to fall to 94, but instead fell to 92.8; most of the damage in the index resulted from a downshift in expectations of the future - the "expectations" component of the index fell to 92 which is its lowest level since March.
The other data that was released were the two weekly chain store sales numbers - and both were bad.
The ICSC-UBS Store Sales numbers showed a decline of 0.6% from the previous week, and a modest 3.6% rise in spending year-over-year. The Redbook survey showed much the same, with a 0.7% fall for the month to date and a 3.1% increase over last year.
Federal Reserve Open Market Operations

No liquidity, no bounce - that's always my view. Last night the Fed obliged as any good crack dealer ought to - feeding its liquidity-addicted market brethren.

The Open Market Operations desk performed a single $6.5 billion overnight repurchase, with all of the repo in market-goosing Treasury-backed collateral..

And the timing of the low for the session? Go on - guess. No, seriously - guess.

If you guessed "Midnight", give yourself 16 free S&P futures points (USD$800), because let me tell you, the "buy at midnight" trade never looked back. After some pretty weak data, the market simply took off; the low tick was bang-on midnight, and the high print for the day was at the close.

Major US Indices

It's all very well engineering a short-squeeze every now and then (and recall how easy it was to forecast this week's bounce last week) - but there's no getting away from the fact that the US economy's statistical mirage of a recovery is being exposed for the maggotty carcass that folks like me always suspected.
"Liquidity always wins"... "don't fight the Fed"... blah blah blah.
My mate Tim the Ginger Menace sent me an old UBS "call" from January 2001, by none other than Ed Kerschner - telling UBS clients about how the recent (as of jan 2001) "pullback" was just like the pullback in 2000... that is, a buying opportunity. God stab my vitals!
Funny how people who always yabber about "don't fight the Fed" never quote that line of crap when the Fed's tightening.
Anyhow. we got our bounce. As I said last Friday, the key question is whether or not this bounce can be sustained until the end of this week - if so, the "one news cycle" mentality of Americans will wash the palimpsest of the collective memory of US "investors". They will remember nothing of Bush's economic vandalism... only the unalloyed joy of a five-session advance.
(And of course this bounce has helped my bond trade nicely)...

The DJIA advanced 138.49 points (1.42%), closing out the day at 9888.48 points; the broader S&P500 rose 16.29 points (1.49%), closing at 1111.09.

Over at Times Square, the Nasdaq Composite added 14.75 points (0.77%), to close at 1928.79, while larger-cap technology issues fared worse with the Nasdaq100 adding 9.57 points (0.67%), to end at 1442.14 points.

Insurance stocsk were the big winners, with Dow component AIG stacking on 7.5% as investors decided to ignore the fact that AIG is being investigated for premium-rigging. Insted, "investors" decided that a drop of $12 (18%) in ten session was worth a punt. (Note that AIG also bounced on the third day after the announcement of the Department of Justice investigation... but never actually managed to be properly resurrected).
But of course investors had every reason to feel that the DoJ investigation is done and dusted... after all, the company stated in a press release that it would "seek a prompt resolution of outstanding issues". I guess that means that punters think "resolution" means "positive outcome for the defendant"...
Also, Marsh & McLennan (MMC)- the world's largest insurance broker and the company at the centre of New York Attorney-General Eliott Spitzer's latest crusade - rose 9%. It's CEO resigned, and Spitzer declared he would not pursue criminal charges against the company.
MMC was a $46 stock three weeks ago; now it's a $28 stock; regardless of whether the company is the subject of criminal action by Spitzer, these things have a habit of ramifying; each time Spitzer lifts the lid, the under-funded and udnermanned Securities And Exchange Commission gets another hint as to where to look for corrupt practices. So expect the SEC to knock on MMC's door - expect earnings restatements.
David Fleckenstein has a very interesting take on the recent weakness in insurance stocks - particularly in light of the toxic trade in derivatives they are involved in.

NYSE Volume was chunky, with 1.69 billion shares changing hands, while Nasdaq Volume was also well above average, with 1.82 billion shares crossing the tape.

Nasdaq Composite1928.7914.750.77%
NYSE Volume1.69bn--
Nasdaq Volume1.82bn--
US 30-yr yld4.76%0.01%0.17%

Market Breadth & Internals

On the NYSE, advancing Issues exceeded decliners by 2339 to 957 for a single-day A/D reading of 1382 - well above the "mindless optimism" benchmark of net 1200; Nasdaq gainers trumped losers by 1776 to 1259.
NYSE advancing volume exceeded volume in decliners by 1355.14 to 313.82 million shares - a ratio of 4.3:1, again above the sorts of levels that imply rashness. Nasdaq advancing volume was greater than volume in decliners by 605.49 to 398.32 million shares.

115 NYSE-listed stocks rose to new 52-week highs, and 26 posted fresh 52-week lows, while on the Nasdaq there were 93 stocks that hit new 52-week highs, and 58 which fell to fresh 52-week lows

Advancing Volume (m)1355.14605.49
Declining Volume (m)313.82398.32
New Highs11593
New Lows2658

Market Sentiment

Finally, the sentiment indicators are resolving themselves. Call option buying spiked last night, and put buying softened considerably. The herd is on the charge - which means that there will be a load of carcasses at the bottom of the next cliff.
The equity only Put Call Ratio declined to 0.64 - still well above the 0.5-0.6 seen at market tops, but nonetheless indicative of option buyer complacency (as is the VIX).
Equity Call Volume2.36m0.26m12.34%
Equity Put Volume1.51m-0.1m-6.32%
CBOE Volatility Index16.39-0.19-1.15%
CBOE Nasdaq Volatility Index22.47-0.23-1.01%
Equity Put-Call Ratio0.64-0.13-16.61%
SPX-VIX Ratio67.791.75942.66%


The December04 contract in the 30-year bond finished the session at 114 & 1/32 - precisely my shorting price from last week. The Lehman 20-year Treasury iShares (TLT) fell 27c to $89.62 and the $89 strike option (TLT WK) rose to $75.
Bonds fell across the spectrum in the face of the strong stocks, with the yield on the benchmark US 30-yr bond rising 0.8 basis points to 4.762% and the yield on the 10-year nudging 4% again.

UST 2Y (yld)2.5160.020.84%
UST 5Y (yld)3.2510.0170.53%
UST 10Y (yld)3.9990.030.83%
UST 30Y (yld)4.7650.0130.27%
The Banks Index rose 1.51 points (1.58%), at 97.37; within the index,
  • the Derivative King - JPMorganChase rose $0.47 (1.27%) to $37.49; and
  • Citigroup posted a rise of $0.76 (1.78%) ending the day at $43.34

The Broker-dealer Index rose 1.63 points (1.26%), closing at 130.89; the ticket clippers lined up as follows -

  • Merrill Lynch advanced $1.12 (2.16%) at $52.92
  • Morgan Stanley Dean Witter added $1.17 (2.43%) at $49.25
  • Goldman Sachs rose $1.34 (1.45%) to end the session at $93.76
  • Lehman Brothers advanced $1.69 (2.14%) to $80.60

The Philadelphia SOX (Semiconductor) index declined 1.1 points (0.28%), closing at 396.77

  • Triquint declined $0.21 (5.71%) closing at $3.47
  • Micron Technology slid $0.02 (0.17%) at $11.69
  • Intel posted a rise of $0.09 (0.42%) ending the day at $21.40
  • Altera declined $0.31 (1.41%) closing at $21.65
  • JDS Uniphase lost $0.02 (0.59%) closing at $3.39

Gold & Silver

Gold weakened by $1.7 (0.4%) to $427.7 per ounce. The Gold Bugs Index lost 1.68 points (0.7%), to end the session at 237.87 points.
Silver fell by $0.03 (0.34%) to close at $7.35 per ounce. The Gold and Silver Index (XAU) lost 0.33 points (0.31%), closing at 105.65 points.
PHLX Gold and Silver Index105.65-0.33-0.31%
AMEX Gold BUGS Index237.87-1.68-0.7%


Oil was firmer, rising by $0.93 per barrel, closing at $55.22 per barrel. The Oil and Gas Index (XOI) posted a rise of 3.59 points (0.51%), closing at 711.25 points.
The Oil service stocks (OSX) Index added 1.68 points (1.38%), to end the session at 123.1 points.
Reuters CRB287.500%
Crude Oil Light Sweet55.220.931.71%
AMEX Oil Index711.253.590.51%
Oil Service Index123.11.681.38%


The US dollar had a bit of a reprieve from its recent pain, rising a little across the board. The decline's not over yet, but with the election in a week I doubt that there will be much action in forex markets until the election is resolved (or descends into litigation and chaos... dollar bears would love to see Ohio become the focus of massive electoral litigation...)
US Dollar Index85.30.230.27%
Australian Dollar0.7457-0.0003-0.04%
Swiss Franc1.20110.00490.41%

European Markets

France's benchmark CAC-40 Index gained 10.42 points (0.29%), ending the day at 3619.48; the German DAX-30 Index added 7.85 points (0.2%), closing at 3862.26; and in the UK, the FTSE-100 Index gained 18.9 points (0.41%), to 4583.4 points.