Interdum stultus opportuna loquitur...

Friday, October 22, 2004

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My spelling is shocking at the best of times, but today I've not even bothered to proof-read this... I've got a shocking sore throat and you probably do not want to know the colour of the goo being exuded from my nasal passages.

What's that? You do want to know? It's hard to describe - it looks far less "pea soup"-ish than the stuff that Linda Blair's character projectile-vomited in The Exorcist, but it feels like about the same by volume.

But enough about the emerging evidence of a marked (and hopefully temporary) increase in productivity in the snot-production sector.

The major news for the day happened after the market; you will recall that I was not impressed with the journalistic rationale for yesterday's afternoon jamjob... that "reason" was that people were trying to "get in ahead of Microsoft's earnings release".

Well, at 6:15 a.m. our time, Microsoft released its earnings, and it was not that flash. Depending on who you ask, they either missed the consensus guess (consensus was 30c, MSFT managed 27c), or beat it (because the eps number included a 5c charge for options compensation).

The initial reaction of MSFT stock in the aftermarket was to drop over $1 (from its close at $28.56 to an Instinet low of $27.43), but subsequently it has regained the $28 mark (or thereabouts... it's at $27.94 as I write). Nasdaq futures dropped 11 points pretty much straight away as well, but have also bounced to erase about half of that drop.

More importantly, MSFT's guidance was pretty ordinary; they are only expecting a 1c increase in earnings (after charges for options compensation) next quarter, and full year earnings of $1.07-$1.09 per share (giving them a PE to forward earnings of 25 - too high for a mature stock).

They exceeded estimates for current quarter revenue, but have guided next quarter's revenue to a range where both the upper guess and the midpoint ($10.5 bill, $10.4 bill, respectively) are below the current estimate of $10.63 bill. Frankly it's not very impressive.

Oh - and AMZN missed earnings expectations by quite a margin - althoug again you have to be careful. Its reported EPS was only 13c, but its proforma EPS was 17c. The consensus guess was 18c.

Now... Amazon missed expectations regardless of how you slice those numbers. But to read Dow Jones Newswires, you would think they blew the doors off... headlines like "AMZN 3Q Net Triples on Lower Prices, Free Shipping".

AMZN's reported earnings tripled... its pro forma earnings were only up 55% (a little more than half). So why would Dow Jones newswires concentrate on pro-forma for the comparison to expectations, but reported earnings for the "triple"? Simple, silly, because they're journalists and have a vested interest in a good story. Wankers.

Anyhow, AMZN stock got thrashed, falling 8.8% in the aftermarket (and it was even lower at one stage).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk finally brought back the punchbowl, performing two big repurchases which were highly concentrated in stock-boosting Treasury-backed collateral.

First, at 8:35 a.m. NY time, there was a $10 billion 14-day repo, entirely in T-backed, and then at 9:45 came another $8.5 billion overnight with $8.046 billion in T-backed.

The "buy at midnight on repo data" strategy worked again, but yet again there was a requirement to hold one's breath for longer than is usually sensible. The morning session low was set at 22 past midnight, with the S&P futures 3.5 points below the midnight level. From there, they rose 7.5 points in 40 minutes, giving a net "4" for anyone who was brave or foolhardy enough to hold the trade.

Interestingly, all that - and more- was given back in the following 2 hours, as the futures dropped 10.75 points and scraped below 1100 again. Another afternoon jamjob saw the market make its high for the day inside the last hour. So all up, there were 3 decent sized, tradable swings; up 7.5, down 10.75, and up 12. That's a market that doesn't know what to do with itself - and a market that is being held up rather than bought up.

Economic Statistics

At 10:30 our time (an hour before the US cash market opens), New Jobless Claims numbers were released, and showed a 25,000 drop to 329,000. The market liked that, with Globex futures rising sharply on the news, and giving the market a head of steam in the first half-hour.

At midnight, the Conference Board's Index Of Leading Indicators was released, dropping 0.1% as expected. I can't see this as the reason for the little selloff after midnight, but stranger things have happened.

Finally, at midday NY time (2 a.m. our time) came the Philadelphia Fed Survey, which like all suvey data is absolutely useless for anything except a description of history (yes, Virginia, expectations are adaptive). But everybody makes a guess (the consensus guess was 18) and the number was much higher than the guess... at 28.0. Still, the market reacted to the number with only the briefest of little spikes before moving downwards for the next hour, solidly.

Major US Indices

Last night's big mover was the Semiconductor index (again - will theynever learn) which opened with a gap up, and drove solidly upward all day. Doubtless there is some "single-issue" reason for it, but I seldom bother to investigate what drives semiconductor punters to dive into the morass.

It looks like a standard "flight to trash", with brown chips (my nickname for the pieces of hovno that pass as stocks in tech land) flying, and blue chips stagnant.

The DJIA slid 21.17 points (0.21%), closing out the day at 9865.76 points - mostly on some weakness in AIG (an insurer that is the subject of another "Spitzer" inquiry) and Caterpillar (on talk that its earnings would not be as robust as its past quarter). CAT was smacked for 4%, and AIG for over 2%. Other drags included Honeywell (down 2.4%) and SBC (down 2.95%).

The broader S&P500 gained 2.83 points (0.26%), to end the session at 1106.49.

Over at Times Square, the Nasdaq Composite advanced 20.65 points (1.07%), to close at 1953.62, while larger-cap technology issues fared better with the Nasdaq100 adding 22.53 points (1.55%), to end at 1474.79 points.

And the Semiconductor index (SOX) went screaming upwards - rising 3.97% for the session, having been up as much as 4.5% during the session.

So the indices proceeded in order of trashiness... a "flight to trash".

NYSE Volume was chunky, with 1.67 billion shares changing hands, whileNasdaq Volume was super-chunky (over 2 bill), with 2.01 billion shares traded.

Nasdaq Composite1953.6220.651.07%
NYSE Volume1.67bn--
Nasdaq Volume2.01bn--
US 30-yr yld4.77%-0.01%-0.27%

Market Breadth & Internals

On the NYSE advancing Issues exceeded decliners by 2242 to 1064 for a single-day A/D reading of 1178; Nasdaq gainers trumped losers by 1859 to 1147.

NYSE advancing volume exceeded volume in decliners by 1083.07 to 576.66 million shares; Nasdaq advancing volume was greater than volume in decliners by 767.53 to 292.65 million shares.

94 NYSE-listed stocks rose to new 52-week highs, and 29 posted fresh 52-week lows, while on the Nasdaq there were 87 stocks that hit new 52-week highs, and 48 which fell to fresh 52-week lows

Advancing Volume (m)1083.07767.53
Declining Volume (m)576.66292.65
New Highs9487
New Lows2948

Market Sentiment

Another huge day for call purchases - no guesses for which stocks were the most active in call options trade (hint: their sector starts with "semi" and ends with "conductor", athough calls on internet stocks were also heavily bought thanks to eBay's earnings report). Put buying was up too - still annoyingly high for my liking.

Equity Call Volume2.72m0.32m13.52%
Equity Put Volume2.01m0.04m2.21%
CBOE Volatility Index14.54-0.31-2.09%
CBOE Nasdaq Volatility Index20.36-0.29-1.4%
Equity Put-Call Ratio0.74-0.08-9.97%
SPX-VIX Ratio76.11.77922.39%


Bonds fell everywhere except at the very end of the duration spectrum, with the yield on the benchmark US 30-yr bond shedding 1.3 basispoints to 4.768% while the rest of the yield curve rose (i.e., bond price fell).

The 30-year T-bond future is currently trading at 114 &1/32 and is well worth selling at this level (or buying puts over it or over the TLT - the Lehman Brothers 20-year Treausry iShare.. my preference would be to sell futures, but buying an $89 TLT November put should also do nicely; its code is TLT WK and: last traded at $85 and were $65 bid-$90 ask: if it was me I would bid $70 tomorrow unless stocks look really weak).

UST 2Y (yld)2.5410.051.84%
UST 5Y (yld)3.2810.0310.95%
UST 10Y (yld)4.0010.020.43%
UST 30Y (yld)4.773-0.001-0.02%
The Banks Index added 0.19 points (0.2%), closing at 96.56; within the index,
  • the Derivative King - JPMorganChase added $0.45 (1.21%) ending the day at $37.70; and
  • Citigroup lost $0.34 (0.79%) closing at $42.95

The Broker-dealer Index gained 2.94 points (2.31%), closing at 130.06; the ticket clippers lined up as follows -

  • Merrill Lynch gained $0.59 (1.14%) to $52.50
  • Morgan Stanley Dean Witter added $0.90 (1.88%) at $48.70
  • Goldman Sachs rose $1.38 (1.5%) ending the day at $93.47
  • Lehman Brothers rose $0.42 (0.54%) at $78.72

The Philadelphia SOX (Semiconductor) index posted a rise of 15.62 points (3.97%), to end the session at 408.98

  • Triquint posted a rise of $0.22 (5.58%) ending the day at $4.16
  • Micron Technology advanced $0.16 (1.37%) closing at $11.85
  • Intel added $0.24 (1.12%) closing at $21.69
  • Altera advanced $2.48 (12.26%) closing at $22.71
  • JDS Uniphase added $0.24 (7.23%) closing at $3.56

Gold & Silver

Gold weakened by $0.20 (0.05%) to $424.80 per ounce, and although it managed to shake off some more significant early weakness (it was as low as $423 at one stage last night) it still looks a little jaded at the moment.

The Gold Bugs Index gained 2.39 points (1.04%), to 231.85 points.

Silver fell by $0.02 (0.27%) to close at $7.30 per ounce. After a parabolic rise to the low $8 level early in the year, Silver was hammered back down to as low as $5.45; it's recovered, but is having to do a lot of work to get any upward movement. It's looking overbought at present.

The Gold and Silver Index (XAU) gained 0.41 points (0.4%), to end the session at 102.23 points.

PHLX Gold and Silver Index102.230.410.4%
AMEX Gold BUGS Index231.852.391.04%


Oil was firmer, rising by $0.18 per barrel, closing at $54.62 per barrel; it traded at $54.95 last night.

That's a record - although it looks like it's lower than the $55.33 reported a week or so ago. The previous record of $55.33 was actually traded in the October contract, and forward oil futures are in backwardation. When the October contract hit its high of $55.33 (on October 18th), the December (which is the new front month as of last Friday) actually traded at a high of $54.43.

Moral of the story: oil is not "off its highs". All that has happened isthat the "contango" in oil futures forward contracts is negative.

The Oil and Gas Index (XOI) advanced 2.95 points (0.42%), to 705.38.

The Oil service stocks (OSX) Index advanced 1.51 points (1.24%), ending the day at 122.89

Reuters CRB287.25-0.25-0.09%
Crude Oil Light Sweet54.620.180.33%
AMEX Oil Index705.382.950.42%
Oil Service Index122.891.511.24%


We're getting to the stage where the US dollar index ought to bounce. Itis loking oversold - but oversold conditions can persist for a while in bear markets.

The Euro continues to strengthen; it is back above USD$1.26 and is within a couple s good days of testing its all time high ($1.2925 set on January 18th). That said, it is pretty overbought and there is merging technical evidence that supports another shakeout back to the $1.20 level - so I would not be a holder of long EURUSD at present.

I still think that EURUSD will eventually hit $1.50-$1.60, but I also expect the BoJ to intervene like blazes in the Yen pretty soon - they have stayed their hand recently, but it's always been known that they would prefer Yen in the 115-120 range. if the BoJ goes in support of the Yen, they buy USD in preference to otehr currencies - which tends to have flow-on effects to EEURUSD and other USD crosses. A pullback to $1.20-ish would also shake out some nuisance new-found dollar bears. Where were they when the US dollar index was at 120?

US Dollar Index86.13-0.3-0.35%
Australian Dollar0.737500.39%
Swiss Franc1.2171-0.0042-0.34%

European Markets

France's benchmark CAC-40 Index posted a rise of 21.85 points (0.6%), to 3687.53; the German DAX-30 Index added 21.66 points (0.55%), to 3934.06; and in the UK, the FTSE-100 Index rose 1 point (0.02%), to 4617.4.