Interdum stultus opportuna loquitur...

Wednesday, October 20, 2004

Not as "Eh" as it Looked

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Federal Reserve Open Market Operations

The Fed performed a single $3.25 billion overnight repurchase, all of it in Treasury-backed collateral. That's pretty feeble - don't they know that Bush has no chance of winning if the market (the Dow, for the purposes of comparison) is within 2% of its year-to-date low this close to the election?

Maybe they've stopped caring.

Economic Statistics

The Energy Information Administration reported that crude oil inventories had grown by 1.2 million barrels for the week, but the crude market didn't give a damn about that - that amount of oil gets spilled onto the sand every day as a result of pipeline sabotage in Iraq.

Major US Indices

The S&P blew through 1100 very easily in the early part of the session (the futures had broken 1100 before the cash market opened), and headed south for the first hour. Then, from 1193.75 (down 9.75), the futures started to rally hard. The futures were rammed up through 1100 again, and from then on they were not permitted to decline meaningfully from 1100. Any time they hit 1099, there was 990N.

The "journalists explanation" was that people are front-running Microsoft's earnings report. What a load of crap; this was a decisive attempt to prevent the market from declining into the election.

It will fail. It is precisely the same thing as happened when the Dow tried to break 10000 a wee while ago... the "powers that be" had a crack at forcing it back up, and drove it all the way to the high 10200s (10270, actually). The Dow came close to its low for 2004 last night (that low is 9783.91; the intra-session low for the Dow last night was 9804.19); its 12-month low is way down at 9497. If that is tested (or broken) Bush is history (I think he's history already... even Pat Robertson of the Yankee Fundamentalist Taliban had a shot at him yesterday...)

Seriously, this was a pretty big effort; for the major banks, preventing a decline is relatively easy - when the futures dip a tad, just give them a tap upwards... like playing with a balloon. 1099... paf. Back to 1100. But having to do it for more than half a session without getting any decent response from the shorts, and with sod-all repo grease? Well that's just hard, man.

Apart from the blast up off the lows, there was never really any sign of significant squeezing of shorts. The last half-hour required a more robust effort, but even then the intraday high (previosuly set during the lunch break) was never exceeded.

The Dow bounced over 80 points from its low, but again, the rescue couldn't get it back even above 9900. Seems like da Boyz are content with just slowing the rate of decline (which has been the pattern all year).

The other way you can tell it was all for show - to "lock in the closing print" - was what happened to the S&P futures after the close of the physical market. The front-month (December04) futures dropped back to kiss 1101 again - dropping 3 points in fifteen minutes, which was the most "pure" move of the entire session.

The overall objective was achieved though; rather than looking like the beginnings of a rout, the market wound up looking benign.

The DJIA shed 10.69 points (0.11%), closing out the day at 9886.93 points; the broader S&P500 advanced 0.43 points (0.04%), closing at 1103.66.

Over at Times Square, the Nasdaq Composite posted a rise of 10.07 points (0.52%), to close at 1932.97, while larger-cap technology issues fared better with the Nasdaq100 adding 8.46 points (0.59%), to end at 1452.26 points.

NYSE Volume was pretty chunky, with 1.69 billion shares crossing the tape, whileNasdaq Volume was about average, with 1.64 billion shares crossing the tape.

Nasdaq Composite1932.9710.070.52%
NYSE Volume1.69bn--
Nasdaq Volume1.64bn--
US 30-yr yld4.78%-0.04%-0.89%

Market Breadth & Internals

On the NYSE advancing Issues exceeded decliners by 1768 to 1524 for a single-day A/D reading of 244; Nasdaq gainers trumped losers by 1681 to 1347.

NYSE volume was pretty evenly split - advancing volume exceeded volume in decliners by 839.29 to 812.56 million shares; Nasdaq advancing volume was greater than volume in decliners by 509.77 to 349.88 million shares.

30 NYSE-listed stocks rose to new 52-week highs, and 58 posted fresh 52-week lows, while on the Nasdaq there were 46 stocks that hit new 52-week highs, and 66 which fell to fresh 52-week lows... uh-oh... notice that? New lows greater than new highs, on an up day in technology? What's that smell?

Advancing Volume (m)839.29509.77
Declining Volume (m)812.56349.88
New Highs3046
New Lows5866

Market Sentiment

Both call and put volume dried up a little - I am always happier being bearish when put volume is below 2 million contracts a day.

Volatility still hasn't shown any sense of fear - despite the market being so close to its year-to-date lows. You can read that as "impressive" if you're a teenage male; even though I admit that I have the maturity of a 15 year old, I can still recognise stupid risk-taking when I see it, and I see it in spades... in the volatility numbers.

Equity Call Volume2.4m-0.32m-11.7%
Equity Put Volume1.97m-0.3m-13.22%
CBOE Volatility Index14.85-0.28-1.85%
CBOE Nasdaq Volatility Index20.65-0.19-0.91%
Equity Put-Call Ratio0.82-0.01-1.72%
SPX-VIX Ratio74.321.40381.93%


Bonds rose along the curve, with the yield on the benchmark US 30-yr bond shedding 4.8 basis points to 4.781%. Yields on the 10-year are back under 4%; looking again at the spread from 6-month to 10-year bonds, it looks like the US is heading for another period of economic stagnation (after a "recovery" which is more the result of data-massaging than anyting else).

UST 2Y (yld)2.487-0.04-1.62%
UST 5Y (yld)3.243-0.053-1.61%
UST 10Y (yld)3.98-0.05-1.29%
UST 30Y (yld)4.771-0.048-1%
The Banks Index shed 0.78 points (0.8%), at 96.37; within the index,
  • the Derivative King - JPMorganChase slid $0.70 (1.84%) to end the session at $37.28; and
  • Citigroup lost $0.31 (0.71%) closing at $43.28

The Broker-dealer Index shed 0.23 points (0.18%), at 127.12; the ticket clippers lined up as follows -

  • Merrill Lynch lost $0.12 (0.23%) to end the session at $51.90
  • Morgan Stanley Dean Witter declined $0.41 (0.85%) ending the day at $47.81
  • Goldman Sachs declined $0.72 (0.77%) at $92.34
  • Lehman Brothers slid $0.35 (0.45%) to $78.29

The Philadelphia SOX (Semiconductor) index added 5.07 points (1.31%), to 393.36

  • Triquint advanced $0.07 (1.81%) to $3.94
  • Micron Technology added $0.18 (1.56%) ending the day at $11.69
  • Intel posted a rise of $0.65 (3.13%) ending the day at $21.45
  • Altera posted a rise of $0.45 (2.28%) ending the day at $20.23
  • JDS Uniphase gained $0.02 (0.61%) to $3.32

Gold & Silver

Gold strengthened by $4.20 (1%) to $425.30 per ounce. The Gold Bugs Index gained 8 points (3.61%), closing at 229.46 points.

Silver rose $0.14 (1.88%) to close at $7.33 per ounce. The Gold and Silver Index (XAU) gained 2.87 points (2.9%), to end the session at 101.82 points.

I still favour a big move down in the precious metals (as much as $100 in Gold), but it's not something I would be prepared to try and front-run. When (if) the precious metals break down, there will be plenty of time to get positioned, because it will be a textbook correction - a shakeout of new, dumb, weakly-funded bulls.

Reminds me of the old adage about the old bull and the young bull....

  • Young Bull: Hey, old man... see them heifers down there? I'm gonna race down and [insert copulatory verb here] one of 'em.
  • Old Bull: Knock yourself out, junior. Later, I'll walk down there and do 'em all.

The next shakeout will be the second-best entry point for Gold in the last ten years; the only thing that will countermand that view is if Gold manages to break $450 on this leg up.

PHLX Gold and Silver Index101.822.872.9%
AMEX Gold BUGS Index229.4683.61%


Oil went berserk, rising $1.16 (2.16%) to $54.46 per barrel. The Oil and Gas Index (XOI) posted a rise of 11.65 points (1.69%), at 702.43

The Oil service stocks (OSX) Index posted a rise of 3.94 points (3.35%), to end the session at 121.38

Reuters CRB287.51.50.52%
Crude Oil Light Sweet54.461.162.16%
AMEX Oil Index702.4311.651.69%
Oil Service Index121.383.943.35%


The Australian dollar was the big beneficiary last night - helped by a bit of a rally in gold (the Aussie is still considered a commodity currency) - but the real story continues to be USD weakness.

The US dollar index stopped falling last night at 86.25; that's just 1.48 units from its one-year low - to put that into context, the USDX has fallen that far in just over three sessions.

Imagine how bad things would look if the Chinese and Japanese had not been spending taxpayers' money (and recycling trade surpluses) to support the USD by deliberately "weakening" their own currencies (in the case of China, by olding the yuan fixed to the USD). Note - by "weakening" I mean holding their currency at a rate other than the rate which would have prevailed without central bank intervention.

So now, no longer does the US consumer rely on the kindness of foreigners to fund their consumption binge (because incomes are not rising as fast as consumption spending) now the US government relies on foreign governments to help maintain both the US currency and prices of US treasury bonds at levels far above where they otherwise would have been.

That should worry everybody.

US Dollar Index86.43-0.52-0.6%
Australian Dollar0.73450.00801.16%
Swiss Franc1.222-0.0068-0.55%

European Markets

France's benchmark CAC-40 Index shed 34.88 points (0.94%), ending the day at 3665.68; the German DAX-30 Index dipped 51.73 points (1.3%), closing at 3912.4; and in the UK, the FTSE-100 Index lost 38.8 points (0.83%), closing at 4616.4 points.