Interdum stultus opportuna loquitur...

Friday, November 05, 2004

Monday Morning Will Give No Warning

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

Once I finish this, it's time to take The Lovely out for B&E (Bacon & Eggs) - despite the rain.

Some of y'all will already be aware of my view of the so-called bond ratings agencies (Moody's, Standard & Poors, Fitch). They are pathetic, gutless wonders who have the ability to analyse but are always cowardly when it comes to downgrading a company that deserves it. And who ends up carrying the can for their gutlessness? Yes - that's right. Investors.

Last night they lowered the rating on GM's bonds to Baa2 - two levels above junk. They also lowered the bonds issued by GM's fiance arm (note: NOT the CDO's they write, but their senior debt) to Baa1.

Horse? Bolted. Gate? Still open.

What absolute charmers these ratings agency knuckleheads are; both Ford and GM paper should be junk and should be got out of proper investment portfolios altogether - but none of the ratings agencies have a testicle to call their own.

Analysis is - or should be - an aggressive pursuit, with the analyst pulling no punches. Sadly, the entire analytical world is now loaded to the gunwales with caveats. It's tripe, and people will eventually just ignore what the agencies say (although investment committees are just as gutless, and won't make a decision without a bible-length pile of crap, which they commission in order to indemnify themselves).

Meanwhile, the December US Treasury bond futures dropped another point, so thank your mother for the rabbits... the short ZB04Z (also known as "2 TLT WK at $70" - the $89 November put option over Lehman 20-yr Treasury iShares) is doing very nicely indeed.

TLT WK closed last night at $1.55, so notionally half of the position was cashed out at $1.40 (according to previously-stated guidelines - taking half off the table at 100% gain).

The short ZB04Z futures trade is up 1 & 23/32 points, which is $1656 per bond, i.e., just shy of 100% gain on the $1755 margin required for the position (during the night, the 30-year bond - ZB04Z - dropped as low as 111, which meant that the trade was showing a 3-point gain, or $3000 per contract).

And I am still burning at myself for trying to finesse my way into the Live Cattle put (rather than just buying the stupid thing at the offer, or selling a futures contract). Recall that the December $89 put over Live Cattle was at $215 when I made the call, and I tried to get it at $195... and missed? Well, last night it was $670. And when I think of the gain per contract on a futures trade, my left eye gets twitchy... the contract value is $400 per "cent per pound" (c/lb), and the thing has dropped over 6c/lb... for a $2400 gain per $1620 margin.

Anyhow... no losers so far (and all posted well in advance of the market - so no "historical revisionism" either).

Tonight's Pivots (US Market)

To be frank, I can't think of a sensible place to put this table, so for the time being I'll plonk it here. Maybe a separate "trading only" blog or sub-blog is required.

R2104851177.731549.83114 28/32
R1104381172.771539.67113 18/32
Pivot103671166.531527.33112 9/32
S1103201161.571517.17110 31/32
S2102491155.331504.83109 22/32

Economic Statistics

Two major reports last night: the BLS's Jobs report, and Consumer Credit.

Within the Jobs report, it was "Happy Happy Joy Joy" -

  • New Non-Farm Payrolls rose to 337000, which exceeded the consensus guess (160000);
  • Unemployment Rate rose to 5.5%, which exceeded the consensus guess (5.4%);
  • Average Hourly Earnings were reported, with the number at 0.3%, which matched the consensus guess (0.3%); and
  • Average Workweek was reported at 33.8 hours, again in line with the consensus guess (33.8).

Of the 337000, only 42,000 were invented by the "net birth death model", but I am sure that there is some statistical chicanery somewhere. I'll be spending some time today up to my elbows in the report, so will post as soon as I find the "tweak".

Consumer Credit

  • Consumer Credit increased by $9.8billion, which exceeded the consensus guess for a $7billion increase.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed a sinlge repurchase operations last night:

  • a $7billion, Weekend repurchase, entirely in Treasury-backed collateral .

It's pretty clear that the Fed has thrown a lot of grease into the wheels this week - keen to capitalise on any short-term momentum and drive the markets higher.

Major US Indices


The DJIA advanced 72.78 points (0.71%), closing out the day at 10387.54 points; the broader S&P500 rose 4.5 points (0.39%), closing at 1166.17.

The Nasdaq Composite rose 15.31 points (0.76%), to close at 2038.94, while larger-cap technology issues were slightly more muted with the Nasdaq100 adding 9.04 points (0.6%), to end at 1525.24 points.

NYSE Volume was solid, with 1.73 billion shares traded, and Nasdaq Volume was pretty chunky, with 1.91 billion shares crossing the tape.

Nasdaq Composite2038.9415.310.76%
NYSE Volume1.73bn--
Nasdaq Volume1.91bn--
US 30-yr yld4.91%0.1%2.02%

Market Breadth & Internals

On the NYSE, advancing issues exceeded decliners by 1703 to 1695 for a single-day A/D reading of 8; Nasdaq gainers trumped losers by 1868 to 1210.

NYSE advancing volume exceeded volume in decliners by 1101 to 595.94 million shares; Nasdaq advancing volume was greater than volume in decliners by 793.15 to 294.15 million shares.

368 NYSE-listed stocks rose to new 52-week highs, and 5 posted fresh 52-week lows, while on the Nasdaq there were 193 stocks that hit new 52-week highs, and 18 which fell to fresh 52-week lows

Advancing Volume (m)1101793.15
Declining Volume (m)595.94294.15
New Highs368193
New Lows518

Market Sentiment

Come on, baby... keep getting complacent...

I said yesterday that it's almost got to the point where the ducks are in a row. I reckon Monday ought to do it, so it's going to be my usual approach (for Monday short entries).

  • Wait until 15 minutes after the open, and then buy one QQQ November put option "one level down" (or sell a December S&P futures) - it will likely be a $37 November Put (QQQ WK) or a November $38 put (QQQ WL) depending on whether QQQ is trading above $38 at the time. QQQWK last traded at $20; QQQ WL last traded $55; noth will open lower on Monday.
  • If it turns out that the Fed does a big repurchase, wait until after the 10 a.m. moonshot to buy a second option - otherwise buy it at 10 a.m. NY time.

I doubt that there will be a big repurchase on Monday, but I always wait and see. But frankly, the market is getting way ahead of itself, and deserves a bit of a caning - and I love to see a good caning.

Equity Call Volume3.57m0.55m18.31%
Equity Put Volume2.2m-0.08m-3.43%
CBOE Volatility Index13.84-0.13-0.93%
CBOE Nasdaq Volatility Index19.47-0.69-3.42%
Equity Put-Call Ratio0.62-0.14-18.38%
SPX-VIX Ratio84.261.10621.33%


Bonds fell along the curve, with the yield on the benchmark 30-year Treasury bond rising 9.7 basis points to 4.909%. In other words, the bond market gave its verdict (supposedly based solely on the jobs numebrs) that the Fed's tightening cycle isn't finished yet.

I tend to agree (about the tightening cycle) but it has nothing to do with economic strength. Look at the US dollar if you want to know why US interest rates must rise... if they don't there will be capital flight (the rest of the civilised world is not impressed with the decision of the yokels in the "central corridor" of the US to re-elect Bush).

UST 2Y (yld)2.770.165.97%
UST 5Y (yld)3.4750.1283.82%
UST 10Y (yld)4.1790.112.6%
UST 30Y (yld)4.90.0851.77%

The Banks Index bucked the broader market's strengt, losing 0.2 points (0.19%), to end the session at 102.45; within the index,

  • the Derivative King - JPMorganChase shed $0.29 (0.73%) to end the session at $39.35; and
  • Citigroup gained $0.04 (0.09%) closing at $46.13

The Broker-dealer Index posted a rise of 0.83 points (0.59%), to end the session at 142.36; the ticket clippers lined up as follows -

  • Merrill Lynch posted a rise of $0.22 (0.39%) at $56.42
  • Morgan Stanley Dean Witter declined $0.03 (0.06%) closing at $53.75
  • Goldman Sachs added $0.85 (0.85%) closing at $100.85
  • Lehman Brothers shed $0.29 (0.34%) at $84.68

The Philadelphia SOX (Semiconductor) index gained 5.11 points (1.24%), closing at 417.83

  • Triquint posted a rise of $0.07 (1.91%) to $3.73
  • Micron Technology posted a rise of $0.14 (1.19%) to $11.88
  • Intel posted a rise of $0.48 (2.1%) to end the session at $23.36
  • Altera rose $0.11 (0.48%) ending the day at $22.85
  • JDS Uniphase posted a rise of $0.01 (0.32%) closing at $3.16

Gold & Silver

Gold strengthened by another $3.80 (0.88%) to $434 per ounce - it's mirroring the US dollar. The Gold Bugs Index gained 4.64 points (1.99%), at 238.36 points.

Silver rose $0.15 (1.97%) to close at $7.51 per ounce. The Gold and Silver Index (XAU) gained 2.51 points (2.41%), at 106.86 points.

PHLX Gold and Silver Index106.862.512.41%
AMEX Gold BUGS Index238.364.641.99%


Oil was firmer, rising by $0.96 per barrel, closing at $49.55 per barrel. The Oil and Gas Index (XOI) rose 2.65 points (0.37%), to end the session at 712.11 points.

The Oil service stocks (OSX) Index declined 0.07 points (0.06%), closing at 116.89

Reuters CRB28310.35%
Crude Oil Light Sweet49.550.961.98%
AMEX Oil Index712.112.650.37%
Oil Service Index116.89-0.07-0.06%


The US dollar is looking weaker and weaker; recall that not so long ago (with the USDX at around 87-ish (I haven't checked, but I think that's about right) I indicated that any bounce should happen from a swing low at or near 82... we're nearly there.

The currencies which will be good shorts when the bounce happens? In order, I thik it will go like this:

  • Australian Dollar
  • Canadian dollar
  • Euro

That is. I think the biggest percentage decline will be seen in the "commodity currencies" (rememebr, this will be as a result of a USD bounce - nothing more than a bounce in a decline which will eventually see the USDX at 60 or lower).

US Dollar Index84.06-0.58-0.69%
Australian Dollar0.76220.00490.65%
Swiss Franc1.1777-0.0101-0.85%
Canadian Dollar0.83470.00630.76%

European Markets

France's benchmark CAC-40 Index gained 18.54 points (0.49%), to end the session at 3780.99; the German DAX-30 Index rose 22.2 points (0.55%), at 4063.58; and in the UK, the FTSE-100 Index gained 11.5 points (0.24%), to 4739.8