Interdum stultus opportuna loquitur...

Wednesday, November 24, 2004

Pre-Holiday Session Ends with a Rush

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This Thanksgiving, the Yanks ought to be giving thanks in Chinese - but for China, the USD would be further in the toilet than it currently is, and bond prices would have plummeted further (leading to a 5-6 percentage point increase in long bond rates and mortgage rates).

Economic Statistics

Durable Goods Orders fell 0.4% - well below the consensus guess of a gain of 0.5%. Apart from military aircraft (spending on military aircraft rose 35.2%) the report was extrememly weak, with contractions in civilian aircraft, automobiles and computer equipment.

Durable Goods Orders excluding defence-related items dropped 1.5 percent. That's 6 falls in 7 months, during a supposed recovery... it shows you where the US is spending its CapEx - on stuff that blows other people's stuff up. As Bastiat made clear, you don't advance a local economy by breaking windows (regardless of how much "additional activity" there is in the glazier's sector).

Likewise, you don't advance a national economy by spending taxpayers money (and that of their children, grandchildren, great-grand-shildren... you get the picture) on overpriced garbage like the Stryker combat vehicle, or the already-a-failure "missile defence shield"... but that sort of spending pushes the buttons of corporations who are big contributors to political coffers, and who also dole out high-paying consultancies to political parasites. Think "Halliburton".

I always say - repeat after me - that the most important number is non-defence capex, ex aircraft.

Well, last night's number stank... again. non-defence capex, ex aircraft declined 3.6%... yeeee-ouch. Considering that there are tax incentives (accelerated depreciation) that expire atthe end of this year, the rate of growth of civilian productive capital stocks is still alarmingly low for this point in a supposed "recovery" cycle.

New Home Sales rose 0.2 percent to a 1.23-million unit annual pace, which exceeded expectations of a 1.2million rate. With the bond market in a bounce (almost certainly only a counter-trend bounce), longer-term mortgage rates have ticked lower in recent months: fixed 30-year mortgage rates fell about 8 basis points to 5.62% over the last fortnight alone, while 15-year mortgage rates were static at 5.15% - however 1-year ARM rates rose 10 basis points the last week to 4.27%, and there has been a lot of Fed repurchase activity in agency-backed collateral, which indicates some possible foment underlying an otherwise pricey mortgage bond market.

The University of Michigan Consumer Sentiment Index (final) was higher than last month's final reading, but much lower that the preliminary reading of 95.5 - and below the consensus guess (which called for a rise to 96.0).

Initial Jobless Claims dropped 12,000 to 323,000 for the week ended Nov. 20. The market had expected a drop of about 1000 to 333k. The reading was the lowest in eight weeks, and dragged the 4-week moving average of claims to its lowest level in four years.

And last, but by no means least, Crude Oil inventories rose by 0.1 million barrels - little more than a rounding error considering the total pool of 292.4 million barrels.

There was some good news in the oil report: stocks of gasoline rose by 1.8 million barrels (to 202.7 million) and distillate stocks rose by about a million barrels (to 115.6 million barrels). That breaks a 9-week streak of falls in the important distillate category.

However heating oil stocks fell again, dropping 200,000 barrels to 49 million barrels. Demand was steady at a tick over 4 million barrels a day. That's problematic for the shorts in the heating oil market, since longer-range weather forecasts for the North-East are calling for a relatively cold winter - not "brass monkey" weather, but cooler than normal.

There is nothing on the data calendar for tomorrow, since it's the Thanksgiving Holiday. Friday - the only data is the Money Supply.

Forthcoming US Economic Data

Tomorrow's US Economic Data Calendar

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 2 repurchase operations last night:

  • a $7.5billion, 2-day repurchase with $0.283billion in T-backed collateral ; and
  • a $10billion, 15-day repurchase with $7.863billion in T-backed collateral.

MASSIVE repurchases in the asset-backed (to support the GSE's) and mortgage-backed repo markets.

If you look at a chart of Freddie Mac, you will see a rather ominous looking double top; coupled with the rather unsalubrious chart for sub-prime mortgage lenders like CountryWide - despite booming sub-prime mortgage originations - and you have the market actually threatening to behave in a forward looking manner. (Markets do not look forward - they look sideways).

Freddie Mac (FRE) Daily Chart

CountryWide Financial (CFC) Daily Chart

The big repo - which tipped over the notional "$5 bill in T-backed" that triggers a "buy for the repo jamjob" trade at 10 a.m. NY time - didn't overcome the ennui that grips the trading floors when it's a short week.

Also, markets were still digesting the worse-than-expected UMich sentiment numbers which were released at 9:45 NY time. Getting bad news jsut before the jamjob is due to commence will always put a crimp on proceedings.

No matter though - a purchase based on the jamjob-theory was up 2.25 points five minutes later... and was still ahead if the trade was held right to the close. As I've said before, even when the jamjob fails, a long-side swing will not hurt if there's repo grease in the wheels.

Major US Indices

With tweny minutes to go, it seriously looked like the markets would be as close to UNCH as makes no odds - with the exception of the Nasdaq, which has been on crack lately anyhow.

Then, someone must have leant on their keyboard and bought a bunch of Dow stocks at the offer... the Dow strode into the close as if the long weekend was going to be one with zero risk.

DJIA Intraday - 2-minute Chart

The DJIA advanced 27.71 points (0.26%), closing out the day at 10520.31 points; the broader S&P500 added 4.82 points (0.41%), closing at 1181.76.

Tech-land continues to try and reflate its bubble of bygone days. Fat chance. The Nasdaq Composite posted a rise of 18.26 points (0.88%), to close at 2102.54, while larger-cap technology issues fared better with the Nasdaq100 adding 19.95 points (1.28%), to end at 1582.55 points.

NYSE Volume was pretty low, with just 1.15 billion shares traded, while Nasdaq Volume was about average with 1.64 billion shares crossing the tape.

Nasdaq Composite2102.5418.260.88%
NYSE Volume1.15bn--
Nasdaq Volume1.64bn--
US 30-yr yld4.84%0%0.04%

Market Breadth & Internals

On the NYSE advancing Issues exceeded decliners by 2414 to 877 for a single-day A/D reading of 1537; Nasdaq gainers trumped losers by 1911 to 1152. Although the NYSE advance-decline stats are mindlessly bullish, you can't read much into them given the pre-holiday environment.

NYSE advancing volume exceeded volume in decliners by 805.75 to 284.35 million shares; Nasdaq advancing volume was greater than volume in decliners by 577.03 to 314.99 million shares.

310 NYSE-listed stocks rose to new 52-week highs, and 1 posted fresh 52-week lows, while on the Nasdaq there were 179 stocks that hit new 52-week highs, and 15 which fell to fresh 52-week lows

Advancing Volume (m)805.75577.03
Declining Volume (m)284.35314.99
New Highs310179
New Lows115

Market Sentiment

There's little point in re-iterating the callous disregard for risk being displayed within the sentiment numbers - particularly given the fact that it was a pre-holiday session. But the entrails - as viewed by the sell-side - are pretty obviously showing absolutely nothing to be afraid of...

  • Record budget deficits? So what...
  • Record current account deficit? So what...
  • War going badly in both Afghanistan and Iraq? So what...
  • Profit margins (and EPS growth rates) set to halve? So what...
CBOE Equity Call Volume (000)606.24-120.08-16.53%
CBOE Equity Put Volume (000)291.4-193.29-39.88%
CBOE Volatility Index12.710.040.32%
CBOE Nasdaq Volatility Index17.9-0.53-2.88%
Equity Put-Call Ratio0.48-0.19-27.97%
10-day PCR0.53-0.0085-1.57%
SPX-VIX Ratio93.010.110.12%

Bond Market Analysis

What a quiet day - with everyone eyeing the exits, and the Bond Market advising an early close in advance of Thanksgiving, you could have heard a pin drop.

By the end of the session, everything was pretty much unchangeds. Bonds fell a scant 2/32nds at the long end, with the yield on the benchmark 30-year Treasury bond rising 0.2 basis points to 4.84%.

UST 2Y (yld)3.0130.072.38%
UST 5Y (yld)3.6040.0280.78%
UST 10Y (yld)4.1920.010.19%
UST 30Y (yld)4.8440.0070.14%

The Banks Index rose 0.25 points (0.25%), at 101.93; within the index,

  • the Derivative King - JPMorganChase rose $0.14 (0.37%) at $37.70; and
  • Citigroup posted a rise of $0.31 (0.69%) closing at $45.52

The Broker-dealer Index advanced 1.83 points (1.27%), ending the day at 145.8; the ticket clippers lined up as follows -

  • Merrill Lynch added $0.14 (0.25%) to end the session at $56.61
  • Morgan Stanley Dean Witter declined $0.15 (0.29%) closing at $51.35
  • Goldman Sachs gained $1.19 (1.15%) ending the day at $105.00
  • Lehman Brothers gained $1.13 (1.36%) to end the session at $84.52

The Philadelphia SOX (Semiconductor) index rose 3.94 points (0.92%), to end the session at 433.65

  • Triquint rose $0.02 (0.47%) at $4.27
  • Micron Technology gained $0.06 (0.53%) ending the day at $11.48
  • Intel rose $0.24 (1.03%) to $23.61
  • Altera advanced $0.14 (0.61%) closing at $23.09
  • JDS Uniphase declined $0.00 (0%) to end the session at $3.13

Gold & Silver Markets

Gold went through $450 last night, but not in the front-month contract (December04), and not in the cash market either. The $450 break was done in the February05 contract (which puts the market in a contango - it used to be held in backwardation). The Febs posted a close at $451.50 as participants rolled over their holdings in advance of Thanksgiving.

As usual there was a pretty large amount of trade selling near $450 in the Decembers - da Boyz trying to tickle some nuffie-stops in order to get the insto rollovers done at better prices. Dec04 Gold closed at $449.30, close to the session high of $449.60.

If $450 holds in the Febs, the market will "break" $450 by stealth. The next stop - probably with little pullback - is $460-65 unless the US dollar has the bounce I'm expecting from the 82-ish level.

As far as market sentiment is concerned, the Gold market has a fairly high degree of bullish consensus, with the Market Vane "consensus-ometer" at 78%; it has been as high as 91% in the past 2 years, so it's not yet totally ripe for a plundering... there are still some folks (a lousy 22%) on the "wrong" side of the boat. If Bullish consensus gets over 85, I will be on the "wrong" side of the boat too...

December Gold strengthened by $2.10 (0.47%) to $449.30 per ounce. The Gold Bugs Index gained 0.21 points (0.09%), closing at 237.21 points.

Silver rose $0.06 (0.83%) to close at $7.61 per ounce. The Gold and Silver Index (XAU) lost 0.5 points (0.46%), to 107.21 points.

PHLX Gold and Silver Index107.15-0.56-0.52%
AMEX Gold BUGS Index237.070.070.03%

Oil Market

Oil rose to close at $49.44 a barrel, up 1.45% or 71c a barrel. The Oil and Gas Index (XOI) added 4.76 points (0.65%), at 738.7 and the Oil service stocks (OSX) Index rose 1.88 points (1.5%), ending the day at 126.99

Reuters CRB28920.7%
Crude Oil Light Sweet49.440.711.45%
AMEX Oil Index739.035.090.69%
Oil Service Index127.021.911.53%

Currency Markets

The US Dollar ploughed through the 82.70 level I had indicated was a target for someone I respect... and headed for my bounce target at 82.

There's a decent chance that the US will start to intervene in its own currency pretty soon, otherwise it risks a one-way slide - which will not do anybody any good (except if you're a trader who's short USD...).

The Yen cross is looking very very very ripe for BoJ intervention - however they have been sitting on their hands.

Add that to the chatter about Russia moving more of its exchange reserves to Euros, and the new chumminess between Moscow and the Middle Kingdom, and the end-game for the world's greatest moocher (the US) is not very pretty.

The Euro continues to make new highs; seldom has consensus been so bullish. Almost time to short the faster-moving currencies, I think.

US Dollar Index82.46-0.53-0.64%
Australian Dollar0.78790.00230.29%
Swiss Franc1.1457-0.0121-1.05%
Canadian Dollar0.84660.00330.39%

European Markets

France's benchmark CAC-40 Index declined 19.39 points (0.51%), to 3760.7; the German DAX-30 Index rose 11.93 points (0.29%), to end the session at 4125.3; and in the UK, the FTSE-100 Index lost 23 points (0.48%), at 4719.4 points.


Friday's Pivots (US Futures Market)

R2105781186.61593.83113 16/32
R1105531184.71589.17113 12/32
Pivot105191181.41580.83113 8/32
S1104941179.51576.17113 4/32