Interdum stultus opportuna loquitur...

Thursday, November 18, 2004

A Repo in Agencies... WHY?

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Economic Statistics

New Jobless Claims were reported, with the number at 334000, which was slightly better than the consensus guess (335k).

The Conference Board's Index of Leading Indicators came in at -0.3%, which was worse than expected (the consensus guess was for a fall of 0.1%).

The Philadelphia Fed Survey number equalled 20.7, which fell short of the consensus guess (23).

On balance, these are not the sort of statistics that you expect from a "dynamic expansion"; they are consistent with an economy that continues to need massive inflows of foreign capital in order to sustain its unprecedented mooching off the rest of the world.

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 $10billion, 14-day repurchase with $9.102billion in T-backed collateral ; and
  • a $2.75billion, Overnight repurchase with $0billion in T-backed collateral.

The overnight repo was of particular interest (to me) because it was entirely in Agency-backed collateral. This points to a "hidden" dislocation in the Agency (and mortgage-backed) market - probably driven by the massive (rumours are it's $10bill) losses incurred by Fannie Mae (FNM) on its mortgage hedging (which it does through the Treasury market).

Pictures tell words, and the fact that FNM's auditor has refused to sign off on its financials has roiled the stock price - albeit as a "secondary" downward blip.

Major US Indices

The market is behaving as if investors think they're bullet-proof; that's all well and good if you actually are bullet proof... but from where I sit it is impossible to tell a "feel good" story that has a happy ending.

Again with the "Paf" of balloon-volleyball whenever the market tried to pull back; the repo-market liquidity ensured that thelow for the session was as near to 10 a.m. as makes no odds (although the agency market was likely the focus of the PPT this session). It was a dogged, narrow-range day.

By the close ,the Dow had risen another 22.98 points (0.22%) to 10572.55 points; the broader S&P500 added 1.61 points (0.14%), at 1183.55.

It looks to me like there are some nascent divergences, which is not a good situation for a market which is so overbought; although the Dow Transports continue to make new highs (and are going absolutely parabolic - see the chart below), the Dow Industrials has only just begun to synchronise.

The usual "Dow Theory" formation is that the Transports confirm the direction of the Dow Industrials; at present, all that can be said is that there is a non-confirmation of a bearish Industrials pattern.

Over at Times Square, the Nasdaq Composite rose 4.6 points (0.22%), to close at 2104.28, while larger-cap technology issues fared better with the Nasdaq100 adding 9.69 points (0.62%), to end at 1580.81 points.

NYSE Volume was solid, with 1.46 billion shares traded, while Nasdaq Volume was chunky, with 1.91 billion shares crossing the tape.

Nasdaq Composite2104.284.60.22%
NYSE Volume1.46bn--
Nasdaq Volume1.91bn--
US 30-yr yld4.81%-0.03%-0.64%

Market Breadth & Internals

On the NYSE advancing Issues exceeded decliners by 1653 to 1638 for a single-day A/D reading of 15; and Nasdaq losers exceeded gainers by 1609 to 1485.

NYSE advancing volume exceeded volume in decliners by 745.98 to 697.46 million shares; Nasdaq advancing volume was greater than volume in decliners by 636.81 to 432.48 million shares.

125 NYSE-listed stocks rose to new 52-week highs, and 5 posted fresh 52-week lows, while on the Nasdaq there were 100 stocks that hit new 52-week highs, and 19 which fell to fresh 52-week lows

Advancing Volume (m)745.98636.81
Declining Volume (m)697.46432.48
New Highs125100
New Lows519

Market Sentiment

I've managed to stuff up the sentiment table today - the change and %change for a couple of the variables didn't work.

Oh well... moving right along...

Regardless of what the daily change and percentage change numbers are, the levels of the volatility indices are such that a sensible contrarian should still be betting against any further rise.

The Put-Call ratios are simply silly - and the various bullish percent indices are heading towards levels from which a steep market decline becomes ever more certain: consider the chart below, for the bullish percent index for the NYSE -

As you can see, the BPI is within spitting distance of its high for the year - and a longer-term chart (not shown here) shows that BPI readings above 70 are a pretty decent forecaster of good-sized, tradable declines.

CBOE Equity Call Volume (000)900.68-145.59-13.92%
CBOE Equity Put Volume (000)437.11-104.63-19.31%
CBOE Volatility Index12.98-na--na-
CBOE Nasdaq Volatility Index18.79-na--na-
Equity Put-Call Ratio0.49-0.03-6.27%
10-day PCR0.52-0.0155-2.87%
SPX-VIX Ratio91.18-na--na-

Bond Market Analysis

Bonds rose pretty much along the curve, with the yield on the benchmark 30-year Treasury bond shedding another 3.1 basis points to 4.813%.

The bond market is in a bit of a bind - faced with near-imbecilic profligacy by the US Administration, it ought to be giving Treasuries a whalloping - however the flip side is that this so-called "expansion" is fumbling along so weakly that the market can't price in the usual aggressive monetary policy.

Also, there's good reason to believe that Fannie Mae will have to start unwinding some of its hedges - that's part of the reason why that UK hedge fund was swapping Bunds for Treasuries yesterday (i.e., trying to "front run" Fannie Mae).

Regardless, I still feel that the next "leg" for the bond market is down; it is now a question of getting the timing right for entry.

UST 2Y (yld)2.8360.031.07%
UST 5Y (yld)3.465-0.002-0.06%
UST 10Y (yld)4.113-0.02-0.51%
UST 30Y (yld)4.81-0.027-0.56%

The Banks Index dipped 0.48 points (0.47%), to 102.19; within the index,

  • the Derivative King - JPMorganChase slid $0.45 (1.18%) to end the session at $37.82; and
  • Citigroup slid $0.27 (0.58%) to $45.91

The Broker-dealer Index declined 0.25 points (0.17%), closing at 146.21; the ticket clippers lined up as follows -

  • Merrill Lynch shed $0.08 (0.14%) to end the session at $57.30
  • Morgan Stanley Dean Witter added $0.35 (0.66%) closing at $53.58
  • Goldman Sachs advanced $0.12 (0.11%) to end the session at $104.83
  • Lehman Brothers dipped $0.26 (0.31%) to end the session at $83.34

The Philadelphia SOX (Semiconductor) index gained 5.79 points (1.32%), to 445.64

  • Triquint advanced $0.18 (4.2%) ending the day at $4.47
  • Micron Technology slid $0.36 (2.87%) ending the day at $12.17
  • Intel rose $0.48 (1.97%) to end the session at $24.80
  • Altera gained $0.31 (1.31%) at $24.04
  • JDS Uniphase rose $0.04 (1.25%) to end the session at $3.23

Gold & Silver Markets

Gold weakened by $2.10 (0.47%) to $443 per ounce - still holding above $440. The Gold Bugs Index lost 5.76 points (2.35%), at 239.37 points.

Silver fell by $0.11 (1.43%) to close at $7.56 per ounce. The Gold and Silver Index (XAU) lost 2.03 points (1.84%), to 108.31 points.

PHLX Gold and Silver Index108.31-2.03-1.84%
AMEX Gold BUGS Index239.37-5.76-2.35%

Oil Market

Oil lost ground yet again, shedding $0.46 per barrel, closing at $46.14 per barrel. The Oil and Gas Index (XOI) added 3.27 points (0.46%), ending the day at 712.99; the Oil service stocks (OSX) Index advanced 2.87 points (2.43%), at 120.76 points.

Oil is now as deeply oversold as it has been during the entire move up; the next entry opportunity will be either to buy the December CL futures (CL04Z) or to purchase a couple of call options over the Energy ETF. Again, it's a question of entry timing.

As the chart below shows, the market has showin dramatically increasing volatility - the swings are getting broader in absolute terms but also in percentage terms.

Reuters CRB286-2.5-0.87%
Crude Oil Light Sweet46.14-0.46-0.99%
AMEX Oil Index712.993.270.46%
Oil Service Index120.762.872.43%

Currency Markets

The USD index got as low as 83.20 last night; a fellow whose opinions I respect was forecasting a pivot at 82.76 back when it was above 88 - so within half a cent is a pretty good call.

As I've said a few times, my interim "pivot" was at 82 (or the low 82-handle) - but the market is now so oversold, and the likelihood of BoJ intervention so high, that I would not be surprised to see a bounce start from current levels. Longer term though, the dollar falls further.

US Dollar Index83.70.370.44%
Australian Dollar0.7779-0.0036-0.46%
Swiss Franc1.1710.00860.74%
Canadian Dollar0.8286-0.0082-0.98%

European Markets

France's benchmark CAC-40 Index declined 13.75 points (0.36%), at 3830.39; the German DAX-30 Index shed 4.73 points (0.11%), at 4178.68 points, and in the UK, the FTSE-100 Index added 9.4 points (0.2%), at 4805.3 points.


Tonight's Pivots (US Market)

R2106201189.51596.67114 4/32
R1106041187.41589.83113 28/32
Pivot1058211841577.67113 15/32
S1105661181.91570.83113 7/32
S2105441178.51558.67112 26/32