Interdum stultus opportuna loquitur...

Monday, April 18, 2005

USRant: Dow Can't Get It Done...

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Well, yesterday I made it clear that I would be very surprised if the US markets didn't finish in the green... and for all except the Dow, that prognostication (see here for details) panned out. And the relatively freaky thing about it, is that it was missing the one thing that would really have helped - a big repurchase operation with a load of the repo in Treasury-backed collateral. Maybe they were counting on the natural upward bias to Mondays - but this market won't get moving upwards again without some big, big T-backed repurchase numbers.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $6.75billion, overnight repurchase with $2.943billion in T-backed collateral .

Yet again, a large-looking repurchase operation - and yet again, precious little for the equity-market goosing operation. How does the Fed think this thing is going to gain traction without some more liquidity to help da Boyz and 990N? Do they think that it's time that the Street used its own money to push the indices around? That's just heresy.

Almost exactly half of the repurchase (#3.3 billion) was in agency-backed collateral - re-transmitting to all 'with ears to hear' that Fannie and Freddie are in deep shi-zola.

Major US Indices

Hoo Nellie; the action was very very interesting. As I outlined yesterday, with the indices heavily oversold a bounce was highly likely. I had postulated that my "number one" scenario was for a big T-backed repurchase which would translate into an attempt to generate a short squeeze like the one we saw early last week (remember the 150-point turnaround last Tuesday? It seems like a decade ago).

Well, we knew before 10 a.m. that there was precious little in the way of repo funds, so it looked very much as if the Australian market's lack of intraday "zing" yesterday was going to be replicated in the US market. If you examine yesterday's OzRant series, you will note that the rally aborted shortly after I posted (at midday Australian time) that the rally didn't have the "juice". That said, both the S&P and the tech indices actually did manage a gain for the day - in line with my suggested trajectory; only the Dow let me down.

At its absolute best, the Dow Jones Industrial Average only managed to just get its nose back above 10100; it set its morning high at about 10:15 a.m. at jut over 10103, and then sagged badly over the following 90 minutes, setting its session low at about 11:40 at 10020.93 points. Another intraday spurt upwards - during lunchtime - took the market back above 10100, and the high of the day was set just after 1 p.m., at 10105.39 points. From there it was sideways between 10100 and 10075 all afternoon.

The index closed with a loss of 16.26 points (0.16%), closing out the day at 10071.25 points. However the best intraday trading strategy was quite clearly one where a selective buying bias was ideal; long positions established each time the index fell to an oversold level, did very well (the two oversold extremes gave perfect entries - the first at the absolute low of the day, and the second at 10059 during the afternoon).

I'm still highly cautious about trying to set 'holding' longs with the market in its current situation. The lack of any genuine "zing" means that for the moment the big bulls are unsure of themselves. Keep an eye on tomorrow's repurchase activity - a large repo will again be the harbinger of a really tradable bounce.

Within the blue-chip index, 17 stocks rose, the biggest gainers being General Motors (GM, +2.30% to $26.19) and JPMorganChase (JPM, +2.09% to $34.64), which accounted for 10 Dow points between them. Losers in the Dow numbered 13 and were led by 3M (MMM, -6.13% to $75.90) and Altria Group (MO, -1.92% to $63.73), with these two stocks contributing -46 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 294.1m shares to 141.3m.

Notice that the usual vehicles for pushing the Dow up (the stocks with the largest dollar price tags - remember the Dow is share-price-weighted), were down today, but volume was well tilted to the gainers? That's a little bit of additional evidence for some nascent strength; any bounce in MMM tomorrow will be amplified in the Dow numbers because it's got one of the largest share prices in the index (along with IBM, CAT, JNJ, MO, and UTX - of those, only CAT and UTX rose, and marginally).

The broader S&P500 rose 3.36 points (0.29%), closing at 1145.98, and actually made higher highs on every retest of the morning high (albeit in a very stutter-step fashion). Within the index, gainers numbered 320, while 174 S&P500 stocks fell for the day. Volume was tilted 1.5:1 in favour of the winners with 1259.22 million units traded in the winners as compared with 840.40 million traded in the losers .

Over at Times Square, the Nasdaq Composite advanced 4.77 points (0.25%), to close at 1912.92, while larger-cap technology issues fared worse with the Nasdaq100 adding 1.39 points (0.1%), to end at 1409.98 points. Within the tech benchmark, gainers numbered 59, while 40 Nasdaq100 stocks fell for the day. Volume was tilted 1.4:1 in favour of the winners with 502.83 million traded in the winners compared to 369.65 million in the losers .

NYSE Volume was super-chunky, with 2.15 billion shares changing hands, while Nasdaq Volume was moderately chunky, with 1.88 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10071.25-16.26-0.16%
Nasdaq Composite1912.924.770.25%
NYSE Volume2.15bn--
Nasdaq Volume1.88bn--


My 9-stock "bellwethers" group rose by an average of 0.52%

  • General Electric (GE) +$0.25 (0.7%) to $36.00;
  • Citigroup (C) +$0.46 (1.01%) to $46.21;
  • Wal Mart (WMT) +$0.18 (0.38%) to $47.88;
  • I.B.M. (IBM) -$0.05 (0.07%) to $76.65;
  • Intel (INTC) +$0.09 (0.41%) to $22.21;
  • Cisco Systems (CSCO) -$0.18 (1.05%) to $17.02;
  • eBay (EBAY) +$0.63 (1.97%) to $32.60;
  • Fannie Mae (FNM) +$0.19 (0.35%) to $54.40; and
  • Freddie Mac (FRE) +$0.61 (1%) to $61.31.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1932 to 1353 for a single-day A/D reading of 579; and Nasdaq losers exceeded gainers by 1555 to 1515. The 10-day moving average of the A/D line rose to -415.7 on the NYSE, while the 10dma of the Nasdaq A/D rose to -653.5.

NYSE advancing volume exceeded volume in decliners by 1269.2 to 857.3 million shares; Nasdaq advancing volume was greater than volume in decliners by 1080.7 to 775.6 million shares.

10 NYSE-listed stocks rose to new 52-week highs, and 138 posted fresh 52-week lows, while on the Nasdaq there were 25 stocks that hit new 52-week highs, and 221 which fell to fresh 52-week lows.

Market Breadth Statistics
Advancing Volume (m)1269.191080.74
Declining Volume (m)857.26775.55
New Highs1025
New Lows138221
Market Sentiment Statistics
CBOE Volatility Index16.56-1.18-6.65%
CBOE Nasdaq Volatility Index21.38-0.47-2.15%
Equity Put-Call Ratio0.77-0.36-31.86%
10-day PCR0.84-0.02-2.07%
SPX-VIX Ratio69.24.797.44%

Bond Market Analysis

The bond market is now getting back to an overbought level, and it's almost time to have another crack on the short side. Yields are getting ridiculously low again - last night the yield on the benchmark 30-year Treasury bond shed another 4.0 basis points to 4.587%. The middle of the yield curve was broadly higher (in price) as well: five year yields fell to 3.896%, and ten-year yields fell to 4.249%. the spread between 2-year Treasuries and 10-years is now just 76 basis points; that is ludicrous.

It's ludicrous because it indicates that people have little or no requirement to be rewarded for delayed consumption; the time preference implied by a spread that low, indicates that people are prepared to tie up money for an additional 8 years, for a marginal return of less than 1% (compared with simply rolling over 2-year bonds five times). That is completely at odds with the consumption behaviour of individuals, who are utterly unwilling to delay consumption... and of course governments are likewise being completely profligate at present.

So much for investor rationality; if your expenditure patterns reflect a very high discount rate (i.e., I must have that new Hummer today - I can't wait), but your investment patterns indicate that you will accept returns that imply a discount rate the same as a Japanese Senior Citizen, you're not behaving rationally.

Speaking of "Hummers", they are terribly misleadingly misnamed. They are named for something that the buyer thinks they will get loads of after purchasing the vehicle (hummer is slang for fellatio)... the reality is that if there were solid requirements for truth-in-naming, instead of 'hummer' they should be called 'self-administered hand-relief for short men with inferiority complexes'.

Where were we? Oh... bonds.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were -1.0 basis points tighter at -14 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to -69.0 basis points for 10-year AAA, and -91.0 basis points for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 3.0 basis points tighter at 40.0 bps and the 10-year AAA-A spread 2.0 basis points wider at 85.0 bps.

Treasury Yields
UST 13wk (yld)2.81200%
UST 2Y (yld)3.4700%
UST 5Y (yld)3.896-0.019-0.49%
UST 10Y (yld)4.249-0.022-0.52%
UST 30Y (yld)4.587-0.04-0.86%

The Banks Index advanced 1.19 points (1.26%), to end the session at 95.73; within the index,

  • BB&T Corp (BBT) +$1.00 (2.7%) to $38.08;
  • National City Corp (NCC) +$0.78 (2.38%) to $33.59;
  • JPMorganChase (JPM) +$0.71 (2.09%) to $34.64;
  • Northern Trust (NTRS) +$0.85 (1.98%) to $43.80; and
  • Fifth Third Bancorp (FITB) +$0.78 (1.9%) to $41.74.

The Broker-dealer Index gained 0.7 points (0.51%), to 138.78; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$1.71 (2.44%) to $71.91;
  • Bear Stearns (BSC) +$1.42 (1.5%) to $96.34;
  • Lehman Brothers (LEH) +$0.99 (1.09%) to $91.72;
  • Goldman Sachs (GS) +$0.86 (0.81%) to $107.35; and
  • A G Edwards (AGE) +$0.19 (0.47%) to $40.80.

The Philadelphia SOX (Semiconductor) index gained 3.21 points (0.84%), to 385.85

  • Teradyne (TER) +$0.41 (3.33%) to $12.71;
  • Applied Materials (AMAT) +$0.36 (2.48%) to $14.86;
  • Novellus Systems (NVLS) +$0.52 (2.19%) to $24.30;
  • KLA-Tencor (KLAC) +$0.70 (1.73%) to $41.06; and
  • National Semiconductors (NSM) +$0.23 (1.25%) to $18.67.

Gold & Silver Markets

Gold rose $2.60 (0.61%) to close at $427.50 per ounce. It continues to sit and do nothing, defying my thoughts that it's likely to ramp down in order to scare the bejesus out of the inexperienced nuffnuffs. That said, the CoT data actually indicate a Dumb Bull ratio that has been steadily falling recently - could it be that the nuffnuffs in the Gold market are getting smarter?

The Gold Bugs Index rose 5.19 points (2.87%), ending the day at 185.75

  • Eldorado Gold (EGO) +$0.15 (6.25%) to $2.55;
  • Coeur d'Alene (CDE) +$0.14 (4.39%) to $3.33;
  • Randgold Resources (GOLD) +$0.43 (3.9%) to $11.46;
  • Freeport McMoran (FCX) +$1.02 (2.98%) to $35.20; and
  • Gold Fields (GFI) +$0.31 (2.98%) to $10.71.

Silver rose $0.02 (0.33%) to close at $7.04 per ounce. The Gold and Silver Index (XAU) gained 1.66 points (1.92%), at 88.05 points.

  • Freeport McMoran (FCX) +$1.02 (2.98%) to $35.20;
  • Gold Fields (GFI) +$0.31 (2.98%) to $10.71;
  • Goldcorp (GG) +$0.37 (2.87%) to $13.27; and
  • Meridian Gold (MDG) +$0.42 (2.79%) to $15.46.
Precious Metals and Indices
PHLX Gold and Silver Index88.051.661.92%
AMEX Gold BUGS Index185.755.192.87%

Oil Market

Oil lost a teensy bit of ground, shedding $0.04 per barrel, closing at $50.45 per barrel. After falling below $50 during the ACCESS overnight session, Crude rocketed $1.50 from its overnight low to hit its session high at $51.20 just after 10:15 a.m., NY time. Then it softened again, falling under $50 during the lunch break and setting a day-session low at $49.85, before a little rally to the close.

The Oil and Gas Index (XOI) rose 11.84 points (1.48%), to 814.37

  • Occidental Petroleum (OXY) +$2.35 (3.59%) to $67.85;
  • ConocoPhillips (COP) +$2.60 (2.6%) to $102.67; and
  • Amerada Hess (AHC) +$2.29 (2.53%) to $92.98.

The Oil service stocks (OSX) Index advanced 1.68 points (1.3%), to 131.35

  • Baker Hughes (BHI) +$0.95 (2.21%) to $44.01; and
  • BJ Services (BJS) +$1.01 (2.02%) to $50.93.
Energy Complex
Reuters CRB297.69-1.14-0.38%
Crude Oil Light Sweet50.45-0.04-0.08%
Heating Oil1.4465-0.01-0.92%
Natural Gas6.945-0.05-0.74%
Unleaded Gas1.5010.021.16%
AMEX Oil Index814.3711.841.48%
Oil Service Index131.351.681.3%

Currency Markets

USD Exchange Rates
US Dollar Index84.01-0.47-0.56%
Australian Dollar0.7675-0.0007-0.09%
Swiss Franc1.188-0.0121-1.01%
Canadian Dollar0.8012-0.0005-0.06%