Interdum stultus opportuna loquitur...

Friday, April 22, 2005

USRant: Late Covering Saves the Day...

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

Friday's Fade was far more serious in the US markets; everybody realised that the big short-covering rally yesterday was total baloney, but I don't think they were mentally prepared to see the Dow hurtling down towards 10050 by late-afternoon. Fortunately, the index managed to claw back a huge chunk of its intraday losses in the last half hour. I'm not aware of any news that drove that spurtlet, but suffice it to say that any short-covering undertaken as insurance in the last half-hour was always likely to cause a sharp rise... the last hour on Friday is far less liquid than you might think.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $5.75billion, 11-day repurchase with $4.046billion in T-backed collateral. We all know that that's not enough - even on a Friday.

Major US Indices

The Dow Jones Industrial Average lost 60.89 points (0.6%), closing out the day at 10157.71 points. The index hit an intraday high of 10219.34 just after 11 a.m., and fell as low as 10069.92 during the session. The session low was set at 3:30 in the afternoon (NY time), and in the last half hour the Dow stacked on almost 90 points. Amazing - people are so conditioned to buy pullbacks that they still can't see that the swing test of 11k (that failed) is an interim top that could last a decade.

Within the blue-chip index, 9 stocks rose, the biggest gainers being General Motors (GM, +2.81% to $26.74) and Mcdonalds (MCD, +0.70% to $30.06), which accounted for 7 Dow points between them. Losers in the Dow numbered 21 and were led by American International Group (AIG, -2.99% to $50.35) and Boeing (BA, -2.03% to $57.88), with these two stocks contributing -20 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 314.3m shares to 84.3m.

The broader S&P500 declined 7.83 points (0.68%), ending the day at 1152.12. Within the index, gainers numbered 141, while 349 S&P500 stocks fell for the day. Volume was tilted 3.4:1 in favour of the losers with 1498.75 million units traded in the losers as compared with 446.09 million traded in the winners .

Over at Times Square, the Nasdaq Composite declined 30.22 points (1.54%), to close at 1932.19, while larger-cap technology issues fared worse with the Nasdaq100 losing 26.16 points (1.81%), to end at 1421.21 points. Within the tech benchmark, gainers numbered 14, while 85 Nasdaq100 stocks fell for the day. Volume was tilted 6.7:1 in favour of the losers with 734.28 million traded in the losers compared to 109.61 million in the winners .

NYSE Volume was super-chunky, with 2.04 billion shares changing hands, while Nasdaq Volume was chunky, with 1.84 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10157.71-60.89-0.6%
Nasdaq Composite1932.19-30.22-1.54%
NYSE Volume2.04bn--
Nasdaq Volume1.84bn--


My 9-stock "bellwethers" group fell by an average of 1.25%

  • General Electric (GE) -$0.02 (0.06%) to $36.10;
  • Citigroup (C) +$0.05 (0.11%) to $46.32;
  • Wal Mart (WMT) -$0.97 (2.03%) to $46.81;
  • I.B.M. (IBM) +$0.18 (0.24%) to $74.21;
  • Intel (INTC) -$0.12 (0.51%) to $23.24;
  • Cisco Systems (CSCO) -$0.25 (1.41%) to $17.43;
  • eBay (EBAY) -$1.57 (4.75%) to $31.51;
  • Fannie Mae (FNM) -$0.42 (0.79%) to $52.78; and
  • Freddie Mac (FRE) -$1.24 (2.02%) to $60.17.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1973 to 1276, for a single-day A/D reading of -697; and Nasdaq losers exceeded gainers by 2109 to 966. The 10-day moving average of the A/D line fell to -114.9 on the NYSE, while the 10dma of the Nasdaq A/D fell to -313.8.

On the NYSE declining volume was greater than volume in advancing issues by 1388.3 to 610.8 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1473.2 to 349.9 million shares.

24 NYSE-listed stocks rose to new 52-week highs, and 113 posted fresh 52-week lows, while on the Nasdaq there were 46 stocks that hit new 52-week highs, and 140 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)610.75349.93
Declining Volume (m)1388.271473.15
New Highs2446
New Lows113140

Market Sentiment Statistics
CBOE Volatility Index15.381.017.03%
CBOE Nasdaq Volatility Index19.040.673.65%
Equity Put-Call Ratio0.58-0.06-9.38%
10-day PCR0.75-0.04-5.26%
SPX-VIX Ratio74.9-5.81-7.2%

Bond Market Analysis

Bonds rose hard at the long end, with the yield on the benchmark 30-year Treasury bond shedding 5.8 basis points to 4.58%. The 30-year bond future rose back to above 114 and settled at 114&1/32. I think next week will be a good time to take short positions in one of the longer-dated bonds; the alternative is that the bond market is in the process of inverting - that coincides perfectly with the fact that the US is almost certainly now back in recession (that won't be formally known until the ECDC declares it to be so). Still, there are other factors besides recession that ought to determine bond values - in particular, governments that spend like drunken sailors while simultaneously cutting taxes and growing the money supply like Topsy. That doesn't bode well for government bonds over the long haul - ask any Argentinian.

The middle of the yield curve was broadly higher: five year yields fell to 3.921%, and ten-year yields fell to 4.255%. There is now less than a 100bps spread between 30-year yields and 2-year notes. That's just insane - I ranted earlier in the week about logical inconsistencies in time preference, and that's a doozy.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 5.0 basis points tighter at 8 basis points; bond "investors" only require EIGHT ON HUNDREDTHS of a percent in order to substitute high-grade corporate bonds for Treasuries in a portfolio. What are they thinking?

Spreads between longer dated Treasuries and their corporate AAA counterparts fell to 60.0 basis points for 10-year AAA, and 80.5 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 7.0 bps looser at 53.0 basis points and the 10-year AAA-A falling to zero. Yes, that's right (near as I can figure); there is no credit risk whatsoever priced into the 10-year A spectrum. A corporate security rated "a" has the same yield as one rated 'AAA'.

Looking at the data, the big snap downward in ten-year 'A' yields probably coincides with the removal from the 'A' index of the bonds of an individual company - I will try to establish whether that's the case. See, if a company's bonds are downgraded by the gutless wonders at the ratings agencies, it usually means that those bonds have already tanked to buggery. So when bonds drop from A to BAA, it's like removing the highest yielding bonds from the A spectrum. So the average yield on A rated bonds falls.

Treasury Yields
UST 13wk (yld)2.85800%
UST 2Y (yld)3.59-0.02-0.55%
UST 5Y (yld)3.921-0.039-0.98%
UST 10Y (yld)4.255-0.045-1.05%
UST 30Y (yld)4.58-0.058-1.25%

The Banks Index shed 0.08 points (0.08%), to 95.16; within the index,

  • MBNA Corp (KRB) -$0.83 (4.3%) to $18.45;
  • Bank Of NY (BK) -$0.22 (0.8%) to $27.27;
  • M&T Bank Corp (MTB) -$0.64 (0.64%) to $99.90;
  • State Street (STT) -$0.24 (0.52%) to $45.60; and
  • JPMorganChase (JPM) -$0.17 (0.49%) to $34.87.

The Broker-dealer Index slid 1.61 points (1.17%), ending the day at 135.72; the ticket clippers lined up as follows -

  • Raymond James (RJF) -$0.73 (2.63%) to $26.98;
  • Ameritrade (AMTD) -$0.25 (2.33%) to $10.50;
  • Jeffries Group (JEF) -$0.67 (1.84%) to $35.68;
  • Morgan Stanley (MWD) -$0.93 (1.82%) to $50.25; and
  • A G Edwards (AGE) -$0.65 (1.61%) to $39.75.

The Philadelphia SOX (Semiconductor) index slid 5.37 points (1.36%), ending the day at 389.35

  • Xilinx (XLNX) -$2.37 (8.05%) to $27.07;
  • Teradyne (TER) -$0.47 (3.9%) to $11.57;
  • National Semiconductors (NSM) -$0.66 (3.37%) to $18.95;
  • Micron Technology (MU) -$0.31 (3.19%) to $9.41; and
  • Maxim Integrated (MXIM) -$1.01 (2.66%) to $36.98.

Gold & Silver Markets

Gold rose $1.30 (0.3%) to close at $434.30 per ounce. Unless the USD is about to crack wide open, Gold is about to reverse. The probabilities of a crack in the USD are substantial, because the rally I anticipated in USD was far weaker than expected - but the USD has not yet pulled back below genuinely important support (by my calcs, that's at about 82.50 on the USDX). If that level breaks, the next solid ground is 80. Furthermore, the declines in the USD have been relatively non-committal, indicating there's not that much money behind them - at the moment.

Still, Gold's own internals are not good. As a percentage of open interest, Commercials have a net short position which has correlated almost perfectly with market tops in the past; gold bugs who look at the Commitments of Traders data have had to tie themselves in semantic knots in order to try and justify a call for a bull leg, when the CoT data shows that the smart money is positioning itself for a steep decline. In order to maintain a bull call, they have to declare to the world that they think that non-commercials suddenly got smarter (and bigger). That's a moderately defensible proposition, but my Dumb Bull Ratio (which concentrates on non-reportables) says that nuffnuffs are on the same side of the boat as non-commercials. That's like having Alberto Gonzales on your team while you're debating torture - do you think you could guess, ex ante, what side you would be representing?

Gold Bugs Index shed 1.48 points (0.78%), closing at 188.74

  • Gold Fields (GFI) -$0.41 (3.72%) to $10.62;
  • Harmony Gold (HMY) -$0.26 (3.6%) to $6.97;
  • Coeur d'Alene (CDE) -$0.08 (2.23%) to $3.51;
  • Meridian Gold (MDG) -$0.27 (1.69%) to $15.74; and
  • Kinross Gold (KGC) -$0.09 (1.64%) to $5.41.

Silver rose $0.06 (0.8%) to close at $7.27 per ounce. The Gold and Silver Index (XAU) lost 0.61 points (0.69%), to 88.39 points.

  • Gold Fields (GFI) -$0.41 (3.72%) to $10.62;
  • Harmony Gold (HMY) -$0.26 (3.6%) to $6.97;
  • Meridian Gold (MDG) -$0.27 (1.69%) to $15.74; and
  • Kinross Gold (KGC) -$0.09 (1.64%) to $5.41.
Precious Metals and Indices
PHLX Gold and Silver Index88.39-0.61-0.69%
AMEX Gold BUGS Index188.74-1.48-0.78%

Oil Market

Oil, why mock'st thou me?

Well, it's not really mocking me - fact is that I made it clear that the pullback from $58 would be a temporary pullback, and although I didn't "commit" strongly enough to oil longs at $51-ish (trying to use very short-dated calls instead of just throwing down in the futures) was firmer, the ride down from $58 was a good month's work by itself.

Last night crude rose $1.10 per barrel, closing at $55.39 per barrel. At one stage during the session, it got up to $55.90 - that was at 1:30 p.m. NY time, and in the last forty minutes of trade those lucky enough to be long were satisfied and took some money off the table. In a thin Friday afternoon market, that resulted in a 60c downdraft in the last half-hour of the session.

The Oil and Gas Index (XOI) posted a rise of 3.86 points (0.46%), ending the day at 837.62

  • Marathon Oil (MRO) +$0.72 (1.52%) to $47.94;
  • ConocoPhillips (COP) +$1.27 (1.2%) to $106.96; and
  • ChevronTexaco (CVX) +$0.52 (0.97%) to $53.87.

The Oil service stocks (OSX) Index added 0.66 points (0.48%), to end the session at 137.12

  • Cooper Cameron (CAM) +$0.72 (1.3%) to $55.92;
  • GlobalSantaFe (GSF) +$0.44 (1.25%) to $35.54; and
  • Halliburton (HAL) +$0.51 (1.18%) to $43.84.
Energy Complex
Reuters CRB307.290.580.19%
Crude Oil Light Sweet55.391.12.03%
Heating Oil1.54510.010.76%
Natural Gas7.1950.142.01%
Unleaded Gas1.65230.031.71%
AMEX Oil Index837.623.860.46%
Oil Service Index137.120.660.48%

Currency Markets

USD Exchange Rates
US Dollar Index83.49-0.21-0.25%
Australian Dollar0.78180.0060.77%
Swiss Franc1.181-0.0015-0.13%
Canadian Dollar0.80980.00260.32%