Interdum stultus opportuna loquitur...

Monday, May 02, 2005

USRant: It's Still "Look Out Below"...

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Friday's wrap-up advocated a short in US equity futures so long as the T-backed repurchase wasn't large - I ignored my own advice and sat sidelined while the nuffie-led opening orgasm petered out and the market fell 9 points. Still, with the FOMC announcement this week, the market will strew out the rose petals in front of that loser Greenspan right up until the actual announcement... and then Cry Havoc and Loose the Dogs of War.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a$5billion, overnight repurchase entirely in T-backed collateral. That sized repo sets the RantSenses on 'jamjob alert', but none was forthcoming.

Major US Indices

I said on Friday that it would be prudent to wait until the repo numbers were released before dipping a toe in on the short side - well, the repo size was OK (at $5 billion in T-backed), it was well-bid, and yet shortly after 10 a.m. it was clear that there wasn't going to be any jamjob that would make a short trade sting.

As it turned out, I didn't take a short - mostly because of the impending FOMC decision. You'll all be aware that my view is, that the market always likes to give Greenspan's ego the market equivalent of a hand-job in the run-up to the FOMC announcements - it makes it seem like he and his geriatric, bureaucratic Soviet-style Central Planners can actually affect the future (in a good way). I had neglected to mention the upcoming FOMC last week (they're certain to tighten another 25 bps) except in the context of the bond market. However the usual futures-led ramp by the iconodules at the big houses, will usually result in the swing high for the week being registered within ten minutes of the FOMC statement.

It's a pity I stood aside on the short, because all the logic enumerated on Friday was exactly right; the nuffnuffs all jumped long at the open, and a short just after 10 a.m. a short would have been a doozy. As it subsequently turned out, the market had already stacked on the overwhelming bulk of the day's gains by then. In fact the 10 a.m. futures high was not exceeded during the session.

At 10 a.m. the Dow was already above 10250 and the S&P above 1160 - and the S&P futures hit 1164.50 at 10:00 a.m. NY time and then dropped 9 points, with only a post-lunch FOMC-preparation reversal staving off further declines. I'm not claiming that intraday gain, because I didn't send out an e-mail once the repo didn't result in a T-backed jamjob... anyone watching at home would have seen the repo numbers and thought "That writes off Friday's discussion".

By the close The Dow Jones Industrial Average had gained 59.19 points (0.58%), closing out the day at 10251.7 points (but interestingly, below its 10 a.m. level). The index hit an intraday high of 10258.43 just after 10:30 a.m., and fell from there to set its low at 10188.07 at about 2 p.m.; the short side was the side to be on, for all except the last 2 hours.

Within the blue-chip index, 23 stocks rose, the biggest gainers being American International Group (AIG, +5.09% to $53.44) and Home Depot (HD, +2.52% to $36.26), which accounted for 26 Dow points between them. Losers in the Dow numbered 7 and were led by Verizon Communications (VZ, -2.32% to $34.97) and Citigroup (C, -0.92% to $46.53), with these two stocks contributing -9 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 218.2m shares to 120.3m.

The broader S&P500 rose 5.31 points (0.46%), to end the session at 1162.16. Within the index, gainers numbered 339, while 151 S&P500 stocks fell for the day. Volume was tilted 1.8:1 in favour of the winners with 1.07 billion units traded in the winners as compared with 608.14 million traded in the losers .

Over at Times Square, the Nasdaq Composite advanced 7 points (0.36%), to close at 1928.65, while larger-cap technology issues fared worse with the Nasdaq100 adding 2.92 points (0.21%), to end at 1423.71 points. Within the tech benchmark, gainers numbered 68, while 31 Nasdaq100 stocks fell for the day. Volume was tilted 1.3:1 in favour of the winners with 382.87 million traded in the winners compared to 301.68 million in the losers .

NYSE Volume was pretty chunky, with 1.98 billion shares changing hands, while Nasdaq Volume was about average, with 1.55 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10251.759.190.58%
Nasdaq Composite1928.6570.36%
NYSE Volume1.98bn--
Nasdaq Volume1.55bn--


My 9-stock "bellwethers" group rose by an average of 0.07%

  • General Electric (GE) +$0.05 (0.14%) to $36.25;
  • Citigroup (C) -$0.43 (0.92%) to $46.53;
  • Wal Mart (WMT) +$0.66 (1.4%) to $47.80;
  • I.B.M. (IBM) +$0.13 (0.17%) to $76.51;
  • Intel (INTC) +$0.03 (0.13%) to $23.55;
  • Cisco Systems (CSCO) -$0.01 (0.06%) to $17.26;
  • eBay (EBAY) -$0.19 (0.6%) to $31.52;
  • Fannie Mae (FNM) -$0.19 (0.35%) to $53.76; and
  • Freddie Mac (FRE) +$0.45 (0.73%) to $61.97.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2127 to 1141 for a single-day A/D reading of 986; Nasdaq gainers trumped losers by 1665 to 1403. The 10-day moving average of the A/D line rose to 168.1 on the NYSE, while the 10dma of the Nasdaq A/D rose to -234.4.

NYSE advancing volume exceeded volume in decliners by 1275.2 to 630.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 837 to 658.7 million shares.

69 NYSE-listed stocks rose to new 52-week highs, and 51 posted fresh 52-week lows, while on the Nasdaq there were 29 stocks that hit new 52-week highs, and 140 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1275.24837.04
Declining Volume (m)630.19658.72
New Highs6929
New Lows51140

Market Sentiment Statistics
CBOE Volatility Index15.11-0.22-1.44%
CBOE Nasdaq Volatility Index20.672.0711.13%
Equity Put-Call Ratio0.74-0.08-9.76%
10-day PCR0.77-0.01-1.02%
SPX-VIX Ratio76.91.451.92%

Bond Market Analysis

The long-bond short I mentioned on Friday (which I said would be initiated at the open today) was very similar to the short from 117 earlier in the year. On that occasion, the trade resulted in intraday gains of about half a point (US$500 per contract) before late-day rallies gave almost all of it back; this happened for the first two sessions after that short was initiated. And then of course, the market cracked in the expected direction.

And so it was last night; from an opening level of 115 & 1/32, the bond plummeted and by 10:30 Chicago time had dropped to 114 & 14/32, for an intrasession gain of 19 ticks (US$593.75) on an initial margin of US$1688 - so after three hours the trade was up 35.2%.

Note also that the same trade logic can always be applied to the mini-contract for the 30-year; its initial margin is $878 and the value per tick is $15.625, so the percentage gain sums are slightly different (the maximum intrasession gain was 33.8%).

As I said though, the overwhelming majority of the trade's intraday gains were given back - hourly charts hit oversold at exactly the time that the contract traded at its session low, which helped generate a fairly impressive bounce. By the close the trade had only gained 4 ticks (US$125 on the full ZB contract); as I mentioned previously I am basically happy enough having been able to re-establish a short in the bonds at a higher level than the exit of the previous short (recall that the earlier short was from 117 to 113&16/32 - getting re-set now, a point and a half higher, almost compensates for exiting the earlier trade more than 5 points too early).

The yield on the benchmark 30-year Treasury bond reflected the near-unchanged close in the long bond, dipping 0.3 bps to 4.516%.

The middle of the yield curve was broadly higher, but not by much (both fell by 2 basis points): five year yields ticked down to 3.879%, and ten-year yields dipped to 4.194%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 2.0 bps tighter at 9.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 58.0 bps for 10-year AAA, and 83.0 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly tighter with the AAA-A spread on 20-years 7.0 bps wider at 43.0 basis points and the 10-year AAA-A spread a point tighter at 1.0 bps.

Treasury Yields
UST 13wk (yld)2.82200%
UST 2Y (yld)3.61-0.02-0.55%
UST 5Y (yld)3.879-0.017-0.44%
UST 10Y (yld)4.194-0.007-0.17%
UST 30Y (yld)4.516-0.003-0.07%

The Banks Index posted a rise of 0.57 points (0.59%), ending the day at 97.96; within the index,

  • Washington Mutual (WM) +$1.41 (3.41%) to $42.73;
  • US Bancorp (USB) +$0.57 (2.04%) to $28.47;
  • Golden West Financial (GDW) +$0.84 (1.35%) to $63.17;
  • Zions Bancorp (ZION) +$0.82 (1.17%) to $70.85; and
  • Northern Trust (NTRS) +$0.49 (1.09%) to $45.49.

The Broker-dealer Index lost 2.64 points (1.92%), ending the day at 134.78; the ticket clippers lined up as follows -

  • Morgan Stanley (MWD) -$3.23 (6.14%) to $49.39;
  • Lehman Brothers (LEH) -$3.27 (3.57%) to $88.45;
  • Ameritrade (AMTD) -$0.28 (2.67%) to $10.20;
  • Charles Schwab (SCH) -$0.25 (2.42%) to $10.10; and
  • E*Trade (ET) -$0.25 (2.25%) to $10.86.

The Philadelphia SOX (Semiconductor) index lost 0.38 points (0.1%), to end the session at 385.27

  • Freescale Semiconductors (FSL-B) -$0.35 (1.86%) to $18.51;
  • Xilinx (XLNX) -$0.39 (1.45%) to $26.55;
  • ST Microelectronic (STM) -$0.17 (1.2%) to $14.03;
  • Broadcom (BRCM) -$0.27 (0.9%) to $29.63; and
  • Altera (ALTR) -$0.11 (0.53%) to $20.62.

Gold & Silver Markets

Gold fell by $5.50 (1.26%) to close at $429.50 per ounce. This is starting to look like something (i.e., the pullback in Gold to the low-$400s or lower that I have been expecting for ages). The last little nuffie-spurt took Gold above $438 on the May contract, with that recent swing high being set on April 26th.

Gold Bugs Index dipped 0.25 points (0.14%), closing at 177.78

  • Iamgold (IAG) -$0.16 (2.63%) to $5.93;
  • Eldorado Gold (EGO) -$0.06 (2.54%) to $2.30;
  • Hecla Mining (HL) -$0.11 (2.36%) to $4.55;
  • Goldcorp (GG) -$0.10 (0.77%) to $12.84; and
  • Newmont Mining (NEM) -$0.25 (0.66%) to $37.72.

Silver fell by $0.07 (0.99%) to close at $6.84 per ounce. The Gold and Silver Index (XAU) gained 0.14 points (0.17%), at 83.65 points.

  • Kinross Gold (KGC) +$0.09 (1.68%) to $5.44;
  • Gold Fields (GFI) +$0.11 (1.11%) to $10.06;
  • Barrick Gold (ABX) +$0.20 (0.9%) to $22.52; and
  • Harmony Gold (HMY) +$0.05 (0.8%) to $6.32.
Precious Metals and Indices
PHLX Gold and Silver Index83.650.140.17%
AMEX Gold BUGS Index177.78-0.25-0.14%

Oil Market

Oil opened weaker, after the weekend's journo-fest about falling energy prices and Friday's equity rally. Basic stuff - but in reality the oil market is now oversold but will now struggle to make higher highs without first spending some time building up some nuffie shorts to sacrifice.

From an opening level of $49.20 for the day session (having hit $49.10 during the ACCESS overnight market), oil confounded those who watch TV 'analysis' by rising $1.90 from that low, setting a session high at $51.05. By the close it had held on to most of those gains, posting an increase of $1.18 per barrel over Friday and closing at $50.90 per barrel.

The Oil and Gas Index (XOI) gained 11.28 points (1.38%), closing at 827.95

  • Marathon Oil (MRO) +$1.28 (2.75%) to $47.85;
  • ChevronTexaco (CVX) +$1.21 (2.33%) to $53.21; and
  • Unocal (UCL) +$1.10 (2.02%) to $55.65.

The Oil service stocks (OSX) Index rose 3.59 points (2.78%), at 132.51

  • GlobalSantaFe (GSF) +$1.44 (4.29%) to $35.04;
  • Global Industries (GLBL) +$0.40 (4.16%) to $10.01; and
  • Tidewater (TDW) +$1.31 (3.8%) to $35.78.
Energy Complex
Reuters CRB302.89-0.85-0.28%
Crude Oil Light Sweet50.91.182.37%
Heating Oil1.46520.032.05%
Natural Gas6.690.111.59%
Unleaded Gas1.5130.021.32%
AMEX Oil Index827.9511.281.38%
Oil Service Index132.513.592.78%

Currency Markets

USD Exchange Rates
US Dollar Index84.510.090.11%
Australian Dollar0.7792-0.0013-0.17%
Swiss Franc1.19720.00190.16%
Canadian Dollar0.79640.00190.24%