Interdum stultus opportuna loquitur...

Saturday, May 14, 2005

USRant: Yet Another Late Bounce...

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

John Bolton's Confirmation committee agreed to send his proposed appointment to the Senate for a full vote, but did not recommend him for the UN ambassadorship. Amazing - Senator Voinovich (a Republican) grew some gonads and went on the record as saying that Bolton was a poster child for who not to have at the UN. Still, it's likely that the US will again have an international embarrassment as UN representative - but this time its representative will also have the gayest moustache ever seen in the diplomatic world.

We all know that Bolton is a batshit-insane Israeli plant - a complete stooge who was the lead generator of cooked pre-war intelligence, and a key component in the Wolofowitz-Perle-Ledeen nexus that funnels critical information to Tel Aviv. But so what? John Negroponte aided and abetted the continuation of death-squaddism while the US ambassador to Honduras, and that didn't impede his move to the UN... the key issue for his UN tenure was his ability to raise his hand for the veto of any UNSC resolution critical of Israel - and he did that unfailingly.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 2 repurchase operations.

  • a $4.75billion, weekend repurchase with $3.791billion in T-backed collateral; and
  • a $5.5billion, 14-day repurchase with $2.344billion in T-backed collateral.

Interestingly, a decent slug of the $10.25 billion total repurchase was undertaken in agency-backed collateral - another attempt to forestall (or slow down) the slow-motion implosion of the two entities that carry the bulk of the US's increasingly-fragile mortgage markets... Fannie Mae and Freddie Mac. How poignant that their names would not be out of place in a finance-based remake of Deliverance - they are the financial market equivalent of the deformed inbred mutant in that episode of the X-Files where Momma lives under the floorboards and travels in the trunk of the car...

The data was pretty ugly - University Of Michigan Consumer Sentiment was weaker than expected (actual was 85.3, expected was 88.5), which did no favours to manufacturers of durables and other major consumption-spending items. As I've mentioned before, the UMich sentiment index is completely uncorrelated with consumption spending and spending on durables, ... likewise the ISM survey is uncorrelated with future production. profits and output. But nobody gives a crap whether they do what they say they will (provide a useful guide to the path of some key variable)... folks just assume that the name says it all. Brand is everything.

Apart from the sentiment number, the Business Inventories report was OK - inventories up, but sales up more, yielding a net downtick in the inventory-sales ratio. Inventory growth was slightly lower than expectations. Slow inventory growth is a good thing, in my view - most inventory accumulation after a certain point is undesirable, and I think that once the inventory-sales ratio for the economy in aggregate exceeds 1, the accumulation is non-voluntary (that is, businesses are not deliberately restocking - they are facing inadequate consumption demand to clear shelves).

Major US Indices

Another day, another inexplicable bump up into the close to prevent technical damage from registering on a closing basis. I mentioned yesterday that the critical closing level was 1156 (for yesterday) and the market held above it. Today, the critical region was 1152-1150. Despite spending a decent chunk of the day beneath that level, a rally in the last hour tacked on enough to get the S&P500 index out of the woods (at least as far as the daily and weekly closing print is concerned).

The Dow Jones Industrial Average declined 49.36 points (0.48%), closing out the day at 10140.12 points. At one stage - before the late-day rally - the index was well under 10100.

The index hit an intraday high of 10234.34 just after midday - the "more than $5 billion" repo booster did its job from 10 a.m. (which was the morning's low), giving a 70-point-plus bounce over the following two hours. The index attempted to re-test its session high about twenty minutes later, and failed by less than a single Dow point.

From there it got ugly, quickly. Between 12:30 p.m. NY time and 2:30 p.m., the Dow lost almost 160 points, dropping to 10075.55 (note - another 'quarter') before the closing 60-point rally-ette.

Within the blue-chip index, 9 stocks rose, the biggest gainers being Hewlett Packard (HPQ, +2.33% to $20.62) and Microsoft (MSFT, +1.20% to $25.30), which accounted for 6 Dow points between them. Techs were stronger than the broader market for the entire session, due largely to misplaced optimism surrounding Dell's earnings report and increased revenue guidance.

Losers in the Dow numbered 21 and were led by Alcoa (AA, -3.09% to $26.70) and Exxon Mobil (XOM, -2.04% to $53.70), with these two stocks contributing -15 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 206.5m shares to 170.5m.

The broader S&P500 declined 5.31 points (0.46%), at 1154.05. Within the index, gainers numbered 125, while 367 S&P500 stocks fell for the day. Volume was tilted 1.1:1 in favour of the losers with 1071.77 million units traded in the losers as compared with 1009.17 million traded in the winners .

Over at Times Square, the Nasdaq Composite posted a rise of 12.92 points (0.66%), to close at 1976.8, while larger-cap technology issues fared better with the Nasdaq100 adding 15.84 points (1.09%), to end at 1470.63 points. Within the tech benchmark, gainers numbered 70, while 29 Nasdaq100 stocks fell for the day. Volume was tilted 6.5:1 in favour of the winners with 768.73 million traded in the winners compared to 118.79 million in the losers .

NYSE Volume was super-chunky, with 2.17 billion shares changing hands, while Nasdaq Volume was chunky, with 1.85 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10140.12-49.36-0.48%
Nasdaq Composite1976.812.920.66%
NYSE Volume2.17bn--
Nasdaq Volume1.85bn--


My 9-stock "bellwethers" group rose by an average of 0.23% thanks to the techs; the Toxic Twins - Freddie and Fannie - couldn't get their heads above water despite some decent-sized agency-backed repurchases by the Fed.

  • General Electric (GE) -$0.17 (0.47%) to $35.70;
  • Citigroup (C) -$0.50 (1.08%) to $45.91;
  • Wal Mart (WMT) -$0.52 (1.09%) to $47.13;
  • I.B.M. (IBM) +$0.54 (0.74%) to $73.16;
  • Intel (INTC) +$0.28 (1.13%) to $25.12;
  • Cisco Systems (CSCO) +$0.19 (1.02%) to $18.89;
  • eBay (EBAY) +$1.26 (3.73%) to $35.06;
  • Fannie Mae (FNM) -$0.63 (1.16%) to $53.65; and
  • Freddie Mac (FRE) -$0.44 (0.71%) to $61.33.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2197 to 1062, for a single-day A/D reading of -1135; and Nasdaq losers exceeded gainers by 1758 to 1399. The 10-day moving average of the A/D line fell to -254.6 on the NYSE, while the 10dma of the Nasdaq A/D fell to -207.4.

On the NYSE declining volume was greater than volume in advancing issues by 1547.3 to 581.6 million shares; Nasdaq advancing volume was greater than volume in decliners by 1295 to 520.1 million shares.

27 NYSE-listed stocks rose to new 52-week highs, and 105 posted fresh 52-week lows, while on the Nasdaq there were 145 stocks that hit new 52-week highs, and 131 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)581.631294.95
Declining Volume (m)1547.34520.06
New Highs27145
New Lows105131

Market Sentiment Statistics
CBOE Volatility Index16.390.271.67%
CBOE Nasdaq Volatility Index18.47-0.34-1.81%
Equity Put-Call Ratio0.74-0.11-12.94%
10-day PCR0.750-0.18%
SPX-VIX Ratio70.4-1.51-2.1%

Bond Market Analysis

It always pays to try to establish why a 'call' doesn't perform to expectations; the recent short in the 30-year (a position that was in profit by a point and a half within a week) was taken off the table before the profit turned to a loss, but the question remains - why on earth should bonds rally? The yield curve is currently far too flat, and it goes further than that - spreads between Treasuries and Corporates are too narrow to be justified by any economic logic, and credit spreads are a farce.

Can it really be my often-cited criticism of the stupid "two asset model" that most graduates carry around in their heads? I really hope not, because if that's the underlying cause, we're all screwed. I still think that the big money is to be made on the short side of the bond market - but timing is important; based on time and price the recent short from 115 should have been a real hum-dinger (i.e., the first shot in a move in bonds back below 110), but it wasn't. Why it wasn't remains to be winkled out, but I am almost salivating at the prospect of being able to short bonds again at above 116&16/32...

Bonds rose over half a point at the long end, with the yield on the benchmark 30-year Treasury bond shedding 3.9 bps to 4.484%. A 30-year bond yield of under 4.5% hasn't been seen for a few months, and 30-year yields have dropped over 1 percentage point during the last 12 months.

The middle of the yield curve was broadly higher: five year yields fell to 3.821%, and ten-year yields fell to 4.121%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 3.0 bps wider at 10.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 54.0 bps for 10-year AAA, and 89.0 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 1.0 bps narrower at 49.0 basis points and the 10-year AAA-A spread 48.0 bps tighter at 4.0 bps. Looks like I was right about the 'bad tick' in the 10-year A yield - 70bps of incorrectly-attributed yield were lopped off it today, bringing it back into alignment with other points in the yield matrix.

Treasury Yields
UST 13wk (yld)2.75700%
UST 2Y (yld)3.58-0.05-1.38%
UST 5Y (yld)3.821-0.049-1.27%
UST 10Y (yld)4.121-0.06-1.44%
UST 30Y (yld)4.484-0.039-0.86%

The Banks Index lost 0.66 points (0.68%), to end the session at 96.37; within the index,

  • National City Corp (NCC) -$0.46 (1.35%) to $33.55;
  • PNC Financial Services (PNC) -$0.61 (1.13%) to $53.61;
  • Northern Trust (NTRS) -$0.51 (1.12%) to $44.83;
  • Citigroup (C) -$0.50 (1.08%) to $45.91; and
  • JPMorganChase (JPM) -$0.37 (1.06%) to $34.46.

The Broker-dealer Index lost 0.9 points (0.64%), to 139.67; the ticket clippers lined up as follows -

  • Goldman Sachs (GS) -$2.40 (2.39%) to $97.82;
  • Morgan Stanley (MWD) -$1.18 (2.39%) to $48.22;
  • Merrill Lynch (MER) -$0.78 (1.46%) to $52.68;
  • A G Edwards (AGE) -$0.35 (0.89%) to $39.18; and
  • Jeffries Group (JEF) -$0.23 (0.68%) to $33.80.

The Philadelphia SOX (Semiconductor) index gained 11.21 points (2.82%), at 408.23

  • Broadcom (BRCM) +$1.98 (6.21%) to $33.86;
  • Teradyne (TER) +$0.57 (4.83%) to $12.37;
  • Novellus Systems (NVLS) +$1.07 (4.48%) to $24.93;
  • Micron Technology (MU) +$0.41 (4.04%) to $10.57; and
  • Marvell Tech Group (MRVL) +$1.36 (3.86%) to $36.55.

Gold & Silver Markets

Gold fell by another $2.50 (0.59%) to close at $420.40 per ounce.

The Gold Bugs Index lost 4.78 points (2.77%), ending the session at 168.05 points.

  • Hecla Mining (HL) -$0.28 (6.47%) to $4.05;
  • Eldorado Gold (EGO) -$0.12 (5.43%) to $2.09;
  • Kinross Gold (KGC) -$0.25 (4.78%) to $4.98;
  • Goldcorp (GG) -$0.56 (4.36%) to $12.29; and
  • Golden Star (GSS) -$0.11 (4.3%) to $2.45.

Silver fell by $0.02 (0.22%) to close at $6.95 per ounce. The Gold and Silver Index (XAU) lost 1.34 points (1.67%), at 78.99 points.

  • Kinross Gold (KGC) -$0.25 (4.78%) to $4.98;
  • Goldcorp (GG) -$0.56 (4.36%) to $12.29;
  • Agnico Eagle (AEM) -$0.50 (4.19%) to $11.44; and
  • Meridian Gold (MDG) -$0.53 (3.5%) to $14.61.
Precious Metals and Indices
PHLX Gold and Silver Index78.99-1.34-1.67%
AMEX Gold BUGS Index168.05-4.78-2.77%

Oil Market

Oil lost ground, shedding $0.06 per barrel, closing at $48.67 per barrel.

The Oil and Gas Index (XOI) slid 12.8 points (1.6%), closing at 787.32

  • Occidental Petroleum (OXY) -$1.45 (2.14%) to $66.25;
  • Amerada Hess (AHC) -$1.93 (2.14%) to $88.25; and
  • Exxon Mobil (XOM) -$1.12 (2.04%) to $53.70.

The Oil service stocks (OSX) Index declined 1.5 points (1.19%), at 124.96

  • Global Industries (GLBL) -$0.28 (3.21%) to $8.43;
  • Transocean (RIG) -$0.99 (2.2%) to $44.03; and
  • Noble Corp (NE) -$1.11 (2.17%) to $50.09.
Energy Complex
Reuters CRB293.85-2.17-0.73%
Crude Oil Light Sweet48.67-0.06-0.12%
Heating Oil1.3703-0.01-0.77%
Natural Gas6.5360.020.25%
Unleaded Gas1.4122-0.02-1.73%
AMEX Oil Index787.32-12.8-1.6%
Oil Service Index124.96-1.5-1.19%

Currency Markets

USD Exchange Rates
US Dollar Index86.110.570.67%
Australian Dollar0.7606-0.0047-0.61%
Swiss Franc1.22370.00830.68%
Canadian Dollar0.7904-0.0088-1.1%