Interdum stultus opportuna loquitur...

Saturday, June 25, 2005

USRant: "Mission Accomplished"... Again...

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

This week's late action certainly now qualifies as a minor fan-splat, as forecast here last week. I've said this before, but it nears repeating - when everybody is on the same side of the boat, your best chance of survival is to be on the opposite side. That way, if half of the crew gets crowded overboard, you get plenty of time to react and dive amidships as the boat rocks towards its midline... and if the fools flip the thing, you wind up on top of the upturned hull purely through momentum.

There is not a single 'great' investor (or trader, I would argue) who trades breakouts; whether it's Buffett buying companies nobody else can see the value in, to the IWL Model Portfolios doing likewise (before the ticket-clipping mentality took over), or some of the really good futures traders (the ones who don't write books), 'fading sentiment' is the best strategy.

In April, markets got very oversold (as I pointed out in a post to Rampant), and were primed for a decent bounce, and relatively soon. As it turned out, there was a one two-session "whoosh" downward in the ensuing two sessions, taking the Dow to just under 10k -rather than the possible week or more of further decline that I had anticipated.

Still, the bounce was there to see in advance, just as this week's decline was there to see in advance (and next week's decline in bonds is there to see right now).

The absolute key now is - where to from here? And that is actually much more difficult than it appears. I said last week (or early this week - I forget) that there were 18 sessions left to validate my year-end forecast of 1300 on the S&P, but that on balance I thought that events would overcome that forecast (because it looks too bullish given fundamentals, the economy and the progress of the destruction of other people's children). It was a number that had a high probability of occurring (65% at least) at the time, and that probability has not been substantially reduced - yet. If 10250 breaks next week on a closing basis for more than 2 days in a row, the probabilities change almost-irrevocably.

Data-wise, today was like Greensplatt's reputation; it looks tremendous until you scratch the surface, at which point it starts to ooze pus. Furthermore, since the data (like Greensplatt's reputation) is three-parts fiction, things are almost certainly worse than they seem anyhow.

Take the Durable Goodsdata: the headline was a 5.5% increase (consensus thought 2% was more likely) - well that looks like a dead-set "giddyup!"... if you're a headline moron like most journalists. If you have read this Rant for more than a month you already know by now, the most important number in the Durable Goods numbers is (repeat after me)...
Non-Defence Capex ex-Aircraft

And guess what? non-defence capex ex aircraft fell 2.35% - its worst result since October 2004.

Likewise the New Home Sales data; they were weaker than expectations (at 1.3 million units compared with consensus of 1.32 million), but the real sting was in the 6.5% fall in median house prices. Yep - you read that right - a 6.5% fall in median house prices... in a month. Median prices have now risen just 2.5% for the year - slower than inflation.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $4.75billion, 3-day repurchase entirely in T-backed collateral. To make matters worse it was struck at 1.1 basis points above Fed Funds. So not only was it not big enough (Fridays repos need to be bigger because the money must satisfy short-term transactions demand over the weekend), it also had no embedded carry. How are da Boyz supposed to work under conditions like that? (And even more so when half the NYSE specialist community is either under indictment or investigation... let's hope some genuine reform comes out of that).

Major US Indices

The Dow Jones Industrial Average slid 123.6 points (1.19%), closing out the day at 10297.84 points. The index opened at 10422.28, and never saw that level again. It dropped beneath 10400 within one minute of the open, and challenged it twice more in the following hour, before giving up. The index faded with clockwork precision through the entire day, eventually closing at  its low (10297.84). 

Within the blue-chip index, 4 stocks rose, the biggest gainers being General Motors (GM, +0.74% to $34.08) and Johnson & Johnson (JNJ, +0.35% to $65.58), which accounted for 4 Dow points between them. Losers in the Dow numbered 26 and were led by Alcoa (AA, -2.68% to $26.46) and Intel (INTC, -2.50% to $26.10), with these two stocks contributing -11 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 396.8m shares to 103.9m.

Total Volume on the NYSE was the 7th highest on record - just under the 6th-placed 2.58 billion from July 25th 2002, but above the 2.44 billion recorded on duly 23rd 2002.

The broader S&P500 shed 9.16 points (0.76%), closing at 1191.57. Within the index, gainers numbered 102, while 393 S&P500 stocks fell for the day. Volume was tilted 3.3:1 in favour of the losers with 1668.10 million units traded in the losers as compared with 510.65 million traded in the winners. That's a fairly heavy tile, so expect a bounce on Monday

Over at Times Square, the Nasdaq Composite lost 17.39 points (0.84%), to close at 2053.27, while larger-cap technology issues fared worse with the Nasdaq100 losing 15.77 points (1.04%), to end at 1500.18 points. Within the tech benchmark, gainers numbered 21, while 79 Nasdaq100 stocks fell for the day. Volume was tilted 4.3:1 in favour of the losers with 691.55 million traded in the losers compared to 159.57 million in the winners .

NYSE Volume was super-chunky, with 2.52 billion shares changing hands, while Nasdaq Volume was super-chunky (over 2 bill), with 3.04 billion shares traded - that's the highest volume for the year by a mile.

Major Market Statistics
Dow Jones Industrial Average10297.84-123.6-1.19%
Nasdaq Composite2053.27-17.39-0.84%
NYSE Volume2.52bn--
Nasdaq Volume3.04bn--


My 9-stock "bellwethers" group fell by an average of 1.31%

  • General Electric (GE) +$0.12 (0.35%) to $34.78;
  • Citigroup (C) +$0.07 (0.15%) to $46.95;
  • Wal Mart (WMT) -$0.51 (1.07%) to $47.37;
  • I.B.M. (IBM) -$1.40 (1.86%) to $74.01;
  • Intel (INTC) -$0.67 (2.5%) to $26.10;
  • Cisco Systems (CSCO) -$0.48 (2.43%) to $19.30;
  • eBay (EBAY) -$0.07 (0.2%) to $34.37;
  • Fannie Mae (FNM) -$1.24 (2.09%) to $58.05; and
  • Freddie Mac (FRE) -$1.42 (2.15%) to $64.50.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1992 to 1230, for a single-day A/D reading of -762; considering the 100-point headline decline, you would have expected some more desperate selling. Nasdaq losers exceeded gainers by 1812 to 1235. The 10-day moving average of the A/D line fell to -72.0 on the NYSE, while the 10dma of the Nasdaq A/D fell to -214.1.

On the NYSE declining volume was greater than volume in advancing issues by 1724.7 to 757.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 2034.1 to 968 million shares.

243 NYSE-listed stocks rose to new 52-week highs, and 56 posted fresh 52-week lows, while on the Nasdaq there were 123 stocks that hit new 52-week highs, and 80 which fell to fresh 52-week lows. Those are still numbers that speak of a strong (in fact over-zealous) market.

Market Breadth Statistics

Advancing Volume (m)757.05967.99
Declining Volume (m)1724.722034.12
New Highs243123
New Lows5680

Market Sentiment Statistics
CBOE Volatility Index12.180.090.74%
CBOE Nasdaq Volatility Index15.30.231.53%
Equity Put-Call Ratio0.780.034%
10-day PCR0.700.023.01%
SPX-VIX Ratio97.8-1.49-1.5%

Bond Market Analysis

Bonds rose strongly at the long end, with the yield on the benchmark 30-year Treasury bond shedding 4.2 bps to 4.215%. the 30-year bond future hit 118&31/32 before closing at 118&30/32. Next week I plan to wait for a little pop on the day-session open to above 119, and then short the 30-year.

The middle of the yield curve was broadly higher in price: five year yields fell to 3.694%, and ten-year yields fell to 3.914%.

Spreadsbetween short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps wider at 1.0 basis points; it costs corporate issuers 0.01% more to raise 2-year debt than it costs the US government. What that means is that the bond market is out of its freaking mind. Spreads between longer dated Treasuries and their corporate AAA counterparts rose to 58.0 bps for 10-year AAA, and 110.0 bps for 20-years (recall that when this spread was at 75bps recently, I declared it  ought to be more like 150... everyone was on the same side of the boat).

Credit spreads(spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly wider with the AAA-A spread on 20-years 22.0 bps tighter at 22.0 basis points (in other words, someone's 10-year debt got taken out of the A spectrum) and the 10-year AAA-A spread 13.0 bps tighter at -1.0 bps (ditto).

Treasury Yields
UST 13wk (yld)300%
UST 2Y (yld)3.56-0.03-0.84%
UST 5Y (yld)3.694-0.05-1.34%
UST 10Y (yld)3.914-0.045-1.14%
UST 30Y (yld)4.215-0.042-0.99%

The Banks Index slid 0.15 points (0.15%), ending the day at 98.63; within the index,

  • Washington Mutual (WM) -$0.55 (1.34%) to $40.41;
  • JPMorganChase (JPM) -$0.36 (1%) to $35.57;
  • Golden West Financial (GDW) -$0.49 (0.75%) to $65.02;
  • Suntrust Banks (STI) -$0.45 (0.62%) to $72.15; and
  • Wells Fargo (WFC) -$0.29 (0.48%) to $60.72.

The Broker-dealer Index advanced 2.66 points (1.71%), ending the day at 157.82; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$13.01 (15.31%) to $98.00;
  • Morgan Stanley (MWD) +$1.40 (2.71%) to $53.12;
  • Ameritrade (AMTD) +$0.30 (1.64%) to $18.55;
  • Goldman Sachs (GS) +$1.65 (1.62%) to $103.67; and
  • A G Edwards (AGE) +$0.65 (1.56%) to $42.30.

The Philadelphia SOX (Semiconductor) index slid 8.25 points (1.9%), closing at 427

  • Freescale Semiconductors (FSL-B) -$1.28 (5.65%) to $21.36;
  • Teradyne (TER) -$0.53 (3.86%) to $13.20;
  • Novellus Systems (NVLS) -$0.98 (3.74%) to $25.21;
  • Applied Materials (AMAT) -$0.46 (2.72%) to $16.45; and
  • Advanced Micro Devices (AMD) -$0.45 (2.55%) to $17.17.

Gold & Silver Markets

Gold fell by $1.70 (0.38%) to close at $441.50 per ounce. For once the Asian session wasn't weak, but instead Gold blind-sided them again by reversing right at the start of theCOMEX day session. Starting at 444.50, August Gold dipped hard (to $440 precisely, at 11 a.m. NY time) before bouncing to $443 intrasession.

Gold Bugs Index gained 1.51 points (0.76%), to 199.21

  • Gold Fields (GFI) +$0.26 (2.43%) to $10.97;
  • Glamis Gold (GLG) +$0.23 (1.37%) to $17.06;
  • Freeport McMoran (FCX) +$0.40 (1.1%) to $36.68;
  • Harmony Gold (HMY) +$0.09 (1.08%) to $8.39; and
  • Kinross Gold (KGC) +$0.06 (1.02%) to $5.93.

Silver rose $0.02 (0.23%) to close at $7.29 per ounce. The Gold and Silver Index (XAU) gained 0.81 points (0.88%), to 92.6 points.

  • Anglogold Ashanti (AU) +$0.87 (2.51%) to $35.57;
  • Gold Fields (GFI) +$0.26 (2.43%) to $10.97;
  • Freeport McMoran (FCX) +$0.40 (1.1%) to $36.68; and
  • Harmony Gold (HMY) +$0.09 (1.08%) to $8.39.
Precious Metals and Indices
PHLX Gold and Silver Index92.60.810.88%
AMEX Gold BUGS Index199.211.510.76%

Oil Market

Oil was firmer, rising by $0.28 per barrel, closing at $59.84 per barrel. The session high for the August contract was $60.25, but the Cash (which closed yesterday at $59.23) will still not break the $60 mark as a result of today's action. It is nearly - nearly - time to short Oil again, but it will pay to look at this week's Commitment of Traders report first, to see where all the nuffnuffs are positioned.

The Oil and Gas Index (XOI) advanced 0.68 points (0.08%), at 897.87

  • Unocal (UCL) +$0.66 (1.02%) to $65.68;
  • Royal Dutch Shell (RD) +$0.54 (0.86%) to $63.25; and
  • Sunoco (SUN) +$0.82 (0.72%) to $114.69.

The Oil service stocks (OSX) Index shed 0.74 points (0.5%), closing at 147.18

  • Global Industries (GLBL) -$0.30 (3.45%) to $8.39;
  • National Oilwells/Varco (NOV) -$0.70 (1.47%) to $46.85; and
  • Baker Hughes (BHI) -$0.61 (1.2%) to $50.40.
Energy Complex
Reuters CRB314.421.390.44%
Crude Oil Light Sweet59.840.280.47%
Heating Oil1.6504-0.02-1.42%
Natural Gas7.36-0.15-1.98%
Unleaded Gas1.655700.04%
AMEX Oil Index897.870.680.08%
Oil Service Index147.18-0.74-0.5%

Currency Markets

USD Exchange Rates
US Dollar Index88.78-0.25-0.28%
Australian Dollar0.7694-0.0032-0.41%
Swiss Franc1.2746-0.0043-0.34%
Canadian Dollar0.8104-0.0013-0.16%