Interdum stultus opportuna loquitur...

Tuesday, June 07, 2005

USRant: Repo, Greenspan, Oil... Why No Rally?

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

Don't get too twitterpated about the supposed 'big fall' in oil prices last night. Front-month crude dropped just over a percent, but (and there is always a but) most of that was due to position rollovers by institutions. These folks have relatively large holdings, and in order to roll out of the front month and into the first-forward contract, they have to be prepared to move the market.

The rollover is performed (for long positions) by selling the front month (currently July05, for Crude) and buying the forward month. the trades to do this are often performed simultaneously.

The strange thing about it is that the broader nuffnuff type of trader (i.e., about 85% of the trading community) don't position themselves in advance of rollovers, and so they get whipped around like a dervish; their stops get triggered and add to the downward momentum in the front-month, and dumbass pretend-hedgies who try to trade calendar spreads also drive down the forward month through arbitrage. The fact that the forward month falls less than the front month (i.e., the contango widens) is due to the fact that the institutions are in there buying the forward... detracting from downward momentum.

So it should come as no surprise that while July05 crude dipped 65¢, August05 only dipped 29¢ - despite the fact that the August contract was trading over $1 higher than the July at the start of the session. And examine the rest of the energy complex (in the tables way down below) to see that it was actually a very bullish session for the Energies.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $9billion, overnight repurchase entirely in T-backed collateral. That helped a little, but it was odd that the market was relatively weak considering it was a Monday, Greenspan was waffling about how everything looks great when you get fed by the taxpayer, and oil prices looked soft (if you had your head up your arse and ignored the rollover).

Major US Indices

Speaking of heads up arses (and just before we get to the morning's numbers), you will often have heard me rabbit on about how mergers and acquisitions are almost always a 'dick thing' - that is, they are for self-aggrandising CEOs who, like politician, are required to be seen to be doing something. So Fiorina lays waste to Compaq by acquiring Hewlett Packard, for example; Time Warner gets hollowed out by a wanker in charge of AOL. As I've said before, "synergies, my arse"... it's all driven by fee-generation at merchant banks, and idiocy (and megalomania) at CEO level.

Well, I'm finally not alone... the only journalist at the New York Times whose writings are worth reading (Gretchen Morgenson) wrote this terrific piece about mergers. Short answer: they're a dick thing. If you are remotely interested in analysing companies properly,  you really must read this piece.

It's like I always say, read my waffle (about China, about mergers, about DavNet, about New Corpse... hell, I even got Qantas right), and disagree with it all you like, so long as you're prepared to let me put a tick in a box when it happens.

The Dow Jones Industrial Average rose a scant 6.06 points (0.06%), closing out the day at 10467.03 points. The index traded in a pretty narrow range, dipping to 10430.97 at 11 a.m., then grinding its way higher for most of the remainder of the session. The intraday high of 10481 was posted with less than twenty minutes let on the game clock.

Within the blue-chip index, 13 stocks rose, the biggest gainers being Boeing (BA, +1.38% to $65.55) and Du Pont (DD, +1.34% to $46.72), which accounted for 11 Dow points between them. Losers in the Dow numbered 17 and were led by General Motors (GM, -1.65% to $30.42) and International Business Machines (IBM, -1.04% to $75.00), with these two stocks contributing -10 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 179.8m shares to 79m.

The broader S&P500 posted a rise of 1.49 points (0.12%), closing at 1197.51. Within the index, gainers numbered 272, while 219 S&P500 stocks fell for the day. Volume was tilted 1.3:1 in favour of the losers with 791.51 million units traded in the losers as compared with 590.34 million traded in the winners.

Over at Times Square, the Nasdaq Composite advanced 4.33 points (0.21%), to close at 2075.76, while larger-cap technology issues fared worse with the Nasdaq100 adding 0.79 points (0.05%), to end at 1545.27 points. Within the tech benchmark, gainers numbered 51, while 46 Nasdaq100 stocks fell for the day. Volume was tilted 2.3:1 in favour of the losers with 419.46 million traded in the losers compared to 181.43 million in the gainers.

Notice something there? Mildly positive breadth, but volume breakups that favour the losing team? Odd, that.

NYSE Volume was solid but unspectacular, with 1.55 billion shares changing hands, while Nasdaq Volume was about average, with 1.52 billion shares traded.

Major Market Statistics
Index Close Gain(Loss) %
Dow Jones Industrial Average 10467.03 6.06 0.06%
S&P500 1197.51 1.49 0.12%
Nasdaq Composite 2075.76 4.33 0.21%
Nasdaq100 1545.27 0.79 0.05%
NYSE Volume 1.55bn - -
Nasdaq Volume 1.52bn - -


My 9-stock "bellwethers" group rose by an average of 0.14%

  • General Electric (GE) -$0.09 (0.25%) to $36.61;
  • Citigroup (C) +$0.13 (0.27%) to $47.69;
  • Wal Mart (WMT) +$0.38 (0.8%) to $47.73;
  • I.B.M. (IBM) -$0.79 (1.04%) to $75.00;
  • Intel (INTC) -$0.16 (0.59%) to $27.17;
  • Cisco Systems (CSCO) -$0.02 (0.1%) to $19.38;
  • eBay (EBAY) +$0.84 (2.22%) to $38.64;
  • Fannie Mae (FNM) -$0.02 (0.03%) to $58.59; and
  • Freddie Mac (FRE) unchanged at $66.00.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1948 to 1329 for a single-day A/D reading of 619; Nasdaq gainers trumped losers by 1613 to 1380. The 10-day moving average of the A/D line rose to 487.1 on the NYSE, while the 10dma of the Nasdaq A/D rose to 107.7.

NYSE advancing volume exceeded volume in decliners by 775.7 to 740.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 737 to 734.8 million shares.

153 NYSE-listed stocks rose to new 52-week highs, and 21 posted fresh 52-week lows, while on the Nasdaq there were 100 stocks that hit new 52-week highs, and 37 which fell to fresh 52-week lows.

Market Breadth Statistics

NYSE Nasdaq
Advancers 1948 1613
Decliners 1329 1380
Advancing Volume (m) 775.7 734.75
Declining Volume (m) 740.09 737.01
New Highs 153 100
New Lows 21 37

Market Sentiment Statistics
Index Close Gain(Loss) %
CBOE Volatility Index 12.28 0.13 1.07%
CBOE Nasdaq Volatility Index 15.74 0.15 0.96%
Equity Put-Call Ratio 0.74 -0.05 -6.33%
10-day PCR 0.70 0.01 1.27%
SPX-VIX Ratio 97.5 -0.92 -0.94%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 3.2 bps to 4.249%. I'm pretty steamed at myself for not at least having a crack at a bond short after last Friday's spike, but the time's not quite right yet.

The middle of the yield curve was broadly higher: five year yields fell to 3.727%, and ten-year yields fell to 3.962%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were unchanged at 4.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 70.0 bps for 10-year AAA, and 101.5 bps for 20-years. About time the 20-year corporate spread got above 100bps; it ought to be closer to 150 (I think I've said that before).

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 2.0 bps tighter at 58.0 basis points and the 10-year AAA-A spread 1.0 bps wider at -12.0 bps.

Treasury Yields
Index Close Gain(Loss) %
UST 13wk (yld) 2.932 0 0%
UST 2Y (yld) 3.56 0.01 0.28%
UST 5Y (yld) 3.727 -0.004 -0.11%
UST 10Y (yld) 3.962 -0.017 -0.43%
UST 30Y (yld) 4.249 -0.032 -0.75%

The Banks Index added 0.05 points (0.05%), to end the session at 98.67; within the index,

  • State Street (STT) +$1.12 (2.24%) to $51.08;
  • Northern Trust (NTRS) +$0.51 (1.12%) to $46.18;
  • Fifth Third Bancorp (FITB) +$0.30 (0.71%) to $42.27;
  • MBNA Corp (KRB) +$0.14 (0.66%) to $21.39; and
  • Bank Of NY (BK) +$0.17 (0.59%) to $29.01.

The Broker-dealer Index added 1.13 points (0.77%), closing at 147.81; the ticket clippers lined up as follows -

  • E*Trade (ET) +$0.25 (2.02%) to $12.65;
  • Jeffries Group (JEF) +$0.54 (1.51%) to $36.19;
  • Legg Mason (LM) +$1.29 (1.5%) to $87.11;
  • Goldman Sachs (GS) +$1.12 (1.15%) to $98.42; and
  • Raymond James (RJF) +$0.28 (1.03%) to $27.55.

The Philadelphia SOX (Semiconductor) index slid 1.98 points (0.46%), to 432.28

  • Freescale Semiconductors (FSL-B) -$0.48 (2.31%) to $20.33;
  • Teradyne (TER) -$0.31 (2.31%) to $13.13;
  • Infineon Tech (IFX) -$0.19 (2.07%) to $8.98;
  • Micron Technology (MU) -$0.22 (2.03%) to $10.60; and
  • Altera (ALTR) -$0.35 (1.58%) to $21.84.

Gold & Silver Markets

Gold rose $2.80 (0.66%) to close at $426.50 per ounce. There's still almost nothing doing in this market, which - as time goes by - is actually quite a good thing for the Gold bulls. The US dollar index appears to be losing steam just about where it was supposed to (I proffered 90 as a maximum upside bounce target when USDX was at or about 82), and in the recent (perhaps last throes) part of the dollar rally, Gold has held its ground (and Silver has gone positively birko).

The Gold Bugs Index dipped 1.89 points (0.99%), at 188.58

  • Harmony Gold (HMY) -$0.24 (3.06%) to $7.60;
  • Kinross Gold (KGC) -$0.15 (2.63%) to $5.56;
  • Coeur d'Alene (CDE) -$0.08 (2.36%) to $3.31;
  • Hecla Mining (HL) -$0.10 (2.19%) to $4.46; and
  • Freeport McMoran (FCX) -$0.64 (1.74%) to $36.18.

Silver rose $0.01 (0.13%) to close at $7.52 per ounce. The Gold and Silver Index (XAU) lost 1.01 points (1.15%), ending the day at 87.14 points.

  • Harmony Gold (HMY) -$0.24 (3.06%) to $7.60;
  • Kinross Gold (KGC) -$0.15 (2.63%) to $5.56;
  • Freeport McMoran (FCX) -$0.64 (1.74%) to $36.18; and
  • Anglogold Ashanti (AU) -$0.50 (1.45%) to $33.93.
Precious Metals and Indices
Index Close Gain(Loss) %
Gold 426.50 2.80 0.66%
Silver 7.52 0.01 0.13%
PHLX Gold and Silver Index 87.14 -1.01 -1.15%
AMEX Gold BUGS Index 188.58 -1.89 -0.99%

Oil Market

Oil lost ground, shedding $0.65 per barrel in the July contract, closing at $54.38 per barrel (as I said above, don't read anything into that... the August fell by only 29¢).

The Oil and Gas Index (XOI) added 1.25 points (0.15%), to 845.06

  • Amerada Hess (AHC) +$0.91 (0.94%) to $97.85;
  • Exxon Mobil (XOM) +$0.45 (0.79%) to $57.60; and
  • TotalFinaElf S.A. (TOT) +$0.71 (0.63%) to $112.61.

The Oil service stocks (OSX) Index posted a rise of 0.7 points (0.51%), at 137.97

  • Noble Corp (NE) +$1.27 (2.19%) to $59.16;
  • Weatherford International (WFT) +$1.09 (2.06%) to $54.00; and
  • GlobalSantaFe (GSF) +$0.39 (1.04%) to $37.80.
Energy Complex
Index Close Gain(Loss) %
Reuters CRB 307.28 0.58 0.19%
Crude Oil Light Sweet 54.38 -0.65 -1.18%
Heating Oil 1.6125 0.01 0.81%
Natural Gas 7.12 0.24 3.49%
Unleaded Gas 1.5293 -0.03 -1.79%
AMEX Oil Index 845.06 1.25 0.15%
Oil Service Index 137.97 0.7 0.51%

Currency Markets

USD Exchange Rates
Index Close Gain(Loss) %
US Dollar Index 87.7 -0.29 -0.33%
Euro 1.2256 0.0034 0.28%
Yen 106.92 -0.75 -0.7%
Sterling 1.8242 0.009 0.5%
Australian Dollar 0.765 0.0087 1.15%
Swiss Franc 1.249 -0.0032 -0.26%
Canadian Dollar 0.8033 0.0014 0.17%