Interdum stultus opportuna loquitur...

Tuesday, July 12, 2005

USRant: 10500 Take II... Damn and Blast...

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This two-day close above 10500 is about as welcome as a brown eyed newborn in a blue-eyed household. It's seriously the proverbial 'red headed stepchild' as far as I'm concerned, but now that it's happened we have to be prepared for the consequences, which are a validation of an upside target of 10750.

Given the landscape at the moment - ultra-low volatility (as measured by VIX), absurdly bullish tilts in advance-decline numbers, huge volume tilts in favour of winners, huge tilts on new highs-new lows numbers, and an approaching overbought level on my favourite oscillators (on both daily and weekly charts), 10750 might get hit real fast (intraday) followed by a skull-popping reversal... that's the only way I can reconcile the target with the internals.

Regardless of this development (which was clearly delineated as a thinking-point for the week), I think I can be pretty damned happy about the progress of the bond and oil declarations recently... although the London bombs derailed the highly-profitable bond short (shile still profiting 22% in less than 2 weeks), they didn't get in the way of a terrifically profitable short in oil... they just gave two bites to the same cherry.

In any case, you should never try to exculpate a bad result by an appeal to geopolitics, or to a hurricance, or to anything else; markets get driven by stuff like that, and when stuff like that happens it should be included in the calculus. In fact it's a good idea to try and incorporate it in your pre-match analytics... "How quick on the trigger do I have to be if a bomb goes off?" is no longer a thought reserved for Paras in Northern Island, thanks to Phony B.Liar and George the Turd PUS.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $5.5billion, overnight repurchase with $0.493billion in T-backed collateral.

The repurchase was performed at a 6 basis point discount to Fed Funds, but the T-backed component was so small that it was never likely to generate any upward momentum.

Major US Indices

Two consecutive closes above 10500 was the key, according to me, for further upside; otherwise tomorrow was going to make a significant short-term high. the 2-day close above 10500 has now happened, which is somewhat infuriating since it happened in the most feeble possible way.

I would vastly have preferred for it to have panned out as follows: with yesterday's close above 10500, for today to close just below 10500, and tomorrow to spike above 10500 in the first hour and then reverse savagely, initiating a fall back towards 10250. As it is, there's now a requirement for an already-overbought market to try and continue to rise...

For the session, the Dow Jones Industrial Average meandered around 10500 like the proverbial drunk's dog (it's a proverb from the Random Walk literature, as  it happens); a little TICK-inspired spurt (the NYSE TICK got slammed upwards to the 1100-1200 region) gave the Dow some 'above 10500' breathing room, which enabled it to soften into the close without risking a close below 10500. (Have I used the number 10500 often enough yet?)

By the close, the index had dipped 5.83 points (0.06%), closing out the day at 10513.89 points. The index hit an intraday high of 10544.04 just after 3:10 p.m. NY time, after posting its low (10483.2) just after 10:20 a.m. NY time.

Within the blue-chip index, 14 stocks rose, the biggest gainers being Home Depot (HD, +2.48% to $41.30) and International Business Machines (IBM, +1.37% to $80.04), which accounted for 16 Dow points between them. Losers in the Dow numbered 16 and were led by 3M (MMM, -1.66% to $74.87) and United Technology (UTX, -1.20% to $51.17), with these two stocks contributing -14 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 206m shares to 130.3m.

The broader S&P500 posted a rise of 2.77 points (0.23%), to 1222.21. Within the index, gainers numbered 258, while 234 S&P500 stocks fell for the day. Despite the relatively balanced A/D stats for the index, volume was still tilted 2.0:1 in favour of the winners with 1163.38 million units traded in the winners as compared with 576.37 million traded in the losers.

Over at Times Square, the Nasdaq Composite posted a rise of 7.72 points (0.36%), to close at 2143.15, while larger-cap technology issues fared better with the Nasdaq100 adding 7.93 points (0.51%), to end at 1555.59 points. Within the tech benchmark, gainers numbered 60, while 39 Nasdaq100 stocks fell for the day. Volume was tilted 2.4:1 in favour of the winners with 493.49 million traded in the winners compared to 203.50 million in the losers .

NYSE Volume was super-chunky, with 1.93 billion shares changing hands, while Nasdaq Volume was less impressive, with 1.63 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10513.89-5.83-0.06%
Nasdaq Composite2143.157.720.36%
NYSE Volume1.93bn--
Nasdaq Volume1.63bn--


My 9-stock "bellwethers" group rose by an average of 0.37%

  • General Electric (GE) -$0.01 (0.03%) to $35.10;
  • Citigroup (C) -$0.11 (0.24%) to $46.00;
  • Wal Mart (WMT) +$0.29 (0.58%) to $50.09;
  • I.B.M. (IBM) +$1.08 (1.37%) to $80.04;
  • Intel (INTC) +$0.05 (0.18%) to $27.75;
  • Cisco Systems (CSCO) +$0.24 (1.23%) to $19.78;
  • eBay (EBAY) -$0.05 (0.14%) to $35.50;
  • Fannie Mae (FNM) -$0.16 (0.27%) to $58.90; and
  • Freddie Mac (FRE) +$0.42 (0.64%) to $66.55.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1899 to 1395 for a single-day A/D reading of 504; Nasdaq gainers trumped losers by 1593 to 1489. The 10-day moving average of the A/D line fell to 657.7 on the NYSE, while the 10dma of the Nasdaq A/D fell to 411.4. That 10-day average of the A/D line for the NYSE is getting ridiculous - it reinforces my view that a pullback is likely (despite 10750-ish being the next obvious upside target now that 10500 has been pivot-breached). It's hard to see 10750 attained without a single-figure VIX - another sign of absolute madness.

NYSE advancing volume exceeded volume in decliners by 1164.4 to 714.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 1017 to 589.1 million shares.

399 NYSE-listed stocks rose to new 52-week highs, and 23 posted fresh 52-week lows, while on the Nasdaq there were 196 stocks that hit new 52-week highs, and 20 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1164.411017.02
Declining Volume (m)714.24589.12
New Highs399196
New Lows2320

Market Sentiment Statistics
CBOE Volatility Index10.97-0.31-2.75%
CBOE Nasdaq Volatility Index14.781.218.92%
Equity Put-Call Ratio0.46-0.21-31.34%
10-day PCR0.52-0.03-5.45%
SPX-VIX Ratio111.43.313.06%

Bond Market Analysis

Bonds fell at the long end again, adding to my displeasure at the ramifications of US-UK foreign policy. If those sodding bombs hadn't gone off in London, we would still be riding the 30-year bond short; still, it yielded very nice gains while it lasted (100% on the first half position, and 22% on the second). As I have reiterated, canny traders will have been periodically repositioning themselves (short) on any overbought status in the oscillators I have spoken about previously.

The yield on the benchmark 30-year Treasury bond rising 4.1 bps to 4.383%.

The middle of the yield curve was broadly lower in price: five year yields rose to 3.937%, and ten-year yields rose to 4.141%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps tighter at -3.0 basis points (i.e., 2-year corporate paper is less risky that US T-bills - crazyness); spreads between longer dated Treasuries and their corporate AAA counterparts fell to 39.0 bps for 10-year AAA, and 80.0 bps for 20-years. This represents another terrific opportunity to buy this spread - it will not get much lower than this.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 1.0 bps tighter at 38.0 basis points and the 10-year AAA-A spread 3.0 bps wider at 17.0 bps.

Treasury Yields
UST 13wk (yld)3.13500%
UST 2Y (yld)3.810.030.79%
UST 5Y (yld)3.9370.0360.92%
UST 10Y (yld)4.1410.0390.95%
UST 30Y (yld)4.3830.0410.94%

The Banks Index added 0.42 points (0.42%), closing at 100.5 (for a second consecutive close above 100); within the index,

  • M&T Bank Corp (MTB) +$2.13 (1.99%) to $108.97;
  • BB&T Corp (BBT) +$0.55 (1.34%) to $41.59;
  • Northern Trust (NTRS) +$0.63 (1.33%) to $48.12;
  • State Street (STT) +$0.56 (1.14%) to $49.86; and
  • PNC Financial Services (PNC) +$0.59 (1.07%) to $55.50.

The Broker-dealer Index rose 0.55 points (0.33%), to 167.77; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.37 (1.96%) to $19.28;
  • Lehman Brothers (LEH) +$1.55 (1.52%) to $103.70;
  • Legg Mason (LM) +$1.22 (1.12%) to $110.05;
  • Merrill Lynch (MER) +$0.23 (0.41%) to $56.83; and
  • E*Trade (ET) +$0.06 (0.39%) to $15.25.

The Philadelphia SOX (Semiconductor) index advanced 4.5 points (1%), to 456.1

  • Freescale Semiconductors (FSL-B) +$1.07 (4.65%) to $24.07;
  • Linear Technology (LLTC) +$0.94 (2.43%) to $39.58;
  • Taiwan Semiconductors (TSM) +$0.22 (2.4%) to $9.40;
  • Infineon Tech (IFX) +$0.22 (2.26%) to $9.97; and
  • Teradyne (TER) +$0.29 (2.16%) to $13.70.

Gold & Silver Markets

Gold rose $1 (0.23%) to close at $427.70 per ounce. Considering the weakness in the USD (which topped out pretty much precisely at my long-stated bounce target of 90 - which was first given when the index was on its way down through 82), Gold ought to be performing better. As I said last week (or the week before - I forget) traders are still nervy about what happened the last time gold poked its head above $440 (the last 2times, now... it did that recently and got smacked for $15 in three sessions). It really needs to get above $445 to inspire another genuine bull leg - which should take it to $460 quickly thereafter.

The Gold Bugs Index dipped 0.33 points (0.16%), to 204.68

  • Golden Star (GSS) -$0.03 (0.95%) to $3.13;
  • Hecla Mining (HL) -$0.04 (0.89%) to $4.45;
  • Coeur d'Alene (CDE) -$0.03 (0.8%) to $3.70;
  • Harmony Gold (HMY) -$0.06 (0.68%) to $8.82; and
  • Freeport McMoran (FCX) -$0.23 (0.58%) to $39.20.

Silver fell by $0.02 (0.28%) to close at $7.06 per ounce. The Gold and Silver Index (XAU) lost 0.12 points (0.13%), closing at 93.97 points.

  • Barrick Gold (ABX) -$0.21 (0.84%) to $24.70;
  • Harmony Gold (HMY) -$0.06 (0.68%) to $8.82;
  • Freeport McMoran (FCX) -$0.23 (0.58%) to $39.20; and
  • Newmont Mining (NEM) -$0.20 (0.52%) to $38.46.
Precious Metals and Indices
PHLX Gold and Silver Index93.97-0.12-0.13%
AMEX Gold BUGS Index204.68-0.33-0.16%

Oil Market

What did I say yesterday?

That's the second bite of the juiciest cherry you ever saw, but a $1.25 intraday reversal indicates that someone's not happy about such a quick move downwards in oil. Personally, if it was me I would just take the money and run about now; there's nothing except technicals driving the oil short, and although the market could easily drop another $4 without damaging the overall uptrend, it's quite unlikely unless peace breaks out globally (which is impossible since defence contractors are the second-largest providers of graft to US politicians). [my emphasis]

So you can't say you weren't warned...

Oil was firmer, rising by $1.27 per barrel, closing at $60.52 per barrel. During the session the front-month contract dipped to $58.92, giving everybody a chance to exit the trade (per the 'take the money and run' advocacy above) at $59-ish: at that point you had an oversold %R and a divergence on the rate of change... the most perfect long setup you could ever imagine... buttressed by my pretty unambiguous declaration that the recent dip in oil was pretty much over.

I am not claiming any gains from an oil long for the track record though - I didn't advocate a long position, only the closing of a short: the last time I specifically detailed an oil long was at $50-ish, and before that it was when oil was on the down to 40-ish. As such, I am only claiming that the short entered at $61.50 was closed at $59, for a gain of $2500 per $4050 margin.

The Oil and Gas Index (XOI) gained 9.29 points (1%), to 939.61

  • Amerada Hess (AHC) +$3.53 (3.14%) to $116.00;
  • Marathon Oil (MRO) +$1.27 (2.25%) to $57.70; and
  • Occidental Petroleum (OXY) +$1.09 (1.34%) to $82.32.

The Oil service stocks (OSX) Index posted a rise of 2.3 points (1.52%), closing at 153.64

  • Global Industries (GLBL) +$0.33 (3.47%) to $9.83;
  • National Oilwells/Varco (NOV) +$1.64 (3.43%) to $49.46; and
  • Transocean (RIG) +$1.60 (2.85%) to $57.65.
Energy Complex
Reuters CRB313.541.160.37%
Crude Oil Light Sweet60.521.272.14%
Heating Oil1.74550.063.3%
Natural Gas7.7810.192.52%
Unleaded Gas1.7730.042.13%
AMEX Oil Index939.619.291%
Oil Service Index153.642.31.52%

Currency Markets

USD Exchange Rates
US Dollar Index88.35-1.18-1.32%
Australian Dollar0.75730.00981.31%
Swiss Franc1.2708-0.0166-1.29%
Canadian Dollar0.83120.00981.19%