Interdum stultus opportuna loquitur...

Wednesday, July 27, 2005

USRant: Beige Book Squeeze...

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Bloody eBay - why won't it just die? As I surmised yesterday, the $40 put option (XBATH) gave back all of the lovely gains it was displaying, leaving the position completely profitless. It is a pain in the bum when a call works to the tune of as much as 92% in two sessions, then turns around and bites the holder on the bum.

We are now well past the reversal window for the market - as I mentioned two weeks ago the expected top for the Dow was in the 10720-30 area, to be posted between July 14th and July 20th. The top (so far) has been a tad over 10700, with a retracement of about 130 points from that level; that's not particularly bearish.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7.5billion, overnight repurchase entirely in T-backed collateral undertaken at a 2 basis point premium to the Fed Funds Rate (FFR). This is getting annoying - there's no hope of a decent, trade-able jamjob in the morning (the primo time for decent momentum) if the Federal Meddlers don't dole out bank welfare at a discount.

Major US Indices

For the first half of the session or so, the Dow didn't know if it was Arthur or Martha: the range contracted almost to a point (which means that everyone was getting really, really bored). The chart below exemplifies:

Dow 15-minute chart

For four hours the Dow's trading range contracted and contracted - lower highs and higher lows. Then just after 2 p.m., off she shot.

The market has loads of aphorisms - some of them are sell-side bullshit ('Stocks  outperform all other asset classes over the long run' is an example of that). But some are pearls of wisdom - that you should print out and sticky-tape to your screen if you are at all keen on doing this sort of thing for fun and profit.

The key one is "Never short a dull market". That doesn't matter whether it's an individual stock, an equity index, or Lean Hogs. If the market is dull, you can bet that the bears will get stale before the bulls do - and if the market gets dull, bears get downright twitchy andprimed for a short-squeeze. In order to break down from a contracting range (also called a 'triangle'), there has to be some real downward "slipperiness" before the break.

With the market duller than dishwater, all eyes turned to the 2 p.m. Beige Book: like most Stalinist propaganda documents, it said that everything in the United Soviet States of America was just tickety-boo: days of wine (imported), roses (grown with Mexican labour), beer (that tastes like piss)  and skittles (made in China).

With shorts already getting staler than the taste of American beer, the Beige Book helped generate a short squeeze. Nothing more to it. And to be frank, it wasn't much of a short squeeze.

The Dow Jones Industrial Average rose 57.32 points (0.54%), closing out the day at 10637.09 points. The index hit an intraday high of 10645.92 just over a half hour before the close, and the low at 10577.38 was set in the first minute of the session.

Within the blue-chip index, 19 stocks rose, the biggest gainers being Johnson & Johnson (JNJ, +2.98% to $64.54) and Caterpillar (CAT, +1.87% to $52.79), which accounted for 23 Dow points between them. Losers in the Dow numbered 10 and were led by Mcdonalds (MCD, -0.92% to $30.08) and Home Depot (HD, -0.78% to $43.35), with these two stocks contributing -5 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 240.8m shares to 60.2m.

The broader S&P500 posted a rise of 5.63 points (0.46%), at 1236.79. Within the index, gainers numbered 297, while 192 S&P500 stocks fell for the day. Volume was tilted just under 2:1 in favour of the winners with 1163.50 million units traded in the winners as compared with 583.81 million traded in the losers .

Over at Times Square, the Nasdaq Composite gained 10.23 points (0.47%), to close at 2186.22, while larger-cap technology issues fared better with the Nasdaq100 adding 13.02 points (0.81%), to end at 1611.95 points. Within the tech benchmark, gainers numbered 61, while 38 Nasdaq100 stocks fell for the day. Volume was tilted 2.2:1 in favour of the winners with 529.53 million traded in the winners compared to 246.24 million in the losers.

NYSE Volume was super-chunky, with 1.95 billion shares changing hands, while Nasdaq Volume was chunky, with 1.75 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10637.0957.320.54%
Nasdaq Composite2186.2210.230.47%
NYSE Volume1.95bn--
Nasdaq Volume1.75bn--


My 9-stock "bellwethers" group rose by an average of 0.30%

  • General Electric (GE) +$0.10 (0.29%) to $34.80;
  • Citigroup (C) -$0.21 (0.47%) to $44.39;
  • Wal Mart (WMT) +$0.27 (0.55%) to $49.80;
  • I.B.M. (IBM) -$0.25 (0.3%) to $83.87;
  • Intel (INTC) +$0.17 (0.63%) to $27.06;
  • Cisco Systems (CSCO) +$0.12 (0.63%) to $19.18;
  • eBay (EBAY) +$1.57 (3.88%) to $41.99;
  • Fannie Mae (FNM) -$0.74 (1.29%) to $56.70; and
  • Freddie Mac (FRE) -$0.81 (1.24%) to $64.28.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1929 to 1318 for a single-day A/D reading of 611; Nasdaq gainers trumped losers by 1628 to 1415. The 10-day moving average of the A/D line rose to 48.2 on the NYSE, while the 10dma of the Nasdaq A/D rose to 4.5.

NYSE advancing volume exceeded volume in decliners by 1141 to 702.5 million shares; Nasdaq advancing volume was greater than volume in decliners by 1044.6 to 671.9 million shares.

231 NYSE-listed stocks rose to new 52-week highs, and 35 posted fresh 52-week lows, while on the Nasdaq there were 164 stocks that hit new 52-week highs, and 20 which fell to fresh 52-week lows.

That sodding VIX is being stubborn; I never expected it to snap upward in the same way that oil snapped downward, but I didn't expect the Spanish Inquisition. I mean... I didn't expect a long, slow, annoying torture with the fluffy pillow, administered by Cardinal Fang. I am looking forward to a VIX back up in the high teens (low 20's perhaps) before the year is out. the problem with such a thin market is that short-term charts are 'spotty' and it is nigh impossible to position based on, say, hourly or 15-minute charts. This is a longer-term 'call', in other words.

Market Breadth Statistics

Advancing Volume (m)11411044.55
Declining Volume (m)702.48671.9
New Highs231164
New Lows3520

Market Sentiment Statistics
CBOE Volatility Index10.38-0.61-5.55%
CBOE Nasdaq Volatility Index12.78-0.78-5.75%
Equity Put-Call Ratio0.710.0710.94%
10-day PCR0.5400%
SPX-VIX Ratio119.27.136.36%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 1.5 bps to 4.474%. the 30-year T-bond future fell as low as 115-9/32 before settling at 115-16/32. It's pretty heavily oversold, but the price action is getting a bit boring: in other words, it's priming for a little nuffie-killing spike.

The middle of the yield curve was broadly lower in price: five year yields rose to 4.097%, and ten-year yields rose to 4.261%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps wider at -3.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 38.0 bps for 10-year AAA, and 68.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 10.0 bps tighter at 46.0 basis points and the 10-year AAA-A spread 4.0 bps wider at 13.0 bps.

Treasury Yields
UST 13wk (yld)3.32500%
UST 2Y (yld)3.960.041.02%
UST 5Y (yld)4.0970.0320.79%
UST 10Y (yld)4.2610.0220.52%
UST 30Y (yld)4.4740.0150.34%

The Banks Index shed 0.46 points (0.45%), ending the day at 100.8; within the index,

  • Zions Bancorp (ZION) -$1.63 (2.21%) to $71.97;
  • Suntrust Banks (STI) -$0.96 (1.29%) to $73.70;
  • North Fork Bancorp (NFB) -$0.36 (1.28%) to $27.66;
  • Bank Of America (BAC) -$0.38 (0.85%) to $44.15; and
  • M&T Bank Corp (MTB) -$0.88 (0.8%) to $109.68.

The Broker-dealer Index added 0.42 points (0.25%), ending the day at 169.73; the ticket clippers lined up as follows -

  • E*Trade (ET) +$0.26 (1.69%) to $15.60;
  • Goldman Sachs (GS) +$1.43 (1.33%) to $109.15;
  • Ameritrade (AMTD) +$0.18 (0.93%) to $19.50;
  • Bear Stearns (BSC) +$0.57 (0.55%) to $103.65; and
  • Lehman Brothers (LEH) +$0.43 (0.41%) to $106.37.

The Philadelphia SOX (Semiconductor) index lost 3.15 points (0.66%), to 473.89

  • Linear Technology (LLTC) -$1.37 (3.37%) to $39.31;
  • Teradyne (TER) -$0.44 (2.79%) to $15.33;
  • ST Microelectronic (STM) -$0.46 (2.57%) to $17.47;
  • Maxim Integrated (MXIM) -$0.95 (2.2%) to $42.14; and
  • KLA-Tencor (KLAC) -$0.91 (1.81%) to $49.30.

Gold & Silver Markets

Gold rose $1.90 (0.45%) to close at $425.2 per ounce. the Gold market is still just mirroring the USD.

The Gold Bugs Index rose 0.41 points (0.21%), ending the day at 196.9

  • Coeur d'Alene (CDE) +$0.07 (2.05%) to $3.49;
  • Harmony Gold (HMY) +$0.16 (1.96%) to $8.32;
  • Newmont Mining (NEM) +$0.44 (1.18%) to $37.84;
  • Goldcorp (GG) +$0.13 (0.83%) to $15.81; and
  • Freeport McMoran (FCX) +$0.19 (0.48%) to $39.67.

Silver rose $0.02 (0.34%) to close at $7.02 per ounce. The Gold and Silver Index (XAU) gained 0.37 points (0.41%), at 91.13 points.

  • Harmony Gold (HMY) +$0.16 (1.96%) to $8.32;
  • Placer Dome (PDG) +$0.27 (1.86%) to $14.76;
  • Newmont Mining (NEM) +$0.44 (1.18%) to $37.84; and
  • Goldcorp (GG) +$0.13 (0.83%) to $15.81.
Precious Metals and Indices
PHLX Gold and Silver Index91.130.370.41%
AMEX Gold BUGS Index196.90.410.21%

Oil Market

Oil lost ground, shedding $0.09 per barrel, closing at $59.11 per barrel after slamming down to the mid-$58s after the Crude Oil Inventories report (which showed a 2.3 million barrel drawdown, which was better than anticipated - the July 22 week was disrupted by hurricanes). Oddly, although distillate stocks rose (by 3.1 million barrels), Heating Oil futures actually rose for the day.

The Oil and Gas Index (XOI) posted a rise of 4.63 points (0.49%), to end the session at 942.31

  • Kerr Mcgee (KMG) +$1.23 (1.55%) to $80.35;
  • ConocoPhillips (COP) +$0.84 (1.37%) to $62.26; and
  • Repsol YPF (REP) +$0.38 (1.36%) to $28.25.

The Oil service stocks (OSX) Index added 1.33 points (0.83%), closing at 162.09

  • Rowan Companies (RDC) +$1.09 (3.42%) to $33.00;
  • Nabors Industries (NBR) +$1.55 (2.37%) to $66.89; and
  • BJ Services (BJS) +$1.35 (2.26%) to $61.10.
Energy Complex
Reuters CRB310.050.820.27%
Crude Oil Light Sweet59.11-0.09-0.15%
Heating Oil1.6170.010.59%
Natural Gas7.6470.222.99%
Unleaded Gas1.7050.010.47%
AMEX Oil Index942.314.630.49%
Oil Service Index162.091.330.83%

Currency Markets

USD Exchange Rates
US Dollar Index89.78-0.26-0.29%
Australian Dollar0.7562-0.002-0.26%
Swiss Franc1.2943-0.0051-0.39%
Canadian Dollar0.8087-0.0048-0.59%