Interdum stultus opportuna loquitur...

Saturday, July 30, 2005

USRant: Diddums...

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

Sorry this is so late (yet again). I've had a diabolical morning. First I overslept (until noon, Australian time), then I missed my train, then my lower back decided to take one of its periodic spazz-attacks, leaving me reliant on Ibuprofen and Codeine to function.

Lower back pain is a, well, it's a pain. In all likelihood, mine is caused by being too fat and not doing enough exercise - something I intend to start to remedy once I have finished the full rollout of the MarketRant Pro site. If that's not today I will be highly surprised (and annoyed) - but that's not the point right now.

One thing about getting older(ish) is that things you took for granted in your 20's (like being able to be constantly 'just' out of shape) actually begin to have ramifications... your body starts to let you know that benign neglect is not a long-term sustainable way to operate. All that's required is to do a little bit of the right stuff every day, and yet most of us (me included) simply don't.

Periodic bursts of slightly-more-intense remedial action are 'do-able' at 25 and even at 30, but at 40 you have to have a bit more structure to things, otherwise your body starts to get the suspicion that you're not really interested in living another 40 years. (Me, I intend to live to about 700... which means it's time to take the same approach to fitness as I do to investment analysis - know your goal, apply a relatively small set of well-founded principles, and apply them diligently).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $5.5billion, 6-day repurchase entirely in T-backed collateral undertaken at a 0.3 basis point premium to the Fed Funds Rate (FFR).

Yet again, a repurchase with little or no 'guaranteed carry'. Little wonder that, despite moderately good economic numbers, the markets couldn't get their groove on.

Major US Indices

The Dow Jones Industrial Average lost 64.64 points (0.6%), closing out the day at 10640.91 points. The index hit an intraday high of 10717.73 at 10:01 a.m. NY time, then promptly reversed - and reversed quite hard.

I did say yesterday that

Unless this recent divergence resolves itself downwards with some real venom tomorrow, the 10730 rally target posted three weeks or so ago is no longer valid.

There was some venom in today's selling, but frankly it leaves the bull case intact. The fact that the intraday top was very very close to the range that I forecast weeks ago (10720-10730) should only be seen as serendipitous until there is more evidence of real downside traction.

Still, the tried and trusty %R overbought/CCI divergence combination proved its worth... check out the chart.

Dow 15-minute Chart

Note the big red arrows that point out the divergence between the Dow price chart (which made a higher high) abd the CCI (which made a lower peak). this is the absolute crux of the divergence approach. It tagged the high of the day beautifully, and coupled with the overbought %R reading and the day's only 1000+ reading on TICK, gave our primo short signal.

From the swing high in the morning, the Dow dropped to just below 10660 (i.e., almost 60 points) before registering a 'microdivergence' (where the CCI diverges from the price trend, without an identifiable 'swing' in the price chart)... I don't advocate using the microdivergence except if you're particularly aggressive and disciplined. Those who do use them  could have grabbed the retracement (or more sensibly, used the retracement to reposition the intraday short at the next available %R overbought reading).

More importantly, the weensy divergence coincided with the S&P futures hitting support on the intraday chart at the nice round number of 1240. Once the S&P futures retested that level an hour later (the slightly higher swing low on the Dow chart), the bounce gained some traction.

After the microdivergence-bounce exhausted itself, the market re-engaged to the downside, and fell as low as 10640.91 (with the low registered in the last few minutes of the session). It is very interesting to note that while the S&P and Dow continued to slide into the close, setting new significantly lower lows for the session, the technology indices set lower lows by a hair-s breadth. In short, the dumb money doesn't believe that this is the start of something nasty.

I have been saying for a while that the fact that Citigroup has not participated in the recent advance, is a very significant sign (C is the most highly-controlled and manipulated stock in the US market, if not the world). C has defied strength in the Banking index and the broader market... it is the quintessential "Smart Money At Work" sign.

Within the blue-chip index, 6 stocks rose, the biggest gainers being Mcdonalds (MCD, +2.94% to $31.17) and Du Pont (DD, +1.79% to $42.68), which accounted for 13 Dow points between them. Losers in the Dow numbered 24 and were led by Exxon Mobil (XOM, -2.08% to $58.75) and General Motors (GM, -1.87% to $36.82), with these two stocks contributing -16 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 281.8m shares to 36.4m.

The broader S&P500 declined 9.54 points (0.77%), to end the session at 1234.18. Within the index, gainers numbered 107, while 384 S&P500 stocks fell for the day. Volume was tilted 3.5:1 in favour of the losers with 1260.86 million units traded in the losers as compared with 365.44 million traded in the winners .

Over at Times Square, the Nasdaq Composite lost 13.61 points (0.62%), to close at 2184.83, while larger-cap technology issues fared worse with the Nasdaq100 losing 13.5 points (0.83%), to end at 1605.14 points (the low for the day, but only marginally so). Within the tech benchmark, gainers numbered 25, while 72 Nasdaq100 stocks fell for the day. Volume was tilted 5.5:1 in favour of the losers with 550.73 million traded in the losers compared to 101.02 million in the winners .

NYSE Volume was super-chunky, with 1.81 billion shares changing hands, while Nasdaq Volume was solid but not spectacular, with 1.62 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10640.91-64.64-0.6%
Nasdaq Composite2184.83-13.61-0.62%
NYSE Volume1.81bn--
Nasdaq Volume1.62bn--


My 9-stock "bellwethers" group fell by an average of 1.13%; XBATH is underwater (at $45 compared to the purchase price of $60) for the moment. Fannie Mae and Freddie Mac, along with Citigroup, are showing us the everything is not right.

  • General Electric (GE) -$0.38 (1.09%) to $34.50;
  • Citigroup (C) -$0.36 (0.82%) to $43.50;
  • Wal Mart (WMT) -$0.47 (0.94%) to $49.35;
  • I.B.M. (IBM) -$0.34 (0.41%) to $83.46;
  • Intel (INTC) -$0.20 (0.73%) to $27.14;
  • Cisco Systems (CSCO) -$0.15 (0.78%) to $19.15;
  • eBay (EBAY) -$0.24 (0.57%) to $41.78;
  • Fannie Mae (FNM) -$1.44 (2.51%) to $55.86; and
  • Freddie Mac (FRE) -$1.48 (2.29%) to $63.28.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1930 to 1332, for a single-day A/D reading of -598; and Nasdaq losers exceeded gainers by 1622 to 1404. The 10-day moving average of the A/D line fell to 156.0 on the NYSE, while the 10dma of the Nasdaq A/D fell to 87.2.

On the NYSE declining volume was greater than volume in advancing issues by 1208.2 to 580.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1074.9 to 518.2 million shares.

344 NYSE-listed stocks rose to new 52-week highs, and 20 posted fresh 52-week lows, while on the Nasdaq there were 226 stocks that hit new 52-week highs, and 17 which fell to fresh 52-week lows.

The VIX futures position we are tracking is getting back towards the zero line - as I've said before, it is really annoying that the 'cash' (spot) VIX is up 15% since I declared it should bottom at or near 10... and yet the VIX futures are still below the entry point of any trade that was initiated at the same time.

Market Breadth Statistics

Advancing Volume (m)580.07518.23
Declining Volume (m)1208.241074.88
New Highs344226
New Lows2017

Market Sentiment Statistics
CBOE Volatility Index11.571.0710.19%
CBOE Nasdaq Volatility Index13.871.269.99%
Equity Put-Call Ratio0.740.0812.12%
10-day PCR0.5700%
SPX-VIX Ratio106.7-11.78-9.94%

Bond Market Analysis

Bonds fell hard at the long end, with the yield on the benchmark 30-year Treasury bond rising 7.3 bps to 4.474%. that move equated to a drop of over a point in the long bond - recall that I said yesterday that the nuffie-killing bounce (to back above 116) was

a potential short squeeze that has yet to really prove itself

That is, the prevailing bias was still to continue to short bonds when indicators hit overbought - i.e., no change in the overarching short bias that was initiated at just above 119 some weeks ago.

The middle of the yield curve was broadly lower in price: five year yields rose to 4.125%, and ten-year yields rose to 4.286%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps wider at -2.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 46.0 bps for 10-year AAA, and 89.5 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 22.0 bps tighter at 33.0 basis points and the 10-year AAA-A spread 5.0 bps tighter at 2.0 bps.

Treasury Yields
UST 13wk (yld)3.33200%
UST 2Y (yld)40.071.78%
UST 5Y (yld)4.1250.0812%
UST 10Y (yld)4.2860.092.14%
UST 30Y (yld)4.4740.0731.66%

The Banks Index slid 1.03 points (1.02%), ending the day at 99.88 (notice that? back under 100); within the index,

  • National City Corp (NCC) -$0.77 (2.04%) to $36.91;
  • Keycorp (KEY) -$0.59 (1.69%) to $34.24;
  • Comerica (CMA) -$1.01 (1.63%) to $61.10;
  • M&T Bank Corp (MTB) -$1.56 (1.42%) to $108.51; and
  • North Fork Bancorp (NFB) -$0.39 (1.4%) to $27.39.

The Broker-dealer Index shed 2.24 points (1.31%), to 168.42; the ticket clippers lined up as follows -

  • E*Trade (ET) -$0.41 (2.58%) to $15.51;
  • Goldman Sachs (GS) -$2.19 (2%) to $107.48;
  • Bear Stearns (BSC) -$1.82 (1.75%) to $102.11;
  • Lehman Brothers (LEH) -$1.79 (1.67%) to $105.13; and
  • Charles Schwab (SCH) -$0.21 (1.51%) to $13.70.

The Philadelphia SOX (Semiconductor) index posted a rise of 0.16 points (0.03%), to end the session at 474.44

  • KLA-Tencor (KLAC) +$2.52 (5.12%) to $51.70;
  • Novellus Systems (NVLS) +$0.41 (1.44%) to $28.85;
  • Applied Materials (AMAT) +$0.20 (1.09%) to $18.48;
  • Teradyne (TER) +$0.06 (0.39%) to $15.53; and
  • Broadcom (BRCM) +$0.10 (0.23%) to $42.77.

Gold & Silver Markets

Gold rose $2 (0.47%) to close at $429.90 per ounce. This is more about bond weakness (as a precursor to USD weakness) than the USD. It also shows that the Gold Bulls are losing their fear. They are becoming bold. And as the aphorism goes...

There are old traders, and there are bold traders, but there are no old, bold traders...

In other words, the Gold market is still ripe for a good cleansing - just a spike dip, probably initiated in the out-months during the next contract rollover, and probably during the overnight session (so that trade is nice and thin) in order to get contango-arbitrage and stops to drive the nuffie-skinning move in the front-month.

The Gold Bugs Index shed 0.39 points (0.2%), at 196.77

  • Kinross Gold (KGC) -$0.14 (2.46%) to $5.56;
  • Meridian Gold (MDG) -$0.37 (2.03%) to $17.84;
  • Eldorado Gold (EGO) -$0.03 (1.1%) to $2.69;
  • Newmont Mining (NEM) -$0.40 (1.05%) to $37.55; and
  • Golden Star (GSS) -$0.03 (0.98%) to $3.02.

Silver rose $0.06 (0.84%) to close at $7.24 per ounce. The Gold and Silver Index (XAU) lost 0.21 points (0.23%), to 90.76 points.

  • Kinross Gold (KGC) -$0.14 (2.46%) to $5.56;
  • Meridian Gold (MDG) -$0.37 (2.03%) to $17.84;
  • Placer Dome (PDG) -$0.17 (1.21%) to $13.87; and
  • Newmont Mining (NEM) -$0.40 (1.05%) to $37.55.
Precious Metals and Indices
PHLX Gold and Silver Index90.76-0.21-0.23%
AMEX Gold BUGS Index196.77-0.39-0.2%

Oil Market

Oil was firmer, rising by $0.63 per barrel, closing at $60.57 per barrel. The Oil and Gas Index (XOI) lost 6.42 points (0.68%), to 942.85

  • Exxon Mobil (XOM) -$1.25 (2.08%) to $58.75;
  • ChevronTexaco (CVX) -$0.93 (1.58%) to $58.01; and
  • Amerada Hess (AHC) -$1.72 (1.44%) to $117.86.

The Oil service stocks (OSX) Index dipped 1.05 points (0.65%), ending the day at 161.38

  • Transocean (RIG) -$0.95 (1.66%) to $56.43;
  • Baker Hughes (BHI) -$0.79 (1.38%) to $56.54; and
  • Nabors Industries (NBR) -$0.87 (1.31%) to $65.45.
Energy Complex
Reuters CRB315.241.740.56%
Crude Oil Light Sweet60.570.631.05%
Heating Oil1.63620-0.17%
Natural Gas7.64700%
Unleaded Gas1.73870.010.79%
AMEX Oil Index942.85-6.42-0.68%
Oil Service Index161.38-1.05-0.65%

Currency Markets

USD Exchange Rates
US Dollar Index89.350.030.03%
Australian Dollar0.7561-0.0042-0.55%
Swiss Franc1.2890.00410.32%
Canadian Dollar0.81760.00440.54%