Interdum stultus opportuna loquitur...

Thursday, July 07, 2005

USRant: No Repo, Oil Surge, Big Layoffs...

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

The 'headline hound' explanation will be oil - but it would have been oil if the indices had risen for the day. If oil rises and stocks rise, the story is that profits at ExxonMobil, ChevronTexaco and so on will all be higher. If oil rises and stocks rise, journalists trot outhackneyed bromides like "higher energy prices will crimp corporate profits" - which is only true in a world where sellers have no pricing power.

Still, it's nice to be right (again) - last week I declared that the pullback in oil was not a signal of a top, and here we are a few sessions later, with oil at a new all time high and the contango in oil stretching wider.The time to short oil may be fast approaching though - albeit only for a short-term scalping opportunity.

Longer term, oil is going above $100, and there's nothing anybody can do about it - except perhaps if someone discovers irrefutable proof that the abiotic oil hypothesis is correct.

Anyone who did that would end up dead - because people like Bush, Cheney and the rest of the War Criminals all have substantial wealth stakes riding on their deliberate disruption to global oil supplies. It was never about getting cheap oil for US motorists; it was always about enabling a massive transfer of taxpayers funds to Halliburton and Carlyle (via massive new defence procurement contracts), and about stoking oil company profits at the expense of taxpayers - the taxpayers are the source of the fleece, not the beneficiaries.

That said, I am beginning to give more weight to the abiotic oil hypothesis; thus far I have not been able to find a hole in it - and that's what I think is my key asset (the ability to find the bits of a story that don't hang together).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $6billion, overnight repurchase with a measly $0.815billion in T-backed collateral.

Clearly that is not enough repo at the best of times - today's economic data was not bad, but a market just is not going to gain traction without some of that old repo grease (gain traction... with grease? hmmm... work on that metaphor, Mr Poet-man).

Speaking of eco-data, let's review today's...

  • Mortgage Bankers Association Purchase Index rose 9.1% (and the refinancing index rose 10.2%) despite an 11 basis point uptick in average mortgage rates in the last week. (Note -that makes me think that there's a time mismatch between mortgage originations and rates).
  • ICSC-UBS store sales up 3.8% year-over-year (Redbook said 4.2%, but Redbook also says this week was 6.6% above the same week last year, which I don't think can be right given wages and employment);
  • The Challenger Job Cuts Report showed a massive 34% increase in layoffs to 110,996 from 82k last month; this time last year layoffs were in the 64k range (tell me again about the economic expansion...). The auto sector was particularly weak.
  • The Institute of Supply Management Non-Manufacturing Survey was stronger than expected (62.2 vs expectations of 60), but we all know what I think of survey-based data (it's crap - worse than useless, since almost everyone in the economy looks backwards).
All things considered though, the eco-numbers weren't bad (except if you're on the labour side of the labour-capital nexus)... but good data means dick when there's not enough repo.

Major US Indices

The Dow Jones Industrial Average dipped 101.12 points (0.97%), closing out the day at 10270.68 points. The index opened flat-to-up, only managing to gain a little under 10 points at its intraday peak (10380.47, set just after the open). From there, the decline was modest until about 2 p.m. (at that time, the Dow was only down about 30 points), but then the sellers gained traction and dive the index down hard in the last 2 hours. The Dow's low print for the day was 10267.61, during the last 15 minutes of the session.

Only 2 Dow components rose - International Business Machines (IBM, +1.36% to $75.81) and Hewlett Packard (HPQ, +1.05% to $23.96), and between them they contributed about 10 Dow points to the positive side of the ledger. The principle reason for relative strength in technology was a brokerage upgrade of estimates for Intel (INTC) and Motorola (MOT) and yet both INTC and MOT fell for the session. Considering that the upgrade was from UBS (which has been so wrong so often that I wouldn't use their research as firestarters), I'm not totally surprised.

The losers - the other 28 Dow stocks - were led by United Technology (UTX, -2.11% to $50.55) and Home Depot (HD, -2.02% to $39.27), with these two stocks contributing -15 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 331.3m shares to 18.9m; that is as one-sided as you will see it, and shows just how much the Dow is being used as a hedge fund momentum vehicle (hedge funds are 'doing their balls' at the moment - as usual, last year's sexy instrument has been drowned in money this year, and has blown up).

The broader S&P500 declined 10.05 points (0.83%), closing at 1194.94. Within the index, gainers numbered 113, while 378 S&P500 stocks fell for the day. Volume was tilted 2.1:1 in favour of the losers with 1159.67 million units traded in the losers as compared with 551.24 million traded in the winners .

Over at Times Square, the Nasdaq Composite was helped by relative strength in the techs (see IBM and HPQ in the Dow), and kept its decline capped at 10.1 points (0.49%), closing at 2068.65 points. Larger-cap technology issues fared worse in percentage terms, with the Nasdaq100 losing 8.3 points (0.55%), to end at 1498.05 points. Both tech indices were travelling reasonably well - above the zero-line for the day - and actually made new intraday highs at 1:20 p.m., when they both fell apart somewhat spectacularly.

Within the tech benchmark, gainers numbered 36, while 62 Nasdaq100 stocks fell for the day. Volume was tilted 1.2:1 in favour of the losers with 361.91 million traded in the losers compared to 313.19 million in the winners .

NYSE Volume was super-chunky, with 1.88 billion shares changing hands, while Nasdaq Volume was about average, with 1.59 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10270.68-101.12-0.97%
Nasdaq Composite2068.65-10.1-0.49%
NYSE Volume1.88bn--
Nasdaq Volume1.59bn--


My 9-stock "bellwethers" group fell by an average of 0.25%

  • General Electric (GE) -$0.40 (1.15%) to $34.32;
  • Citigroup (C) -$0.16 (0.34%) to $46.30;
  • Wal Mart (WMT) -$0.42 (0.84%) to $49.38;
  • I.B.M. (IBM) +$1.02 (1.36%) to $75.81;
  • Intel (INTC) -$0.18 (0.67%) to $26.50;
  • Cisco Systems (CSCO) unchanged at $18.82;
  • eBay (EBAY) +$0.02 (0.06%) to $33.56;
  • Fannie Mae (FNM) -$0.08 (0.14%) to $58.42; and
  • Freddie Mac (FRE) -$0.34 (0.52%) to $65.00.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1870 to 1388, for a single-day A/D reading of -482; and Nasdaq losers exceeded gainers by 1748 to 1269. The 10-day moving average of the A/D line fell to 265.7 on the NYSE, while the 10dma of the Nasdaq A/D fell to 88.9.

On the NYSE declining volume was greater than volume in advancing issues by 1232.1 to 595.3 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 838.3 to 694.3 million shares.

322 NYSE-listed stocks rose to new 52-week highs, and 28 posted fresh 52-week lows, while on the Nasdaq there were 133 stocks that hit new 52-week highs, and 28 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)595.34694.33
Declining Volume (m)1232.06838.27
New Highs322133
New Lows2828

Market Sentiment Statistics
CBOE Volatility Index12.270.595.05%
CBOE Nasdaq Volatility Index14.770.271.86%
Equity Put-Call Ratio0.74-0.03-3.9%
10-day PCR0.570.035.56%
SPX-VIX Ratio97.4-5.78-5.6%

Bond Market Analysis

Bonds rose modestly at the long end, with the yield on the benchmark 30-year Treasury bond shedding 3.2 bps to 4.33%. The short bond trade gave back over half a point - it's still in profit by more than 100% of required margin, however. Just to be safe, stops should be shifted to 118-24 just to lock in some profit in case of a spike in the bonds later in the week (i.e., if the economic data continues to disappoint).

The middle of the yield curve was broadly higher in price: five year yields fell to 3.863%, and ten-year yields fell to 4.075%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 2.0 bps wider at -4.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 39.0 bps for 10-year AAA, and 85.5 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 4.0 bps wider at 49.0 basis points and the 10-year AAA-A spread 2.0 bps tighter at 19.0 bps.

Treasury Yields
UST 13wk (yld)3.1200%
UST 2Y (yld)3.75-0.02-0.53%
UST 5Y (yld)3.863-0.036-0.92%
UST 10Y (yld)4.075-0.024-0.59%
UST 30Y (yld)4.33-0.032-0.73%

The Banks Index shed 0.92 points (0.92%), at 98.55; within the index,

  • Zions Bancorp (ZION) -$4.69 (6.39%) to $68.67;
  • Wachovia (WB) -$0.84 (1.68%) to $49.21;
  • North Fork Bancorp (NFB) -$0.42 (1.46%) to $28.36;
  • Golden West Financial (GDW) -$0.91 (1.41%) to $63.75; and
  • Bank Of NY (BK) -$0.40 (1.38%) to $28.69.

The Broker-dealer Index rose 0.37 points (0.23%), to end the session at 162.07; the ticket clippers lined up as follows -

  • Charles Schwab (SCH) +$0.54 (4.72%) to $11.98;
  • E*Trade (ET) +$0.33 (2.34%) to $14.45;
  • Goldman Sachs (GS) +$0.37 (0.36%) to $103.55;
  • Bear Stearns (BSC) +$0.30 (0.29%) to $105.48; and
  • Legg Mason (LM) +$0.12 (0.11%) to $106.87.

The Philadelphia SOX (Semiconductor) index rose 4.46 points (1.05%), closing at 430.33

  • Micron Technology (MU) +$0.38 (3.62%) to $10.88;
  • Novellus Systems (NVLS) +$0.77 (3.11%) to $25.56;
  • Xilinx (XLNX) +$0.78 (3.04%) to $26.46;
  • Advanced Micro Devices (AMD) +$0.47 (2.61%) to $18.51; and
  • Altera (ALTR) +$0.46 (2.28%) to $20.65.

Gold & Silver Markets

Gold fell by $0.10 (0.02%) to close at $424.60 per ounce. The US Dollar has stabilised just above 90, and its failure to rise further is giving Gold Bulls a little less to worry about.

Gold Bugs Index gained 1.61 points (0.82%), to 198.24

  • Glamis Gold (GLG) +$0.50 (3.08%) to $16.75;
  • Iamgold (IAG) +$0.15 (2.28%) to $6.72;
  • Eldorado Gold (EGO) +$0.06 (2.23%) to $2.75;
  • Agnico Eagle (AEM) +$0.25 (2.05%) to $12.47; and
  • Kinross Gold (KGC) +$0.11 (1.89%) to $5.93.

Silver rose $0.09 (1.24%) to close at $6.93 per ounce. The Gold and Silver Index (XAU) gained 0.84 points (0.92%), closing at 91.77 points.

  • Placer Dome (PDG) +$0.32 (2.17%) to $15.07;
  • Agnico Eagle (AEM) +$0.25 (2.05%) to $12.47;
  • Kinross Gold (KGC) +$0.11 (1.89%) to $5.93; and
  • Goldcorp (GG) +$0.25 (1.62%) to $15.66.
Precious Metals and Indices
PHLX Gold and Silver Index91.770.840.92%
AMEX Gold BUGS Index198.241.610.82%

Oil Market

Well what can I say? It's only about a week ago that I pointed out that the pullback in oil that was being touted, was  not a top of any significance (it happened at the wrong number). My 'prior' for a top in oil was - potentially, if it was hit at the right point in time - somewhere in the $61.37-ish range (today's top was $61.35).

The spike was caused by a Tropical Storm system (two of them, in fact). Tropical Storm Cindy made landfall in Louisiana, and resultant power outages caused disruption at 5 refineries (three of which were shut down completely). Tropical Storm Dennis (which was promoted to hurricane late in the day) has thus far missed the Gulf of Mexico - where loads of oil derricks are situated. Dennis should make landfall somewhere along the Alabama coast (or perhaps Florida).

Now think hard about this; the Gulf of Mexico is relatively important as a source of crude, for sure - but the major news was about refineries. That ought to have been bullish for end products of crude refining (petroleum products, heating oil and so on), but neutral for crude. The risk to the Gulf is actually slight, and temporary.

Add that to the 'coast to coast' nature of the advance, and what do you get? A 'prior' that the charge was led by people with little or no understanding of the oil industry.

Speaking of people with no clue about the oil industry, I led everyone astray in advocating that people watch for a likely counter-intuitive response to theAEI Crude Inventories data this week... there isn't any Crude Inventories report being released because it's a short week. My bad, although it didn't affect anything.

Taken together, I reckon it's pretty safe to short any 'pop and reverse' in oil tomorrow; it will only be a short ride if it works (2-5 days, tops) but it should be a ripper. I doubt that $61.35 will be the right level to short from (because it occurred at the wrong time of the day).

Oil was firmer, rising by $1.52 per barrel, closing at $61.25 per barrel. The Oil and Gas Index (XOI) declined 12.3 points (1.32%), closing at 918.97

  • Marathon Oil (MRO) -$1.68 (2.96%) to $55.14;
  • ChevronTexaco (CVX) -$1.40 (2.39%) to $57.16; and
  • Occidental Petroleum (OXY) -$1.92 (2.34%) to $80.06.

The Oil service stocks (OSX) Index slid 1.91 points (1.25%), ending the day at 150.56

  • Tidewater (TDW) -$1.35 (3.36%) to $38.83;
  • Halliburton (HAL) -$0.93 (1.87%) to $48.71; and
  • Weatherford International (WFT) -$1.03 (1.71%) to $59.17.
Energy Complex
Reuters CRB315.140.810.26%
Crude Oil Light Sweet61.251.522.54%
Heating Oil1.7970.063.45%
Natural Gas7.6940.162.18%
Unleaded Gas1.78950.16.01%
AMEX Oil Index918.97-12.3-1.32%
Oil Service Index150.56-1.91-1.25%

Currency Markets

USD Exchange Rates
US Dollar Index90.35-0.08-0.09%
Australian Dollar0.7392-0.0021-0.28%
Swiss Franc1.3023-0.0018-0.14%
Canadian Dollar0.80820.00410.51%