Interdum stultus opportuna loquitur...

Thursday, July 14, 2005

USRant: Oil Smacked, Dow Peaks Early...

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

Recently I've blathered on about my preferred technical-analytic tools (two trendlines and two oscillators, one of which is used almost solely for confirmation via divergences). I use these on all timeframes, and on all instruments. The underlying reasoning is fairly straightforward; trends are not monotonic, and most people get lured into a trend closer to its end than to its beginning.

The recent volatility in Crude Oil is a case in point; since the session that I posted my little Syncretic Analysis of the Crude market, the thing has been all over the shop - but as I surmised at the time, the core 'bias' of the market has been down. It was not a shock to anyone who read these pages; it developed right on cue, and the swing high immediately after I published my discussion, was the highest high since that date (and in fact was the highest high ever).

I took some pains the other day - in advocating an exit from the short taken at the $61.50 area - that I was most certainly not advocating reversing to long exposure to Crude. Savvy traders should have been repositioning short based on intraday overbought/divergent situations, as I have been saying about the 'tripped out' bond trade.

To see how this works - time, and time, and time again, it's useful to take another look at Crude: here's an hourly chart. note that early yesterday there was a textbook "higher high/overbought/CCI divergence" as shown by the red lines and the red circle on the %R chart (the ones on the left of the chart).

Since then the Crude market has been making lower highs, and each lower hourly low has been accompanied by a falling CCI (i.e., the CCI and the price are 'concurring'). That provides further confidence to take short positions based on hourly overbought situations such as the one shown by the red circle closer to the right of the chart. It doesn't really matter which 'signal' was used - the overbought/divergent situation from yesterday, or the overbought %R today; both kept traders on the right side of the trade.

Crude - Hourly Chart

Crude Oil - Hourly Chart (click for larger verions in new window)

There's one important thing to note now - the CCI itself became deeply oversold today. Normally, folks use -100 as their 'threshold' for an oversold CCI - but as I have said before, I am a believer in higher hurdles. Anyone who understands the difference between Type I error and Type II error will immediately recognise why (after reading this sentence). So I use -150 as an 'early warning' indicator, and at -200 you can simply jump on the long side with near-impunity. Today, the CCI for Crude  fell to below -200 on an hourly basis.

It is time now to revisit the Crude market with a fuller analysis - which I will try to get done on Monday (Australian time) since I don't have to write a USRant on Monday mornings. (Speaking of CCI extremes, the hourly Dow chart CCI hit +300 in the first hour of this morning's session - and exactly a week ago to the hour, it hit -285...).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 2 repurchase operations.

  • a $11billion, overnight repurchase entirely in T-backed collateral; and
  • a $12billion, 14-day repurchase entirely in T-backed collateral.

Hooo, nellie! Now that's some serious repo dough. It was necessary, given that it was vital that the market showed continued strength after good results from AAPL and AMD yesterday (and awful economic data today). Still, 10 a.m. didn't mark any important launch point... why would that be?

Lack of guaranteed carry, boys and girls... lack of guaranteed carry. the big overnight repo was undertaken at a pissy 1.4 basis point discount to the Fed Funds rate (FFR). As I outlined in a post a while back, the degree of discount to Fed Funds is critical in determining whether da Boyz use some of their repo to goose the market. (Plus, today it must be said that CNBC and the rest of the hype machine did a good job propagandising the post-market earnings results).

Major US Indices

After opening with a surge - as lemmings crowded into AAPL and AMD as if the earnings 'surprises' didn't carry a poison pill (lowered guidance). As usual when the nuffnuffs get excited about a stock, AAPL set its intraday high after 25 minutes... anyone who bought AAPL today at any time before 2 p.m., lost money on the deal - you would think that's hard to do on a day when a stock rises 6%, but that's what happens to nuffnuffs time and time again. Thank Odin that they exist, I say - without them, who would we take money off?

The Dow Jones Industrial Average advanced 71.5 points (0.68%), closing out the day at 10628.89 points. The index hit an intraday high of 10657.69 after less than 15 minutes of trade, after opening at 10559.86 points (its low for the session).

Within the blue-chip index, 27 stocks rose, the biggest gainers being General Motors (GM, +3.15% to $37.00) and Walt Disney (DIS, +2.41% to $26.33), which accounted for 14 Dow points between them. Losers in the Dow numbered just 2 -  Exxon Mobil (XOM, -1.96% to $58.59) on lower oil prices, and Du Pont (DD, -0.11% to $44.20). The two losers contributed -10 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 371.7m shares to 23.3m - a mad tilt. We might just see that 10730 level tomorrow or Monday; if Monday it will be a sweet shorting opportunity.

The broader S&P500added 3.21 points (0.26%), to end the session at 1226.5 - earlier in the session it hit a 4-year high at 1233.16. That ought to ensure a raft of breakout traders giving the index its last-gasp push over the next couple of sessions before a nice repositioning pullback. Within the S&P, gainers numbered 298, while 192 S&P500 stocks fell for the day. Volume was tilted 2.2:1 in favour of the winners with 1351.94 million units traded in the winners as compared with 626.05 million traded in the losers .

Over at Times Square, the Nasdaq Composite added 8.71 points (0.41%), to close at 2152.82, while larger-cap technology issues fared better with the Nasdaq100 adding 15.82 points (1.02%), to end at 1573.44 points. Within the tech benchmark, gainers numbered 74, while 24 Nasdaq100 stocks fell for the day. Volume was tilted 3.4:1 in favour of the winners with 626.99 million traded in the winners compared to 185.35 million in the losers .

NYSE Volume was super-chunky, with 2.05 billion shares changing hands, while Nasdaq Volume was chunky, with 1.87 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10628.8971.50.68%
Nasdaq Composite2152.828.710.41%
NYSE Volume2.05bn--
Nasdaq Volume1.87bn--


My 9-stock "bellwethers" group rose by an average of 0.87%; Citigroup started to play catch-up, which means that da Boyz are almost ready to dump a load of call premium on unsuspecting nuffnuffs.

  • General Electric (GE) +$0.45 (1.28%) to $35.63;
  • Citigroup (C) +$0.76 (1.66%) to $46.50;
  • Wal Mart (WMT) +$0.37 (0.74%) to $50.51;
  • I.B.M. (IBM) +$0.97 (1.19%) to $82.42;
  • Intel (INTC) +$0.29 (1.05%) to $27.88;
  • Cisco Systems (CSCO) -$0.03 (0.15%) to $19.94;
  • eBay (EBAY) +$0.11 (0.31%) to $35.04;
  • Fannie Mae (FNM) +$0.78 (1.32%) to $60.08; and
  • Freddie Mac (FRE) +$0.30 (0.45%) to $66.65.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1787 to 1495, for a single-day A/D reading of -292; and Nasdaq losers exceeded gainers by 1676 to 1345. The 10-day moving average of the A/D line fell to 340.7 on the NYSE, while the 10dma of the Nasdaq A/D fell to 171.5.

NYSE advancing volume exceeded volume in decliners by 1086.3 to 919.7 million shares; Nasdaq advancing volume was greater than volume in decliners by 1158.8 to 630.5 million shares.

275 NYSE-listed stocks rose to new 52-week highs, and 21 posted fresh 52-week lows, while on the Nasdaq there were 155 stocks that hit new 52-week highs, and 19 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1086.281158.79
Declining Volume (m)919.67630.45
New Highs275155
New Lows2119

Market Sentiment Statistics
CBOE Volatility Index10.79-0.03-0.28%
CBOE Nasdaq Volatility Index14.23-0.72-4.82%
Equity Put-Call Ratio0.65-0.02-2.99%
10-day PCR0.52-0.01-1.89%
SPX-VIX Ratio113.70.610.54%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 1.9 bps to 4.417%. the 30-year Treasury future closed at 116-07/32 and had a session low of 116-00/32 even. Woe is me... that bomb-induced stop-out (which as I keep saying, still locked in 22% gains in less than a week) has deprived us of yet another opportunity to trouser bigger loads of cash. You might recall that on the trade that started with a call for the 30-year to trade below 110 (which it did less than two months after the call) I got also stopped out on the second tranche (with a gain of almost 100%) after tightening the stop - missing out on another 4-point downward move in bonds. Live and learn? Not me!

The middle of the yield curve was broadly lower: five year yields rose to 3.976%, and ten-year yields rose to 4.18%.

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 fell to 44.0 bps for 10-year AAA, and 80.0 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 0.0 bps looser at 43.0 basis points and the 10-year AAA-A spread 4.0 bps tighter at 10.0 bps.

Treasury Yields
UST 13wk (yld)3.15200%
UST 2Y (yld)3.830.010.26%
UST 5Y (yld)3.9760.0170.43%
UST 10Y (yld)4.180.0170.41%
UST 30Y (yld)4.4170.0190.43%

The Banks Index rose 0.45 points (0.45%), to end the session at 101.51; within the index,

  • Citigroup (C) +$0.76 (1.66%) to $46.50;
  • PNC Financial Services (PNC) +$0.84 (1.52%) to $56.17;
  • BB&T Corp (BBT) +$0.52 (1.24%) to $42.47;
  • Wells Fargo (WFC) +$0.74 (1.2%) to $62.47; and
  • Keycorp (KEY) +$0.28 (0.83%) to $34.21.

The Broker-dealer Index posted a rise of 0.56 points (0.33%), at 168.41; the ticket clippers lined up as follows -

  • Charles Schwab (SCH) +$0.14 (1.11%) to $12.75;
  • Jeffries Group (JEF) +$0.40 (1.03%) to $39.28;
  • Legg Mason (LM) +$0.77 (0.71%) to $109.96;
  • Goldman Sachs (GS) +$0.55 (0.51%) to $108.55; and
  • Merrill Lynch (MER) +$0.29 (0.5%) to $57.74.

The Philadelphia SOX (Semiconductor) index rose 5.78 points (1.26%), closing at 463.93

  • Infineon Tech (IFX) +$0.41 (4.17%) to $10.25;
  • Advanced Micro Devices (AMD) +$0.63 (3.27%) to $19.88;
  • ST Microelectronic (STM) +$0.53 (3.02%) to $18.06;
  • Maxim Integrated (MXIM) +$0.94 (2.26%) to $42.45; and
  • National Semiconductors (NSM) +$0.50 (2.09%) to $24.45.

Gold & Silver Markets

Gold fell by $4.70 (1.11%) to close at $420 per ounce. The USD is putting the frighteners on Gold small-traders.

Gold Bugs Index slid 6.34 points (3.12%), ending the day at 196.99

  • Coeur d'Alene (CDE) -$0.24 (6.58%) to $3.41;
  • Hecla Mining (HL) -$0.23 (5.25%) to $4.15;
  • Golden Star (GSS) -$0.15 (4.84%) to $2.95;
  • Randgold Resources (GOLD) -$0.64 (4.58%) to $13.32; and
  • Kinross Gold (KGC) -$0.27 (4.23%) to $6.12.

Silver fell by $0.08 (1.06%) to close at $6.97 per ounce. The Gold and Silver Index (XAU) lost 2.31 points (2.47%), closing at 91.26 points.

  • Durban Rooderpoert Deep (DROOY) -$0.07 (7%) to $0.93;
  • Kinross Gold (KGC) -$0.27 (4.23%) to $6.12;
  • Placer Dome (PDG) -$0.62 (3.89%) to $15.31; and
  • Meridian Gold (MDG) -$0.68 (3.74%) to $17.50.
Precious Metals and Indices
PHLX Gold and Silver Index91.26-2.31-2.47%
AMEX Gold BUGS Index196.99-6.34-3.12%

Oil Market

Oil lost ground, shedding $1.74 per barrel, closing at $58.04 per barrel after setting an early high above $60 and trading as low as $57.25 during the mid-session rout. The Oil and Gas Index (XOI) dipped 17.15 points (1.83%), to end the session at 919.51

  • Marathon Oil (MRO) -$1.99 (3.45%) to $55.68;
  • ConocoPhillips (COP) -$1.96 (3.19%) to $59.54; and
  • Sunoco (SUN) -$3.40 (2.8%) to $117.82.

The Oil service stocks (OSX) Index declined 3.88 points (2.56%), to end the session at 147.95

  • Global Industries (GLBL) -$0.34 (3.53%) to $9.29;
  • Rowan Companies (RDC) -$1.01 (3.25%) to $30.10; and
  • Tidewater (TDW) -$1.21 (3.11%) to $37.65.
Energy Complex
Reuters CRB313.33-0.93-0.3%
Crude Oil Light Sweet58.04-1.74-2.91%
Heating Oil1.665-0.05-2.72%
Natural Gas7.865-0.15-1.87%
Unleaded Gas1.6935-0.05-3.06%
AMEX Oil Index919.51-17.15-1.83%
Oil Service Index147.95-3.88-2.56%

Currency Markets

USD Exchange Rates
US Dollar Index89.470.180.2%
Australian Dollar0.75240.00260.35%
Swiss Franc1.29030.00010.01%
Canadian Dollar0.825-0.0033-0.4%