Interdum stultus opportuna loquitur...

Saturday, July 09, 2005

USRant: Oil Tanks Again, Phantom Payrolls...

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Short week. Those are the only words you need to explain this week. Bombs? Irrelevant (they didn't happen within ten blocks of Wall Street). Today was strange though - a too-little repo and disappointing economic data were trumped by good earnings news from Alcoa.

Economic news centred on the Employment Situation report. That showed a labour market which is in trouble:

  • New Non-Farm Payrolls were 146k (expected: 196k);
  • Average Hourly Earnings rose 0.2% (consensus: 0.2%);
  • Unemployment Rate was 5.0% (consensus: 5.1%);
  • Average Workweek was 33.7 hours (expected 33.8 hours).

So let's get this straight: weaker-than-expected payrolls were good economic news? I don't think so. Especially when - get this - the CES Net Birth Death Model created 184,000 of those jobs. That is, they're fictional. So the CES statistical fiction grew payrolls by 184k - the 'rest' of the 146k (i.e., negative 38k) were the result of jobs growth.

Apart from that, there was Wholesale Trade, which reported that Inventories rose while Sales didn't budge. That's good news? I don't think so.

At 3 p.m., Consumer Credit numbers showed a contraction of credit of $3 billion' consensus was expecting a growth of $3.9 billion. In a consumer-driven growth paradigm (since intermediate demand is stagnant per the Wholesales Sales report, and labour demand is slow per the Payrolls numbers), a contraction in credit is a good thing? I don't think so.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $4.75billion, 3-day repurchase with $4.538billion in T-backed collateral.

That's usually not enough to drag the markets upwards - although it was done at a steep (9 basis point) discount to the Fed Funds rate (FFR). Today was also special, since da Boyz had plenty of juice left over from yesterday when they also got a huge tranche at a 7 basis point discount to FFR. Still, the repo doesn't explain the move.

Major US Indices

The Dow Jones Industrial Average posted a rise of 146.85 points (1.43%), closing out the day at 10449.14 points. The index hit an intraday high of 10462.26, just before 3:30 NY time. The low - 10300.45 (let's call it "10300-ish") occurred during the first ten minutes. It was a coast-to-coast rally with no pullback of more than 10 points... in other words, it was mindless. Everyone is twitterpated about next week's earnings reports (and the positive spin those will get from the likes of CNBC). Since 'everyone' is usually wrong, I would be prepared to bet that next week on Wednesday will mark an important swing high - I will give the market Monday and Tuesday to gambol like a spring lamb, but then it's time to turn the nuffnuffs into lambchops.

Within the blue-chip index, 28 stocks rose, the biggest gainers being Alcoa (AA, +4.25% to $27.20) and Merck (MRK, +3.40% to $31.00), which accounted for 16 Dow points between them. The only 2 losers in the Dow were Exxon Mobil (XOM, -0.20% to $59.40) and Boeing (BA, -0.17% to $65.07), with these two stocks contributing -2 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 342.2m shares to 20.7m. The Dow's volume tilt can be misleading - after all, there are only 30 stocks in the index - but at almost 17:1 you can safely bet that the "Dumb Money At Work" sign has been hung outside the NYSE.

The broader S&P500 rose 13.99 points (1.17%), to 1211.86. Within the index, gainers numbered 421, while 72 S&P500 stocks fell for the day. Volume was tilted 5.0:1 in favour of the winners with 1443.76 million units traded in the winners as compared with 291.49 million traded in the losers. That S&P volume tilt is much more reliable than that of the Dow, and it has all the characteristics of a blowoff.

Over at Times Square, the Nasdaq Composite posted a rise of 37.22 points (1.79%), to close at 2112.88, while larger-cap technology issues fared better with the Nasdaq100 adding 29.49 points (1.96%), to end at 1533.27 points. Within the tech benchmark, gainers numbered 84, while 15 Nasdaq100 stocks fell for the day. Volume was tilted 6.5:1 in favour of the winners with 633.80 million traded in the winners compared to 97.86 million in the losers.

NYSE Volume was super-chunky, with 1.91 billion shares changing hands, while Nasdaq Volume was chunky, with 1.69 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10449.14146.851.43%
Nasdaq Composite2112.8837.221.79%
NYSE Volume1.91bn--
Nasdaq Volume1.69bn--


My 9-stock "bellwethers" group rose by an average of 1.44%; not that Citigroup didn't participate at all... only the names beloved by nuffnuffs went birko, and the most manipulated stock on the NYSE got left standing relatively still.

  • General Electric (GE) +$0.81 (2.37%) to $34.99;
  • Citigroup (C) +$0.24 (0.52%) to $46.51;
  • Wal Mart (WMT) +$0.39 (0.79%) to $49.90;
  • I.B.M. (IBM) +$1.92 (2.48%) to $79.30;
  • Intel (INTC) +$0.72 (2.71%) to $27.28;
  • Cisco Systems (CSCO) +$0.47 (2.49%) to $19.31;
  • eBay (EBAY) +$0.41 (1.2%) to $34.50;
  • Fannie Mae (FNM) -$0.18 (0.3%) to $58.97; and
  • Freddie Mac (FRE) +$0.45 (0.69%) to $66.10.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2484 to 808 for a single-day A/D reading of 1676; yet another sign of manic behaviour. Nasdaq gainers trumped losers by 2217 to 830 - crazy, but not quite as crazy as the NYSE A/D. The 10-day moving average of the A/D line rose to 529.3 on the NYSE, while the 10dma of the Nasdaq A/D rose to 316.0.

NYSE advancing volume exceeded volume in decliners by 1505 to 374.5 million shares; Nasdaq advancing volume was greater than volume in decliners by 1442.9 to 235 million shares. So pretty much every volume split - from the narrow Dow right through to the whole market - saw more than 80% of total volume traded in winners. not a good sign, I'm afraid.

410 NYSE-listed stocks rose to new 52-week highs, and 17 posted fresh 52-week lows, while on the Nasdaq there were 182 stocks that hit new 52-week highs, and 20 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1504.971442.85
Declining Volume (m)374.5235.04
New Highs410182
New Lows1720

Market Sentiment Statistics
CBOE Volatility Index11.45-1.04-8.33%
CBOE Nasdaq Volatility Index13.8-1.34-8.85%
Equity Put-Call Ratio0.42-0.49-53.85%
10-day PCR0.5800%
SPX-VIX Ratio105.89.9310.36%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 5.9 bps to 4.361%. How sad that the second half of the short 30-yr bond trade got stopped out (albeit at a gain) yesterday after the London attacks - because today the bond dropped below 117, closing at 116-27/32.

Anyone with half a brain will have simply continued to sell intraday overbought levels, and so should have been back into the trade at about 118-27 anyhow... but I can't claim that.What I can claim, however, is to have nailed the swing top in bonds to the day.

With a 100% gain on the first half of the trade and a 22% gain on the second (the bit that got stopped out), it's another decent call. I even foresaw the bounce spike, and wrote about it - although I set the stop too tight and didn't foresee the cause. There will be other bounces to short between here and 100 on the US 30-year T-bond future. The 'effective entry' for a cumulative Rant bond short is above 122 (i.e., in theory, anyone who took each Rant bond short could short it again at current levels, and their accumulated profits to date would not be wiped out until the bond broke 122... I am not advocating that anybody does that).

The middle of the yield curve was broadly lower in price: five year yields rose to 3.899%, and ten-year yields rose to 4.109%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 4.0 bps wider at -2.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 42.0 bps for 10-year AAA, and 88.5 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 1.0 bps looser at 32.0 basis points and the 10-year AAA-A spread 13.0 bps wider at 15.0 bps. This play (buying a widening spread when the spread goes negative) will be making some folks a lot of money).

Treasury Yields
UST 13wk (yld)3.09500%
UST 2Y (yld)3.750.041.08%
UST 5Y (yld)3.8990.071.83%
UST 10Y (yld)4.1090.0781.94%
UST 30Y (yld)4.3610.0591.37%

The Banks Index added 1.05 points (1.07%), closing at 99.61; within the index,

  • Wachovia (WB) +$1.32 (2.69%) to $50.34;
  • Fifth Third Bancorp (FITB) +$0.90 (2.18%) to $42.23;
  • BB&T Corp (BBT) +$0.77 (1.93%) to $40.72;
  • Golden West Financial (GDW) +$1.17 (1.81%) to $65.96; and
  • Northern Trust (NTRS) +$0.64 (1.39%) to $46.84.

The Broker-dealer Index added 2.47 points (1.51%), to 166.18; the ticket clippers lined up as follows -

  • Raymond James (RJF) +$1.88 (6.7%) to $29.95;
  • Legg Mason (LM) +$4.47 (4.15%) to $112.06;
  • Ameritrade (AMTD) +$0.43 (2.36%) to $18.68;
  • Jeffries Group (JEF) +$0.88 (2.34%) to $38.53; and
  • Merrill Lynch (MER) +$0.89 (1.6%) to $56.49.

The Philadelphia SOX (Semiconductor) index added 10.86 points (2.51%), closing at 442.75

  • Teradyne (TER) +$0.81 (6.79%) to $12.74;
  • Freescale Semiconductors (FSL-B) +$1.16 (5.35%) to $22.84;
  • Micron Technology (MU) +$0.57 (5.25%) to $11.42;
  • ST Microelectronic (STM) +$0.68 (4.29%) to $16.52; and
  • Infineon Tech (IFX) +$0.39 (4.26%) to $9.54.

Gold & Silver Markets

Gold fell by $1.00 (0.24%) to close at $424.40 per ounce. Small gold traders are fixated now - they need some catalyst (a weakening USD, perhaps). Thankfully (for them) the USD is very close to a time based reversal, having already hit the price target at 90. Perhaps the remaining time is going to be used scaring the hell out of Gold traders.

The Gold Bugs Index dipped 0.34 points (0.17%), closing at 199.88

  • Iamgold (IAG) -$0.11 (1.59%) to $6.81;
  • Eldorado Gold (EGO) -$0.04 (1.43%) to $2.75;
  • Agnico Eagle (AEM) -$0.16 (1.28%) to $12.37;
  • Harmony Gold (HMY) -$0.09 (1.05%) to $8.52; and
  • Meridian Gold (MDG) -$0.17 (0.96%) to $17.51.

Silver rose $0.05 (0.65%) to close at $7.01 per ounce. The Gold and Silver Index (XAU) gained 0.01 points (0.01%), to 92.17 points.

  • Durban Rooderpoert Deep (DROOY) +$0.03 (3.09%) to $1.00;
  • Freeport McMoran (FCX) +$0.59 (1.54%) to $38.81;
  • Placer Dome (PDG) +$0.10 (0.65%) to $15.39; and
  • Gold Fields (GFI) -$0.00 (0%) to $11.32.
Precious Metals and Indices
PHLX Gold and Silver Index92.170.010.01%
AMEX Gold BUGS Index199.88-0.34-0.17%

Oil Market

Oil lost ground, shedding $1.02 per barrel, closing at $59.63 per barrel.

It doesn't matter now whether readers are prepared to credit yesterday's entry of the $61.50 to $57.45 into the Rant Record (I still think it was a perfectly valid thing to do), since now the $51.50 level can be seen as today's entry.  I will run two versions of history for this trade: one where the trade was executed based on my 'pop and drop' outline as reiterated yesterday (with a half-lot being closed with 100% profit and the rest still riding), and one where that trade was missed but the entry was made today at $51.50 (the entry I spoke about yesterday).

Either way, the trade has gained just under $2k (50%) per per contract: under scenario 1, the first half gained over $4000 and the second half is up just under $2000. Under scenario 2 both halves were only implemented today and both halves are up 13 ticks short of $2000.

Hell, even using the $51.37 number that I postulated a week ago for the likely swing high would have worked a treat (but you would have been sweating a bit yesterday and today).

Point is, I advocated a swing top in oil to the day. I wrote about it in boring detail. Short answer: I'm pretty neat.

The Oil and Gas Index (XOI) shed 1.82 points (0.2%), ending the day at 927.44

  • Amerada Hess (AHC) -$1.74 (1.52%) to $112.52;
  • Kerr Mcgee (KMG) -$1.03 (1.3%) to $78.37; and
  • Occidental Petroleum (OXY) -$0.79 (0.97%) to $81.00.

The Oil service stocks (OSX) Index slid 1.25 points (0.83%), closing at 149.39

  • Transocean (RIG) -$1.00 (1.79%) to $54.96;
  • Baker Hughes (BHI) -$0.75 (1.41%) to $52.39; and
  • National Oilwells/Varco (NOV) -$0.63 (1.31%) to $47.44.
Energy Complex
Reuters CRB312.45-2.46-0.78%
Crude Oil Light Sweet59.63-1.02-1.68%
Heating Oil1.7181-0.05-2.82%
Natural Gas7.4720.070.97%
Unleaded Gas1.7634-0.04-2.3%
AMEX Oil Index927.44-1.82-0.2%
Oil Service Index149.39-1.25-0.83%

Currency Markets

USD Exchange Rates
US Dollar Index90.25-0.03-0.03%
Australian Dollar0.74180.00220.3%
Swiss Franc1.29970.00160.12%
Canadian Dollar0.82040.00610.75%