Interdum stultus opportuna loquitur...

Monday, July 11, 2005

USRant: One Tick for 10500...

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Hurricane Dennis didn't hit any rigs in the Gulf of Mexico; that's about the extent of the genuine good news. Apart from that (and its concomitant effect on oil prices) the only thing holding the market up is hope and Fed repurchase, to which the market is now addicted. While the Fed Funds rate is notionally 3.25%, the repo market is getting given buckets of money every day, at rates up to 8 basis points lower than Fed Funds.

Everything else isn't going so swimmingly, you see - Iraq and Afghanistan are on the boil, global terrorism should be ramping up the investment risk premium, the US economy is in the doldrums (even based on the Soviet-style figures produced by the US Politburo), and the cycle of real wage declines for the bulk of US workers (which has been in place since the Nixon era) can't continue without widespread dissatisfaction.

When the system is tilted in such a way that the incomes of the majority of an economy's working schlubs are providing consistently lower aggregate standards of living, there is only one end game. It arrives when the schlubs in question are unable to 'grow their lifestyle' (at present, and for the last 20 years, that lifestyle growth has been sourced from credit markets). The end-game in question is social disintegration. It could be argued that since many low-income areas in major US cities are already basically semi-chaotic, that the disintermediation of a large chunk of the poor has already happened; they are already outside of official labour markets, they are not participants in the highly-corrupt electoral process.

So the question arises: if the system is so manifestly failing the great bulk of the population, why hasn't there been an endogenous upheaval of the kind written about by the Founding Fathers thus:

"That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness....when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security."

There can be little question that the government of the United States (and of most Western party democracies, for that matter) transformed in the post-war period into edifices whose effects on the polity has been largely malignant; increasingly it is impossible to differentiate between the Party politics of a modern 'democracy' and the Party functions of the Soviet Union. For example, at any given election in the US, there is less than a 2% turnover of positions; in the Politburo there was never a turnover lower than 7%. "They hate us for our freedoms", supposedly, in a society where almost 3% of the population is incarcerated (the highest figure on the planet, and the highest in any nation since WWII), and one in three black males serve jail time before they turn 30.

So why no upheaval (yet)? Simple: upheavals never happen endogenously from within 'the masses'. they happen when the disenchantment reaches the upper third of the middle class (people like Lenin and Trotsky, Mao, Pol Pot - all of whom were "university types"). Even the Founding Fathers - whose work still represents one of the most daring intellectual projects in history - were largely motivated by a desire to protect their own (large) economic interests, using the language required to co-opt a larger movement (and, it should be said, taking advantage of the backdrop of existing small-scale rebellions in the early 1770s which had created a de facto Independence already in some areas).

I've let this be known prior to today; I view the future course of humanity as currently sitting on an unstable manifold; proper resourcing of the 'Big Two' will result in humanity achieving a quantum leap in our existence, while a persistence of the status quo may well see us wiping ourselves out (probably through 'genotype' weapons).

Anyhow... on to the markets. This week is a reasonably big one, since it is the week in which several large and popular companies report earnings (aggregate S&P earnings are expected to show slower growth this quarter - around 7% - but accounting gimmicks will push the reported growth to about 9.5% in my reckoning... partly due to pension gimmickry).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7billion, overnight repurchase entirely in T-backed collateral. the repurchase was performed at a 7 basis point discount to Fed Funds.

So it's Monday, nothing blew up over the weekend (except in Iraq and Afghanistan of course - who gives a shit if some Eye-rackie civilians get torched by the Bringers of Freedom®), Hurricane Dennis is only going to smash up people's houses (not important stuff like oil derricks), and da Boyz get handed $7bill in shiny credits with 7 basis points of guaranteed carry.

Sounds like a plan, to me.

Major US Indices

The Dow Jones Industrial Average gained 70.58 points (0.68%), closing out the day at 10519.72 points. Tick off day 1 of closes above 10500. Another close above that level tomorrow and the market could get some real traction.

The index hit an intraday high of 10534.22 just after 11:15 a.m., after opening at its low (10449.6). From there the Dow retraced back to (and below) 10500 until a closing bump above that level in the last half-hour. All things considered, the first hour looks like nuffnuff follow through from Friday's short squeeze; if it wasn't for that 10500 level, I would call a short on any 'pop' tomorrow morning.

Within the blue-chip index, 22 stocks rose, the biggest gainers being General Motors (GM, +3.23% to $35.80) and Alcoa (AA, +1.80% to $27.69), which accounted for 12 Dow points between them. Losers in the Dow numbered 8 and were led by Citigroup (C, -0.86% to $46.11 - notice how it still hasn't moved) and Hewlett Packard (HPQ, -0.62% to $24.13), with these two stocks contributing -4 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 251.5m shares to 79.5m.

The broader S&P500 gained 7.58 points (0.63%), to 1219.44. Within the index, gainers numbered 392, while 102 S&P500 stocks fell for the day. Volume was tilted 4.8:1 in favour of the winners with 1375.79 million units traded in the winners as compared with 286.84 million traded in the losers .

Over at Times Square, the Nasdaq Composite posted a rise of 22.55 points (1.07%), to close at 2135.43, while larger-cap technology issues fared worse with the Nasdaq100 adding 14.39 points (0.94%), to end at 1547.66 points. Within the tech benchmark, gainers numbered 76, while 23 Nasdaq100 stocks fell for the day. Volume was tilted 8.7:1 in favour of the winners with 638.36 million traded in the winners compared to 73.50 million in the losers .

NYSE Volume was super-chunky, with 1.81 billion shares changing hands, while Nasdaq Volume was chunky, with 1.77 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10519.7270.580.68%
Nasdaq Composite2135.4322.551.07%
NYSE Volume1.81bn--
Nasdaq Volume1.77bn--


My 9-stock "bellwethers" group rose by an average of 0.54%; notice that Citigroup isn't participating in this rally, and IBM is likewise softer than the rest. Smart money isn't buying into this...

  • General Electric (GE) +$0.12 (0.34%) to $35.11;
  • Citigroup (C) -$0.40 (0.86%) to $46.11;
  • Wal Mart (WMT) -$0.10 (0.2%) to $49.80;
  • I.B.M. (IBM) -$0.34 (0.43%) to $78.96;
  • Intel (INTC) +$0.42 (1.54%) to $27.70;
  • Cisco Systems (CSCO) +$0.23 (1.19%) to $19.54;
  • eBay (EBAY) +$1.05 (3.04%) to $35.55;
  • Fannie Mae (FNM) +$0.09 (0.15%) to $59.06; and
  • Freddie Mac (FRE) +$0.03 (0.05%) to $66.13.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2372 to 942 for a single-day A/D reading of 1430; crazy, but it's Monday, nothing blew up, yada yada yada. Nasdaq gainers trumped losers by 2143 to 922. The 10-day moving average of the A/D line rose to 691.5 on the NYSE, while the 10dma of the Nasdaq A/D rose to 478.9.

NYSE advancing volume exceeded volume in decliners by 1407.1 to 390.8 million shares; Nasdaq advancing volume was greater than volume in decliners by 1437 to 275.2 million shares.

502 NYSE-listed stocks rose to new 52-week highs, and 19 posted fresh 52-week lows, while on the Nasdaq there were 266 stocks that hit new 52-week highs, and 17 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1407.11437
Declining Volume (m)390.75275.15
New Highs502266
New Lows1917

Market Sentiment Statistics
CBOE Volatility Index11.28-0.17-1.48%
CBOE Nasdaq Volatility Index13.57-0.23-1.67%
Equity Put-Call Ratio0.670.2559.52%
10-day PCR0.56-0.02-3.45%
SPX-VIX Ratio108.12.272.14%

Bond Market Analysis

Bonds rose slightly at the long end, with the yield on the benchmark 30-year Treasury bond shedding 1.9 bps to 4.342%. I doubt that there's any fixed-income spike in the offing - in all likelihood the next bond short will take place below our last exit (118-24/32). Savvy traders will still be shorting any intraday overbought, and will be making out like bandits.

The middle of the yield curve was mixed: five year yields rose to 3.901%, and ten-year yields fell to 4.102%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 0.0 bps tighter 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 81.0 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 7.0 bps looser at 39.0 basis points and the 10-year AAA-A spread 1 tick tighter at 14.0 bps.

Treasury Yields
UST 13wk (yld)3.09500%
UST 2Y (yld)3.780.030.8%
UST 5Y (yld)3.9010.0020.05%
UST 10Y (yld)4.102-0.007-0.17%
UST 30Y (yld)4.342-0.019-0.44%

The Banks Index rose 0.47 points (0.47%), at 100.08 (a close above 100 - interesting); within the index,

  • National City Corp (NCC) +$0.49 (1.41%) to $35.22;
  • Northern Trust (NTRS) +$0.65 (1.39%) to $47.49;
  • Mellon Financial (MEL) +$0.36 (1.24%) to $29.35;
  • Fifth Third Bancorp (FITB) +$0.52 (1.23%) to $42.75; and
  • Keycorp (KEY) +$0.41 (1.23%) to $33.78.

The Broker-dealer Index added 1.04 points (0.63%), at 167.22; the ticket clippers lined up as follows -

  • Raymond James (RJF) +$1.02 (3.41%) to $30.97;
  • Goldman Sachs (GS) +$1.66 (1.57%) to $107.31;
  • Lehman Brothers (LEH) +$1.43 (1.42%) to $102.15;
  • Ameritrade (AMTD) +$0.23 (1.23%) to $18.91; and
  • A G Edwards (AGE) +$0.54 (1.17%) to $46.66.

The Philadelphia SOX (Semiconductor) index gained 8.85 points (2%), ending the day at 451.6

  • Teradyne (TER) +$0.67 (5.26%) to $13.41;
  • Maxim Integrated (MXIM) +$1.65 (4.16%) to $41.28;
  • ST Microelectronic (STM) +$0.63 (3.81%) to $17.15;
  • Applied Materials (AMAT) +$0.54 (3.24%) to $17.20; and
  • Taiwan Semiconductors (TSM) +$0.28 (3.15%) to $9.18.

Gold & Silver Markets

Gold rose $2.30 (0.54%) to close at $426.70 per ounce. Gold traders are watching the USD like hawks now - sniffing out any signs of weakness. With the USD dipping below 90 again (recall my discussion last week about how the USD was close to a time-based reversal), Gold traders are starting to get itchy feet.

Problem - when da Boyz know that there are some people looking to get long, they (da Boyz) get as excited as George the Turd PUS gets when he hears that gay hooker Jeff Gannon is having another White House sleepover.

Da Boyz love the idea of a ready-made set of fluffy nuffnuffs lining up to jump long Gold... it means that da Boyz will be able to generate some stop-running, and take some money off them. It's not 'manipulation' as such - it's just the way the market works.

Notice though, that the move in Gold was not as large in percentage terms as the move in USD... at least that means there's some caution.

Gold Bugs Index gained 5.13 points (2.57%), to 205.01

  • Coeur d'Alene (CDE) +$0.21 (5.97%) to $3.73;
  • Randgold Resources (GOLD) +$0.66 (4.88%) to $14.18;
  • Harmony Gold (HMY) +$0.36 (4.23%) to $8.88;
  • Kinross Gold (KGC) +$0.21 (3.43%) to $6.34; and
  • Golden Star (GSS) +$0.09 (2.93%) to $3.16.

Silver rose $0.08 (1.07%) to close at $7.08 per ounce. The Gold and Silver Index (XAU) gained 1.92 points (2.08%), at 94.09 points.

  • Durban Rooderpoert Deep (DROOY) +$0.07 (7%) to $1.07;
  • Harmony Gold (HMY) +$0.36 (4.23%) to $8.88;
  • Kinross Gold (KGC) +$0.21 (3.43%) to $6.34; and
  • Gold Fields (GFI) +$0.33 (2.92%) to $11.65.
Precious Metals and Indices
PHLX Gold and Silver Index94.091.922.08%
AMEX Gold BUGS Index205.015.132.57%

Oil Market

Oil lost ground, shedding $0.38 per barrel, closing at $59.25 per barrel. In the early going, front-month Crude dropped to a low of $58.02, at which the oil short I advocated last week was up a grand total of $3480 per $4050 margin. That's the second bite of the juiciest cherry you ever saw, but a $1.25 intraday reversal indicates that someone's not happy about such a quick move downwards in oil. Personally, if it was me I would just take the money and run about now; there's nothing except technicals driving the oil short, and although the market could easily drop another $4 without damaging the overall uptrend, it's quite unlikely unless peace breaks out globally (which is impossible since defence contractors are the second-largest providers of graft to US politicians).

The Oil and Gas Index (XOI) advanced 2.88 points (0.31%), to end the session at 930.32

  • ConocoPhillips (COP) +$0.67 (1.11%) to $60.91;
  • Repsol YPF (REP) +$0.28 (1.03%) to $27.40; and
  • Exxon Mobil (XOM) +$0.57 (0.96%) to $59.97.

The Oil service stocks (OSX) Index added 1.95 points (1.31%), to end the session at 151.34

  • BJ Services (BJS) +$1.38 (2.56%) to $55.23;
  • Transocean (RIG) +$1.09 (1.98%) to $56.05; and
  • GlobalSantaFe (GSF) +$0.77 (1.87%) to $42.05.
Energy Complex
Reuters CRB312.38-0.07-0.02%
Crude Oil Light Sweet59.25-0.38-0.64%
Heating Oil1.6898-0.03-1.65%
Natural Gas7.590.121.58%
Unleaded Gas1.736-0.03-1.55%
AMEX Oil Index930.322.880.31%
Oil Service Index151.341.951.31%

Currency Markets

USD Exchange Rates
US Dollar Index89.53-0.72-0.8%
Australian Dollar0.74750.00570.77%
Swiss Franc1.2874-0.0123-0.95%
Canadian Dollar0.82140.0010.12%