Interdum stultus opportuna loquitur...

Tuesday, August 16, 2005

USRant: Don't Snap My Undies...

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Sometimes it's obvious that a trade signal is going to bite you on the bum; anyone who read my post at 12:45 Oz time could see that I had significant "sweaty palms" about the buy divergence that emerged on the Dow (and S&P) charts. Still, it was there, and sweaty palms are not part of a sensible 'fade' trader's strategy. The entire 'fade' paradigm centers on doing the opposite of what the masses are doing (hopefully at well-chosen points, when a trend is stale) - the fact that your bones tell you that the setup 'feels wrong' is not an excuse to pike: in fact, the more wrong it feels, the more likely you are to have picked a sentiment extreme.

I've mentioned in the past that my approach starts with a weekly chart. The weekly has been overbought since the week after the London bombings, and the break to new highs two weeks ago was accompanied by a CCI divergence - all solid evidence in favour of a bearish medium-term bias. Check out the (annotated) chart...

S&P Weekly Chart

(Click for larger image)

During an uptrend, the buy side gets the benefit of the doubt - until a long-timescale sell divergence shows up (the chart points labelled "SD"), at which point the shorter-term bias (daily and hourly) should move to a selling bias. 

That doesn't mean you never take a long trade - it just means that daily- and hourly-based shorts have a lower 'burden of proof' (for example, can be based on %R alone), while longs require a divergence as well as %R oversold.

That didn't help last night - there were three divergences during the session, none of which 'worked'. I am tempted to add "yet" here - don't be surprised if, during the next couple of sessions, the market gets above the first divergence based long entry point  (1226 on the cash S&P). Look at Citigroup in the main body, and you will see that  the most manipulated stock in the world defied gravity, and defied it like billy-o.

Check out that intraday futures chart (just to make sure that it wasn't the cash index biasing last night's analysis):

S&P 15-minute Chart

(Click for larger image)

Three - count 'em, three - divergences that didn't work (well, they 'worked', but not for more than a point each - and if the maximum positive divergence is a point, there's a very good chance that even the nimblest traders end up with zero - or a loss - from the trade). Heu!

Expect a bounce tomorrow. (I know - easy to say: but like I said, the probability of being able to close any of those three divergences with a gain is close to 100%).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $2billion, overnight repurchase entirely in T-backed collateral undertaken at a 6 basis point discount to the Fed Funds Rate (FFR). 

The feeble repurchase was actually strike 2 (strike one was the uptick in headline inflation - at 0.5% for the month compared to 0.4% expected). Strike 3 was Industrial Production figures that showed an increase in IP of just 0.1% (consensus was for 0.5%) and capacity utilisation of 79.7 (consensus was for 80.3).

Major US Indices

The Dow Jones Industrial Average opened weak, and just got worse. By the close it had lost 120.93 points (1.14%), closing out the day at 10513.45 points. The index hit an intraday high of 10640.27 at the open, and fell as low as 10510.34 (10500-ish). Depending on whose datafeed you take, the low was either set about 30 seconds before the close, or 20 minutes before the close (the difference between the immediate pre-close number and the 3:40 low was 0.5 Dow points). I will opt to view the 3:59:30 number as the low - bringing it into line with the other major indices, which all closed at their session lows.

Within the blue-chip index, 4 stocks rose, the biggest gainers being Citigroup (C, +0.80% to $44.14) and Altria Group (MO, +0.52% to $67.37), which accounted for 6 Dow points between them. Losers in the Dow numbered 26 and were led by Wal Mart (WMT, -3.12% to $47.57) and Caterpillar (CAT, -2.84% to $53.69), with these two stocks contributing -25 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 298.4m shares to 41.6m.

The broader S&P500 declined 14.53 points (1.18%) to close at 1219.34. Within the index, gainers numbered 47, while 443 S&P500 stocks fell for the day. Volume was tilted 5.7:1 in favour of the losers with 1352.27 million units traded in the losers as compared with 237.99 million traded in the winners. The index's low was set at the closing bell.

Over at Times Square, the Nasdaq Composite dipped 29.98 points (1.38%), to close at 2137.06, while larger-cap technology issues fared worse with the Nasdaq100 losing 26.7 points (1.67%), to end at 1574.01 points. Within the tech benchmark, gainers numbered 8, while 88 Nasdaq100 stocks fell for the day. Volume was tilted 5.6:1 in favour of the losers with 512.83 million traded in the losers compared to 91.09 million in the winners.

NYSE Volume was super-chunky, with 1.8 billion shares changing hands, while Nasdaq Volume was about average, with 1.54 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10513.45-120.93-1.14%
Nasdaq Composite2137.06-29.98-1.38%
NYSE Volume1.8bn--
Nasdaq Volume1.54bn--


My 9-stock "bellwethers" group fell by an average of 1.17%

  • General Electric (GE) -$0.33 (0.96%) to $33.88;
  • Citigroup (C) +$0.35 (0.8%) to $44.14;
  • Wal Mart (WMT) -$1.53 (3.12%) to $47.57;
  • I.B.M. (IBM) -$1.20 (1.45%) to $81.30;
  • Intel (INTC) -$0.53 (2%) to $26.00;
  • Cisco Systems (CSCO) -$0.08 (0.45%) to $17.63;
  • eBay (EBAY) -$0.85 (2.06%) to $40.38;
  • Fannie Mae (FNM) -$0.35 (0.69%) to $50.25; and
  • Freddie Mac (FRE) -$0.37 (0.6%) to $61.00.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2316 to 981, for a single-day A/D reading of -1335; and Nasdaq losers exceeded gainers by 2212 to 816. The 10-day moving average of the A/D line fell to -173.7 on the NYSE, while the 10dma of the Nasdaq A/D fell to -330.7.

On the NYSE declining volume was greater than volume in advancing issues by 1495.4 to 296.9 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1098.7 to 394.9 million shares.

60 NYSE-listed stocks rose to new 52-week highs, and 27 posted fresh 52-week lows, while on the Nasdaq there were 64 stocks that hit new 52-week highs, and 44 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)296.93394.9
Declining Volume (m)1495.381098.66
New Highs6064
New Lows2744

Market Sentiment Statistics
CBOE Volatility Index13.521.2910.55%
CBOE Nasdaq Volatility Index16.21.167.71%
Equity Put-Call Ratio0.950.3866.67%
10-day PCR0.6100%
SPX-VIX Ratio90.2-10.7-10.61%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 4.0 bps to 4.433%. the 30-year bond future rose to  above 116 - coinciding nicely with my declaration a week ago that bonds ought to provide a significantly higher re-entry (for a short position) after a bounce - that was back when I declared that the bonds were getting dull (at just under 114).

The middle of the yield curve was broadly higher in price: five year yields fell to 4.096%, and ten-year yields fell to 4.227%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were unchanged at -6.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 49.0 bps for 10-year AAA, and 81.5 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 4.0 bps tighter at 32.0 basis points and the 10-year AAA-A spread 2.0 bps tighter at 4.0 bps.

Treasury Yields
UST 13wk (yld)3.45200%
UST 2Y (yld)3.99-0.05-1.24%
UST 5Y (yld)4.096-0.049-1.18%
UST 10Y (yld)4.227-0.043-1.01%
UST 30Y (yld)4.433-0.04-0.89%

The Banks Index dipped 0.54 points (0.54%), to end the session at 99.1; within the index,

  • North Fork Bancorp (NFB) -$0.57 (2.03%) to $27.48;
  • Northern Trust (NTRS) -$0.94 (1.88%) to $49.13;
  • Zions Bancorp (ZION) -$1.27 (1.77%) to $70.60;
  • Golden West Financial (GDW) -$1.13 (1.75%) to $63.48; and
  • PNC Financial Services (PNC) -$0.89 (1.55%) to $56.43.

The Broker-dealer Index dipped 1.87 points (1.09%), at 170.11; the ticket clippers lined up as follows -

  • Goldman Sachs (GS) -$2.59 (2.26%) to $112.08;
  • A G Edwards (AGE) -$0.99 (2.19%) to $44.21;
  • Lehman Brothers (LEH) -$2.11 (2.01%) to $103.03;
  • Legg Mason (LM) -$1.61 (1.49%) to $106.69; and
  • Bear Stearns (BSC) -$1.35 (1.33%) to $100.30.

The Philadelphia SOX (Semiconductor) index lost 9.56 points (2.04%), ending the day at 458.2

  • Teradyne (TER) -$0.72 (4.55%) to $15.09;
  • Infineon Tech (IFX) -$0.26 (2.71%) to $9.33;
  • Applied Materials (AMAT) -$0.47 (2.66%) to $17.17;
  • Advanced Micro Devices (AMD) -$0.55 (2.64%) to $20.30; and
  • Marvell Tech Group (MRVL) -$1.18 (2.62%) to $43.88.

Gold & Silver Markets

Gold rose $3.90 (0.88%) to close at $448.30 per ounce. Gold bulls are getting cocky again. $450 looks like K2.

Gold Bugs Index added 0.01 points (as near to 0% as makes no odds), to 215.73

  • Kinross Gold (KGC) +$0.25 (3.83%) to $6.77;
  • Iamgold (IAG) +$0.12 (1.69%) to $7.22;
  • Eldorado Gold (EGO) +$0.05 (1.58%) to $3.22;
  • Meridian Gold (MDG) +$0.27 (1.36%) to $20.19; and
  • Harmony Gold (HMY) +$0.09 (1.02%) to $8.88.

Silver rose $0.003 (0.04%) to close at $7.04 per ounce. The Gold and Silver Index (XAU) lost 0.25 points (0.25%), closing at 98.79 points.

  • Goldcorp (GG) -$0.32 (1.79%) to $17.60;
  • Freeport McMoran (FCX) -$0.76 (1.76%) to $42.54;
  • Agnico Eagle (AEM) -$0.13 (0.97%) to $13.34; and
  • Barrick Gold (ABX) -$0.26 (0.96%) to $26.82.
Precious Metals and Indices
PHLX Gold and Silver Index98.79-0.25-0.25%
AMEX Gold BUGS Index215.730.010%

Oil Market

Oil lost ground, shedding $0.12 per barrel, closing at $66.08 per barrel (yet again, it got down to the mid-$65s - the session low was $65.65). The mid-morning high at $66.80 occurred on a massive CCI reading of >300, and a weensy 'microdivergence', but unless you already had a shorting bias (as all Rant-ites ought to have had) it would require balls of ice to have dived short.

The Oil and Gas Index (XOI) lost 19.01 points (1.91%), ending the day at 977.46

  • ConocoPhillips (COP) -$1.76 (2.67%) to $64.08;
  • Occidental Petroleum (OXY) -$1.86 (2.25%) to $80.71; and
  • Exxon Mobil (XOM) -$1.35 (2.23%) to $59.07.

The Oil service stocks (OSX) Index declined 2.71 points (1.63%), closing at 163.34

  • Rowan Companies (RDC) -$0.96 (2.71%) to $34.52;
  • Global Industries (GLBL) -$0.30 (2.64%) to $11.05; and
  • Transocean (RIG) -$1.36 (2.35%) to $56.41.
Energy Complex
Reuters CRB312.070.40.13%
Crude Oil Light Sweet66.08-0.12-0.18%
Heating Oil1.864-0.03-1.7%
Natural Gas9.7520.212.22%
Unleaded Gas1.98360.021.1%
AMEX Oil Index977.46-19.01-1.91%
Oil Service Index163.34-2.71-1.63%

Currency Markets

USD Exchange Rates
US Dollar Index87.390.070.08%
Australian Dollar0.76940.00050.07%
Swiss Franc1.2544-0.0009-0.07%
Canadian Dollar0.83430.00080.1%