Interdum stultus opportuna loquitur...

Tuesday, August 30, 2005

USRant: Hurricanes Are All Wind...

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

Well, now you know why I'm a contrarian. Or at least you should - if you need further convincing as to the merits of the contrarian paradigm (on all timescales) take a look at a chart of oil prices. The worst hurricane in the history of the US, threatening oil terminals, causing about a million people to be evacuated from the southern coasts... and the primary intraday trend in the oil market is down.

Why is that? You might ask. 

Simply, put, it's because every jackass 'news trader' on the planet jumped long oil on the news - during the thin-as-DavNet's-business-plan Sunday ACCESS trading session. And yet if you were smart enough to be watching the Commitment of Traders reports over the last couple of weeks, you would have noticed that 'smart money' - large speculators - was absolutely slashing its net long position and increasing its outright short positions. That means that the DBR (Dumb Bull Ratio) was climbing; if you don't believe me, check out the RantCoTCharts. The top graphic on the resulting pages is the Dumb Bull Ratio (DBR) - the ratio of non-reportable long positions to non-reportable short positions. The bottom graphic is the raio of Dumb Bulls to Total Open Interest (DB%OI). The Dumb Bull Ratio has increased by 10% since May... in other words, for the last couple of months the lunatics have been driving the bus.

Later today  - after the OzRant, perhaps - I will 'unlock' a page from the subscription site; a stock-specific piece on an oil major that was done over the weekend at a subscriber's request. The very last sentence in it goes like this:

Crude Oil is well-overdue a significant pullback, at which time an awful lot of 'hot money' will leave the Energy sector. We will present the case for a significant pullback in Oil later in the week (by which time the pullback should already be underway).

To be frank, I didn't even mention the hurricane in the oil-stock piece; let others trade 'news' (and get towelled).

Federal Reserve Open Market Operations

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

  • a $6.25billion, overnight repurchase entirely in T-backed collateral undertaken at a 6.5 basis point premium to the Fed Funds Rate (FFR); and
  • a $6.5billion, 4-day repurchase with $3.322billion in T-backed collateral undertaken at a 3.5 basis point premium to the FFR.

Major US Indices

The schlubs who jumped short equity indices (again, during the very thin Sunday Globex market) in response to the hurricane news, were as dumb as those who dived long Crude at the same time. They would've felt like geniuses for almost ten whole minutes (since the high in oil, and the low in the stock futures, were set seven minutes after the start of Sunday trade) .

Seriously... are these folks 'learning impaired'? Or 'developmentally challenged'? (I'm not sure what the current NewSpeak term is for 'retard'... times where that a retard was a retard, a cripple was a cripple, and so forth - now we have ads telling us that they're just like us, only... not so much: someone's got too much money)

In defence of those who took the exact wrong side of the 'hurricane trade' (the same types who I suspect took the wrong side of the 911 trade, the Bali Bombing trade, the London bombing trade, and so on)... maybe they were nimble of foot and took profits really quickly - but I doubt it.

Anyhow - let it be known that the indices staged a massive reversal. The Dow Jones Industrial Average futures were down at 10327 (10325-ish) during the overnight downdraught, and reversed up over 150 points (151, actually), cosing at their high tick.

Th 'cash' Dow dipped at the open (to 10349.37... 10350-ish), and then drove upward for almost the entire session , eventually finishing with an advance of 65.76 points (0.63%), closing out the day at 10463.05 points. The index hit an intraday high of 10487.5 at 3:05 p.m., at the same time as it registered a perfect selling divergence (I don't have time today to put up the chart). 

Within the blue-chip index, 24 stocks rose, the biggest gainers being Boeing (BA, +1.92% to $67.58) and Home Depot (HD, +1.83% to $40.54), which accounted for 16 Dow points between them. Losers in the Dow numbered 6 and were led by Hewlett Packard (HPQ, -1.18% to $26.69) and Mcdonalds (MCD, -0.93% to $33.17), with these two stocks contributing -5 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 258.3m shares to 43m.

The broader S&P500 rose 7.18 points (0.6%), to 1212.28. Within the index, gainers numbered 359, while 124 S&P500 stocks fell for the day. Volume was tilted 3.4:1 in favour of the winners with 1023.23 million units traded in the winners as compared with 300.26 million traded in the losers. The S&P futures had a 20-point intraday reversal, from 1194 to 1215.75... in other words, everyone who jumped short on Sunday night, got their balls stuck in a vice during the session: a classic short squeeze.

Over at Times Square, the Nasdaq Composite gained 16.88 points (0.8%), to close at 2137.65, while larger-cap technology issues fared better with the Nasdaq100 adding 12.68 points (0.81%), to end at 1571.52 points. Within the tech benchmark, gainers numbered 81, while 15 Nasdaq100 stocks fell for the day. Volume was tilted 7.2:1 in favour of the winners with 432.71 million traded in the winners compared to 59.86 million in the losers .

NYSE Volume was pretty solid, with 1.6 billion shares changing hands, while Nasdaq Volume was modest, with 1.27 billion shares trade. More evidence that the move up was a squeeze and not the result of genuine buying.

Major Market Statistics
Dow Jones Industrial Average10463.0565.760.63%
Nasdaq Composite2137.6516.880.8%
NYSE Volume1.6bn--
Nasdaq Volume1.27bn--


My 9-stock "bellwethers" group rose by an average of 0.94%

  • General Electric (GE) +$0.22 (0.66%) to $33.60;
  • Citigroup (C) +$0.44 (1.02%) to $43.54;
  • Wal Mart (WMT) -$0.05 (0.11%) to $45.65;
  • I.B.M. (IBM) +$0.96 (1.19%) to $81.34;
  • Intel (INTC) +$0.32 (1.26%) to $25.73;
  • Cisco Systems (CSCO) +$0.24 (1.38%) to $17.64;
  • eBay (EBAY) +$0.50 (1.28%) to $39.47;
  • Fannie Mae (FNM) +$0.39 (0.77%) to $50.80; and
  • Freddie Mac (FRE) +$0.57 (0.96%) to $60.18.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2052 to 1189 for a single-day A/D reading of 863; Nasdaq gainers trumped losers by 1765 to 1235. The 10-day moving average of the A/D line rose to -24.6 on the NYSE, while the 10dma of the Nasdaq A/D rose to -136.3.

NYSE advancing volume exceeded volume in decliners by 1072 to 489.4 million shares; Nasdaq advancing volume was greater than volume in decliners by 956.9 to 282.3 million shares.

84 NYSE-listed stocks rose to new 52-week highs, and 53 posted fresh 52-week lows, while on the Nasdaq there were 55 stocks that hit new 52-week highs, and 49 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1072956.85
Declining Volume (m)489.38282.31
New Highs8455
New Lows5349

Market Sentiment Statistics
CBOE Volatility Index13.52-0.2-1.46%
CBOE Nasdaq Volatility Index15.3-0.07-0.46%
Equity Put-Call Ratio0.81-0.18-18.18%
10-day PCR0.6300%
SPX-VIX Ratio89.71.832.08%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 1.7 bps to 4.364%.

The middle of the yield curve was broadly higher in price: five year yields fell to 4.078%, and ten-year yields fell to 4.173%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 6.0 bps wider at -2.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 57.0 bps for 10-year AAA, and 93.5 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 1.0 bps looser at 33.0 basis points and the 10-year AAA-A spread 4.0 bps tighter at -2.0 bps.

Treasury Yields
UST 13wk (yld)3.48500%
UST 2Y (yld)4.04-0.01-0.25%
UST 5Y (yld)4.078-0.006-0.15%
UST 10Y (yld)4.173-0.016-0.38%
UST 30Y (yld)4.364-0.017-0.39%

The Banks Index rose 0.73 points (0.75%), closing at 97.87; within the index,

  • National City Corp (NCC) +$0.76 (2.15%) to $36.14;
  • Washington Mutual (WM) +$0.61 (1.5%) to $41.36;
  • Bank Of America (BAC) +$0.52 (1.21%) to $43.36;
  • MBNA Corp (KRB) +$0.30 (1.21%) to $25.18; and
  • Wachovia (WB) +$0.55 (1.12%) to $49.59.

The Broker-dealer Index added 0.53 points (0.32%), to 168.06; the ticket clippers lined up as follows -

  • A G Edwards (AGE) +$1.01 (2.31%) to $44.65;
  • Raymond James (RJF) +$0.47 (1.59%) to $29.99;
  • Merrill Lynch (MER) +$0.35 (0.61%) to $57.46;
  • Bear Stearns (BSC) +$0.51 (0.51%) to $100.24; and
  • Ameritrade (AMTD) +$0.10 (0.5%) to $20.11.

The Philadelphia SOX (Semiconductor) index gained 6.23 points (1.34%), at 470.25

  • Teradyne (TER) +$0.47 (2.91%) to $16.62;
  • Xilinx (XLNX) +$0.70 (2.61%) to $27.57;
  • Marvell Tech Group (MRVL) +$1.05 (2.31%) to $46.41;
  • Broadcom (BRCM) +$0.88 (2.1%) to $42.72; and
  • KLA-Tencor (KLAC) +$1.02 (2.09%) to $49.92.

Gold & Silver Markets

Gold fell by $0.70 (0.16%) to close at $438.30 per ounce. It spiked up to the mid $441's while all the hurricane-related stupidity was happening, but really it's got no momentum at the moment (because the USD is trying to decide whether to go on one last suicidal surge upwards).

The Gold Bugs Index dipped 0.52 points (0.26%), closing at 202.97

  • Eldorado Gold (EGO) -$0.49 (13.8%) to $3.06;
  • Hecla Mining (HL) -$0.06 (1.7%) to $3.47;
  • Coeur d'Alene (CDE) -$0.04 (1.13%) to $3.50;
  • Kinross Gold (KGC) -$0.07 (1.1%) to $6.29; and
  • Iamgold (IAG) -$0.06 (0.86%) to $6.90.

Silver fell by $0.01 (0.18%) to close at $6.73 per ounce. The Gold and Silver Index (XAU) gained 0.68 points (0.72%), ending the day at 94.55 points.

  • Freeport McMoran (FCX) +$0.95 (2.38%) to $40.80;
  • Durban Rooderpoert Deep (DROOY) +$0.02 (1.98%) to $1.03;
  • Gold Fields (GFI) +$0.16 (1.47%) to $11.05; and
  • Placer Dome (PDG) +$0.18 (1.27%) to $14.35.
Precious Metals and Indices
PHLX Gold and Silver Index94.550.680.72%
AMEX Gold BUGS Index202.97-0.52-0.26%

Oil Market

If you looked at the closing print, you might think Oil was firmer, since on a close-to-close basis it rose $1.07 per barrel, closing at $67.20 per barrel. I would urge you to look at an intraday chart, and notice that there was a $4 pullback in crude from the ACCESS high - in other words, all that happened was a bunch of people who have no idea, were permitted to drive the price upward... meaning that the smart money is positioning short

Oil is now set for a significant pullback - probably lasting two or three months.

The Oil and Gas Index (XOI) gained 11.01 points (1.15%), to 966.38

  • Sunoco (SUN) +$1.66 (2.62%) to $64.95;
  • Amerada Hess (AHC) +$2.79 (2.29%) to $124.89; and
  • Occidental Petroleum (OXY) +$1.66 (2.12%) to $79.83.

The Oil service stocks (OSX) Index rose 1.28 points (0.79%), to 162.71

  • Global Industries (GLBL) +$1.38 (12.97%) to $12.02;
  • Rowan Companies (RDC) +$0.88 (2.57%) to $35.09; and
  • BJ Services (BJS) +$1.17 (1.97%) to $60.65.
Energy Complex
Reuters CRB315.253.41.09%
Crude Oil Light Sweet67.21.071.62%
Heating Oil1.93410.063.36%
Natural Gas11.1391.3313.59%
Unleaded Gas1.96730.116.15%
AMEX Oil Index966.3811.011.15%
Oil Service Index162.711.280.79%

Currency Markets

USD Exchange Rates
US Dollar Index88.250.380.43%
Australian Dollar0.7527-0.0033-0.44%
Swiss Franc1.26690.00810.64%
Canadian Dollar0.83480.00130.16%