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Thursday, September 29, 2005

USRant: Boy, Was That Draining...

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Today's USRant will be mercifully brief; as a result of a combination of hubris and bloody-mindedness I nursed a bad trade, undertaken at the wrong time, in defiance of a CCI divergence... for about three hours last night. I always knew it would finish with a gain (and kept saying so, with the same Zen-like suppressed-panic that Tripitaka exhibited whenever bad shit happened and Monkey wasn't around to save his girly arse). It did (finish with a gain, that is), but it's something I wouldn't do again.

Durable Goods Orders showed a relatively large 3.2% increase in our key component (non-defence capex excluding aircraft), and yet the market opened quite weak (but also choppy)... with a selling divergence in force and 10500 above, you would think that a selling bias would have kept me on the right side of the market. Not so, for reasons I will explain below.

Federal Reserve Open Market Operations

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

  • a $5billion, 6-day repurchase; and
  • a $4.5billion, overnight repurchase.
Do you notice what's missing from the bullet points above?

Usually there's a mention of something like "with $x.xxbillion in T-backed collateral undertaken at a y.y basis point discount to the Fed Funds Rate (FFR)".

I haven't left it off through lack of sleep or a more generalised brain-fade; I just wanted to make the point as starkly as possible... and the point was that all of both repurchase amounts went to shore up the Toxic Twins (Fannie Mae and Freddie Mac). And if you look at Fannie Mae's share price (in the 'Bellwethers" section below) you can see why: it got smacked for a 10% decline today.

Major US Indices

Sometimes you just do dumb things - but they pay off. If you look at the long red bar just after the second-in-a-row sell divergence, you will see that the bar bottomed a tad under 10475. So the divergence (both of them) worked a treat. So why wasn't I short at any time? And - I asked myself this a few times during the session, despite knowing the trade was actually in good shape - was I long from the bottom of that bar? (Actually from 1223.50 on the S&P futures, but the setup was identical on a 15-minute chart).

Well, the answer is complex, and has to do with an inexplicable affection that I have for the buy side at the moment; I think it's driven (psychologically speaking) by my certainty that Crude Oil will continue to soften. Regardless of what was driving it, for some reason I've been allergic to shorting the S&P for a little over a week. Me? Shy of a short? Odd, indeed.

Anyhow, the market sliced through 10450 with only a minor pause for breath, and actually fell all the way to 10425; at that stage it was the thin lunchtime part of the session, and the nuffnuffs were left on their own while the big boys went for a sandwich. Like most nuffnuffs, they watched CNBC rabbitting about the oil price, thought "Hmmm... this is going to be bad for stocks" and kept trying to sell (more accurately, they kept refusing to buy).

It was obvious to anybody who was listening that, when da Boyz came back from lunch, they would have a new bevy of thinly-funded, dumb shorts to skin. How obvious? Look at the buying divergence that developed, and the move that happened after it.

So, despite defying a textboook sell divergence, we got our point (the S&P actually spiked to 1225.50 dyuring the afternoon rebound, so the point was very safe).

I've written before about people who buy a stock at $1, feel gutted as they watch it fall to 25¢, hold their breath for six months as it grinds its way back to $1.01, then exit and congratulate themselves on being a good stockpicker. Well, last night was my taste of that - and let me tell you it tastes like a shit sandwich with a side order of shit. I think that people who do it consistently would end up in the nuthouse. How much easier would it have been to simply listen to the divergences and trade in the same direction as the bias? Short on either divergence, pocjet the point, and the rest of the day is a goddamned academic exercise.

Dow 15-minute chart

The Dow Jones Industrial Average rose 16.88 points (0.16%), closing out the day at 10473.09 points. The index hit an intraday high of 10512.1 on a 'tease break' of the first hour high, and fell as low as 10423.98 (10425-ish) during the mid-session "unsupervised nuffnuff" period. 

Within the blue-chip index, 20 stocks rose, the biggest gainers being International Business Machines (IBM, +1.94% to $79.50) and Verizon Communications (VZ, +1.76% to $32.41), which accounted for 16 Dow points between them. Losers in the Dow numbered 10 and were led by Caterpillar (CAT, -1.99% to $57.55) and Home Depot (HD, -1.41% to $37.85), with these two stocks contributing -14 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 322.3m shares to 66.3m.

The broader S&P500 added 1.23 points (0.1%), to end the session at 1216.89. Within the index, gainers numbered 264, while 220 S&P500 stocks fell for the day. Volume was tilted 1.5:1 in favour of the winners with 1160.33 million units traded in the winners as compared with 773.60 million traded in the losers. Notice that both the Dow and the S&P had quite positive internals despite what looks like a session characterised by weakness; in fact the market breadth was relatively strong all day.

Over at Times Square, the Nasdaq Composite shed 1.02 points (0.05%), to close at 2115.4, while larger-cap technology issues fared better with the Nasdaq100 losing 0.03 points (0%), to end at 1568.81 points. Within the tech benchmark, gainers numbered 46, while 49 Nasdaq100 stocks fell for the day. Volume was tilted evenly split, with the final decision in favour of the losers with 390.22 million traded in the losers compared to 377.42 million in the winners .

NYSE Volume was super-chunky, with 2.14 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 Average10473.0916.880.16%
Nasdaq Composite2115.4-1.02-0.05%
NYSE Volume2.14bn--
Nasdaq Volume1.77bn--


My 9-stock "bellwethers" group fell by an average of 1.08%, but that was hugely biased by the absolute shellacking in Fannie Mae.

  • General Electric (GE) -$0.15 (0.45%) to $33.49;
  • Citigroup (C) +$0.09 (0.2%) to $45.18;
  • Wal Mart (WMT) +$0.03 (0.07%) to $43.13;
  • I.B.M. (IBM) +$1.51 (1.94%) to $79.50;
  • Intel (INTC) +$0.12 (0.5%) to $23.95;
  • Cisco Systems (CSCO) +$0.20 (1.13%) to $17.92;
  • eBay (EBAY) -$0.18 (0.46%) to $38.93;
  • Fannie Mae (FNM) -$4.99 (10.69%) to $41.71; and
  • Freddie Mac (FRE) -$1.10 (1.97%) to $54.60.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1681 to 1604 for a single-day A/D reading of 77; and Nasdaq losers exceeded gainers by 1730 to 1248. The 10-day moving average of the A/D line rose to -209.3 on the NYSE, while the 10dma of the Nasdaq A/D fell to -190.3.

NYSE advancing volume exceeded volume in decliners by 1215.7 to 911.8 million shares; Nasdaq advancing volume was greater than volume in decliners by 874.3 to 845.6 million shares.

159 NYSE-listed stocks rose to new 52-week highs, and 105 posted fresh 52-week lows, while on the Nasdaq there were 92 stocks that hit new 52-week highs, and 83 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1215.72874.33
Declining Volume (m)911.8845.63
New Highs15992
New Lows10583

Market Sentiment Statistics
CBOE Volatility Index12.63-0.13-1.02%
CBOE Nasdaq Volatility Index14.35-0.04-0.28%
Equity Put-Call Ratio0.55-0.15-21.43%
10-day PCR0.60-0.02-3.23%
SPX-VIX Ratio96.31.081.13%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 6.3 bps to 4.501%. A bounce was well and truly overdue, but having missed the last shorting opportunity I am too bitter to even look at the bond for another week or two.

The middle of the yield curve was broadly higher in price: five year yields fell to 4.111%, and ten-year yields fell to 4.262%.

Treasury Yields
UST 13wk (yld)3.387-0.018-0.53%
UST 2Y (yld)4.0700%
UST 5Y (yld)4.111-0.016-0.39%
UST 10Y (yld)4.262-0.039-0.91%
UST 30Y (yld)4.501-0.063-1.38%

The Banks Index slid 0.64 points (0.67%), closing at 95.6; within the index,

  • Bank Of NY (BK) -$0.74 (2.5%) to $28.89;
  • Zions Bancorp (ZION) -$1.38 (1.92%) to $70.58;
  • State Street (STT) -$0.93 (1.91%) to $47.68;
  • Washington Mutual (WM) -$0.55 (1.36%) to $39.77; and
  • Suntrust Banks (STI) -$0.68 (0.98%) to $69.00.

The Broker-dealer Index gained 0.63 points (0.36%), at 175.82; the ticket clippers lined up as follows -

  • Raymond James (RJF) +$0.52 (1.68%) to $31.54;
  • Merrill Lynch (MER) +$0.67 (1.13%) to $60.07;
  • Lehman Brothers (LEH) +$0.94 (0.81%) to $116.94;
  • Bear Stearns (BSC) +$0.79 (0.74%) to $106.95; and
  • Morgan Stanley (MWD) +$0.34 (0.65%) to $52.71.

The Philadelphia SOX (Semiconductor) index posted a rise of 2.13 points (0.47%), to 459.26

  • Teradyne (TER) +$0.74 (4.85%) to $15.99;
  • National Semiconductors (NSM) +$0.68 (2.76%) to $25.34;
  • Infineon Tech (IFX) +$0.23 (2.46%) to $9.57;
  • Marvell Tech Group (MRVL) +$0.90 (2.06%) to $44.67; and
  • Advanced Micro Devices (AMD) +$0.40 (1.68%) to $24.17.

Gold & Silver Markets

Gold rose $6.90 (1.49%) to close at $469.80 per ounce. It traded as high as $470.10 dring the session, as everybody fixated on why Oil was reacting madly to the Petroleum Status Report.

The Gold Bugs Index posted a rise of 5.9 points (2.48%), ending the day at 243.39

  • Kinross Gold (KGC) +$0.33 (4.5%) to $7.66;
  • Randgold Resources (GOLD) +$0.67 (4.29%) to $16.30;
  • Glamis Gold (GLG) +$0.69 (3.33%) to $21.44;
  • Harmony Gold (HMY) +$0.31 (3.05%) to $10.49; and
  • Freeport McMoran (FCX) +$1.29 (2.74%) to $48.31.

Silver rose $0.08 (1.02%) to close at $7.4 per ounce. The Gold and Silver Index (XAU) gained 2.38 points (2.17%), ending the day at 112.25 points.

  • Kinross Gold (KGC) +$0.33 (4.5%) to $7.66;
  • Harmony Gold (HMY) +$0.31 (3.05%) to $10.49;
  • Freeport McMoran (FCX) +$1.29 (2.74%) to $48.31; and
  • Gold Fields (GFI) +$0.37 (2.72%) to $13.98.
Precious Metals and Indices
PHLX Gold and Silver Index112.252.382.17%
AMEX Gold BUGS Index243.395.92.48%

Oil Market

The key numebr for the oil market was today's Petroleum Status Report, which showed an unexpected 2.4 million barrel drawdown in Crude inventories. However the flip-side was a large (4.4 million barrel) increase in distillate stocks and only a modest fall in gasoline stocks. 

A note is required here; during the session, I saw it mentioned that crude inventories ROSE by 2.2 million barrels, and that distillate and petroleum inventories fell. In light of that, the rise in oil made no sense... but I've checked the data and the Crude drawdown is the correct outcome.

Oil was firmer, rising by $1.28 per barrel, closing at $66.35 per barrel (the session high was $67.40). The Oil and Gas Index (XOI) posted a rise of 12.77 points (1.19%), to 1087.42

  • BP (BP) +$1.22 (1.72%) to $72.27;
  • Kerr Mcgee (KMG) +$1.30 (1.36%) to $96.89; and
  • TotalFinaElf S.A. (TOT) +$1.81 (1.34%) to $137.23.

The Oil service stocks (OSX) Index gained 0.7 points (0.4%), to 176.01

  • Halliburton (HAL) +$1.25 (1.84%) to $69.36;
  • National Oilwells/Varco (NOV) +$1.07 (1.61%) to $67.45; and
  • GlobalSantaFe (GSF) +$0.50 (1.11%) to $45.71.
Energy Complex
Reuters CRB330.955.011.54%
Crude Oil Light Sweet66.351.281.97%
Heating Oil2.16860.073.56%
Natural Gas14.21.088.23%
Unleaded Gas2.17580.084.03%
AMEX Oil Index1087.4212.771.19%
Oil Service Index176.010.70.4%

Currency Markets

USD Exchange Rates
US Dollar Index89.38-0.19-0.21%
Australian Dollar0.75910.00320.42%
Swiss Franc1.2925-0.0034-0.26%
Canadian Dollar0.85190.00290.34%