Interdum stultus opportuna loquitur...

Tuesday, September 27, 2005

USRant: Gaps Close...

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Sometimes the market shows you how hard it tries to take money off weak (and dumb) hands... todays' US session was no exception. The oil market in particular is turning into a scheme where nuffnuffs are getting blitzed every play; the media lures them onto one side of the market (and always late), then the big houses send their safeties and NuffNuff U's quarterback winds up a steaming pile of entrails.

I don't' say this to exculpate my call last week for a big decline in oil based on Rita's non-event status: it's just that every man and his dog shorted oil at or near the ACCESS session open, which was like shooting up a series of flares to spell out "Dumb Money at Work" in the sky. My call was about shorting oil as it was climbing...

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation; if you only looked at the overall repo number you might have been misled into believing that it was enough to help a jamjob... not so, though. the T-backed portion was too small. Last night's repo was a $10billion, overnight repurchase with a teensy $1.367billion in T-backed collateral undertaken at an 8 basis point discount to the Fed Funds Rate (FFR). The overwhelming majority of the repurchase went to trying to shore up the stocks of the Toxic Twins (Fannie Mae and Freddie Mac); the stock prices of both are behaving rather badly despite stronger-than-expected data on Existing Home Sales.

Major US Indices

Last night the opening gap resulted in a signal that was plain as day for those with eyes to see... a nice CCI divergence that initiated a selling bias, which paid off immediately (by 'immediately' I mean that a trade initiated right at the start of the next bar made at least the one-point target before the end of the bar). Examine the chart below (which shows the first 2 hours of the session); the divergence is as plain as the evil that oozes out of every pore of Ariel Sharon and Dick Cheney.

Dow intraday chart

A funny thing happened though: the one-S&P-point session target was actually acquired on a long trade based on a much shorter timeframe. It was a "fielder's choice" oversold bounce off 1222.25, which was grabbed late (at 1224.75) in the anticipation that the market would penetrate 1225 and keep going - that notion was based on 'feel' as to the 'slipperiness' of the market at the time. 

The market did as I expected, but frankly in hindsight I (we) ought to have stuck more rigidly to the divergence bias. To put it in perspective, I've marked the time we were in the long trade on another chart of the Dow with a medium-green balloon... the trade was initiated just after midnight Australian time, and was exited just before 12:15 a.m.; so at least the workday remained nice and short. 

In the face of a prevailing CCI sell divergence, the buy looked a little foolhardy - and especially so since it was taken with the Dow just about to test 10475, and the S&P about to test 1025... from below. Still, it worked - and I'm therefore a wizard according to the "if it worked I'm a genius" theory. 

Seriously though - it shows how easy it is to snaffle that single S&P point every day... but I still don't advocate trading based on 'feel'; as you can see from how the day developed, the opening divergence sell signal was right all along. The late-day buying divergence presages a bounce during Globex and/or the early part of tomorrow's US day session.

Dow 15-minute - full session

The usual Monday opening orgasm was made more pronounced by the failure of Hurricane Rita to cause much obvious damage at the weekend: oil prices were down in the $63s, and the Dow Jones Industrial Average tickled 10500 within 5 minutes of the opening bell. But then something odd happened (which is not unusual, when you think hard about it); oil started to reverse upwards - gently at first, but as the day progressed it developed some real vigour.

As oil stabilised, the Dow stopped advancing - and then as Entergy indicated that damage to its power distribution network would result in power shortages in Refinery Ally, oil's intraday climb started its nuffie-killing spree.

Bear in mind what was going on early (during the pre-market session, and just after the day session opening): all the dumbasses who went long oil last week based on journalistic fearmongering, were covering their longs and initiating shorts... and as usual, they have to be taken to the cleaners. That's all this bounce is. I note with some mirth that the new 'trigger' for the head-and-shoulders completion was a scant 28c below the day's low, although the day session low at $62.90 was significantly above the H&S cutoff.

Anyhow - by the time the late-session buying CCI divergence showed up on tech equity indices, the Dow had reversed just under 100 points from its high. from there, a little closing rally got the Dow back into the green for the day... it gained 24.04 points (0.23%), closing out the day at 10443.63 points. The index hit an intraday high of 10509.23, and fell as low as 10410.11 during the session. within the blue-chip index, 15 stocks rose, the biggest gainers being Boeing (BA, +2.33% to $64.67) and Mcdonalds (MCD, +1.90% to $33.26), which accounted for 17 Dow points between them. Losers in the Dow numbered 14 and were led by Caterpillar (CAT, -0.98% to $58.34) and Alcoa (AA, -0.90% to $24.20), with these two stocks contributing -6 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 165.1m shares to 137.4m.

The broader S&P500 advanced 0.34 points (0.03%), to 1215.63. Within the index, gainers numbered 229, while 255 S&P500 stocks fell for the day. Volume was tilted 1.2:1 in favour of the losers with 934.99 million units traded in the losers as compared with 791.71 million traded in the winners .

Over at Times Square, the Nasdaq Composite posted a rise of 4.62 points (0.22%), to close at 2121.46, while larger-cap technology issues fared worse with the Nasdaq100 adding 1.11 points (0.07%), to end at 1572.86 points. Within the tech benchmark, gainers numbered 59, while 35 Nasdaq100 stocks fell for the day. Volume was tilted 1.1:1 in favour of the losers with 328.26 million traded in the winners compared to 287.20 million in the losers .

NYSE Volume was super-chunky, with 2 billion shares changing hands, while Nasdaq Volume was about average, with 1.54 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10443.6324.040.23%
Nasdaq Composite2121.464.620.22%
NYSE Volume2bn--
Nasdaq Volume1.54bn--


My 9-stock "bellwethers" group fell by an average of 0.55%

  • General Electric (GE) -$0.13 (0.39%) to $33.27;
  • Citigroup (C) -$0.15 (0.33%) to $45.09;
  • Wal Mart (WMT) -$0.09 (0.21%) to $43.11;
  • I.B.M. (IBM) -$0.59 (0.76%) to $77.41;
  • Intel (INTC) -$0.16 (0.66%) to $24.22;
  • Cisco Systems (CSCO) -$0.13 (0.72%) to $17.92;
  • eBay (EBAY) -$0.06 (0.15%) to $38.72;
  • Fannie Mae (FNM) -$0.32 (0.69%) to $46.18; and
  • Freddie Mac (FRE) -$0.58 (1.04%) to $55.42.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1843 to 1450 for a single-day A/D reading of 393; Nasdaq gainers trumped losers by 1793 to 1255. The 10-day moving average of the A/D line rose to -222.6 on the NYSE, while the 10dma of the Nasdaq A/D rose to -90.1.

NYSE advancing volume exceeded volume in decliners by 1094.2 to 882.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 835.3 to 612.9 million shares.

117 NYSE-listed stocks rose to new 52-week highs, and 68 posted fresh 52-week lows, while on the Nasdaq there were 92 stocks that hit new 52-week highs, and 38 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1094.23835.32
Declining Volume (m)882.15612.94
New Highs11792
New Lows6838

Market Sentiment Statistics
CBOE Volatility Index13.040.080.62%
CBOE Nasdaq Volatility Index14.82-0.34-2.24%
Equity Put-Call Ratio0.8600%
10-day PCR0.6400%
SPX-VIX Ratio93.2-0.55-0.59%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 4.9 bps to 4.558%. The 30-year bond futures dropped 16/32 to 114-21/32 (the session low was 114-15/32).

The middle of the yield curve was broadly lower in price: five year yields rose to 4.113%, and ten-year yields rose to 4.294%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 5.0 bps wider at 2.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 29.0 bps for 10-year AAA, and 65.0 bps for 20-years.

Treasury Yields
UST 13wk (yld)3.4250.0351.03%
UST 2Y (yld)4.040.041%
UST 5Y (yld)4.1130.040.98%
UST 10Y (yld)4.2940.0461.08%
UST 30Y (yld)4.5580.0491.09%

The Banks Index lost 0.49 points (0.51%), at 96.24; within the index,

  • Bank Of NY (BK) -$0.42 (1.41%) to $29.30;
  • Regions Financial (RF) -$0.44 (1.39%) to $31.32;
  • PNC Financial Services (PNC) -$0.73 (1.27%) to $56.77;
  • BB&T Corp (BBT) -$0.46 (1.16%) to $39.15; and
  • Suntrust Banks (STI) -$0.76 (1.08%) to $69.69.

The Broker-dealer Index gained 0.07 points (0.04%), closing at 174.74; the ticket clippers lined up as follows -

  • Raymond James (RJF) +$0.34 (1.11%) to $30.84;
  • Lehman Brothers (LEH) +$0.87 (0.76%) to $114.92;
  • Ameritrade (AMTD) +$0.13 (0.62%) to $20.98;
  • Goldman Sachs (GS) +$0.53 (0.44%) to $120.00; and
  • E*Trade (ET) +$0.05 (0.3%) to $16.45.

The Philadelphia SOX (Semiconductor) index gained 2.11 points (0.46%), at 462.83

  • Advanced Micro Devices (AMD) +$0.65 (2.83%) to $23.63;
  • Altera (ALTR) +$0.30 (1.61%) to $18.97;
  • Infineon Tech (IFX) +$0.15 (1.6%) to $9.55;
  • Broadcom (BRCM) +$0.64 (1.42%) to $45.69; and
  • ST Microelectronic (STM) +$0.23 (1.39%) to $16.81.

Gold & Silver Markets

Gold rose $2.30 (0.5%) to close at $466.20 per ounce. I haven't finished the Gold piece yet - sometime today or tomorrow is likely now.

The Gold Bugs Index gained 5.78 points (2.44%), at 242.75

  • Hecla Mining (HL) +$0.25 (6.1%) to $4.35;
  • Coeur d'Alene (CDE) +$0.20 (4.9%) to $4.28;
  • Gold Fields (GFI) +$0.62 (4.63%) to $14.01;
  • Freeport McMoran (FCX) +$1.29 (2.82%) to $47.05; and
  • Harmony Gold (HMY) +$0.28 (2.81%) to $10.26.

Silver rose $0.03 (0.41%) to close at $7.37 per ounce. The Gold and Silver Index (XAU) gained 2.27 points (2.07%), to end the session at 111.68 points.

  • Gold Fields (GFI) +$0.62 (4.63%) to $14.01;
  • Freeport McMoran (FCX) +$1.29 (2.82%) to $47.05;
  • Harmony Gold (HMY) +$0.28 (2.81%) to $10.26; and
  • Newmont Mining (NEM) +$1.05 (2.3%) to $46.68.
Precious Metals and Indices
PHLX Gold and Silver Index111.682.272.07%
AMEX Gold BUGS Index242.755.782.44%

Oil Market

Oil bounced off its test of the new key pivot (remember, it's now $62.33, not $62.75) during the early Sunday trading on NYMEX ACCESS, but it wasn't until a retest of the ACCESS low that it really developed some vigour. By the close, oil had gained $1.63 per barrel, closing at $65.82 per barrel and completing a $3 intraday reversal. It still warrants a shorting bias, as people are trading 'bad' news which is really relatively insignificant: 9% of refining capacity is somewhat disrupted... that says nothing about crude oil supply. In fact, if it points to slower crude demand (because of reduced refinery throughput) oil prices actually should gain downwards traction.

The Oil and Gas Index (XOI) rose 16.65 points (1.57%), closing at 1076.27

  • Kerr Mcgee (KMG) +$2.31 (2.49%) to $95.20;
  • Amerada Hess (AHC) +$3.24 (2.42%) to $137.35; and
  • TotalFinaElf S.A. (TOT) +$3.14 (2.36%) to $136.13.

The Oil service stocks (OSX) Index gained 4.2 points (2.45%), to 175.34

  • National Oilwells/Varco (NOV) +$2.78 (4.38%) to $66.18;
  • Global Industries (GLBL) +$0.59 (4.28%) to $14.39; and
  • Halliburton (HAL) +$2.18 (3.35%) to $67.19.
Energy Complex
Reuters CRB324.710.910.28%
Crude Oil Light Sweet65.821.632.54%
Heating Oil2.08880.083.99%
Natural Gas13.1370.453.55%
Unleaded Gas2.0790.178.85%
AMEX Oil Index1076.2716.651.57%
Oil Service Index175.344.22.45%

Currency Markets

USD Exchange Rates
US Dollar Index89.06-0.23-0.26%
Australian Dollar0.757200%
Swiss Franc1.2893-0.0029-0.22%
Canadian Dollar0.8527-0.0019-0.22%