Interdum stultus opportuna loquitur...

Wednesday, September 28, 2005

USRant: Hurt Feelings Make Bad Laws...

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

What really shits me is when media outlets say things like "Consumer Confidence plunged as expected in the wake of Hurricane Katrina". Let's get it straight: Consumer Confidence was expected to fall to a reading of 98; it actually fell to a reading of 86.6... you will be aware that the consumer confidence survey is a meaningless stream of piffle, like all survery-based "feeling" data. It has no correlation with future consumption spending, so what is the point of it?

Regardless of whether or not it's a pointless exercise in branding and sloganeering (the same as the supposed American love of 'Freedom®', where you need a permit to exercise Constitutionally-provided rights to free association and expression), the fact is that if you're going to report its decline relative to what was expected, then if it's much worse  than what was expected you ought to say so. Unless, of course, you're living in the Soviet Union under Stalin or in Communist China under Mao.

Can't have Brand America® sullied by silly little things like Truth... like the fact that its pets in Israel are in violation of more UN Resolutions than Saddam Hussein, Iran, North Korea and Nazi Germay combined (OK, the last one's an unfair inclusion - I'm using the Jonah Goldberg principle ... "see if you can get away with it"). Truths like the fact that the US economic model has never been genuinely capitalist (well, not since Lincoln started giving away tracts of railroad land to his cronies), but has been, since the 1850s, as corrupt as Imperial Rome ever was.

And now, I see that the Yanks are going to introduce "Hate Speech" laws; there goes the First Amendment (as if it wasn't a dead letter anyhow). As J.S. Mill said clearly in section II of On Liberty, the truth doesn't need laws; through the ages there have been opinions that have been held as absolutely true by members of the elite, which have subsequently turned out to be not only false, but reprehensibly so. Think of Marcus Aurelius' persecution of Christians, for example - Marcus Aurelius was among the most enlightened of Roman leaders and scholars, but sought to crush Christianity solely because he thought Rome required the retention of its State religion. How did a smart man get it so wrong?

Of course the opinions that got Galileo imprisoned are another example - there were laws that prohibited the teaching of any notion that went against the geocentric model of the universe.

I wonder when it will become a crime to insult the Dear Leader? I wonder when children will have to salute pictures of Dear Leader each morning at school assembly, and read from the Thoughts of Chairman George? (Thankfully, Bush is too pissed to write anything down).

I wonder when dissidents will face knocks on the door in the night.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation; a $9.75billion, overnight repurchase with $2.998billion in T-backed collateral undertaken at a 9.8 basis point discount to the Fed Funds Rate (FFR). Yet again, a repurchase with a decent discount, but too small a distribution to the T-backed bucket.

Major US Indices

As silly as it may seem, I ignored the fact that a buying divergence was in force at the open, and simply sat on my hands until almost the end of the first hour; when your data seems unreliable it pays to sort that issue out before actually pulling the trigger.

The problem was this: I ignore Globex when examining 15-minute charts, however when I switch on 'exclude overnight' in my new data-providers' chart suite, it switches off the first hour as well (obviously the data machine thinks that the CME opens at  9:30 a.m. Chicago time).

Anyhow - by the time I had enough 'feel' to decide to jump, the very short term charts (85 and 260 tick) were deeply oversold, so a bounce was expected. As it turned out, that trade took less than a minute to garner the required one point for the day. I can't even show you where the trade was on the bars on the chart below - I tried to prepare a chart that did so but it was impossible to read.

Dow 15-minute chart

I thought I would waste some space today with a little extra explanation of my favourite CCI-divergence approach - how to include the "fielder's choice" elements of the trading arsenal.

Let's say you've taken the divergence trade for the day, and pocketed your single point. Let's also say that you're trading a few lots (say, 5). You see that the market hits overbought (on the %R) after half an hour. What now?

First: there's no rule that says no shorting. For the 'full bottle', it requires a divergence in the opposite direction (or at the very least an overbought spike on the CCI above 200). But there's no impediment to having a crack with a partial position - say 1 contract - to see what develops and to see if you can't pocket some beer money.

I don't advise this, though - far better to simply trade in the same direction as the prevailing CCI-bias. But re-entry in the same direction can also be 'scaled' depending on the position of the particualr setup in my little taxonomy. First, move to a shorter timeframe (3-minutes, or down to the micro-scale 85-tick and 260-tick charts) and if you're trading a 5-lot for 'full bottle' trades, just buy a one-lot every time a 5-period MA of the 14-period %R hits oversold and look for another point. 

Sounds easy, but I bet you sit and watch ten trades happen, thinking "there's no way this will work - the thing's dropping like a stone". Precisely. 

The best time to buy is when it looks like the dumbest thing in the world. Sort of like the big-picture story fundamentally - it looked stupid to buy stocks in 1984 with the market at a PE of 7.2x trailing earnings...

Anyhow - that's all for now as far as the methodological stuff goes. If you can find a market for which it doesn't work, let me know, because there would be a PhD thesis in how come it didn't; you will have found a market where there is no such thing as a sentiment extreme.

After a very choppy first hour, the Dow Jones Industrial Average softened to spend the mid-session trawling around 10425 looking for dummies who would short a break. Remember my axiom "Never short a dull market"? Well, it was dull alright... it spent three and a half hours within 15 points of 10425 before bouncing (as usual, the dullness resolved upwards). After a test of 10500 (the sessionhigh was 10496) that coincided with a textbook short signal from a CCI divergence (marked eith red arrows on the chart above) there was a very high probability short for the remainder of the session.

By the close, the Dow had managed to hang on to a rise of 12.58 points (0.12%), closing out the day at 10456.21 points. 

Within the blue-chip index, 13 stocks rose, the biggest gainers being Boeing (BA, +2.91% to $66.55) and Altria Group (MO, +1.34% to $73.49), which accounted for 23 Dow points between them. Losers in the Dow numbered 16 and were led by Hewlett Packard (HPQ, -1.97% to $28.37) and Intel (INTC, -1.61% to $23.83), with these two stocks contributing -8 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 185.1m shares to 138.1m.

The broader S&P500 is harder to manipulate than the Dow (with the Dow you can jsut by the stocks with the highest hsare prices), so it managed only a 0.03 points (0%) gain, to end the session at 1215.66. Within the index, gainers numbered 250, while 227 S&P500 stocks fell for the day. Volume was tilted 1.2:1 in favour of the losers with 924.92 million units traded in the winners as compared with 792.47 million traded in the losers .

Over at Times Square, the Nasdaq Composite shed 5.04 points (0.24%), to close at 2116.42, while larger-cap technology issues fared worse with the Nasdaq100 losing 4.02 points (0.26%), to end at 1568.84 points. Within the tech benchmark, gainers numbered 37, while 58 Nasdaq100 stocks fell for the day. Volume was tilted 1.3:1 in favour of the losers with 422.09 million traded in the losers compared to 314.76 million in the winners .

NYSE Volume was super-chunky, with 1.95 billion shares changing hands, while Nasdaq Volume was chunky, with 1.65 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10456.2112.580.12%
Nasdaq Composite2116.42-5.04-0.24%
NYSE Volume1.95bn--
Nasdaq Volume1.65bn--


My 9-stock "bellwethers" group rose by an average of 0.19%

  • General Electric (GE) +$0.37 (1.11%) to $33.64;
  • Citigroup (C) unchanged at $45.09;
  • Wal Mart (WMT) -$0.01 (0.02%) to $43.10;
  • I.B.M. (IBM) +$0.58 (0.75%) to $77.99;
  • Intel (INTC) -$0.39 (1.61%) to $23.83;
  • Cisco Systems (CSCO) -$0.20 (1.12%) to $17.72;
  • eBay (EBAY) +$0.39 (1.01%) to $39.11;
  • Fannie Mae (FNM) +$0.52 (1.13%) to $46.70; and
  • Freddie Mac (FRE) +$0.28 (0.51%) to $55.70.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 1895 to 1397, for a single-day A/D reading of -498; and Nasdaq losers exceeded gainers by 1644 to 1353. The 10-day moving average of the A/D line fell to -272.2 on the NYSE, while the 10dma of the Nasdaq A/D fell to -126.3.

On the NYSE declining volume was greater than volume in advancing issues by 1087.8 to 816.6 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 917.3 to 697 million shares.

91 NYSE-listed stocks rose to new 52-week highs, and 114 posted fresh 52-week lows, while on the Nasdaq there were 89 stocks that hit new 52-week highs, and 57 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)816.58697.01
Declining Volume (m)1087.76917.31
New Highs9189
New Lows11457

Market Sentiment Statistics
CBOE Volatility Index12.76-0.28-2.15%
CBOE Nasdaq Volatility Index14.39-0.43-2.9%
Equity Put-Call Ratio0.7-0.16-18.6%
10-day PCR0.62-0.02-3.13%
SPX-VIX Ratio95.32.052.2%

Bond Market Analysis

Bonds fell marginally at the long end, with the yield on the benchmark 30-year Treasury bond rising 0.6 bps to 4.564%.

The middle of the yield curve was broadly lower in price as well: five year yields rose to 4.127%, and ten-year yields rose to 4.301%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 6.0 bps wider at -1.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 30.0 bps for 10-year AAA, and 66.0 bps for 20-years.

Treasury Yields
UST 13wk (yld)3.405-0.02-0.58%
UST 2Y (yld)
UST 5Y (yld)4.1270.0140.34%
UST 10Y (yld)4.3010.0070.16%
UST 30Y (yld)4.5640.0060.13%

The Banks Index dipped 0 points (0%), ending the day at 96.24; within the index,

  • Fifth Third Bancorp (FITB) -$0.44 (1.17%) to $37.02;
  • National City Corp (NCC) -$0.30 (0.87%) to $34.14;
  • Regions Financial (RF) -$0.13 (0.42%) to $31.19;
  • Comerica (CMA) -$0.14 (0.24%) to $58.97; and
  • MBNA Corp (KRB) -$0.05 (0.2%) to $24.50.

The Broker-dealer Index posted a rise of 0.45 points (0.26%), at 175.19; the ticket clippers lined up as follows -

  • Bear Stearns (BSC) +$2.01 (1.93%) to $106.16;
  • Jeffries Group (JEF) +$0.44 (1.07%) to $41.65;
  • Lehman Brothers (LEH) +$1.08 (0.94%) to $116.00;
  • Morgan Stanley (MWD) +$0.46 (0.89%) to $52.37; and
  • Legg Mason (LM) +$0.64 (0.59%) to $108.38.

The Philadelphia SOX (Semiconductor) index lost 5.7 points (1.23%), at 457.13

  • Micron Technology (MU) -$0.36 (2.98%) to $11.74;
  • Texas Instruments (TXN) -$0.85 (2.52%) to $32.92;
  • Infineon Tech (IFX) -$0.21 (2.2%) to $9.34;
  • National Semiconductors (NSM) -$0.48 (1.91%) to $24.66; and
  • Maxim Integrated (MXIM) -$0.71 (1.71%) to $40.89.

Gold & Silver Markets

Gold fell by $3.3 (0.71%) to close at $462.90 per ounce. It looks like it's got indigestion following its recent highly-spiced move up above all technical upside extremes.

The Gold Bugs Index shed 5.26 points (2.17%), at 237.49

  • Golden Star (GSS) -$0.31 (8.54%) to $3.32;
  • Randgold Resources (GOLD) -$0.67 (4.11%) to $15.63;
  • Coeur d'Alene (CDE) -$0.15 (3.5%) to $4.13;
  • Iamgold (IAG) -$0.22 (2.92%) to $7.31; and
  • Gold Fields (GFI) -$0.40 (2.86%) to $13.61.

Silver fell by $0.04 (0.5%) to close at $7.33 per ounce. The Gold and Silver Index (XAU) lost 1.81 points (1.62%), ending the day at 109.87 points.

  • Durban Rooderpoert Deep (DROOY) -$0.09 (6.08%) to $1.39;
  • Anglogold Ashanti (AU) -$1.30 (2.99%) to $42.20;
  • Gold Fields (GFI) -$0.40 (2.86%) to $13.61; and
  • Placer Dome (PDG) -$0.42 (2.43%) to $16.85.
Precious Metals and Indices
PHLX Gold and Silver Index109.87-1.81-1.62%
AMEX Gold BUGS Index237.49-5.26-2.17%

Oil Market

Oil lost ground, shedding $0.75 per barrel and closing at $65.07 per barrel. The Oil and Gas Index (XOI) slid 1.62 points (0.15%), to end the session at 1074.65

  • Royal Dutch Shell (RD) -$0.85 (1.32%) to $63.75;
  • Repsol YPF (REP) -$0.29 (0.88%) to $32.51; and
  • ConocoPhillips (COP) -$0.40 (0.58%) to $68.98.

The Oil service stocks (OSX) Index shed 0.03 points (0.02%), ending the day at 175.31

  • Rowan Companies (RDC) -$0.65 (1.8%) to $35.51;
  • Noble Corp (NE) -$0.96 (1.37%) to $69.19; and
  • GlobalSantaFe (GSF) -$0.58 (1.26%) to $45.36.
Energy Complex
Reuters CRB325.941.230.38%
Crude Oil Light Sweet65.07-0.75-1.14%
Heating Oil2.0940.010.25%
Natural Gas13.12-0.02-0.13%
Unleaded Gas2.09150.010.6%
AMEX Oil Index1074.65-1.62-0.15%
Oil Service Index175.31-0.03-0.02%

Currency Markets

USD Exchange Rates
US Dollar Index89.570.510.57%
Australian Dollar0.7559-0.0013-0.17%
Swiss Franc1.29590.00660.51%
Canadian Dollar0.849-0.0037-0.43%