Interdum stultus opportuna loquitur...

Wednesday, September 14, 2005

USRant: Lovely, Fluid Technical Moves...

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Pre-market data was pretty tame - Hurricane Katrina has provided 'court' economists with a reason to slash their expectations (thereby making it easier for the economic numbers to beat expectations), and they have taken the opportunity with both hands.

The data for this session showed again that retail sales growth at major retail chains is growing slower than nominal GDP, with the ICSC-UBS and Redbook indices both registering growth of about 3.4% year-on-year.

Producer Prices rose by 0.6% and were unchanged excluding energy and food. In other words, the only people who have any pricing power are George Bush's energy cronies.

So paint this picture: an economy where retail spending is slower than GDP, the trade balance is massive ($57 billion last month) and producers have no pricing power... and yet (if last week's data is to be believed) corporate profits are rising at double-digit rates. How can this be?

It's not hard to write down a set of conditions under which this could happen, but those conditions do not apply to the US economy at present. Given the penchant of governments to paint rosier-than-reality pictures, it simply indicates that the data is rubbish - in all likelihood PPI-level inflation is actually higher and retail sales weaker than the numbers suggest.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $2.25billion, overnight repurchase with $1.8billion in T-backed collateral undertaken at a 3 basis point discount to the Fed Funds Rate (FFR).

Major US Indices

The market opened on a sagging note; European markets were weak in the overnight session, and the indices are all technically still overbought (plus, my target of 10700 was hit - again - yesterday).

The thing to note on the chart below is that at the end of the first 15 minutes of trade, there was a 'confluence' of indicators that ought to have generated a significant bounce: the CCI was massively oversold (at -415), the %R was oversold as well, plus the low of the first 15 minutes was at a 'quarter' at 10626.1 (10625-ish).

The fact that the bounce produced so little traction should have made one's ears burn slightly. The market moved up, for sure, but it only rose 15 Dow points and took almost 45 minutes to do so. Still, the 'pure CCI extreme' always requires a much looser stop protocol than the CCI divergence approach, so it was necessary to simply let it ride.

And - as happens about 75% of the time with a CCI extreme - it developed into a %R oversold/CCI divergence. Long-time readers will be aware that this is my absolute bread-and-butter setup.

It also helped that there was another confluence of indicators that made each divergence a likely winner: on the first, the first-hour low was broken by less than 10 points and 10600 was a 'natural' stop below (note - NEVER put your stop at a 'natural' point... they are the places that stop-hunters will be certain to find them).

On the second divergence, 10600 had been' tickled'; perfect.

Note that it didn't matter which setup you deployed - they all worked. The CCI extreme by itself is the lowest-probability setup this late in the trend, but it still paid off nicely. Either of the divergences worked much better.

This is typical of a market which has reversed off a daily overbought condition - the 'hurdle' for trade entries on the long side has to be made harder, while short entries can be made with a little more alacrity (even extending to using a %R oversold reading by itself, for those with a real yearning to get a trade on). It's rare that I would move to that level of aggression until the reversal has gained more traction - which is why I didn't mention yesterday's late-session %R overbought (it happened at 10700 - my target - so a reversal was a 'fielder's choice' anyway). 

Today there was no need for such minutiae; the CCI registered an extreme at the high of the day, which also coincided with another 'quarter' - this time 10675. Even more deliciously, it was also the breach of the first-hour high... by a miniscule 0.3 points.

Trading long from the green bubble to the red bubble, and reversing to short at the red bubble, all you had to do was snaffle a single S&P point. This means - in my view, anyhow - that you always wait for the highest-probability entry. Either of the CCI divergences were perfect for the long side: once the market rise got stale, and given that the buying CCI extreme didn't work well (and the 2 moving averages were now obviously reversed), the probability that a "CCI by itself" trade would work rose to acceptable levels.

Dow intraday 15-minute

For the session, the Dow Jones Industrial Average lost 85.5 points (0.8%), closing out the day at 10597.44 points. The index hit an intraday high of 10674.03 at 2:20 p.m. NY time - on the 'tease tick' above the first-hour high - and fell to 10595.29 just before the close. 

Within the blue-chip index, 5 stocks rose, the biggest gainers being Boeing (BA, +0.40% to $65.40) and Honeywell (HON, +0.39% to $38.96), which accounted for 3 Dow points between them. Losers in the Dow numbered 25 and were led by Mcdonalds (MCD, -2.01% to $33.12) and Procter & Gamble (PG, -1.80% to $55.54), with these two stocks contributing -14 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 335.1m shares to 30.4m.

The broader S&P500 declined 9.36 points (0.75%), ending the day at 1231.2. Within the index, gainers numbered 100, while 389 S&P500 stocks fell for the day. Volume was tilted 2.0:1 in favour of the losers with 1306.65 million units traded in the losers as compared with 647.62 million traded in the winners .

Over at Times Square, the Nasdaq Composite lost 11.08 points (0.51%), to close at 2171.75, while larger-cap technology issues fared better with the Nasdaq100 losing 4.82 points (0.3%), to end at 1607.38 points. Within the tech benchmark, gainers numbered 32, while 64 Nasdaq100 stocks fell for the day. Volume was tilted 1.0:1 in favour of the losers with 378.81 million traded in the losers compared to 371.89 million in the winners .

NYSE Volume was super-chunky, with 2.08 billion shares changing hands, while Nasdaq Volume was chunky, with 1.81 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10597.44-85.5-0.8%
Nasdaq Composite2171.75-11.08-0.51%
NYSE Volume2.08bn--
Nasdaq Volume1.81bn--


My 9-stock "bellwethers" group fell by an average of 1.13%

  • General Electric (GE) -$0.15 (0.44%) to $34.28;
  • Citigroup (C) +$0.09 (0.2%) to $45.10;
  • Wal Mart (WMT) -$0.82 (1.79%) to $45.07;
  • I.B.M. (IBM) -$0.73 (0.9%) to $80.75;
  • Intel (INTC) -$0.09 (0.36%) to $24.90;
  • Cisco Systems (CSCO) -$0.23 (1.24%) to $18.25;
  • eBay (EBAY) -$0.66 (1.69%) to $38.28;
  • Fannie Mae (FNM) -$1.28 (2.62%) to $47.52; and
  • Freddie Mac (FRE) -$0.81 (1.37%) to $58.23.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2283 to 1018, for a single-day A/D reading of -1265; and Nasdaq losers exceeded gainers by 2012 to 1017. The 10-day moving average of the A/D line fell to 125.5 on the NYSE, while the 10dma of the Nasdaq A/D fell to 46.0.

On the NYSE declining volume was greater than volume in advancing issues by 1487.3 to 518.6 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1015.2 to 742.5 million shares.

104 NYSE-listed stocks rose to new 52-week highs, and 39 posted fresh 52-week lows, while on the Nasdaq there were 104 stocks that hit new 52-week highs, and 41 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)518.64742.46
Declining Volume (m)1487.341015.2
New Highs104104
New Lows3941

Market Sentiment Statistics
CBOE Volatility Index12.390.746.35%
CBOE Nasdaq Volatility Index14.97-0.19-1.25%
Equity Put-Call Ratio0.80.1115.94%
10-day PCR0.6000%
SPX-VIX Ratio99.4-7.12-6.68%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 2.2 bps to 4.422%. The market is in a tug-of-war with itself. On the one hand bond prices want to go lower - based on the assumption that the Fed is not finished raising short rates. On the other, it is concerned that the economy is probably dead in the water, which would imply lower long-term bond yields (at least it would if the US government wasn't spending like a drunken sailor).

The bond market can tug itself all it likes (helped from time to time by flagrant US-government intervention); long bonds will be lower in a year than they are now... significantly lower.

The middle of the yield curve was broadly higher in price: five year yields fell to 3.931%, and ten-year yields fell to 4.134%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 2.0 bps tighter at -4.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 48.0 bps for 10-year AAA, and 87.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly wider with the AAA-A spread on 20-years 10.0 bps wider at 44.0 basis points and the 10-year AAA-A spread 3.0 bps wider at 10.0 bps.

Treasury Yields
UST 13wk (yld)3.40400%
UST 2Y (yld)3.85-0.01-0.26%
UST 5Y (yld)3.931-0.043-1.08%
UST 10Y (yld)4.134-0.035-0.84%
UST 30Y (yld)4.422-0.022-0.5%

The Banks Index lost 0.8 points (0.81%), ending the day at 98; within the index,

  • National City Corp (NCC) -$0.83 (2.29%) to $35.41;
  • Washington Mutual (WM) -$0.81 (1.92%) to $41.43;
  • Northern Trust (NTRS) -$0.86 (1.73%) to $48.87;
  • M&T Bank Corp (MTB) -$1.59 (1.48%) to $106.12; and
  • Bank Of NY (BK) -$0.44 (1.44%) to $30.22.

The Broker-dealer Index added 0.28 points (0.16%), closing at 177.16; the ticket clippers lined up as follows -

  • Charles Schwab (SCH) +$0.48 (3.43%) to $14.46;
  • Ameritrade (AMTD) +$0.67 (3.14%) to $22.01;
  • Lehman Brothers (LEH) -$0.05 (0.04%) to $112.28;
  • Raymond James (RJF) -$0.02 (0.07%) to $30.65; and
  • A G Edwards (AGE) -$0.12 (0.26%) to $46.33.

The Philadelphia SOX (Semiconductor) index added 1.11 points (0.23%), at 482.2

  • Texas Instruments (TXN) +$0.85 (2.57%) to $33.96;
  • National Semiconductors (NSM) +$0.58 (2.26%) to $26.26;
  • Applied Materials (AMAT) +$0.31 (1.74%) to $18.09;
  • ST Microelectronic (STM) +$0.23 (1.32%) to $17.70; and
  • Taiwan Semiconductors (TSM) +$0.09 (1.07%) to $8.49.

Gold & Silver Markets

Gold fell by $3.70 (0.82%) to close at $447 per ounce. It's not the slap-down that I anticipated yesterday, but it's early days yet.

The Gold Bugs Index shed 5.31 points (2.41%), to end the session at 215.05

  • Coeur d'Alene (CDE) -$0.25 (6.33%) to $3.70;
  • Hecla Mining (HL) -$0.20 (5.08%) to $3.74;
  • Golden Star (GSS) -$0.11 (3.47%) to $3.06;
  • Freeport McMoran (FCX) -$1.44 (3.29%) to $42.35; and
  • Glamis Gold (GLG) -$0.57 (2.76%) to $20.10.

Silver fell by $0.06 (0.78%) to close at $7.01 per ounce. The Gold and Silver Index (XAU) lost 2 points (1.95%), at 100.68 points.

  • Durban Rooderpoert Deep (DROOY) -$0.06 (4.65%) to $1.23;
  • Freeport McMoran (FCX) -$1.44 (3.29%) to $42.35;
  • Barrick Gold (ABX) -$0.73 (2.62%) to $27.09; and
  • Placer Dome (PDG) -$0.39 (2.49%) to $15.29.
Precious Metals and Indices
PHLX Gold and Silver Index100.68-2-1.95%
AMEX Gold BUGS Index215.05-5.31-2.41%

Oil Market

Oil lost ground, shedding $0.14 per barrel, closing at $63.11 per barrel. It dipped again to below $62.75 (the low was $62.65) after an early bounce to $63.87.

This market is getting 'downside dull', so being short here is getting riskier. If it can't get below $62.75 on a closing basis there is a good likelihood that the low-$62s registered last week will be the interim low for a week or so; the intraday breach of $62.75 (which is also the August 18the low) will then go down as a 'tease tick'. Personally I think that's unlikely; this is a seasonal move, not a nuffie-slicer.

The Oil and Gas Index (XOI) shed 7.45 points (0.71%), at 1041.98

  • ChevronTexaco (CVX) -$0.93 (1.47%) to $62.37;
  • BP (BP) -$1.01 (1.45%) to $68.82; and
  • ConocoPhillips (COP) -$0.96 (1.43%) to $66.20.

The Oil service stocks (OSX) Index declined 1.61 points (0.95%), at 167.95

  • GlobalSantaFe (GSF) -$1.92 (4.24%) to $43.36;
  • Transocean (RIG) -$1.02 (1.73%) to $57.93; and
  • Halliburton (HAL) -$0.90 (1.42%) to $62.70.
Energy Complex
Reuters CRB317.78-2.03-0.63%
Crude Oil Light Sweet63.11-0.14-0.22%
Heating Oil1.84020.031.43%
Natural Gas10.763-0.27-2.43%
Unleaded Gas1.89160.021.26%
AMEX Oil Index1041.98-7.45-0.71%
Oil Service Index167.95-1.61-0.95%

Currency Markets

USD Exchange Rates
US Dollar Index87.750.040.05%
Australian Dollar0.7684-0.0002-0.03%
Swiss Franc1.26140.00320.25%
Canadian Dollar0.84630.00410.49%