Interdum stultus opportuna loquitur...

Monday, September 19, 2005

USRant: Nobody's Thinking...

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Last Thursday I was a bit dismissive of my prior statement that the 'heads up' on the Fed's move this week would be the premium at which the week's 14-day repurchase was struck. To recap:

What did I say earlier in the week about the 'heads up' provided by the Fed's OMO desk? I said this...
Close to an FOMC meeting, the repo issue starts to happen at a premium to the prevailing FFR in anticipation of the new, higher FFR... but that usually doesn't start to happen to the overnight repurchases until a couple of days before the FOMC meeting, so I'm only mentioning it as a 'heads-up'. The big tip of the hand on the FOMC move will happen when the Fed's OMO desk performs this week's 14-day repurchase (that usually happens on Tuesday or Wednesday); if that repurchase is performed at a significant premium, it is a certainty that the Fed will hike rates again.
OK, so today's longer-term repo was a 7-day... the logic still holds. the FOMC tightens next week, for sure (I doubt I will get a Nobel Prize for that observation - it's been obvious they were going to do so).

Anyhow - the point was that there were actually three repurchases performed last Thursday, and the one I missed was the 14-day, which was struck at 3.65% - a 15-basis point premium to the currently-prevailing Fed Funds rate, but a 10 basis point discount to the higher rate that will prevail after Tuesday's FOMC announcement. (Yes - they will hike by 25 bps again).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation on Friday - a $9.5billion, weekend repurchase with $8.973billion in T-backed collateral undertaken at a 9.8 basis point premium to the Fed Funds Rate (FFR). The premium-discount calculus is still important 

Major US Indices

The technical picture painted last Thursday - of a still-in-force buying divergence which had not yet hit overbought - was right on the money, with the traction holding for the opening spurt. However within the first 15 minutes came a massive CCI overbought, which (as I pointed out last week) can be used in isolation when the market is reversing down from overbought. Check out the chart:

Dow 15-minute chart

Note that the huge CCI spike at the open (with CCI at 423 - almost off-the-scale) gave an entry which only touched profitability two and a half hours later (because the entry on a CCI spike is always made at the close of the bar... not at the high, unless the high is the close). Still, it gave the sought-after S&P point.

I've highlighted the moving-average crossover with a blue balloon; notice that it coincided with a CCI 'microdivergence' and %R overbought (a 'microdivergence, you will remember, is when the CCI makes a divergence but the divergence develops over fewer bars than I prefer... I prefer at least 4). No matter, it reinforced the correctness of the CCI-spike entry - especially when coupled with what I've said previously about the behaviour of the chart once moving averages cross... namely:

I was telling my Dad a couple of weeks ago about things I watch for - for example, when moving averages cross, there will be a rush of folks who jump on the trade... and they place tight stops. Then, the market has a very strong tendency to slam back down towards - and usually touch or penetrate - the shorter-term moving average, in order to get at those stops. It's another little thing to watch for... that the trend changes, but first the nuffies have to be taken to the cleaners.

It's blatantly obvious on the chart above, n'est-ce pas? So you had a short on, and you see the MA's cross... that tells you that your short is in good shape to be taken off once the market goes hunting for the nuffie-stops - before resuming its new-found bull trend. Hell, you could even work out that the exit would've been just below the shorter of the two MA's. And once you add that 10575 was immediately below the faster MA, and that 10600 had been 'teased' four times, you had ducks lined up all the way to the horizon.

Later in the day there was a selling divergence - two, in fact - that presages a lower market on Monday. the fact that they coincided with a test from below of 10650 is yet another indication of how important those damned 'quarters' are in the Dow.

But back the the numbers...

The Dow Jones Industrial Average added 83.19 points (0.79%), closing out the day at 10641.94 points - after a short-covering rally in advance of the weekend. The short-covering was mostly anticipatory - there will be the usual ego-handjob for the FOMC - but it also arose as a result of the refusal of the index to make bearish signals on the chart during the first half of the session.

The index hit an intraday high of 10647.36 (i.e., 10650-ish), after opening at its low (10560.42). Within the blue-chip index, 23 stocks rose, the biggest gainers being American Express (AXP, +3.30% to $59.46) and JPMorganChase (JPM, +2.52% to $34.99), which accounted for 22 Dow points between them. Losers in the Dow numbered 7 and were led by Home Depot (HD, -1.09% to $39.90) and Wal Mart (WMT, -1.02% to $43.87), with these two stocks contributing -7 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 423.3m shares to 335.9m.

The broader S&P500 rose 10.18 points (0.83%), at 1237.91. Within the index, gainers numbered 347, while 141 S&P500 stocks fell for the day. Volume was tilted 1.8:1 in favour of the winners with 2000.39 million units traded in the winners as compared with 1124.22 million traded in the losers .

Over at Times Square, the Nasdaq Composite added 14.2 points (0.66%), to close at 2160.35, while larger-cap technology issues fared better with the Nasdaq100 adding 10.89 points (0.69%), to end at 1599.44 points. Within the tech benchmark, gainers numbered 58, while 38 Nasdaq100 stocks fell for the day. Volume was tilted 1.0:1 in favour of the winners with 615.35 million traded in the winners compared to 594.15 million in the losers .

NYSE Volume was super-duper-never-before-seen-chunky, with 3.15 billion shares changing hands. That is an all-time record, beating the 3.11 billion registered on June 24th. (Note that the NYSE has revised history: on the 24th the NYSE only reported 2.42 billion, but their data history now shows 3.115 billion for that date).Nasdaq Volume was super-chunky (over 2 bill), with 2.41 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10641.9483.190.79%
Nasdaq Composite2160.3514.20.66%
NYSE Volume3.15bn--
Nasdaq Volume2.41bn--


My 9-stock "bellwethers" group rose by an average of 0.52%

  • General Electric (GE) +$0.09 (0.26%) to $34.47;
  • Citigroup (C) +$0.42 (0.93%) to $45.41;
  • Wal Mart (WMT) -$0.45 (1.02%) to $43.87;
  • I.B.M. (IBM) +$0.32 (0.4%) to $80.33;
  • Intel (INTC) +$0.26 (1.06%) to $24.81;
  • Cisco Systems (CSCO) +$0.39 (2.16%) to $18.42;
  • eBay (EBAY) -$0.55 (1.46%) to $37.10;
  • Fannie Mae (FNM) +$0.45 (0.94%) to $48.26; and
  • Freddie Mac (FRE) +$0.83 (1.41%) to $59.69.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 1952 to 1314 for a single-day A/D reading of 638; Nasdaq gainers trumped losers by 1907 to 1136. The 10-day moving average of the A/D line rose to 63.5 on the NYSE, while the 10dma of the Nasdaq A/D rose to -33.3.

NYSE advancing volume exceeded volume in decliners by 2055.4 to 1062.2 million shares; Nasdaq advancing volume was greater than volume in decliners by 1411.1 to 969.6 million shares.

273 NYSE-listed stocks rose to new 52-week highs, and 103 posted fresh 52-week lows, while on the Nasdaq there were 220 stocks that hit new 52-week highs, and 106 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)2055.421411.1
Declining Volume (m)1062.23969.64
New Highs273220
New Lows103106

Market Sentiment Statistics
CBOE Volatility Index11.22-1.27-10.17%
CBOE Nasdaq Volatility Index14.58-1.18-7.49%
Equity Put-Call Ratio0.52-0.07-11.86%
10-day PCR0.6000%
SPX-VIX Ratio110.312.0312.24%

Bond Market Analysis

Bonds fell yet again at the long end, with the yield on the benchmark 30-year Treasury bond rising 4.4 bps to 4.555%. The 30-year T-bond future dropped another 17 ticks to 114-21/32 (the session low was 114-14/32).

The middle of the yield curve was broadly lower in price: five year yields rose to 4.046%, and ten-year yields rose to 4.262%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 14.0 bps wider at 13.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 37.0 bps for 10-year AAA, and 75.5 bps for 20-years.

Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were broadly tighter with the AAA-A spread on 20-years 8.0 bps wider at 45.0 basis points and the 10-year AAA-A spread 4.0 bps wider at 17.0 bps.

Treasury Yields
UST 13wk (yld)3.40900%
UST 2Y (yld)3.960.082.06%
UST 5Y (yld)4.0460.0521.3%
UST 10Y (yld)4.2620.0481.14%
UST 30Y (yld)4.5550.0440.98%

The Banks Index rose 1.85 points (1.9%), at 99.32; within the index,

  • Mellon Financial (MEL) +$1.14 (3.56%) to $33.14;
  • PNC Financial Services (PNC) +$1.80 (3.21%) to $57.96;
  • Fifth Third Bancorp (FITB) +$1.09 (2.83%) to $39.54;
  • Suntrust Banks (STI) +$1.84 (2.62%) to $72.20; and
  • State Street (STT) +$1.26 (2.57%) to $50.34.

The Broker-dealer Index gained 1.95 points (1.12%), at 176.39; the ticket clippers lined up as follows -

  • Raymond James (RJF) +$0.78 (2.58%) to $31.07;
  • Goldman Sachs (GS) +$2.45 (2.11%) to $118.40;
  • E*Trade (ET) +$0.29 (1.74%) to $16.93;
  • A G Edwards (AGE) +$0.67 (1.47%) to $46.33; and
  • Bear Stearns (BSC) +$1.50 (1.46%) to $104.40.

The Philadelphia SOX (Semiconductor) index advanced 1.51 points (0.32%), ending the day at 474.77

  • Marvell Tech Group (MRVL) +$1.93 (4.27%) to $47.14;
  • Maxim Integrated (MXIM) +$0.63 (1.46%) to $43.72;
  • Intel (INTC) +$0.26 (1.06%) to $24.81;
  • Altera (ALTR) +$0.20 (1.05%) to $19.17; and
  • Broadcom (BRCM) +$0.36 (0.79%) to $45.88.

Gold & Silver Markets

Gold rose $3.80 (0.83%) to close at $460.10 per ounce - a 17-year high. It's showing too much strength relative to the USD - I plan to focus on Gold next week (note: that's now THIS week), with a full-spectrum  analysis similar to what I did for Oil (and for Woodside in the Australian stocks arena). Without pre-empting the results of that analysis, it looks like easy money being long... which is always a recipe for disaster. Always be skeptical of large price moves on a Friday.

The Gold Bugs Index rose 10.35 points (4.52%), at 239.54

  • Hecla Mining (HL) +$0.53 (13.59%) to $4.43;
  • Coeur d'Alene (CDE) +$0.35 (9.23%) to $4.14;
  • Harmony Gold (HMY) +$0.84 (9.12%) to $10.05;
  • Golden Star (GSS) +$0.28 (8.38%) to $3.62; and
  • Gold Fields (GFI) +$0.76 (5.98%) to $13.46.

Silver rose $0.20 (2.78%) to close at $7.28 per ounce. The Gold and Silver Index (XAU) gained 4.08 points (3.83%), closing at 110.54 points.

  • Harmony Gold (HMY) +$0.84 (9.12%) to $10.05;
  • Placer Dome (PDG) +$1.07 (6.61%) to $17.26;
  • Gold Fields (GFI) +$0.76 (5.98%) to $13.46; and
  • Meridian Gold (MDG) +$0.96 (4.51%) to $22.26.
Precious Metals and Indices
PHLX Gold and Silver Index110.544.083.83%
AMEX Gold BUGS Index239.5410.354.52%

Oil Market

Oil lost ground, shedding $1.75 per barrel, closing at $63 per barrel. I said above to always be skeptical of large price moves on a Friday, and this is no exception. the failure to break below $62.75 has been important, as I said it would be (the low today was $62.85). If Oil doesn't close below $62.75 on Monday, the thing will bounce, and bounce hard.

The Oil stocks can smell a bounce coming... the Oil and Gas Index (XOI) rose 4.41 points (0.42%), closing at 1056.05

  • ConocoPhillips (COP) +$1.61 (2.38%) to $69.15;
  • Repsol YPF (REP) +$0.67 (2.14%) to $32.05; and
  • Exxon Mobil (XOM) +$1.24 (1.99%) to $63.70.

The Oil service stocks (OSX) Index added 0.31 points (0.18%), to 171.48

  • Global Industries (GLBL) +$0.49 (3.83%) to $13.28;
  • BJ Services (BJS) +$0.53 (1.65%) to $32.61; and
  • Nabors Industries (NBR) +$1.08 (1.57%) to $69.73.
Energy Complex
Reuters CRB317.73-1.09-0.34%
Crude Oil Light Sweet63-1.75-2.7%
Heating Oil1.837-0.08-3.92%
Natural Gas11.144-0.19-1.69%
Unleaded Gas1.7851-0.11-5.98%
AMEX Oil Index1056.054.410.42%
Oil Service Index171.480.310.18%

Currency Markets

USD Exchange Rates
US Dollar Index88.490.40.45%
Australian Dollar0.7668-0.0002-0.03%
Swiss Franc1.26970.00220.17%
Canadian Dollar0.84820.00470.56%