Interdum stultus opportuna loquitur...

Saturday, September 10, 2005

USRant: Short Squeeze Before Sunday...

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

Sunday is the 4th anniversary of the chickens coming home to roost - i.e., when the victims of US foreign policy decided to strike back at targets which, if selected by the US in another country, would have been declared 'valid military targets'. The WTC included offices that housed Department of 'Defence' command and control infrastructure, as well as a CIA station. Sure, there were a bunch of innocent 'collateral damage-ees' - but we don't count those when they're foreigners so it's not clear to me why we should count them when they're 'ours'.

Anyhow, today's pump upwards (which was mostly short-covering) should be seen in that context; nobody expects anything to blow up this weekend (apart from a few dozen more Iraqi civilians - but we don't count those), so folks were busily closing shorts in anticipation of a 'nuffie relief' orgasm at the open on Monday. Then the smart money will short again.

Oil continued its trek downwards - this time making a higher low on the daily chart (at $63.55 as compared with $63.10 yesterday). I don't think the higher low is anything to be concerned about; with Unleaded having broken down through $2 as easy as you like, and Heating Oil likewise, the only thing left is for Natural Gas to break $10 from above and the selling should really start to liven up. Expect the downdraft to continue next week.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation.

  • a $4billion, 7-day repurchase with $3billion in T-backed collateral undertaken at a 3.2 basis point discount to the Fed Funds Rate (FFR).

Major US Indices

Technically, today was the 'once in a blue moon' when first-hour breakout traders actually made money, and ''fade' traders got kicked in the pants. AS I said yesterday, fade trading is a forgiving art: kicks in the pants are never too bad. Today there was a 'cascade' of signals which prevented any stopout, but everything should have been shut down at the close due to the high likelihood of a burst on Monday due to 'September 11 Effect".

Check out the chart below: they green spot on the charts is yesterday's buying divergence; the red dots are today's selling divergences. Now even though I was absolutely explicit in the 10700 upside target, the first sell divergence is the long-side exit for the buy side traded initiated at the green dot... it is a LAW that you exit-if-long on any selling divergence. So we didn't hold to 10700-ish despite it being a stated objective... that's too bad: stated objectives sometimes don't eventuate, and better to reverse at the divergence than hold a position that never gets to a target.

Dow 15-minute chart

Notice that the first divergence occurs at a 'natural' stopping point for the Dow - 10650-ish, coupled with the first break of the first-hour high. Looked almost too perfect.

And yet from there, the market kept rising for another solid hour, putting the short trade underwater by more than 30 Dow points; not so good, but also not a stop-out, because another divergence appeared (just in time, for those who like to justify holding losers)... and yet still the market kept climbing, albeit at a much-reduced rate of ascent.

The third short-signal divergence happened about another hour later, within ten Dow points of the second divergence. There was actually no net damage for the day - having ridden the prior-day's long for a 90-point booster-shot, taking a bath on the Friday short should have been painless.

The Dow Jones Industrial Average gained 82.63 points (0.78%), closing out the day at 10678.56 points. The index hit an intraday high of 10695.92 (which is pretty close to the "10700-after-10550-pullback" declared on Wednesday), after opening at its low (10593.94). 

The market opened with the bit between its teeth, with technology-stock hopefuls Texas Instruments (which issued earnings updates after the close yesterday) while thinking about punishing Intel for a softer update. As usual, the dumb bastards who piled into TXN at the open, got handed their heads.

Buying a stock at the open based on news is a recipe for disaster about 75% of the time: everybody who already knows what the news is going to be is already long the stock, and looking to unload all over nuffnuffs who buy based on the 'news'. Let's refer to this as "Vizarding the Nuffies". Well, TXN nuffies got Vizarded good and proper. After opening at $34.25, TXN lost ground for the entire remainder of the session, eventually ending up with a closing loss of 1¢ at $33.75. Sure, 50¢ is not a huge loss on a $34.25 'investment', but it's a pretty bad day's work!

As I mentioned, INTC's mid-quarter update wasn't as flash, and INTC got whopped for 3-odd percent for the session.

Within the blue-chip index, 25 stocks rose, the biggest gainers being Exxon Mobil (XOM, +3.10% to $63.20) and American International Group (AIG, +2.46% to $61.23), which accounted for 27 Dow points between them. Losers in the Dow numbered 5 and were led by Intel (INTC, -3.22% to $25.25) and Pfizer (PFE, -0.68% to $26.33), with these two stocks contributing -8 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 206.3m shares to 185.2m.

The broader S&P500 gained 9.81 points (0.8%), closing at 1241.48. Within the index, gainers numbered 395, while 89 S&P500 stocks fell for the day. Volume was tilted 2.6:1 in favour of the winners with 1321.94 million units traded in the winners as compared with 502.99 million traded in the losers .

Over at Times Square, the Nasdaq Composite gained 9.48 points (0.44%), to close at 2175.51, while larger-cap technology issues fared better with the Nasdaq100 adding 10.15 points (0.64%), to end at 1607.83 points. Within the tech benchmark, gainers numbered 64, while 32 Nasdaq100 stocks fell for the day. Volume was tilted 1.7:1 in favour of the winners with 447.79 million traded in the winners compared to 268.34 million in the losers .

NYSE Volume was super-chunky, with 2.01 billion shares changing hands, while Nasdaq Volume was chunky, with 1.67 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10678.5682.630.78%
Nasdaq Composite2175.519.480.44%
NYSE Volume2.01bn--
Nasdaq Volume1.67bn--


My 9-stock "bellwethers" group fell by an average of 0.08%

  • General Electric (GE) +$0.13 (0.38%) to $33.98;
  • Citigroup (C) +$0.17 (0.38%) to $44.61;
  • Wal Mart (WMT) +$0.03 (0.07%) to $45.89;
  • I.B.M. (IBM) +$0.64 (0.79%) to $81.44;
  • Intel (INTC) -$0.84 (3.22%) to $25.25;
  • Cisco Systems (CSCO) +$0.21 (1.14%) to $18.58;
  • eBay (EBAY) -$0.31 (0.8%) to $38.62;
  • Fannie Mae (FNM) +$0.19 (0.39%) to $48.69; and
  • Freddie Mac (FRE) +$0.09 (0.16%) to $58.05.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2309 to 958 for a single-day A/D reading of 1351; Nasdaq gainers trumped losers by 1829 to 1168. The 10-day moving average of the A/D line rose to 570.6 on the NYSE, while the 10dma of the Nasdaq A/D rose to 237.7.

NYSE advancing volume exceeded volume in decliners by 1498.1 to 478.6 million shares; Nasdaq advancing volume was greater than volume in decliners by 1059 to 570.5 million shares.

258 NYSE-listed stocks rose to new 52-week highs, and 18 posted fresh 52-week lows, while on the Nasdaq there were 132 stocks that hit new 52-week highs, and 33 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1498.071058.95
Declining Volume (m)478.55570.49
New Highs258132
New Lows1833

Market Sentiment Statistics
CBOE Volatility Index11.98-0.95-7.35%
CBOE Nasdaq Volatility Index14.27-0.43-2.93%
Equity Put-Call Ratio0.62-0.09-12.68%
10-day PCR0.6300%
SPX-VIX Ratio103.68.338.74%

Bond Market Analysis

Bonds rose at the long end, with the yield on the benchmark 30-year Treasury bond shedding 2.0 bps to 4.402%.

The middle of the yield curve was broadly higher: five year yields fell to 3.933%, and ten-year yields fell to 4.123%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 6.0 bps wider at -2.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts rose to 49.0 bps for 10-year AAA, and 86.0 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 5.0 bps tighter at 34.0 basis points and the 10-year AAA-A spread 2.0 bps tighter at 7.0 bps.

Treasury Yields
UST 13wk (yld)3.39700%
UST 2Y (yld)3.8600%
UST 5Y (yld)3.933-0.01-0.25%
UST 10Y (yld)4.123-0.016-0.39%
UST 30Y (yld)4.402-0.02-0.45%

The Banks Index added 0.37 points (0.38%), ending the day at 98.92; within the index,

  • Golden West Financial (GDW) +$0.80 (1.32%) to $61.50;
  • US Bancorp (USB) +$0.32 (1.08%) to $29.88;
  • State Street (STT) +$0.45 (0.92%) to $49.48;
  • Washington Mutual (WM) +$0.37 (0.89%) to $42.13; and
  • Comerica (CMA) +$0.48 (0.79%) to $61.48.

The Broker-dealer Index added 1.94 points (1.12%), closing at 174.93; the ticket clippers lined up as follows -

  • Ameritrade (AMTD) +$0.97 (4.82%) to $21.10;
  • Raymond James (RJF) +$0.45 (1.5%) to $30.41;
  • Charles Schwab (SCH) +$0.19 (1.41%) to $13.70;
  • Merrill Lynch (MER) +$0.77 (1.31%) to $59.71; and
  • E*Trade (ET) +$0.17 (1%) to $17.24.

The Philadelphia SOX (Semiconductor) index gained 3.35 points (0.7%), closing at 482.16

  • Advanced Micro Devices (AMD) +$0.77 (3.34%) to $23.85;
  • Broadcom (BRCM) +$1.18 (2.62%) to $46.29;
  • Infineon Tech (IFX) +$0.25 (2.55%) to $10.05;
  • Taiwan Semiconductors (TSM) +$0.13 (1.58%) to $8.36; and
  • Teradyne (TER) +$0.24 (1.46%) to $16.68.

Gold & Silver Markets

Gold rose $2.3 (0.51%) to close at $450 per ounce, setting its session high at $450.40 in the middle of the session and testing it again in the last half-hour. Considering the stable behaviour of the US dollar index, it appears that Gold longs are getting a little too enthusiastic; do not be surprised if there is a $10 decline in Gold next week, but still do not short it.

It is a mantra in this space the we do not short Gold; we sit on the sidelines when we think that the nuffnuffs are going to get creamed yet again. That's not because of a love of the yellow stuff or due to any feelings of camaraderie with the nuffies, but because when Gold cracks upwards it will probably do so with a $10 gap, which will savage shorts while leaving longs crying over a missed opportunity.

The Gold Bugs Index posted a rise of 5.17 points (2.4%), ending the day at 220.23

  • Meridian Gold (MDG) +$1.35 (6.86%) to $21.03;
  • Kinross Gold (KGC) +$0.33 (4.83%) to $7.16;
  • Harmony Gold (HMY) +$0.36 (4.48%) to $8.40;
  • Newmont Mining (NEM) +$1.44 (3.51%) to $42.44; and
  • Hecla Mining (HL) +$0.13 (3.49%) to $3.85.

Silver rose $0.04 (0.5%) to close at $7.07 per ounce. The Gold and Silver Index (XAU) gained 2.56 points (2.56%), to 102.6 points.

  • Meridian Gold (MDG) +$1.35 (6.86%) to $21.03;
  • Kinross Gold (KGC) +$0.33 (4.83%) to $7.16;
  • Anglogold Ashanti (AU) +$1.70 (4.58%) to $38.78; and
  • Harmony Gold (HMY) +$0.36 (4.48%) to $8.40.
Precious Metals and Indices
PHLX Gold and Silver Index102.62.562.56%
AMEX Gold BUGS Index220.235.172.4%

Oil Market

Oil lost ground, shedding $0.41 per barrel, closing at $64.08 per barrel. It still has not seriously challenged the $62.75 level - I expect that to happen next week. I also expect that level to break, as part of the pullback in oil that I forecast the day before Hurricane Katrina. I reiterated the same forecast a day or so after the thing hit. there might be a bounce when Natural Gas tries to bounce off $10/Mbtu, but forget it... this is a seasonal thing.

Eventually the pullback will probably stall in the low-to-mid $50s, at which time journalists and other know-nothings will be predicting $40 a barrel oil. Once more than 4 stories to that effect appear on the mindless chain of thin-thinking crap that calls itself Reuters/Bloomberg/CNBC, it'll be time to BUY oil again.

The Oil and Gas Index (XOI) advanced 27.57 points (2.63%), at 1074.06

  • Amerada Hess (AHC) +$4.92 (3.71%) to $137.40;
  • Sunoco (SUN) +$2.67 (3.47%) to $79.65; and
  • Kerr Mcgee (KMG) +$3.15 (3.44%) to $94.85.

The Oil service stocks (OSX) Index rose 3.7 points (2.17%), closing at 174.19

  • Transocean (RIG) +$2.18 (3.73%) to $60.58;
  • Nabors Industries (NBR) +$1.88 (2.78%) to $69.56; and
  • National Oilwells/Varco (NOV) +$1.66 (2.61%) to $65.25.
Energy Complex
Reuters CRB321.860.120.04%
Crude Oil Light Sweet64.08-0.41-0.64%
Heating Oil1.8965-0.03-1.72%
Natural Gas11.263-0.08-0.74%
Unleaded Gas1.9597-0.08-3.72%
AMEX Oil Index1074.0627.572.63%
Oil Service Index174.193.72.17%

Currency Markets

USD Exchange Rates
US Dollar Index86.89-0.18-0.21%
Australian Dollar0.77480.00190.25%
Swiss Franc1.2429-0.0016-0.13%
Canadian Dollar0.84890.00240.28%