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Well... how to begin. Oil hasn't dropped anywhere near as had as it ought to have this week, but that's no cause for concern; I've still got some final wrestling to do with the membership system, which has held me up on preparing the full-spectrum case for a seasonal peak in oil starting now and finishing in November.
The wrestling has taken significantly longer than I expected, but it's parttly my fault - I keep thinking of little bits and pieces that would 'fit' into the various analytical summaries... yesterday I thought "in the Index breadth, it would be interesting to know what proportion of the index components were
- above their 'n'-day/week moving averages (where 'n' is in [7, 13,21,50,100]);
- technically at a sentiment extreme; or
- have set a higher high but a lower CCI than the CCI at the prior high (i.e., are potentially showing a divergence.
That's been on the development schedule for a while, and when I got sick of disentangling code yesterday I had a crack at adding it to the already-lengthy Index Breadth tables. Yesterday was also "Setup Day" for the data-mechanisms for an intraday charting feature, starting at 3 a.m.
That's all by the by though... back to important stuff.
Having a hurricane blow through the Gulf has not even dented the technical merit of the 'short bias for oil and oilers as of right now' case, but the fundamental aspect - in particular the refinery capacity bottlenecks resulting from Katrina's little trip across the South - may change the calculus on the relative 'bets' on different members of the Energy matrix (e.g., whether Crude drops as much as, or more than, Unleaded).
Federal Reserve Open Market Operations
The Fed's Open Market Operations desk performed 2 repurchase operations.
- a $7.25billion, overnight repurchase entirely in T-backed collateral undertaken at a 7.3 basis point premium to the Fed Funds Rate (FFR); and
- a $9billion, 14-day repurchase with $6.946billion in T-backed collateral undertaken at a weensy 0.8 basis point discount to the FFR.
If you look at a chart of the Toxic Twosome along with the Homebuilders index relative to the S&P (or any other major equity index), and you look at the insider selling in the shares of both homebuilder stocks and Fannie and Freddie, you will work out quite quickly that Freddie's last name is probably not "Mac": it's "Krueger"...
Mr Magoo and George the Chimp can not afford to have a housing sector meltdown to add to the checklist of their massive malfeasance and incompetence. So the Toxic Twosome (Freddie and Fannie) have been the recipient of low-cost cash in order to try and shore up their bonds and their share prices.
Speaking of malfeasance (particularly the kind that sees New Orleans levee-repair budget slashed by 70% - with the money being reallocated to Iraq along with 60% of Louisiana's National Guard and Reserves): did you notice the pathetic coverage of the Katrina outcomes on domestic TV last night? Even Red Kerry O'Brien - former speechwriter to Gough Whitlam, apparently - fell into line, with George Bush's return to Washington being something to do with 'leadership in a time of crisis. Fuck me drunk - why was there no mention of the budget slashing that was a proximate cause of the major breaches in the main levee? That the breaches occurred precisely where the Corps of Engineers had forecast it would... and where the reclamation project was severely curtailed because of Iraq-related budget cuts?
Do the bloggers now have to present every detail required by sentient beings, with 'mainstream' television taking the place of the 1984 Telescreen?
Of course Bush will try to exploit the misery and carnage. Of course he will tour the affected areas. There's nothing a politician loves better than the presence of fresh corpses - gives the politician the chance to try and look 'in charge', to convince the mourners that The State can (and will, and wants to) help them... and there's no psyche more malleable than a grief-stricken family. Once the mourning is over, and the scales fall from their eyes, they wake up and discover its the politicians' fault: then they camp outside your "pretend cowboy" ranch.
Is there anything gayer than a bloke who pretends to be a cowboy in his spare time? It's, like, so "Village People"... does he like Jeff Gannon to dress up as a cop, an Indian, a motorcycle leather dude, or... of course - the Army Guy! Not that there's anything wrong with that....
Major US Indices
Well, the divergence I mentioned yesterday - the only valid one, which occurred at the close - did the business perfectly. Perfectly.
To recap, here's what was said about it at the time:
Notice the divergence right at the close - a good indication that the afternoon momentum is already on the fade (evidence of a short-squeeze).
It was a bit cryptic, looking back - but everyone knows that %R overbought/CCI divergence is the absolute bread and butter bias changer, so a short bias for the first part of the session was pretty clear.
The short bias was helped significantly by the fact that the pre-market data stank:
- Jobless claims were 5k above expectations (320k vs. consensus 315k);
- Personal Income growth at just +0.3% (consensus +0.6%) and expenditure at +1%.. .with the savings rate now back below zero and at its lowest level since records began in 1959 - must be time to change the measurement again and get it back above zero...
- Construction Spending unchanged (consensus +0.5%);
- ISM Manufacturing Index 53.6 (consensus 57).
But what is the other thing always to keep in mind? That the initial 'nuffie' reaction to data will always be overdone; that any selling (or buying) as a result of data will always result in a swag of new intraday shorts (or longs) with narrow stops. Almost invariably, the market will go hunting for those stops, and their triggering will be used to wreak havoc on the positions of the new "data/news-traders". So the sensible trader's expectations - in the face of bad data - should always be that da Boyz will wade in at some point and start throwing their weight around.
Notice the "Bugger" non-divergence after the nuffie-killing spike (there was a divergence on both the S&P500 and Nasdaq charts). The spike started right at the medium-term moving average (those lines aren't there to look good), and the end of the spike coincided with the break of the first-hour's high. What did I say yesterday about that? To recap:
And when - as with this session - there is no strong first-hour momentum, fade first-hour extremes. That means selling the first hour high when it's tested later in the session (always allowing a 'tease margin' as breakout traders get encouraged to jump in); there are a couple of other neat tricks, but I'm not writing a bloody book on trading first thing in the morning (Australian time).
Pretty straightforward... and with no significant technical breaches made in the first hour, you could certainly not claim that there was any first-hour momentum.
By the time the closing bell rang, the Dow Jones Industrial Average was showing a modest decline of 21.97 points (0.21%), closing out the day at 10459.63 points - it could have been much more worser.
The index hit an intraday high of 10513.76 on the opening exhaustion move after yesterday's divergence at the close, giving smart folks a lovely chance to enter short. From there it fell almost 90 Dow points over the following hour, dipping to 10425.8 (10425-ish).
At Dow 10425 you had a beautiful confluence:
- the moving average I mentioned above (the first green balloon on the chart;
- the fact that it was just after the end of the first hour (so first-hour breakout traders were lured short... ripe for killing) ;
- a 'quarter' (i.e., a Dow ending in '25', '50', '75' or '100');
- the Nasdaq100 touching its own 'quarter' (1575); and
- 15 minutes had expired after the last batch of 'bad' data 9giving 'data-traders' the opportunity to get on the wrong side of the boat).
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.
Within the blue-chip index, 13 stocks rose, the biggest gainers being Exxon Mobil (XOM, +2.97% to $61.68) and Caterpillar (CAT, +2.61% to $56.94), which accounted for 26 Dow points between them. Losers in the Dow numbered 17 and were led by General Motors (GM, -3.57% to $32.97) and Mcdonalds (MCD, -2.77% to $31.55), with these two stocks contributing -17 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the losers by 281.2m shares to 126.8m.
The broader S&P500 gained 1.26 points (0.1%), ending the day at 1221.59. Within the index, gainers numbered 247, while 238 S&P500 stocks fell for the day. Volume was tilted 1.2:1 in favour of the losers with 1037.50 million units traded in the winners as compared with 891.49 million traded in the losers .
Over at Times Square, the Nasdaq Composite slid 4.19 points (0.19%), to close at 2147.9, while larger-cap technology issues fared worse with the Nasdaq100 losing 4.46 points (0.28%), to end at 1577.25 points. Within the tech benchmark, gainers numbered 36, while 58 Nasdaq100 stocks fell for the day. Volume was tilted 1.6:1 in favour of the losers with 409.64 million traded in the losers compared to 264.15 million in the winners .
NYSE Volume was again super-chunky, with 2.23 billion shares changing hands, while Nasdaq Volume was solid-to-chunky, with 1.65 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).
| Major Market Statistics | |||
| Index | Close | Gain(Loss) | % |
| Dow Jones Industrial Average | 10459.63 | -21.97 | -0.21% |
| S&P500 | 1221.59 | 1.26 | 0.1% |
| Nasdaq Composite | 2147.9 | -4.19 | -0.19% |
| Nasdaq100 | 1577.25 | -4.46 | -0.28% |
| NYSE Volume | 2.23bn | - | - |
| Nasdaq Volume | 1.65bn | - | - |
Bellwethers
My 9-stock "bellwethers" group fell by an average of 1.40%; Fannie and Freddie have both now broken fairly significant support bands. Citigroup manipulators will be selling calls hand over fist.
- General Electric (GE) -$0.47 (1.4%) to $33.14;
- Citigroup (C) -$0.06 (0.14%) to $43.71;
- Wal Mart (WMT) +$0.04 (0.09%) to $45.00;
- I.B.M. (IBM) -$1.08 (1.34%) to $79.54;
- Intel (INTC) -$0.46 (1.79%) to $25.26;
- Cisco Systems (CSCO) +$0.03 (0.17%) to $17.65;
- eBay (EBAY) -$0.55 (1.36%) to $39.94;
- Fannie Mae (FNM) -$1.46 (2.86%) to $49.58; and
- Freddie Mac (FRE) -$2.41 (3.99%) to $57.97.
Market Breadth & Internals
NYSE advancing Issues exceeded decliners by 2003 to 1275 for a single-day A/D reading of 728; Nasdaq gainers trumped losers by 1527 to 1507. The 10-day moving average of the A/D line rose to 327.5 on the NYSE, while the 10dma of the Nasdaq A/D fell to 22.5.
NYSE advancing volume exceeded volume in decliners by 1218.9 to 977.6 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 925.7 to 673.3 million shares.
288 NYSE-listed stocks rose to new 52-week highs, and 27 posted fresh 52-week lows, while on the Nasdaq there were 143 stocks that hit new 52-week highs, and 41 which fell to fresh 52-week lows.
| Market Breadth Statistics | ||
| NYSE | Nasdaq | |
| Advancers | 2003 | 1527 |
| Decliners | 1275 | 1507 |
| Advancing Volume (m) | 1218.87 | 673.29 |
| Declining Volume (m) | 977.63 | 925.72 |
| New Highs | 288 | 143 |
| New Lows | 27 | 41 |
| Market Sentiment Statistics | |||
| Index | Close | Gain(Loss) | % |
| CBOE Volatility Index | 13.16 | 0.56 | 4.44% |
| CBOE Nasdaq Volatility Index | 15.07 | 0.36 | 2.45% |
| Equity Put-Call Ratio | 0.71 | 0.02 | 2.9% |
| 10-day PCR | 0.63 | 0 | 0% |
| SPX-VIX Ratio | 92.8 | -4.03 | -4.16% |
Bond Market Analysis
Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 2.8 bps to 4.289%. And yet, the 30-year bond futures hardly moved (on a close-to-close basis), although they did dip below 118 after a post-data spike to above yesterday's high at 118-16 (data-spikes plus a 'tease breach' of a prior high... always good for a short).
The middle of the yield curve was broadly higher in price: five year yields fell to 3.822%, and ten-year yields fell to 4.019%.
Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 6.0 bps tighter at -12.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 52.0 bps for 10-year AAA, and 75.0 bps for 20-years.
Credit spreads (spreads between corporate bonds of the same maturity profile but different creditworthiness) were mixed with the AAA-A spread on 20-years 4.0 bps wider at 50.0 basis points and the 10-year AAA-A spread unchanged at 4.0 bps.
| Treasury Yields | |||
| Index | Close | Gain(Loss) | % |
| UST 13wk (yld) | 3.365 | 0 | 0% |
| UST 2Y (yld) | 3.78 | -0.02 | -0.53% |
| UST 5Y (yld) | 3.822 | -0.047 | -1.21% |
| UST 10Y (yld) | 4.019 | -0.001 | -0.02% |
| UST 30Y (yld) | 4.289 | 0.028 | 0.66% |
The Banks Index gained 0.36 points (0.37%), at 98.53; within the index,
- US Bancorp (USB) +$0.66 (2.26%) to $29.88;
- Northern Trust (NTRS) +$0.77 (1.54%) to $50.61;
- M&T Bank Corp (MTB) +$1.28 (1.2%) to $107.90;
- State Street (STT) +$0.57 (1.18%) to $48.90; and
- Golden West Financial (GDW) +$0.71 (1.16%) to $61.70.
The Broker-dealer Index rose 2.52 points (1.5%), to 170.97; the ticket clippers lined up as follows -
- Bear Stearns (BSC) +$2.88 (2.87%) to $103.38;
- E*Trade (ET) +$0.44 (2.75%) to $16.44;
- Jeffries Group (JEF) +$0.85 (2.15%) to $40.33;
- Merrill Lynch (MER) +$1.10 (1.92%) to $58.26; and
- Lehman Brothers (LEH) +$1.94 (1.84%) to $107.60.
The Philadelphia SOX (Semiconductor) index shed 5.38 points (1.14%), to 468.37
- Applied Materials (AMAT) -$0.59 (3.22%) to $17.73;
- Micron Technology (MU) -$0.29 (2.43%) to $11.62;
- Novellus Systems (NVLS) -$0.59 (2.2%) to $26.22;
- National Semiconductors (NSM) -$0.52 (2.09%) to $24.41; and
- KLA-Tencor (KLAC) -$1.03 (2.03%) to $49.68.
Gold & Silver Markets
Gold rose a solid $8.40 (1.93%) to close at $443.50 per ounce as the US Dollar sold off hard. My long-ago-posted target of 90 for the USDX (the target was posted when the USD was down at about 84) worked perfectly, and now there's been some relatively serious technical damage to the USDX index... Gold still has that $450 mark to contend with, but a two-day close above about $451 should see $475 arrive very quickly thereafter. That's not saying to buy a breakout (a recipe for disaster if there was ever one); it's just saying not to try and short Gold if it closes above that level.
It's hard to advocate initiating long Gold positions at this level: for anyone who wasn't listening on January 30th 2002 when I first advocated longer-term long Gold positions (with gold at about $270), the risk-reward structure is difficult to properly assess at these prices. It depends on whether you're able to cope with a period of prolonged "to-ing and fro-ing" before the next leg up. I said in October 2004 that the Gold market was ripe for a decent pullback, or at the very least a period of sideways-to-down movement: thus far it's been pretty shallow and has actually had a mildly upward overall trajectory. That's a little too 'exuberant' for my tastes - I would have preferred a good solid gutwrenching decline to scare the beJesus out of the inexperienced.
The Gold Bugs Index gained 7.44 points (3.61%), ending the day at 213.43
- Kinross Gold (KGC) +$0.50 (7.91%) to $6.82;
- Glamis Gold (GLG) +$1.24 (6.52%) to $20.26;
- Randgold Resources (GOLD) +$0.75 (5.63%) to $14.07;
- Eldorado Gold (EGO) +$0.15 (4.98%) to $3.16; and
- Goldcorp (GG) +$0.88 (4.87%) to $18.94.
Silver rose $0.19 (2.73%) to close at $6.97 per ounce. The Gold and Silver Index (XAU) gained 3.38 points (3.53%), to 99.15 points.
- Kinross Gold (KGC) +$0.50 (7.91%) to $6.82;
- Durban Rooderpoert Deep (DROOY) +$0.05 (4.95%) to $1.06;
- Goldcorp (GG) +$0.88 (4.87%) to $18.94; and
- Agnico Eagle (AEM) +$0.58 (4.43%) to $13.66.
| Precious Metals and Indices | |||
| Index | Close | Gain(Loss) | % |
| Gold | 443.50 | 8.40 | 1.93% |
| Silver | 6.97 | 0.19 | 2.73% |
| PHLX Gold and Silver Index | 99.15 | 3.38 | 3.53% |
| AMEX Gold BUGS Index | 213.43 | 7.44 | 3.61% |
Oil Market
Oil was firmer: it is now pretty much technically spent, but may take another session before the big guys wreak havoc on the newcomers. It rose by $0.53 per barrel today, closing at $69.47 per barrel; interestingly it held above yesterday's low - nobody wanted to sell it off.
The Oil and Gas Index (XOI) posted a rise of 36.4 points (3.58%), to 1053.7
- Sunoco (SUN) +$5.34 (7.35%) to $78.04;
- Amerada Hess (AHC) +$7.17 (5.64%) to $134.27; and
- ConocoPhillips (COP) +$3.06 (4.64%) to $69.00.
The Oil service stocks (OSX) Index added 2.12 points (1.23%), to 173.97
- National Oilwells/Varco (NOV) +$1.33 (2.07%) to $65.54;
- Weatherford International (WFT) +$1.40 (2.07%) to $69.11; and
- Halliburton (HAL) +$1.16 (1.87%) to $63.16.
| Energy Complex | |||
| Index | Close | Gain(Loss) | % |
| Reuters CRB | 325.35 | 6.36 | 1.99% |
| Crude Oil Light Sweet | 69.47 | 0.53 | 0.77% |
| Heating Oil | 2.1985 | 0.12 | 5.7% |
| Natural Gas | 11.757 | 0.53 | 4.69% |
| Unleaded Gas | 2.409 | 0.15 | 6.82% |
| AMEX Oil Index | 1053.7 | 36.4 | 3.58% |
| Oil Service Index | 173.97 | 2.12 | 1.23% |
Currency Markets
| USD Exchange Rates | |||
| Index | Close | Gain(Loss) | % |
| US Dollar Index | 86.59 | -1.02 | -1.16% |
| Euro | 1.2488 | 0.014 | 1.13% |
| Yen | 109.855 | -0.78 | -0.71% |
| Sterling | 1.8328 | 0.0285 | 1.58% |
| Australian Dollar | 0.7617 | 0.0065 | 0.86% |
| Swiss Franc | 1.2354 | -0.0175 | -1.4% |
| Canadian Dollar | 0.8447 | 0.0024 | 0.28% |
