Interdum stultus opportuna loquitur...

Monday, September 19, 2005

USRant: There's Those Lower Prices ('Cept for Oil)...

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Friday's USRant (which was delayed until Monday morning, Australian time) was absolutely explicit... in fact, probably explicit enough to get me in "trub" if the taxpayer-funded bureaucracy decided to try and use some poor schlub to get the taste of Vizard out of the public's mouths.

Here's what Friday said...

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.

I also said some things about the likelihood of a bounce in Crude, but frankly I expected any bounce to occur after some weakness today: from Friday again... 

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

Today Oil absolutely exploded upwards, never getting below $63.20 and crashing through any and all technical impediments. Bounce and bounce hard... but I wish it had given us the grace of a soft Monday so that we could get set. Frankly though, if you get shown the important closing technical level for a week, get warned of the bounce, and still aren't willing to buy a market that trades within 10c of the pivot (which it did on Friday), you're being too conservative. I'm not claiming the call for the RantRecord though.

Remember though - last week I made it clear that Crude was likely to rally for a couple of weeks if it didn't break $62.75 on a closing basis, and would bounce to the $67s in order to make a head and shoulders prior to a decent retracement (back to the high $50s). I don't' want to be seen to be playing both sides of the fence here, but that's the way the Crude market is at the moment; it's being driven by a load of people with no fracking idea what they're doing.

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7.5billion, overnight repurchase, but with a scant $1.689billion in T-backed collateral. In other words, a load of fresh cash was slapped into the US government's underwritten intervention to try and save the Toxic Twins (Fannie Mae and Freddie Mac). Oddly, if you take a look at their share prices today, the slush-funding didn't work too well.

The repo was undertaken at a 5.1 basis point premium to the Fed Funds Rate (FFR). No matter that the FFR will rise by 25 bps tomorrow - it is today's discount or premium that drives the potential for a moonshot. Plus, the repo was nowhere near large enough to give da Boyz any free cash to slosh into the markets.

Major US Indices

Well, the lower prices that were forecast based on Friday's chart, arrived in spades today. Don't you love it when a plan comes together?

The problem with today was that if you didn't have a position from Friday, you got left at the altar: the 'opening orgasm' that usually accompanies Mondays was completely absent as the entire universe concentrated on some oblique statements about oil output from the OPEC cartel. I can't be arsed recapitulating their waffle - they have no spare capacity anyhow, so watching their every utterance is about as useful as a one legged Indian in an arse kicking contest (but less entertaining).

The Dow (and the other indices) declined sharply in the first 45 minutes, albeit trying to muster some legs... note the longish 'tails' on the candlesticks. The Dow made a 'false divergence' (marked as 'NQR' - Not Quite Right - on the chart below) after 11 a.m.: I've marked it 'NQR' for a couple of reasons. First, there was no initial %R oversold... second, it developed over 3bars, not the 4 that make a swing valid. (So if it was anything, it was a 'large microdivergence'). 

The MA crossover (which redefines the very very short-term trend to 'down') was expected to produce a bounce back to - and usually just through - the faster of the two MAs... and yet an hour and a half later it was the MA that was coming down to meet the price. By that time there had been a valid divergence, and yet the market kept declining; a final divergence near the close - on the heels of the day's only CCI extreme - helped generate the cosing half-hour rally.

Notice though: even if you had bought the very first 'NQR' divergence, you would only be underwater by about 10 Dow points (less than 1 S&P point) at the close - and tomorrow will see a follow-through from the last half-hour's bounce (and there's a good chance that the bounce will start during the overnight Globex session). But as I have said before (and will reiterate until everyone believes it), it pays just to sit tight and wait for the absolute highest-probability entries, and then to exploit them... remember, the target is just a point a day.

Dow 15-minute chart

The Dow Jones Industrial Average dipped 84.31 points (0.79%), closing out the day at 10557.63 points. The index hit an intraday high of 10644.57, and fell as low as 10521.18 (10525-ish) during the session. The fact that the index rallied in the last half-hour speaks volumes about the prevailing bullish sentiment (which is still at levels that are way too high); everybody still sees every little wiggle downwards as a reason to buy - and not simply as a contrarian bet against overwhelmingly bearish sentiment. If it was that, I would have no quarrel: after all, that is what we do here on a very very short-term basis... the intraday version of the %R oversold/CCI divergence methodology is designed to capture waning extreme bearish and bullish sentiment on a very short-term basis.

Admittedly, there was a divergence just before the last half-hour's rally - and there was a CCI extreme that presaged the divergence, too. All well and good, but do you seriously think that the bulk of the buying was short-termers like us? Don't kid yourself: the buying is from people who think that the highly-manipulated state of play that has prevailed since late 2001 will (and can) continue... in other words, they have faith in the State to rescue them from a retirement spent in penury. That sort of faith only exists in places where the population is thoroughly brainwashed - where the State requires its kiddies to do stupid little Socialist things like 'pledging allegiance'.

Within the blue-chip index, just 3 stocks rose, the biggest gainers being Hewlett Packard (HPQ, +1.91% to $28.88) and Exxon Mobil (XOM, +1.46% to $64.63), which accounted for 12 Dow points between them. Losers in the Dow numbered 27 and were led by General Motors (GM, -3.60% to $31.31) and Honeywell (HON, -2.52% to $38.30), 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 289.1m shares to 65m.

The broader S&P500 declined 6.89 points (0.56%), closing at 1231.02. Within the index, gainers numbered 88, while 400 S&P500 stocks fell for the day. Volume was tilted 3.0:1 in favour of the losers with 1313.56 million units traded in the losers as compared with 442.37 million traded in the winners .

Over at Times Square, the Nasdaq Composite lost 15.09 points (0.7%), to close at 2145.26, while larger-cap technology issues fared worse with the Nasdaq100 losing 13.39 points (0.84%), to end at 1586.05 points. Within the tech benchmark, gainers numbered 15, while 82 Nasdaq100 stocks fell for the day. Volume was tilted 3.7:1 in favour of the losers with 556.35 million traded in the losers compared to 148.96 million in the winners .

NYSE Volume was super-chunky, with 2.04 billion shares changing hands, while Nasdaq Volume was about average, with 1.58 billion shares being shifted from one online brokerage account to another (and back again, in all likelihood).

Major Market Statistics
Dow Jones Industrial Average10557.63-84.31-0.79%
Nasdaq Composite2145.26-15.09-0.7%
NYSE Volume2.04bn--
Nasdaq Volume1.58bn--


My 9-stock "bellwethers" group fell by an average of 0.78%

  • General Electric (GE) -$0.42 (1.22%) to $34.05;
  • Citigroup (C) -$0.09 (0.2%) to $45.36;
  • Wal Mart (WMT) +$0.14 (0.32%) to $44.01;
  • I.B.M. (IBM) -$0.90 (1.12%) to $79.43;
  • Intel (INTC) -$0.13 (0.52%) to $24.68;
  • Cisco Systems (CSCO) -$0.25 (1.36%) to $18.17;
  • eBay (EBAY) -$0.16 (0.43%) to $36.94;
  • Fannie Mae (FNM) -$0.72 (1.49%) to $47.54; and
  • Freddie Mac (FRE) -$0.60 (1.01%) to $59.09.

Market Breadth & Internals

NYSE declining Issues beat out advancers by 2210 to 1062, for a single-day A/D reading of -1148; and Nasdaq losers exceeded gainers by 2004 to 1022. The 10-day moving average of the A/D line fell to -154.5 on the NYSE, while the 10dma of the Nasdaq A/D fell to -204.1.

On the NYSE declining volume was greater than volume in advancing issues by 1372.9 to 630.1 million shares; On the Nasdaq declining volume exceeded volume in advancing issues by 1106 to 454.4 million shares.

290 NYSE-listed stocks rose to new 52-week highs, and 104 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)630.13454.4
Declining Volume (m)1372.851106.04
New Highs290220
New Lows104106

Market Sentiment Statistics
CBOE Volatility Index12.190.978.65%
CBOE Nasdaq Volatility Index14.840.261.78%
Equity Put-Call Ratio0.720.238.46%
10-day PCR0.620.023.33%
SPX-VIX Ratio101-9.34-8.47%

Bond Market Analysis

Bonds rose modestly at the long end, with the yield on the benchmark 30-year Treasury bond shedding 1.2 bps to 4.543%. the 30-year bond futures rose 2/32 to 114-27/32.

The middle of the yield curve was broadly higher in price: five year yields fell to 4.021%, and ten-year yields fell to 4.247%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 11.0 bps wider at 12.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 35.0 bps for 10-year AAA, and 72.0 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 2.0 bps wider at 47.0 basis points and the 10-year AAA-A spread 4.0 bps wider at21.0 bps.

Treasury Yields
UST 13wk (yld)3.4400%
UST 2Y (yld)3.91-0.05-1.26%
UST 5Y (yld)4.021-0.025-0.62%
UST 10Y (yld)4.247-0.015-0.35%
UST 30Y (yld)4.543-0.012-0.26%

The Banks Index shed 1 points (1.01%), to 98.32; within the index,

  • BB&T Corp (BBT) -$0.78 (1.9%) to $40.23;
  • Washington Mutual (WM) -$0.76 (1.8%) to $41.44;
  • Fifth Third Bancorp (FITB) -$0.68 (1.72%) to $38.86;
  • Wachovia (WB) -$0.76 (1.53%) to $48.95; and
  • Golden West Financial (GDW) -$0.94 (1.53%) to $60.60.

The Broker-dealer Index gained 0.02 points (0.01%), ending the day at 176.41; the ticket clippers lined up as follows -

  • Legg Mason (LM) +$1.48 (1.41%) to $106.08;
  • Lehman Brothers (LEH) +$1.09 (0.96%) to $114.30;
  • Morgan Stanley (MWD) +$0.25 (0.48%) to $52.25;
  • Ameritrade (AMTD) +$0.10 (0.47%) to $21.40; and
  • Raymond James (RJF) +$0.13 (0.42%) to $31.20.

The Philadelphia SOX (Semiconductor) index slid 6.63 points (1.4%), to end the session at 468.14

  • Teradyne (TER) -$0.45 (2.76%) to $15.83;
  • Micron Technology (MU) -$0.35 (2.73%) to $12.46;
  • Applied Materials (AMAT) -$0.45 (2.51%) to $17.47;
  • KLA-Tencor (KLAC) -$1.23 (2.44%) to $49.09; and
  • Novellus Systems (NVLS) -$0.61 (2.38%) to $25.03.

Gold & Silver Markets

Gold rose a sharp $7.20 (1.56%) to close at $467.30 per ounce. Although I still think this is a 'dodgy' move, I've said for some time that a break above $455 would result in a sharp move to $475... but the current situation is messy, with Gold ignoring the USD. I'm bearish USD, as you know, but recently its price action has been quite defiant. At least one of these markets is 'wrong' short-term: the smartest thing I can think of at the moment is (and this is an odd one for me, since I've explicitly admonished against shorting Gold) is... short both Gold and USD. Frankly it's the only thing that makes sense... but it is also not really worth doing. You know my views on shorting Gold.

The Gold Bugs Index slid 1.14 points (0.48%), to 238.4

  • Hecla Mining (HL) -$0.18 (4.06%) to $4.25;
  • Kinross Gold (KGC) -$0.31 (3.99%) to $7.45;
  • Golden Star (GSS) -$0.10 (2.76%) to $3.52;
  • Harmony Gold (HMY) -$0.24 (2.39%) to $9.81; and
  • Agnico Eagle (AEM) -$0.36 (2.37%) to $14.80.

Silver rose $0.12 (1.69%) to close at $7.40 per ounce. The Gold and Silver Index (XAU) lost 0.27 points (0.24%), to 110.27 points.

  • Kinross Gold (KGC) -$0.31 (3.99%) to $7.45;
  • Harmony Gold (HMY) -$0.24 (2.39%) to $9.81;
  • Agnico Eagle (AEM) -$0.36 (2.37%) to $14.80; and
  • Meridian Gold (MDG) -$0.46 (2.07%) to $21.80.
Precious Metals and Indices
PHLX Gold and Silver Index110.27-0.27-0.24%
AMEX Gold BUGS Index238.4-1.14-0.48%

Oil Market

As recapped in the opening remarks above, I mentioned on Friday that the Oil stocks smelt a rally in the black stuff - they rose on Friday even though oil was soft. Well, today they repaid that guess: Oil was shot up by a whopping $4.39 per barrel, closing at $67.39 per barrel. 

The Oil and Gas Index (XOI) advanced 23.5 points (2.23%), at 1079.55

  • Amerada Hess (AHC) +$5.79 (4.34%) to $139.31;
  • Sunoco (SUN) +$2.70 (3.67%) to $76.23; and
  • Kerr Mcgee (KMG) +$3.37 (3.59%) to $97.30.

The Oil service stocks (OSX) Index added 5.48 points (3.2%), closing at 176.96

  • BJ Services (BJS) +$1.77 (5.43%) to $34.38;
  • Transocean (RIG) +$2.95 (4.95%) to $62.60; and
  • Global Industries (GLBL) +$0.59 (4.44%) to $13.87.
Energy Complex
Reuters CRB324.496.762.13%
Crude Oil Light Sweet67.394.396.97%
Heating Oil2.03840.210.96%
Natural Gas12.621.4813.24%
Unleaded Gas2.04270.2614.43%
AMEX Oil Index1079.5523.52.23%
Oil Service Index176.965.483.2%

Currency Markets

USD Exchange Rates
US Dollar Index88.42-0.07-0.08%
Australian Dollar0.766800%
Swiss Franc1.27870.0090.71%
Canadian Dollar0.85540.00720.85%