Interdum stultus opportuna loquitur...

Friday, October 14, 2005

USRant: Bounce, Or Bull-Trap?...

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Call me picky if you like, but I'm not very impressed with the quality of today's rally. Sure, it was nicely predictable (if you scroll down to yesterday's USRant you will see it was predicted real nice... even providing a rally target that the futures got to during the session).

Maybe I'm just getting cranky in my old age, but the rally stank to high heaven; I watched a lot of the session - the first 90 minutes and the last hour - and the tape was being driven by people who were not happy pushing it in the direction they were told to push it.

Usually when the PPT is on the job, they go about their business with a good deal of alacrity - slamming the futures upwards even during the first 90 minutes (which is always the 'deepest' part of the session, liquidity-wise, and therefore harder to manipulate), generating huge positive TICK readings that nonetheless don't cause a 'TICK reject' reversal... in other words ,they make every break look like it's worth jumping on.

Not today; the push was there - for sure - but whoever was doing to pushing was not getting any help. In other words, nobody was convinced that the rally had legs. What this meant was that at every point at which a breakout might have been expected, every man and his dog shorted the crap out of the market. Since "Mr Manipulator" is a profit-maximising individual, it got to the stage where he would try to 'front-run' the inevitable sag that would accompany tests of important levels (in other words, he woudl try to unload his purchases without losing money - and then start building the thing again). Once this became obvious though, traders started front-running his front-running... and the whole thing got downright confusing. then, folks started obsessing about the mid-session bounce in Oil, and the whole "market pwards" thing had to be put on hold until the last fifteen minutes, at which time the thing went berserk.

Still, the bounce happened; history will show that the futures got all the way to 1191.50, which is nice. It sets up the usual Monday orgasm, but frankly I am a bit tentative as to what happens thereafter. Monday's first half-hour is almost certain to produce a selling divergence, since the 15-minute CCI closed at 193 for the Dow (and the S&P already set a divergence, on the second-last bar of the day).

Federal Reserve Open Market Operations

The Fed's Open Market Operations desk performed 1 repurchase operation - a $7.5billion, 4-day repurchase with $5.913billion in T-backed collateral undertaken at an 8.41 basis point discount to the Fed Funds Rate (FFR).

Major US Indices

Behold the Dow chart from the last couple of sessions - note the perfectly formed CCI buying divergence at the low of the session yesterday, and the two selling divergences today; given my decree that a longer-term buying divergence from the daily chart was in force (as of yesterday's close), selling divergences are supposed only to be viewed as 'counter-trend' trades until further notice. And so it proved today - sells taken at the divergence points resulted in pullbacks that terminated bang-on the 21-period moving average (you would be amazed how often that happens). 

In the normal course of events, the smart thing to do is to use the counter-trend divergences to guide your hand on a lower timeframe: just scalp a point on each one by selling %R overbought (on a very short-term chart)- then wait for the pullback to reach those MA's and then return to buying %R oversold conditions.

Note also the reinforcement of what I've said previously about MA crossovers: the MA's cross, and every dumbass in the world responds - most people who buy as a reslt of the cross wind up paying a price well above both MAs. then the market slams back to penetrate at least the faster of the 2 MAs... in order to try and winkle out the nuffnuff's stop loss orders.

Dow 15-minute chart

The Dow Jones Industrial Average gained 70.75 points (0.69%), closing out the day at 10287.34 points. The index hit an intraday high of 10291.91 with just a few minutes to go until the close; the low at 10200.1 (how precise!!) was set  at the terminal of the first CCI-sell-divergence pullback. Beautiful.

Within the blue-chip index, 23 stocks rose, the biggest gainers being General Motors (GM, +3.06% to $27.98) and United Technology (UTX, +2.26% to $51.63), which accounted for 16 Dow points between them. Losers in the Dow numbered 7 and were led by Pfizer (PFE, -0.73% to $24.32) and American Express (AXP, -0.62% to $47.95), with these two stocks contributing -4 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 281.5m shares to 72.5m.

The broader S&P500 posted a rise of 9.73 points (0.83%), at 1186.57. Within the index, gainers numbered 389, while 89 S&P500 stocks fell for the day. Volume was tilted 2.8:1 in favour of the winners with 1287.35 million units traded in the winners as compared with 455.54 million traded in the losers .

Over at Times Square, the Nasdaq Composite advanced 17.61 points (0.86%), to close at 2064.83, while larger-cap technology issues fared worse with the Nasdaq100 adding 10.49 points (0.68%), to end at 1544.29 points. Within the tech benchmark, gainers numbered 67, while 29 Nasdaq100 stocks fell for the day. Volume was tilted 2.8:1 in favour of the winners with 452.68 million traded in the winners compared to 159.19 million in the losers .

NYSE Volume was super-chunky, with 2.19 billion shares changing hands, while Nasdaq Volume was about average, with 1.56 billion shares traded.

Major Market Statistics
Dow Jones Industrial Average10287.3470.750.69%
Nasdaq Composite2064.8317.610.86%
NYSE Volume2.19bn--
Nasdaq Volume1.56bn--


My 9-stock "bellwethers" group rose by an average of 0.80%; didn't I tell you testerday that Citigroup's absence from danger was a key component in forecasting a coming bounce? 

  • General Electric (GE) +$0.32 (0.94%) to $34.34;
  • Citigroup (C) +$0.32 (0.72%) to $45.04;
  • Wal Mart (WMT) +$0.28 (0.63%) to $45.04;
  • I.B.M. (IBM) +$0.15 (0.18%) to $82.35;
  • Intel (INTC) +$0.03 (0.13%) to $23.23;
  • Cisco Systems (CSCO) -$0.03 (0.17%) to $17.27;
  • eBay (EBAY) +$0.06 (0.15%) to $39.70;
  • Fannie Mae (FNM) +$1.13 (2.6%) to $44.61; and
  • Freddie Mac (FRE) +$1.17 (2.01%) to $59.47.

Market Breadth & Internals

NYSE advancing Issues exceeded decliners by 2237 to 1045 for a single-day A/D reading of 1192; Nasdaq gainers trumped losers by 2073 to 924. The 10-day moving average of the A/D line rose to -520.3 on the NYSE, while the 10dma of the Nasdaq A/D rose to -327.4.

NYSE advancing volume exceeded volume in decliners by 1627.1 to 531.1 million shares; Nasdaq advancing volume was greater than volume in decliners by 1123.3 to 349.4 million shares.

23 NYSE-listed stocks rose to new 52-week highs, and 246 posted fresh 52-week lows, while on the Nasdaq there were 48 stocks that hit new 52-week highs, and 173 which fell to fresh 52-week lows.

Market Breadth Statistics

Advancing Volume (m)1627.111123.28
Declining Volume (m)531.06349.4
New Highs2348
New Lows246173

Market Sentiment Statistics
CBOE Volatility Index14.87-1.47-9%
CBOE Nasdaq Volatility Index16.23-0.98-5.69%
Equity Put-Call Ratio0.92-0.43-31.85%
10-day PCR0.720.1118.03%
SPX-VIX Ratio79.87.7710.79%

Bond Market Analysis

Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 0.7 bps to 4.712%. Mortgage rates must be starting to get itchy feet - to my knowledgethey haven't moved uyp sharply yet, but a lot of folks with ARMs are going to get a rude shock once their rates adjust upwards by a percent at the same time as their credit card minimum payments double. (I know, I know... almost all folks have 'arms'... but ARMs is 'Adjustable Rate Mortgage').

The middle of the yield curve was broadly lower: five year yields rose to 4.345%, and ten-year yields rose to 4.491%.

Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 10.0 bps wider at 12.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 40.0 bps for 10-year AAA, and 66.5 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 2.0 bps tighter at 48.0 basis points and the 10-year AAA-A spread unchanged at 20.0 bps.

Treasury Yields
UST 13wk (yld)3.7020.041.09%
UST 2Y (yld)
UST 5Y (yld)4.3450.0180.42%
UST 10Y (yld)4.4910.0160.36%
UST 30Y (yld)4.7120.0070.15%

The Banks Index rose 1.27 points (1.35%), to end the session at 95.23; within the index,

  • Regions Financial (RF) +$2.10 (7.04%) to $31.93;
  • Golden West Financial (GDW) +$1.96 (3.5%) to $58.01;
  • BB&T Corp (BBT) +$1.21 (3.17%) to $39.33;
  • Mellon Financial (MEL) +$0.86 (2.8%) to $31.56; and
  • National City Corp (NCC) +$0.72 (2.23%) to $33.00.

The Broker-dealer Index added 2.47 points (1.48%), at 169.68; the ticket clippers lined up as follows -

  • Jeffries Group (JEF) +$1.46 (3.69%) to $41.06;
  • Bear Stearns (BSC) +$2.21 (2.18%) to $103.46;
  • Legg Mason (LM) +$2.23 (2.17%) to $104.78;
  • E*Trade (ET) +$0.34 (2.13%) to $16.28; and
  • Lehman Brothers (LEH) +$2.13 (2.01%) to $108.31.

The Philadelphia SOX (Semiconductor) index lost 3.64 points (0.82%), at 442.69

  • Texas Instruments (TXN) -$0.96 (3.11%) to $29.93;
  • National Semiconductors (NSM) -$0.56 (2.3%) to $23.79;
  • Advanced Micro Devices (AMD) -$0.44 (2.03%) to $21.19;
  • Micron Technology (MU) -$0.24 (1.83%) to $12.87; and
  • Freescale Semiconductors (FSL-B) -$0.34 (1.56%) to $21.49.

Gold & Silver Markets

Gold fell by $2.00 (0.42%) to close at $471.80 per ounce. At one stage during the session Gold was all the way down at $468.30 an ounce before a close-the-week rally.

The Gold Bugs Index lost 0.82 points (0.36%), to 229.77

  • Eldorado Gold (EGO) -$0.12 (3.61%) to $3.20;
  • Glamis Gold (GLG) -$0.41 (1.97%) to $20.44;
  • Meridian Gold (MDG) -$0.36 (1.73%) to $20.48;
  • Newmont Mining (NEM) -$0.57 (1.25%) to $44.98; and
  • Agnico Eagle (AEM) -$0.16 (1.12%) to $14.18.

Silver rose $0.13 (1.64%) to close at $7.86 per ounce. 

The Gold and Silver Index (XAU) lost 0.96 points (0.89%), to end the session at 106.95 points.

  • Meridian Gold (MDG) -$0.36 (1.73%) to $20.48;
  • Placer Dome (PDG) -$0.28 (1.7%) to $16.20;
  • Barrick Gold (ABX) -$0.39 (1.43%) to $26.88; and
  • Newmont Mining (NEM) -$0.57 (1.25%) to $44.98.
Precious Metals and Indices
PHLX Gold and Silver Index106.95-0.96-0.89%
AMEX Gold BUGS Index229.77-0.82-0.36%

Oil Market

Oil lost ground despite bouncing quite hard of its session lows. It finished with a fall of $0.45 per barrel, closing at $62.63 per barrel. The session low was $61.20 - so it managed to generate enough traction to bounce a buck and a half... amazing.

The Oil and Gas Index (XOI) added 6.14 points (0.64%), at 967.23

  • ConocoPhillips (COP) +$1.28 (2.1%) to $62.33;
  • Sunoco (SUN) +$1.43 (2.02%) to $72.28; and
  • Amerada Hess (AHC) +$2.24 (1.93%) to $118.01.

The Oil service stocks (OSX) Index rose 3.95 points (2.54%), to end the session at 159.63

  • Schlumberger (SLB) +$3.52 (4.44%) to $82.81;
  • Transocean (RIG) +$1.80 (3.35%) to $55.55; and
  • Noble Corp (NE) +$1.96 (3.31%) to $61.16.
Energy Complex
Reuters CRB334.3-1.04-0.31%
Crude Oil Light Sweet62.63-0.45-0.71%
Heating Oil1.95-0.05-2.4%
Natural Gas13.2190.120.89%
Unleaded Gas1.7486-0.01-0.53%
AMEX Oil Index967.236.140.64%
Oil Service Index159.63-0.29-0.18%

Currency Markets

USD Exchange Rates
US Dollar Index89.37-0.64-0.71%
Australian Dollar0.75210.00120.16%
Swiss Franc1.2842-0.004-0.31%
Canadian Dollar0.8435-0.0021-0.25%