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Another relatively short one today - I am still preparing individual e-mails to send out to folks. There's still some good scheizola in this missive though, in particular down in the Currencies section.
Federal Reserve Open Market Operations
The Fed's Open Market Operations desk performed 1 repurchase operation: a $10.5billion, overnight repurchase entirely in T-backed collateral undertaken at a 27 basis point premium to the Fed Funds Rate (FFR). In other words, there is a zero possibility that the Fed fails to tighten by another 25 basis points tomorrow.
Well, I suppose nothing has a genuinely zero possibility; there is a non-zero probability of pretty much any event - although some events have a probability as near to zero as makes no odds. For example, Dick Cheney behaving like something other than a gigantic meat-slug with a pus-filled bag of bile where his soul should be, and John Howard failing to perform like George Bush's trained monkey. If either of those two events ever happen, I will paint my arse bright pink and parade naked down the red-light district of whatever city you care to name. That will almost certainly result in my death either from exposure or strafing, since Hell would have frozen over and there will be squadrons of flying pigs seeking retribution for all my years of bacon-munching.
So let me rephrase: unless some wildly unlikely thing happens in the next 24 hours (e.g., a comet striking the Federal Reserve building... we can live in hope), the Fed will raise rates tomorrow.
Major US Indices
The Dow Jones Industrial Average dipped 10.81 points (0.1%), closing out the day at 10767.77 points. The index hit an intraday high of 10811.71 before the end of the first half-hour, but by 1:30 p.m. it had given all that up and then some, and was languishing all the way down at 10735.11 before a little CCI divergence gave a good heads-up clue to an impending late-day rally.
Within the blue-chip index, 14 stocks rose, the biggest gainers being Pfizer (PFE, +1.65% to $20.94) and Wal Mart (WMT, +1.25% to $48.68), which accounted for 7 Dow points between them. Losers in the Dow numbered 15 and were led by Merck (MRK, -2.47% to $28.41) which continues to struggle under the weight of the revelations that they doctored the research on Vioxx, and International Business Machines (IBM, -1.16% to $85.96). These two stocks contributing -14 Dow points worth of downward pressure on the index. Volume traded was tilted in favour of the gainers by 227.7m shares to 166.9m.
The broader S&P500 added 1.06 points (0.08%), closing at 1260.43. Within the index, gainers numbered 241, while 233 S&P500 stocks fell for the day. Volume was tilted 1.3:1 in favour of the winners with 906.93 million units traded in the winners as compared with 689.74 million traded in the losers .
Over at Times Square, the Nasdaq Composite gained 4.22 points (0.19%), to close at 2260.95, while larger-cap technology issues fared better with the Nasdaq100 adding 5.73 points (0.34%), to end at 1698.35 points. Within the tech benchmark, gainers numbered 55, while 41 Nasdaq100 stocks fell for the day. Volume was tilted 1.2:1 in favour of the winners with 386.34 million traded in the winners compared to 332.30 million in the losers .
NYSE Volume was modest relative to recent levels, with 1.88 billion shares changing hands, as was Nasdaq Volume at 1.64 billion shares.
| Major Market Statistics | |||
| Index | Close | Gain(Loss) | % |
| Dow Jones Industrial Average | 10767.77 | -10.81 | -0.1% |
| S&P500 | 1260.43 | 1.06 | 0.08% |
| Nasdaq Composite | 2260.95 | 4.22 | 0.19% |
| Nasdaq100 | 1698.35 | 5.73 | 0.34% |
| NYSE Volume | 1.88bn | - | - |
| Nasdaq Volume | 1.64bn | - | - |
Bellwethers
My 9-stock "bellwethers" group rose by an average of 0.46%
- General Electric (GE) +$0.02 (0.06%) to $35.55;
- Citigroup (C) -$0.23 (0.47%) to $48.68;
- Wal Mart (WMT) +$0.60 (1.25%) to $48.68;
- I.B.M. (IBM) -$1.01 (1.16%) to $85.96;
- Intel (INTC) +$0.54 (2.07%) to $26.62;
- Cisco Systems (CSCO) -$0.03 (0.17%) to $17.52;
- eBay (EBAY) +$1.01 (2.33%) to $44.43;
- Fannie Mae (FNM) -$0.40 (0.83%) to $47.60; and
- Freddie Mac (FRE) +$0.66 (1.04%) to $64.06.
Market Breadth & Internals
NYSE advancing Issues exceeded decliners by 1753 to 1553 for a single-day A/D reading of 200; and Nasdaq losers exceeded gainers by 1550 to 1517. The 10-day moving average of the A/D line rose to 137.4 on the NYSE, while the 10dma of the Nasdaq A/D fell to 16.7.
NYSE advancing volume exceeded volume in decliners by 1040.6 to 781.7 million shares; Nasdaq advancing volume was greater than volume in decliners by 874.4 to 743.1 million shares.
173 NYSE-listed stocks rose to new 52-week highs, and 100 posted fresh 52-week lows, while on the Nasdaq there were 144 stocks that hit new 52-week highs, and 31 which fell to fresh 52-week lows.
| Market Breadth Statistics | ||
| NYSE | Nasdaq | |
| Advancers | 1753 | 1517 |
| Decliners | 1553 | 1550 |
| Advancing Volume (m) | 1040.59 | 874.43 |
| Declining Volume (m) | 781.74 | 743.12 |
| New Highs | 173 | 144 |
| New Lows | 100 | 31 |
| Market Sentiment Statistics | |||
| Index | Close | Gain(Loss) | % |
| CBOE Volatility Index | 11.49 | -0.2 | -1.71% |
| CBOE Nasdaq Volatility Index | 14.8 | -0.34 | -2.25% |
| Equity Put-Call Ratio | 0.64 | -0.03 | -4.48% |
| 10-day PCR | 0.58 | 0 | 0% |
| SPX-VIX Ratio | 109.7 | 1.97 | 1.83% |
Bond Market Analysis
Bonds fell at the long end, with the yield on the benchmark 30-year Treasury bond rising 0.4 bps to 4.74%. It's just aching to break 4.75%.
The middle of the yield curve was broadly lower in price, too: five year yields rose to 4.456%, and ten-year yields rose to 4.547%.
Spreads between short-dated (2-yr) Treasuries and high-grade corporate bonds of similar maturity profiles were 1.0 bps wider at 14.0 basis points; spreads between longer dated Treasuries and their corporate AAA counterparts fell to 65.0 bps for 10-year AAA, and 93.0 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 increasing by 8.0 bps to 19.0 basis points and the 10-year AAA-A spread 5.0 bps wider at 3.0 bps.
| Treasury Yields | |||
| Index | Close | Gain(Loss) | % |
| UST 13wk (yld) | 3.825 | -0.017 | -0.44% |
| UST 2Y (yld) | 4.41 | 0 | 0% |
| UST 5Y (yld) | 4.456 | 0.016 | 0.36% |
| UST 10Y (yld) | 4.547 | 0.01 | 0.22% |
| UST 30Y (yld) | 4.74 | 0.004 | 0.08% |
The Banks Index dipped 0.48 points (0.46%), closing at 103.64; within the index,
- Fifth Third Bancorp (FITB) -$0.60 (1.5%) to $39.49;
- Golden West Financial (GDW) -$0.88 (1.35%) to $64.39;
- Zions Bancorp (ZION) -$0.95 (1.27%) to $73.87;
- State Street (STT) -$0.74 (1.25%) to $58.55; and
- National City Corp (NCC) -$0.41 (1.19%) to $33.92.
The Broker-dealer Index shed 0.26 points (0.13%), at 194.02; the ticket clippers lined up as follows -
- Legg Mason (LM) -$1.56 (1.29%) to $118.97;
- Raymond James (RJF) -$0.34 (0.91%) to $36.82;
- E*Trade (ET) -$0.18 (0.89%) to $19.97;
- Charles Schwab (SCH) -$0.08 (0.53%) to $14.88; and
- Ameritrade (AMTD) -$0.11 (0.45%) to $24.17.
The Philadelphia SOX (Semiconductor) index added 2.99 points (0.6%), ending the day at 500.2
- Micron Technology (MU) +$0.39 (2.91%) to $13.80;
- Intel (INTC) +$0.54 (2.07%) to $26.62;
- Altera (ALTR) +$0.37 (1.94%) to $19.42;
- ST Microelectronic (STM) +$0.33 (1.79%) to $18.78; and
- Applied Materials (AMAT) +$0.31 (1.65%) to $19.11.
Gold & Silver Markets
Gold rose another $1.30 (0.25%) to close at $531.50 per ounce. If it pops up tomorrow, look for it to be taken down hard; in other words, short any intraday strength. I've said this before - Gold is going much, much higher, but for now it has simply gotten ahead of itself. The only thing that will prevent a drop in Gold at this juncture would be if the USD cracks wide open, which is highly unlikely since the Treasury is intervening like buggery to prevent that eventuality.
The Gold Bugs Index declined 0.36 points (0.14%), to end the session at 260.97
- Golden Star (GSS) -$0.11 (4.55%) to $2.31;
- Eldorado Gold (EGO) -$0.12 (2.82%) to $4.13;
- Coeur d'Alene (CDE) -$0.10 (2.33%) to $4.20;
- Randgold Resources (GOLD) -$0.30 (1.83%) to $15.79; and
- Glamis Gold (GLG) -$0.29 (1.18%) to $24.28.
Silver fell by a whopping $0.21 (2.34%) to close at $8.88 per ounce. The Gold and Silver Index (XAU) gained 0.04 points (0.03%), to 122.98 points.
- Durban Rooderpoert Deep (DROOY) +$0.11 (8.4%) to $1.42;
- Gold Fields (GFI) +$0.29 (1.74%) to $16.92;
- Harmony Gold (HMY) +$0.21 (1.62%) to $13.21; and
- Newmont Mining (NEM) +$0.74 (1.49%) to $50.40.
| Precious Metals and Indices | |||
| Index | Close | Gain(Loss) | % |
| Gold | 531.50 | 1.30 | 0.25% |
| Silver | 8.88 | -0.21 | -2.34% |
| PHLX Gold and Silver Index | 122.98 | 0.04 | 0.03% |
| AMEX Gold BUGS Index | 260.97 | -0.36 | -0.14% |
Oil Market
Oil was firmer, rising by $1.91 per barrel, closing at $61.30 per barrel. It's not quite time to short it again (having had two $7 rides down on Crude in the last three months), but it will be very shortable very soon.
The Oil and Gas Index (XOI) added 10.76 points (1.07%), to end the session at 1017.75
- Sunoco (SUN) +$1.86 (2.28%) to $83.45;
- Kerr Mcgee (KMG) +$1.85 (2.01%) to $93.73; and
- Repsol YPF (REP) +$0.59 (2%) to $30.08.
The Oil service stocks (OSX) Index posted a rise of 2.11 points (1.12%), to 190.92
- Transocean (RIG) +$1.33 (1.94%) to $69.99;
- Nabors Industries (NBR) +$1.20 (1.57%) to $77.49; and
- Noble Corp (NE) +$1.12 (1.51%) to $75.45.
| Energy Complex | |||
| Index | Close | Gain(Loss) | % |
| Reuters CRB | 348.17 | 4.96 | 1.45% |
| Crude Oil Light Sweet | 61.3 | 1.91 | 3.22% |
| Heating Oil | 1.7725 | 0.04 | 2.35% |
| Natural Gas | 14.841 | 0.53 | 3.7% |
| Unleaded Gas | 1.6468 | 0.04 | 2.61% |
| AMEX Oil Index | 1017.75 | 10.76 | 1.07% |
| Oil Service Index | 190.92 | 2.11 | 1.12% |
Currency Markets
Well, finally. The Euro was 1.1835 (basis the EC futures) when I declared that it ought to head towards 1.2000; last night it got up as high as 1.1987, but that's small consolation since there was a requirement to hold the stupid thing all the way through a drop into the low 1.1600's.
Still, the logic of the trade was immutable, and it's still valid. It rests on three keys - one long term and two short-term:
- Long term: The US budget is in far worse shape than the 'official' statistics (since the $40 billion budget for the CIA doesn't appear anywhere, and nor does another $10 bill or so for DIA intel, and the $340 billion in Iraq War spending is defined as 'special appropriations' which are off-budget);
- Short Term I: every nuffnuff was long USD (the Dumb Bull Ratio in the USDX was very high, and very low in Euro - I mentioned that before); and
- Short Term II: the Euro formed a weekly CCI divergence - which it had not done since 2001.
So keep hold of short USD positions (i.e., long Euro) because it's eventually going to take out its old high.
I would also add a long EC/Short EURUSD spread for the life of the March06 EC contract, because there is 40 pips of guaranteed profit there (the spread between the 2 always starts at about 40 pips and declines through the life of the futures). It would require a $125k short EURUSD (about $3040 in margin) to match the long EC ($2866 in margin) and the yield for the three months is therefore 8.4% raw (sadly there's no margin offset for a spread between EC and EURUSD, which is strange since it's actually just a calendar spread with the front leg at spot).
With the broker I use (InteractiveBrokers) you can have both legs within the same account, which ensures that you're not constantly having to swap cash out of the futures and into the FX as one position profits at the cost of a loss to the other. In other words, it's an arbitrage trade. Enjoy it, and when you speak of me, speak of me well.
| USD Exchange Rates | |||
| Index | Close | Gain(Loss) | % |
| US Dollar Index | 90.35 | -0.95 | -1.04% |
| Euro | 1.1957 | 0.0138 | 1.17% |
| Yen | 119.695 | -0.96 | -0.8% |
| Sterling | 1.7753 | 0.0202 | 1.15% |
| Australian Dollar | 0.7552 | 0.0047 | 0.63% |
| Swiss Franc | 1.29 | -0.0127 | -0.97% |
| Canadian Dollar | 0.8684 | 0.004 | 0.46% |
