TF
Source: ESignal
Tuesday, March 31, 2009
Market Notes as of close 30 Mar
Dollar gap up in overnight- consolidation during the day and auction toward previous breakdown level @/near 25.90- Value Area Higher
USO gap lower in overnight-consolidation near low-dollar weakness- Value Area Lower
SPY/IWM gap down in overnight-consolidation within 5 day range with a negative skew- Value Area Lower
10Yr Bond down auction with consolidation near low-Value Area Lower
Monday, March 30, 2009
Market Notes as of close 27 Mar
Dollar gap up in overnight- consolidation during day- pullback w/hold will confirm breakout- Value Area Higher
USO gap down in overnight- consolidation @ 5 day demand- Value Area Lower
SPY/IWM gap down in overnight- consolidation in 5 day range- negative skew developing- Value Area Lower
10Yr Bond consolidation in opening range- midday range liquidation- closing range consolidation (a double distribution)- Value Area Lower
*Important to keep in mind that earnings season is approaching- the buy the rumour and sell the fact maxim must be considered in context of the recent rally- ie rally into earnings season to sell off supply on releases*
Volume, Open Interest, and Call/Put Flow Line 23 Mar-27 Mar
Weekly Open Interest declined (40%) in SP 500 as commercials have become net sellers. Worth noting in context of a 200 pt secondary reaction into previous supply area within primary bear trend.
Sunday, March 29, 2009
IWM Secondary Reactions
This graphic illustrates a couple of key points quite nicely.
Firstly, the idea the market activity is "random" or somehow totally indiscernible is a falsity promoted by the muppets on CNBC and the buy/hold fund managers who benefit from holding others' money and collecting management fees. It's no accident that a buy response was encountered in March 2009 at the exact price level where a 4+ year bull market began in March 2003. While the IWM traded above its 2000 high in mid 2007, it is worth noting that the SP 500 and Dow auctioned almost precisely to their 2000 highs before the bear phase began. The inference could be made that institutional traders were buying the smalls as they began unloading their large cap supply at the high as the bear phase began.
Secondly, the market does not auction in a linear manner whether in a bull or bear phase. It rotates, and if one studies and observes the past rotational tendencies, one can make inferences about the potential of a rotation in either direction. We know the IWM tends to auction in roughly 100-150 point increments as secondary reactions to the primary trend. This is observable in both the 2000-2003 bear market and the current 2007-2009 bear market we find ourselves in. So, we have an advantage vs. the uninformed when studying areas of past supply and demand and the amplitude of the rotations between the two. These facts enable us to make more informed discretionary trading decisions.
Source: ESignal
Weekly Credit Market Overview 28 Mar
The Ted Spread is thus far not confirming all this "feelgood" as relates to the Government's activities in the credit markets....
click title for Bloomberg Chart
Weekend News 28 Mar-Bankruptcy is Stimulus
Rep. Ron Paul explains this most eloquently and concisely.
click title above for article
Weekend News 28 Mar- Bond Market Bingo
John Jansen in his bond blog "Across the Curve" commented this week, "it is very difficult to frame a snapshot of prices as the announcement of the buyback schedule has sparked violent price movements, and I expect that will continue."
The UK had its first bond auction failure since 2002. This essentially means they were unable to find enough buyers for the supply they were offering (1.75 billion pounds). This certainly makes it apparent that the risk of additional auction failures going forward is likely to increase. This is significant since governments around the world all sell debt in this manner to prop up their currencies and enable government spending.
In the US this week, the Fed purchased $7.5 billion of Treasuries in the first outright purchase by the central bank of government debt since the 1960s. Interestingly, with all their efforts they have been unable to reduce the consumers' interest rates as well as borrowing costs for banks. Those are some of the major justifications for engaging in this debt purchasing. The difference between 30 year fixed mortgage rates and the 10 year Treasuries was about 2.24% according to Bloomberg. This spread averaged 1.75% in the decade before the subprime collapse.
This illustrates a reality of money printing that will be referenced often going forward in this blog- "The Cantillon Effect". Essentially, our government concludes that printing money will solve our problems without causing any inflation. The reality is that inflation does not occur all at once and to the same degree. Those who receive new money receive it before prices rise. Who receives the money first? The guy/gal who is looking to get a 30yr fixed mortgage? No. The investment banks and commercial banks do. By the time the new money has filtered through the system, prices have all ready risen. The result is that the average person's purchasing power is lessened, interest rates have risen, and the cost of money is higher. Less purchasing power with the money one has plus a higher cost of money. The fact the we currently have a zero rate interest policy from the FOMC and yet the 30 year fixed mortgage is widening from the 10yr (which is supposed to be representative) shows how impotent all these policies really are.
In sum, "The Cantillon Effect"= Banks borrow cheap from government; Consumer overpays for the cheap borrowed money the bank is providing AS prices are rising in the economy.
Hamiltonianism at its best- a centrally planned mess for the individual....
click title for aticle
Weekend News 28 Mar- Federal Oversight in Derivatives
This week Treasury Secretary Geithner utilized Rahm Emanuel's principle of not letting a crises go to waste in calling for federal oversight of "large" hedge funds, private-equity firms, and derivative markets in what could be the most sweeping changes since the FDR's 1930s. This "oversight" would include federal government power to seize and wind down ANY financial company big enough to destabilize the banking system. Pardon me for being a cynic, but these cats can't deliver mail at a profit; why should we believe they can effectively quantify risk within complex financial entities? These federal "search and seizure" powers of PRIVATELY capitalized entities is disconcerting. If these politicians had the understanding of economics and political will to let the market forces of failure and bankruptcy punish the incompetent and fraudulent managers by putting them out of business, much of this discussion would not be necessary. These tactics are of the fearmongering ilk utilized by the Bush administration in the context of Islamo-Fascist terrorism. The Obama Administration's "war on terror" is an economic, populist war. Scare the people into expanding government power, government spending, and government restriction on the rights of individuals and private entities.
With all that said, Geithner's proposal of setting up central clearinghouses for the credit swaps markets does have merit. With central clearing much of the "counterparty risk" which has been such an issue in this current situation with the credit default swaps products could be all but eliminated. Historically, this benefit has been illustrated with the successful trading of thousands of derivatives through exchanges with central clearing houses. I do know of objections from some exchanges' clearing members with respect to this issue, and the logistics of creating the credit default swap market are yet to be solidified, but the idea seems to be the most practical solution proposed up to this point. With the liquidity and market transparency that central clearinghouse/exchange trading would offer, all this federal oversight and seizure power would be unnecessary.
click title for article
Saturday, March 28, 2009
Weekend News 28 Mar-"Crude" Reality
An examination from Cato Institute on the state of the energy market with salient points and actual statistical data rather than political rhetoric and grandstanding. In short, oil is going higher....
click title for article
Weekend News 28 Mar- G20, China, & UberCurrency
Interesting week leading up to the G20 summit. China has lowered the boom in criticism of the west's economic policies and stimulus attempts. Furthermore, they have asserted their interest in an international reserve currency. The bluntness of their statements certainly would lead one to believe that in their view, the economic initiatives they have created are working. The Central Bank of China has blamed the financial crises on "complaceny" and suggests that market forces lead to asset bubbles and subsequent busts. Central Bank Governor Zhou Xiaochuan stated that governments should consider giving central banks and other government entities the ability to use extraordinary means to act boldly without a lengthy approval process.
Without a lot of editorializing on this, I would say that apparently they are unaware that we have no oversight of the money printing body in this US, the Federal Reserve; the Fed operates with impunity. Additionally, our Congress has run through trillions of dollars of money printing, bailouts, and stimulus with little or no review or debate in the various halls of Congress. Someone needs to send the Chinese a memo, and perhaps they need to cut down on the Red Bull consumption. Stimulus is a little different when you are a debtor nation like the US. Furthermore, I suspect their 20 million unemployed migrant factory workers might take issue with their centrally planned "brilliance"....
What is concerning is the fact that top policymakers in Beijing are becoming increasingly more concerned with China's exposure to dollar-denominated assets. Their concerns appear to be manifesting into hardline rhetoric with the apparent goal to create an international currency based on a bunch of paper currencies. Fiat money is fiat money. Period.
That said, it is critical for the US to reduce debt, redevelop our economy based on production of services and goods (instead of consumer spending), and go back to sound money. China is going to stop funding our debt creation and spending habits, and the results will not be pleasant.
click title for article
Economic Week in Review 28 Mar
- Existing home sales showed significant improvement on a month-to-month basis this week. The report goes on to suggest that the effects of government programs may be seen in the next three to five months potentially adding 1 million resales on the year with a viewpoint that the recovery in housing may be "V" shaped. As Flava Flav from Public Enemy once said, "don't believe the hype"....
- New Home Sales like existing home sales reflected better than expected demand although prices on new homes are not yet improving. Only 12.2 months of supply to go!!
- EIA petroleum report reflected a 2.2 million barrel draw offsetting some of the 3.3 million barrel build in total stocks for the week. The suggestion is that this is evidence that OPEC cuts are in some way limiting supply. However, overall crude inventories remain at three year highs....
- Durable Goods orders rebounded sharply for February. Of course, the December and January numbers were revised sharply lower. Surely, February numbers won't be revised lower in a month....
- GDP was revised marginally lower for Q4- in all, recession continues....
- Jobless Claims reflected a continued deterioration in the labor market to another record level of 5.560 million. Month-to month data reflects another dramatic increase from 392,000 to 495,000 claims (from Feb to Mar)....
- Personal Income reflected a weakening consumer and a rebound in inflation. Wages and salaries declined. Less income and increasing debt reduction tendency (deleveraging) does not bode well for consumer spending. Not good news for an economy which is dependent on consumer spending for 70% of its GDP...
- Consumer Sentiment remained steady at historically low levels....
Thursday, March 26, 2009
Market Notes as of close 25 Mar
Dollar consolidation continues (25.30-24.98)- Value Area Higher
USO gap lower- consolidation continues with developing negative volume skew- Value Area Lower
SPY/IWM gap up @ opening range- consolidation @ high before closing range liquidation and short cover rally into close- Value Area Sideways
10Yr Bond down auction- buy response @/near 122^26.5- Value Area Lower
Tuesday, March 24, 2009
Bailouts, Stimuli, et. al via Mises Institute
Bailouts, Stimuli, (and Bears oh my!)
Worthwhile insights into the ramifications of the bailouts, stimuli, and spending.
Furthermore, there is an examination into the dwindling mechanisms of financing this profligate spending. Of great interest are the foreign debt holders and their motivations going forward, notably, China.
click title above
Market Notes as of close 23 Mar
Dollar consolidation within range of 3/20- Close @ Low- Value Area Higher
USO up auction from Friday settlement- consolidation on declining volume and open interest-Value Area Higher
SPY/IWM gap up in premkt- extreme auction to FOMC high area- range extension- Value Area Higher
10Yr Bond down auction- Close at Low- Value Area Lower
NYA (New York Composite) Volume 7.6 Billion
IWM 95 Million
Russell 2000 Call/Put Flow= $309,071.25 (net calls)
$398,972.75 daily call bias
USO 23.6 Million
USO Call/Put Flow= $65,429.30 (net calls)
$52,684.18 daily call bias
Monday, March 23, 2009
Market Notes as of close 20 Mar
Dollar gap and up auction after consolidation @ previous demand (24.50-25)- Value Area Higher
USO continued consolidation from 30-31- negative skew developing-declining volume and option put skew developing into uptrend - Value Area Higher
SPY/IWM consolidation range within FOMC range was breached- Down Auction ensued- FOMC range now becomes Supply- Value Area Lower
10Yr Bond down auction- new rotation potential from 124-126- Value Area Lower
Weekly Credit Market Overview 21 Mar
In spite of FOMC voodoo this week, the Ted Spread remains in 112-100 basis point range
Sunday, March 22, 2009
Volume, Open Interest, and Call/Put Flow Line 16 Mar-20 Mar
Volume, Open Interest, and Call/Put Flow Line (CPFL) 16 Mar-20 Mar
Weekend News 21 Mar-Gold 1883-present
The Keynesian and Marxist economists have argued relentlessly for money which is controlled by a centralized entity on the premise that currency backed by gold suffers too much volatility and deflationary risks. Notice the stability of the price of gold and its value in dollars before the 1920s which is when FDR began to undermine gold as the store of value. 1971- present (The age of complete Federal Reserve control) does not exactly reek of " price stability". Even a hairless chimp like me can see that.
I've got it- Let's print more money; that's the ticket!
Source: kitco.com
Weekend News 21 Mar-CPI & FOMC Policy
The above graphic illustrates the CPI or consumer inflation during the same period of Federal Reserve money printing post 1971. A big, thick, steaming helmetful of Inflation!
Source: St. Louis Fed
Weekend News 21 Mar-FOMC Monetary Supply
Source: St. Louis Fed
Weekend News 21 Mar- FOMC Announcement
The most significant economic news of the week was the FOMC (Federal Open Market Committee) announcement which included the Federal Reserve's new intention to buy up to $1.75 Trillion in US Treasuries, Agency Debt, and Mortgage-backed securities. According to the FOMC, this will be done in an effort, "to provide greater support to mortgage lending and housing markets...." The Fed went on to say, "moreover, to help improve conditions in private credit markets, the committee decided to purchase up to $300 Billion of longer-term Treasury securities over the next six months."
Thus, the Fed continues to expand its balance sheet to swollen levels, and what is one left with to infer from these statements and intentions? It is a safe assumption to acknowledge that in spite of the trillions of dollars in bailouts and stimulus, the credit markets (at least according to the government) are still in a state of disrepair. This is how money printing as a remedy continues to be justified. The trillions of money printing has not worked yet? Solution: Just print more. So we have a problem which the provided solution is clearly impotent to solve. Answer: just keep doing it!
There seems to be divergent views as relates to the state of the credit markets depending on whether you are listening to the Federal Government, Investment Banks, and multi- national commercial banking conglomerates OR to regional banks and others who were not involved in the CDO, CDS environment over the last decade. That said, while the problem itself and so-called solutions are all ambiguous at best, there are certainties. The relentless printing of money as a policy solution is going to destroy the purchasing power of the Dollar. The Federal Reserve either expects a serious worsening of the economic landscape going forward and/or must be concerned that foreign debt buyers are beginning to become concerned and potentially losing interest in financing their money printing adventures.
So, the American citizens are left with a policy approach which continues to be ineffectual at best, the prospect of a potential worsening of the economy as a justification of continuing the policy, and the reality that significant inflation in daily life is coming.
Alexander Hamilton must be proud....
Economic Week in Review 21 Mar
- Treasury International Capital (TIC) Report showed foreign demand for US assets easing especially in the last two of three months (down $43 Billion in Jan/down $25.6 Billion in Nov '08) in terms of long term flows. In aggregate, foreign investors continue diminish US agency holdings including corporate bonds, BUT there is continued purchasing of US Treasuries (most importantly China's $12.2 Billion). This is especially notable in light of Chinese Premier Wen Jiabao's recent statements about concerns over US Treasuries and the FOMC announcement this week which included a call to purchase $300 Billion in the 2-10Yr Bond Products. Activity here will continue to be critical to be aware of as relates to our government's economic stimulus intentions. Their intentions rest on the continued interest of foreigners to finance their money printing via US Treasury purchases.
- Industrial Production in February was worse than expected and has fallen in eleven of the last thirteen months. Weakness remains broad based.
- Housing Starts rebounded in February following January's very low number albeit likely a seasonal factor.
- PPI (Producer Inflation) saw a second month in a row of increase with energy as the leading cause. CPI (Consumer Inflation) also increased on an increase in energy costs. Food was essentially flat. In sum, rising prices occurred among most items excluding food.
- FOMC Announcement revealed an unchanged interest rate policy BUT stated its intention to purchase up to $300 Billion in government bonds, $200 Billion in agency debt, and $750 Billion - $1.25 Trillion in mortgage backed securities over the next six months. Apparently in the Fed's mind, destroying the value of what the lowly taxpayer must earn in order to spend and fork over to the IRS is the path to "prosperity" and "economic stability".
And the beat goes on....
- Notable Reports for the week of March 23-27 include Existing Home Sales, Durable Goods, GDP, EIA Petroleum Report, Jobless Claims, and Personal Income/Outlays. Also, numerous bureaucratic talking heads flapping their gums.
Wednesday, March 18, 2009
Market Notes as of close 18 Mar
Dollar extreme liquidation post FOMC from previous demand cluster (26-26.20)- potential auction to longer term demand below (at/near 24.64-24.97)- Value Area Lower
USO opening range sell auction- closing range post FOMC Dollar destruction- rally to supply on declining Volume and Open Interest- Value Area Lower
SPY/IWM consolidation in opening range- rally into FOMC and range extension post FOMC- Value Area Higher
10Yr Bond up auction in opening range from long term demand (120)- rally into FOMC followed by extreme breakout to upside on Fed news- Bear Potential below 120 OVER in near term- Value Area Higher
NYA (NYSE Composite Volume) 9 Billion
IWM Volume 101 Million** (Potential Exhaustion Volume)
Russell 2000 Call/Put Flow= $31,251.09 (net calls)
($-251,976.78) daily put bias
USO Volume 26.5 Million (Decreasing)
USO Call/Put Flow= $64,776.80 (net calls)
($27,541.39) daily call bias
"Challenge and opportunity always come together; under certain circumstances, one could be transformed into the other"
- Chinese President Hu Jintao-
Tuesday, March 17, 2009
Market Notes as of close 16 Mar
Dollar gap lower followed by consolidation @ previous demand cluster (26-26.20)- Value Area Lower
USO gap lower in opening range followed by short covering into supply- Value Area Sideways
SPY/IWM consolidation @ high (previous supply)- closing range liquidation to over/under- Value Area Higher
10yr Bond liquidation in opening range- closing range buy response- Value Area Lower
Sunday, March 15, 2009
Market Notes as of close 13 Mar
Dollar consolidation following yesterday's closing range liquidation @/near demand (26)- Value Area Lower
USO up auction in opening range from yesterday's settlement followed by closing range liquidation back to over/under (28)- OPEC pending- Value Area Higher
SPY/IWM consolidation developing in previous supply/liquidation area- Volume and Open Interest flat/declining- Value Area Higher
10Yr Bond continues consolidation @ longer term demand area- neutral volume skew- Value Area Sideways
Weekly Credit Market Overview 15 Mar
Click title above for "Ted Spread" chart from Bloomberg
What we see is that despite a large decline in this credit spread from the crises of Fall 2008, the spread is still trading near 112 basis points. In the previous bull market from 2003-2007, this spread averaged 27 basis points. If this were to begin to incline again, it would signal a resuming of credit fears in the market.
SP 500 and Commodity Sector Overview 15 Mar
*Note- some technical issue with enlarging these charts this week- no clue*
SP 500 Sectors
Commodity Sectors
Source: Stockcharts.com
Saturday, March 14, 2009
Weekend News 14 Mar- Berkshire Hathaway Downgraded
Warren Buffett has called derivatives "financial weapons of mass destruction"
Fitch Ratings downgraded Berkshire from AAA this week citing risks stemming from derivative bets (which incidentally are only negotiated by Buffett himself at Berkshire and happen to be OTC derivatives). The "Oracle of Omaha"'s portfolio includes liabilities of $14 billion (as of Dec. 31) on 251 derivatives tied to corporate junk bonds, municipal debt, and stock indices on three continents.
A couple of points of interest here: Buffett has criticized particularly OTC (over the counter) derivatives which for those that don't know are contracts which are not traded on a centralized exchange like the NYSE or CME for example. The result is a contract the terms of which are created, agreed, and accepted upon by both parties without a central entity (an exchange) guaranteeing the worthiness of both parties involved or standardizing the terms of the agreements. The result is being unable to truly discern the ability of the counterparty to meet its obligations as described in the OTC derivative contract.
Buffett said in a Bloomberg interview this week that he plans to sell more derivatives. Apparently OTC derivatives that he chooses to involve himself in are acceptable. Perhaps, it is just the rest of us who should not have that choice. Anyhow, I sure do appreciate him doing our thinking for us.
Berkshire was not downgraded by rating agencies S&P and Moody's. Incidentally, Berkshire happens to own a 20% interest in Moody's shares. Apparently, Buffett sees no conflict there.
The whole thing frankly makes me want a dip cone from Dairy Queen as I ponder "Jedi Master or Sith Lord?"
Click title above for Bloomberg article
Weekend News 14 Mar- Lawrence Summers Comments
Bloomberg News reports:
White House National Council Director Lawrence Summers said this week that the US must continue to "prime the pump"of the US Economy through deficit spending. Longer term, he said, the administration will work to get the economy and spending "on a sustainable basis" to keep foreign investors confident.
If I understand this correctly, our plan is to spend and print trillions of dollars irresponsibly now and at some indefinite point in time in the future become fiscally responsible. This logic is about as sound as Doc Emmit Brown in "Back to Future" trying to run the flux-capacitor on an empty beer can and a banana peel. Apparently, "where we're going we don't need roads...."
Summers goes on to say, "Our problems were not made in a day, or a month or a year, and they will not be solved quickly."
Too true Larry, too true (he's Dr. Watson to Sherlock Obama). Still I wonder if these problems were so long in the making, why is it necessary according to most of these Repulicrats to immediately spend and print trillions of dollars without any reflection or real analysis? Their usual pitch seems to be because "it's the end of the world as we know it". Earth to Congress- world still here (two years into this) albeit with less purchasing power.
One thing we know for certain; their behavior has managed to unnerve the most important player in this crazytrain of increasing debt to solve a debt crises- China.
Weekend News 14 Mar- China's Concerns about US Treasuries
China's Premier noted this week that he is concerned about the safety and quality of US government debt. The US government continues to pump out the debt securities (this week to the tune of $63 Billion) to prop up their rampant spending and money printing. The issue of concern going forward will be China's willingness to continue to support our debt and spending with purchases of US Treasuries. China remains the largest holder of US debt, and the Treasury International Capital (TIC) data which will be released this coming week will be worth noting as it shows the interest (or lack thereof) of foreign governments, investment funds, etc. to purchase US securities. As goes China's interest in US debt ultimately so goes the Dollar.
Click title above for Bloomberg Article
Economic Week in Review 14 Mar
March 9-13
- International Trade report reflected improvement only due to decreasing oil imports.
- Retail Sales better than expected in Feb and the Jan figure was revised higher.
- EIA Petroleum report data was mixed- Current Inventory Levels are at a 3 year high
- IEA Monthly Oil Market report revealed: Global Oil Supply in Feb estimate 83.9 mb/d- Forecast Global Oil Demand '09 84.4 mb/d
- Notable Economic Reports for the Week of March 16-20 include: OPEC announcement, Treasury International Capital (TIC) data, industrial production, housing starts, PPI/CPI, and FOMC Announcement.
Friday, March 13, 2009
Thursday, March 12, 2009
Wednesday, March 11, 2009
Market Notes as of close 11 Mar
Dollar gap below over/under (26.57)- consolidation & gap holds- Closing Range Liquidation- Value Area Lower
USO sell response from yesterdays settlement & over/under (27.83)- Liquidation below settlement- Potential fill of previous gap up- Value Area Lower
SPY/IWM open above settlement- Pullback to settlement encounters a buy response but selling into close brings this into question- Potential test of breakout levels- Value Area Higher
10Yr Bond consolidation at long term demand (120) continues- Afternoon short covering rally likely due to the monthly 10Yr Auction- Value Area Sideways
Inside the Auction (Anatomy of Trend) 10 Mar
Phase III Imbalance (Continuation of Trend followed by Reversal)
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