Tuesday, 30 June 2009

Low volume pushes up stocks

As defying as it seems to be, we are still rallying in stocks, on notably low volume on this US holiday shortened week. A lot of the moves are being exaggerated by players with size to push this market around. Infact the NYSE traded with the lowest volume since January 5. The correlation continues: low volume - market up; high volume - market plunge. Rinse. Repeat.

Also, in a complete failure for VWAP reversions, the early am shakeout on moderate volume was followed by a laughable lack of action at the day's highs untli the end of the the day, when, surprise, all the trading picked up in earnest in the last 10 seconds. What do you get when you cross Atlantic City with E-Bay? That's right - U.S. equity capital markets.

Monday, 29 June 2009

Bunds Up Stocks UP

The Bund continues its march upwards as is Stocks. Bunds are close to reaching the 121.50 target, as long term yields continue to fall.
An interesting point is the level of the VIX, which is below 25, which is below the level the VIX was at before the Lehman collapse. Is the market getting complacent?
Well sentiment trumps all, and there is in my opinion a definite disconnect between what is actually happening and what is happening in the markets.
With a very important thursday coming up, this will definately be the catalyst for a break above 9000 or below 8000 in the DOW.
The US will kick start the job numbers for the second half of the year, and we are all wondering how long will it be before we actually have job creation. Not till next year most likely, but it is likely we will have another gradual improvement when the numbers are released.
As far as the ECB goes, it is expected for rates to remain on hold, and according to ECB sources, they will be on hold for a long time to come, which gave a boost to Bunds and stocks.

Friday, 26 June 2009

Have the markets turned?

Yesterdays rally was quite a big and aggressive one. Before the US market open, all European indices were well under water and the S&P futures were down 6 points, before we ended up 18 points, a 24 point turnaround. Now is this a part of a turnaround, or a breather for the bulls before we continue downwards. Well one notable fact was that the volume was still light.
Another thing is the disconnect between bonds and stocks still exists, as we were racing to new highs in stocks Bonds were trading at highs too.
Bunds are trading at 120.57 now as we continue to go higher aproaching our 121.50 target. We have rallied 300 points off the low reached at the begining of june and more is expected before we pull back.
Its the same story for the Euribor spreads as they continue higher as does short sterling spreads. It is hard to determine how high these may go, but while they continue there pursuit upwards its best to trade it with caution.
Looking ahead its a quite day on the news front, with Michigan confidence at 3 pm GMT the main piece of news.

Thursday, 25 June 2009

Euribor Futures rise on ECB's refinancing operation

Euribor futures rose today after the results of the ECB's long-term refinancing operation. The European Central Bank lent commercial banks a record 442.24 billion euros (620 billion dollars) at 1.0 percent on Wednesday via its first offer of 12-month funds in a bid to boost credit flows.

Some analysts expected the ECB's spectacular move to trim rates charged by commercial banks for long-term borrowing, but others were less sure.
If that does happen, easier credit could underpin a rebound as the eurozone slogs through what is tipped to be a sluggish recovery from the worst global recession in more than 60 years.

On the back of this Euribors jumped along the front of the curve and less so further down the curve. Spreads continued to rise, with Sep10 Dec10 spread trading as high as 36.5.
The Schatz Bund spreads also rose massively as Bunds sold off as short term bonds were in demand.

Aside to this we also had rates kept on hold from the FED, with the FOMC stating that its Treasury purchase program size remains unchanged, much to the disappointment of some investors, this prompted a small sell of in stocks as they fell back way below their earlier highs after rising earlier on better then expected durable goods orders.
It is a telling sign that even after some very strong data markets failed to hold on to gains, which gives further evidence that we have more downside to go.

Wednesday, 24 June 2009

Are stocks destined to drop below March lows?

Well that the opinion of strategist Jim Reid, of Deutsche Bank.
He says Share prices tend to hit bottom “at extremely cheap levels” relative to earnings during so-called secular bear markets, Reid wrote five days ago in his first equity strategy report. Secular bears consist of multiple rallies and declines, with each slump producing lower valuations than the prior one.

The CHART OF THE DAY shows the Standard & Poor’s 500 Index’s price-earnings ratio since 1900, based on data compiled by Yale University’s Robert Shiller and cited in Reid’s report.

Shiller calculated the P/E ratio at 6.6 in September 1982, just before the 1980s bull market started. The gauge sank to less than six in the depths of the Great Depression and at the beginning of the 1920s. This year, it has stayed above 13.

“History tells us that at some point in the next decade there will be much more stressed valuations than today and a once-in-a-generation buying opportunity,” wrote Reid, who previously focused on credit-market strategy.

Even “a large rally” later this year and into 2010 may not be enough to prevent this scenario from unfolding, he added. The S&P 500 has climbed as much as 40 percent from its March 9 lows. Reid’s European benchmark, a local-currency version of the MSCI Europe Index, has risen as much as 33 percent.

Sentiment trumps all

Its amazing how things change in a week. The sentiment is shifting and the fear is re appearing as we continue to have weakness in equity markets. After yesterdays pretty much sideways day, futures this morning were pointing up nicely but soon as the cash markets opened we pretty much sold of in a straight line back to flat again. Now not saying that we wont attempt to rally again, but a week or more back every pullback was an opportunity, it seems now that sell on any spike. We can see on the char below the spike down after the cash market open in the Eurostoxx at 8am GMT.

In fact this correction is long overdue and has been expected for a long time. Now that it has come will it be sustained or just a healthy pullback for another push higher.

Tuesday, 23 June 2009

Pullback in full force

It looks now that this pullback is gathering some steam. The DOW dropped over 200 points yesterday, as the world bank lowered its global economic growth forecast. Bunds rallied as long end was in demand.
Da ja vue for Euribor spreads as they continue upwards again, as red month and green months take their cue to march upwards. Dec10-Mar11 trading 27.5 after trading 26.5 in the morning, Mar11-Jun11 spreads are trading 28s after trading 26.5s yesterday and 23s last week! I have found it tough to go long these spreads but going short is dangerous too, so butterfly spreads continue to be my strategy of choice.

On the stock front the S&P 500, at 897, is six points off its 2008 close of 903. The Dow, for its part, is off 400. It had briefly stuck its nose above water a couple of weeks ago, but has been sliding.

Oil, down 3$ a barrel, sticks out like a sore thumb today, since presumably it offers a pretty spot-on read of investor sentiment about the real economy. Gold is also around $900, tracking the S&P perfectly.

Target for the S&P 500 is still 849.50, however futures today are pointing up as of now as strength in Europe is pushing this market higher.

Monday, 22 June 2009

S&P 500 future breaks 900

Bunds have breached the 120 level, as stocks have sold of today. S&P 500 futures also have fallen below the 900 level, as the start of the correction continues.
Euribor spreads still maintain there upward bias but seems to have stabilised. Short sterling spreads have stayed in a range for 3 days now which is a shock, but a relief at the same time, as trading was becoming a real struggle.

Looking at Bunds, 121.50 looks like the next stop in the medium term, and to the downside we arte looking at 118.50.
For the S&P 500 the bears will feel they have gained the upper hand after breaking out of a sustained consolidation zone to the downside and having retested and held below key support they will be looking to establish a bearish down trend. With the break of 899.25 their first significant target should be at 849.00.

Friday, 19 June 2009

Doug Short's Charts Of Bear Market Bottoms

Interesting bear market analysis. Good read!

Doug Short's Charts Of Bear Market Bottoms

Posted using ShareThis

New highs for front month Euribor spreads

Euribor spreads are on somewhat of an upward march, Jun10-Sep10 spreads reached high of 32, Sep10 Dec10 has traded 34s! Given that this spreads was trading 30s a few days ago and I thought that was high. As traders take their bets at the of rate rises after this year has ended, I have shifted my focus to trading further down the curve as the general level of steepening is less aggressive. Pretty much all risk of the ECB tightening in the front months have been removed, as steeping continues and likely will carry on a bit further.
Looking forward to today we have very little in the way of data, so unlikely to be many fireworks today.
Stocks look mixed after rallying yesterday with stronger then expected manufacturing data from Philadelphia providing the stimulus. I still hold my DIA puts, with the view that we still will have more of a correction. The fact that we did not rally as much as maybe we would have a month ago implies there is not much upside left to this leg of the rally.

Thursday, 18 June 2009

Markets fail to hold gains

It was looking like the bulls might snap the decline today, but they couldn't hold on.

Both the Dow and the S&P ended slightly down. The NASDAQ did end up marginally, so the optimists can hang their hat on that.

But as we've been saying, this market is behaving markedly different than it was just last week. Last week, every down or flat day was saved by a nice end of the day rally. All this week it's been the opposite, as the bulls have been powerless at the end of the day.

So what's the problem? Well, as David Rosenberg says, the green shoots are brown. The economy still sucks, and the second-derivative gains aren't doing it anymore. FedEx (FDX) beat earnings expectations, but we're long past the point where beating earnings on cost cuts (while missing on the top line) will do anything. Foreign markets are down. China is threatening to set off a trade war, and a brand new regulatory system is coming to Wall Street.

Looking today we have UK retail sales, and weekly jobless claims out of the US.

Wednesday, 17 June 2009

Dow Jones index falls for a second day

Stocks dropped again yesterday, as traders continue to take profits. The selling has been on very low volume so it is hard to say whether it is merely profit taking or a change in trend. But the fact that the market sold of in the face of some good news across all regions raises a few red flags. A few weeks ago, these would've been bonafide green shoots. But as we said last week, the market now needs to see more than just second-derivative green shoots. It needs to see actual green stalks. And so far there really haven't been any.
Spread wise, it is alarming me on how high the short sterling calendar spreads are reaching. 3 month Jun10-Sep10 spreads are almost 50bp wide, as is Sep10-Dec10. They are pricing in a series of rate hikes next year, but to me it seems like the spreads are a bit too wide, and that there will be some sort of serious correction soon.
We have UK unemployment data and BoE minutes as well as CPI from the states for news today, so far Bonds are higher and stocks are heading lower.

Tuesday, 16 June 2009

Economic Data set to life stocks

Better Housing numbers from the US, retail sales from the UK and Sentiment data from the EU have provided a lift to equities today. Stocks look likely to eat back at losses yesterday.

Daily Highlights:
-Asian markets fall as pessimism about global economy spreads.
-BOJ’s Shirakawa says that corporate financing has improved but the bank must monitor market developments before to extend measures to ease credit strains.
-Geithner: Risks of deeper recession in US are 'dramatically' lower.
-New-car registrations in Europe dipped to 1.27 million vehicles in May.
-Nikkei 225 Stock Average tumbles 2.9% Tuesday, its biggest one-day loss since March 30.
-Obama's financial overhaul could reshape Fed; some worry about `supercop' role.
-Russia may put part of its currency reserves in bonds of China, Brazil, India.
-Singapore dollar recoups some early losses against the U.S. dollar.
-U.K. inflation slows less than economists forecast in May after higher taxes and the weakness of the pound sustained price pressures in the economy.
-AmEx's May card write-offs fall slightly in May to 10.3% from 10.4% in April.
-No orders for Boeing, Airbus ekes out order from Qatar at recession-clouded Paris Air Show.
-BT Group Plc advances 3.4% after Morgan Stanley recommends the U.K.’s largest phone co.
-CA won't resume growth till late 2010, weighed down by the ongoing spending slump.
-Capital One Fincl Corp's monthly card write-offs rise to 9.4%; late payments increase.
-EMC reiterates its $30/sh all-cash tender offer to acquire Data Domain is superior.
-Extended Stay hotel chain files for Chapter 11 bankruptcy protection.
-Exxon Mobil to pay about $500 million in interest on punitive damages for the Exxon Valdez.
-Sales of Honda’s Insight hybrid in the U.S. in 12 months may be 50,000 to 60,000 vehicles.
-Smithfield's May net income dros from a $2.4M gain last year to a $78.8M loss this year.
-Lincoln Natl Corp. to raise $2.1B in capital, incl $600M common-stock offering.
-National Bank of Greece sinks the most in more than seven months after announcing plans for a 1.25 billion-euro ($1.7 billion) rights offer.
-Tesco says U.K. sales accelerated in the 1Q as discount food range kept shoppers from shifting to rivals Aldi Group and Lidl.
-Tyco Electronics sees Q3 EPS at $0.10-0.17 (cons $0.03); revs of $2.45-2.55B (cons $2.4B).
-UniCredit Exec says current qtr invest banking operations are better than expected.

Stocks sell off as Bunds approach 120

Yesterday, we got a long awaited global sell off, with most indicies losing between 2-3% for the day. The question now is will it be sustained or just another opportunity to get long. Yesterdays closing action was quite significant as it is the first time in many sessions that there hasn't been a huge spike either was in the last 30 mins of trading, it simply stayed flat. Were the buy programs on hold today? We need more then one session to find out. Futures this morning are pretty flat, but with key data coming out from UK, EU and US, this is likely to set the tone for the session.
Bunds yesterday broke 119.24 and is now trading 119.59, with next targets to the upside at 119.87 and 121.28. On the downside we looking at first stop 118.43, then 117.50.
Front month Euribor spreads continue to climb upwards, as rate hikes sooner rather then later continue to be priced in as speculators continue to test whether rates can continue to stay this low.

Monday, 15 June 2009

Bund breaks 119

We have a rally in all bonds as we sell of in equities this morning. Bunds are up over 50 points so far, reaching a high of 119.18, and has almost reached the second target of 119.24.
Euribor spreads continue to remain high in the front months, and are starting to come off more further down the curve. With the general feeling being a rate hike earlier rather then later, the back end of the curve has taken a real hammering, but with my belief that stocks are looking to turnaround, this may in turn lead to a recovery in the long end of the curve.
Index futures are pointing down sharply today, with European shares heading lower. The DAX is back below 5000, and the Eurostoxx back below 2500. Often early weakness has been countered by continued support, so it will be interesting today to see whether we get a real sell off, or a buy into weakness scenario.

Friday, 12 June 2009

Bund futures rise

After some pretty aggressive selling along the yield curve lately, Bunds have jumped sharply today, trading at 118.67 at the moment, after twice testing 117.50. A break over 119 is looking increasingly likely, as long dated bonds retrace some of its move down.
Euribors are also rallying a bit, after being drilled lower from persistant rate hike fears. Front month spreads contine there march upwards, with Jun10-Sep10 trading at a high of 30.5! and Short sterling Jun10-Sep10 spread trading at 48! That is pricing in almost a 50bp rate hike, a tad over done in my opinion.
I continue to try short new highs, and using butterflies to hedge myself against the continuing rise in the spreads. Seems to be safest strategy of late.
With Stocks there is a real tug of war with the bulls and the bears. The bulls just have it at the moment, but it does look very much like a reversal is coming. But then again every time it looked like it was heading lower before, the market headed on another leg up. I cannot make sense of this huge rally, and I have decided to buy some puts in the DIA which is the Dow Jones ETF, for September expiry. Ill keep you posted on how it goes.
Looking forward to the US session today, futures are pretty flat, with European market slightly down. We have Michigan consumer confidence later on, which may dictate the direction of the market today.

Wednesday, 10 June 2009

Stock futures point to another big up day

After much consolidation over the past few sessions, we have got a big lift this morning in stocks. There seems to be no major news fuelling this rally, but as I said yesterday, for now there seems no letting up in this rally. The huge rally from the low still holds which is lead by commodity related stocks, and technology. Commodities have continued there rally with oil trading above 71 bucks, as the dollar continues to weaken.
Personally I have been taken back by the strength of this rally as have other most likely. Here are some reasons why courtesy of Bloombergs Matthew Lynn;

The Savings Story: People are putting money aside again... With interest rates close to zero, there’s no point keeping it in the bank. Instead, a wall of money is about to descend on the market, creating huge demand for equities.

The Inflation Story: ...You don’t want to be holding cash while inflation makes it less valuable by the day, and central banks keep creating more of the stuff. Instead, investors will switch into real assets that can hold their value, such as stocks, real estate or commodities.

The Takeover Story: The last rally was all about the emergence of the BRIC economies. This one will be about them buying North American and European assets. The rising BRIC giants are going to need technology and brand names, and they will want to buy them.

The Shareholder Story: In the coming years, capital will be in short supply. The only place that companies will be able to get it will be from their shareholders. In return, they will have to be rewarded with higher dividends and stock prices.

Well there you go, hard to tell when we will stop.

On the Euribor front, front month spreads continue there march upwards with Mar10-Jun10 hitting highs of 29.5 and Jun10-Sep10 trading 30s. These spreads have risen over 6 full ticks in the past few sessions. Quite a frightening move, just like the stock market, there seems no end to how high it will go.
Bunds hit my first target of 118.43 yesterday, it has since then come off slightly, but 119.16 still remains the next target.

Tuesday, 9 June 2009

3m Euribor sells off

It was coming really, whilst the bund has come off 600+ points from its highs, the short end of the curve has been pretty stationary. However since Thursday we have seen a continued sell of in the euribors, schtaz and short sterling which have seen us come off over 60 ticks in Euribor, and almost 100 ticks in the schatz.
Spreads have deviated wildly, with the front of the curve seeing spreads go up over 5 full ticks, where as further out on the curve, red and green month spreads have come of 4 full ticks. Liquidity has been good lately and this downside has been accompanied by very good volume
Expectation is that we will need a rate hike earlier then first thought and this is putting downward pressure along the curve.
Bunds have seemed to have levelled off around the 118 level, and looks like it could consolidate around here then look for a bounce to 118.43, then 119.24 as next targets.
Equities still seem very bullish to me. Yesterday early spike down was a test of nerves for the bulls, as most are still expecting a pullback soon, but we managed to stage a late rally on the US markets which brought us flat, and European stocks have taken there cue and are all strongly higher this morning. Despite the state of the economy, and worries about inflation, there seems to be only way these stocks are going and that is up and a significant break of the 949.00 level may open the door for another leg higher and if 962.25 can be broken 1,000.00 may well be on the cards.

Friday, 5 June 2009

Non Farm payrolls data better then expected

Bunds hit target off 118 and is now trading well below, Euribors have come of 25 Ticks, dollar has strengthened and stocks went up as non farm payroll numbers came out at -345000 jobs lost as opposed to expectations of a 500k plus job loss.
Its been an extremely busy days with very heavy volumes across the board.
Euribor spreads traded really nicely, trading in a range, whilst very good liquidity made it easier to trade.
Stock initially soared but then gave back all of its gains as conflicting data put doubt into the validity of these numbers. Although jobs lost was less then expected, the unemployment rate was more at 9.4% as opposed to an expectation of 9.2%.
Thing logically, something just seems wrong then, how could the umemployment rate be higher when less jobs then expected were lost.
Something doesn't quite add up! Well that could explain the retracement of these markets from its highs combined with a bit of profit taking given the huge run up.
Still 9000 looks more likely now, as the path of least resistance seems up, we have had an unprecedented run up in global markets and as of now it does seem like it will let up.
Next week should be interesting as the dust will settle given all the news this week.
Have a nice weekend.

ECB and BoE hold rates

We had good trading volume across the board as both the ECB and BoE held rates steady. Short term interest rate futures have been selling off big time after Trichets speech. The Euribor is down 25 FAT ticks since the rate announcement yesterday. Trichet used the word "appropriate" which suggests he is happy with these levels right now and isn't contemplating any further cuts.
Euribor spreads have been moving around quite a bit with the short end having moved higher, trading 26s on the Jun10-Sep10 spread. Red month spreads have been coming off slightly, with the Mar11-Jun11 trading 26.5s as we speak coming off 2.5 ticks from yesterdays high.
Bunds sold off to trade 119.00 right now, bouncing nicely off the upper band of the downward channel. Looking forward with stocks looking strong, and risk appetite increasing, 118 looks ever more likely.
On the stock front we continue to show strength which suggest that Wednesdays sell off was just a blip. With US job numbers later today, any slight improvement could set the stage for 9000 in the Dow next week.

Thursday, 4 June 2009

Euribor spreads fall

Well with yesterdays rally in the long end, we had some expected pullbacks in these lofty spread prices. Front month euribor spread came off over 2 ticks. Jun10 Sep10 is now trading 24s after trading 26s early yesterday, and Sep10-Dec10 spreads are trading 30.5s after trading 32s yesterday. Further out spreads have remained pretty much unchanged, only falling marginally. With trichet press conference later today we will have to see where we go with these into the afternoon.

The spike up in bunds yesterday brought to the upper band of a downward channel, at just below 120, since then it has retraced but if we continue breaking the top level, we could have a big bounce in the bund to 120.50.

If not 118 is the next stop. We shall see how it pans out.

Wednesday, 3 June 2009

Bunds up 90 points

Some weak jobs and ISM data and general oversold conditions sparked a rally in the long end of the yield curve. Bunds are up 90 whilst Gilts are up 100 points. As it stands now there is a general bout of profit taking across the board in all areas. We have come off in stock and the Dollar has gained some strength after been hit hard the last few sessions.
Whether this is a start of a longer term trend or merely a blip in this upward march is to be seen.

ABC consumer confidence

We had a somewhat sideways day, a relatively small 40 point range in the bund, and a somewhat subdued stock market. This isn't surprising really after the moves we have had lately. Bunds at the moment managed to get back under 119.00 as investors continue to go into riskier assets.
Yesterday night we had the US ABC Confidence. Everyone, and Bernanke especially, knows that the highly objective University of Michigan Consumer Confidence index is a wonderful leading and lagging indicator to the market, which is why lately it has been getting the gold treatment. Curiously, the other consumer index, the ABC Consumer Index staged a major trend reversal this week with the one thing it should be mostly fond of - the market. While the market has kept on going higher as more retail investors look at the Con Con and figure all is hot, the weekly ABC index begs to differ. Here is the description of the index:
Declining levels of consumer comfort usually accompany any fall in income and wages and precede drops in consumer spending. A low or falling ABC Consumer Comfort value is considered an early indicator of an economic downturn. As a result, investors, retailers and traders alike all watch the figure for insight into the general health of the economy.
Note: The index incorporates the most recent week's data with the results of the past three weeks, yielding a rolling four week average. Results are calculated as the difference in percent of positive and negative numbers.

So what does this mean, are things about to turn? Well this afternoons ADP number could have a bearing. Another 533k jobs expected to be lost, would be a real dampener to sentiment if this is actually the case.

Monday, 1 June 2009

Resistance broken, do we hear 9000?

It was coming really, the path of least resistance was up, and any pull back in stocks wasn't really convincing. We jumped over 200 points yesterday as stock market aroudn the world all pushed up to yearly highs. At the begining of yesterdays session we had everything going up including the bond market, but as the rally in stocks gained steam they all reversed course and bund finished down below 119 again. This morning we have had a continuation in the selling in government bonds as risk appetite increases.
Euribor spreads remain at the high along the curve. However there aren't many players in the market right now as volumes remain low, and with ECB rates on thursday, traders are waiting for the next move from Trichet.
Talking about this rally, some say we are looneyville. Firstly when we rally from the announcement of a bankruptcy in one of the US biggest organisations, we know we have a disconnect from reality. Secondly when GM rallies, a stock that has declared bankruptcy, and which has filed a plan that will result in the effective total destruction of its common stock, well enough said!
Bottom line is you cant fight the tape, more buyers then sellers, so the only way is up until that situation changes.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before,...