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.
Tuesday, 30 June 2009
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.
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.
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.
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.
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.
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 $900, tracking the S&P perfectly.
Target for the S&P 500 is still 849.50, however futures today are pointing up as of now as strength in Europe is pushing this market higher.
Da ja vue for Euribor spreads as they continue upwards again, as red month and green months take their cue to march upwards. Dec10-Mar11 trading 27.5 after trading 26.5 in the morning, Mar11-Jun11 spreads are trading 28s after trading 26.5s yesterday and 23s last week! I have found it tough to go long these spreads but going short is dangerous too, so butterfly spreads continue to be my strategy of choice.
On the stock front the S&P 500, at 897, is six points off its 2008 close of 903. The Dow, for its part, is off 400. It had briefly stuck its nose above water a couple of weeks ago, but has been sliding.
Oil, down 3$ 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.
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