Inspiration

This one comes from Dave Rosenberg and resuming perfectly the current environment:

1. This remains a hope-based rally in the equity markets (with strong technicals). What we are seeing transpire is without precedent - the magnitude of the employment slide versus the magnitude of the market advance.

2. Companies have not really been beating their earnings estimates - only the very final estimates heading into the reporting quarter.

3. Valuation is a poor timing device but even on “normalized” trailing 10-year earnings, the S&P 500 is trading near 18x, which is now above the historical average of 16x.

4. All the growth we are seeing globally this year is due to fiscal stimulus.

5. While Mr. Market may be pricing in a fine future for the U.S., but when the 3-month Treasury-bill yield is 13bps north of zero, you know that there are still substantial fundamental imbalances that need to be worked through.

Looking for some ideas?

• S&P 500 hits 11-month high after a 53% surge since March... still 34% below October '07 peak. • Semiconductor rally continues... giants Broadcom, ASML, Marvell, and others make fresh highs.

• Brazil ETF (EWZ) climbs 8.5% so far this month, retests 11-month highs.

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Canada

Yesterday we showed the correlation between a currency and its stock exchange. More of the same today. This time we have Canada.
Question is: who leads…
I guess it’s the currency

That’s all folks. Although the monsoon is pouring for the last couple of days, we know the pub is open. Just lean back and enjoy. It’s summer after all, now isn’t it…

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Unforgetable: the week in pictures

A failed shoulder-head-shoulder set-up was the most important event for Technical Analysis aficionados this week.
This failure is opening the door to a rally, they tell us now.

In he mean time we will not forget the following pictures.
The ramping up of Goldman Sachs on Wednesday.

After a reversed split FAS and FAZ are the darlings of the pro’s again: just look what happened in the last minute of the session on Wednesday….

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McClellan indicator(s): still bearish

The McClellan Oscillator is a market breadth indicator used by financial analysts of the New York Stock Exchange to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market. Developed by Sherman and Marian McClellan in 1969, the Oscillator is computed using the exponential moving average (EMA) of the daily ordinal difference of advancing issues (stocks which gained in value) from declining issues (stocks which fell in value) over 39 trading day and 19 trading day periods. The simplified formula for determining the Oscillator is:

Oscillator = (19-day EMA of Advances minus Declines) - (39-day EMA of Advances minus Declines)

The McClellan Summation Index is calculated by adding each day's McClellan Oscillator to the previous day's Summation Index. By using the Summation Index of the Mcclellan Oscillator, you can judge the markets overall bullishness or bearishness. Above zero the MSI is bullish; below zero it is bearish. The Summation Index is oversold at -1000 to -1250 or overbought at 1000 to 1250.

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the bullish percent index

The bullish percent index is one of our favorite instruments in order to gauge the trend. This indicator is based on the point and figure technique.
Point & Figure chart analysis has been popular for a very long time. Part of its original appeal was that it was very simple for someone to maintain a large collection of P&F charts back in the days before computers. In less than an hour, using just a pencil, a newspaper and some graph paper, P&F chartists were able to update and analyze 50 or more charts every day. When computers arrived, they made it much easier to create bar charts and P&F charts started to fade in popularity.
The NYSE Bullish Percent Index is calculated by reading either a buy or a sell signal from the point and figure chart of each of the 2800+ stocks on the NYSE each evening. The value of the index represents the percentage of stocks listed on the NYSE that signal a buy.

One can look to the bullish percent index of the index. As an example we take the S&P500.

But we can learn a lot more if we look to the different sectors making up an index. As is showed below:

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Painting the tape

I feel good.
Especially when I see this kind of action in the S&P500 future. This picture is from yesterday and depicts the last 90 minutes of the sessions, when all the shorts had to cover their positions once the Big Boys step in and the index goes up, up and away.

But of course, this is tape painting, the real action remains bearish. Look the stock price of the Inter Continental Exchange (ticker: ICE). Why an exchange? They were the canary in the coalmine last autumn.
But of course, more is going on.
Reuters says:
· The top regulator of U.S. futures markets is considering a clampdown on excessive speculation in energy and commodity trading by restricting holdings of big players, part of a broader move by the Obama administration to stabilize the financial markets.
· William Blair and Co said in a research note that the stocks sank on fears of CFTC imposing restrictions on futures trading, noting that energy futures comprised up to a quarter of revenue for each of the exchanges.

And then this: the CFTC also eyes ETFs such as the Unites States Oil Fund (ticker: USO) and the United States Natural Gas Fund (ticker: UNG) as these ETFs have become so big that at one point USO held more than 20% of NYMEX front-month oil futures contracts. Sphere: Related Content

Going down.

NASDAQ had yesterday the most daily new lows since March 20. The cumulative advance/decline line recently made a lower high. This just confirming that the break down of the indices is shaping further up.
Also metals and mining were slammed yesterday with a loss of more than 5%. The Natural Gas ETD reached a 52-week low.
Oil prices are down 9% in one week.
And several regional banks hit new lows while the sector lost 25% form the peak in May.

Oil lost yesterday another -2.59 USD/barrel at 64.14 USD. Which trade is unwinding here? Now Solar stocks are trading lower again. They seem no differently than a leveraged bet on oil prices. The biggies in solar land First Solar, Suntech Power Holdings and SunPower Corporation, all traded lower. Even the Claymore/Mac Global Solar energy ETF (ticker: TAN) was hit.

Now, if this correlation is working to the downside, what about the upside?

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No more energy...

Looking to the bullish percent index of the energy sector (as one of the sectors of the S&P500) we observe that all bullishness has evaporated in a week or so. Now, this sector was one of the strongholds of the rally and is now sinking form overbought to oversold.
Not time to buy, yet, but worthwhile to follow, this fellow.

Another observation: if we take a peek to the Russell 2000 than it becomes clear that the last 8 weeks where a waste of time for the big indices while individual names tanked already. A stealth correction is going on. This can result in a correction of the big indices later as the big names can not hold up the whole weight with just some happy few.

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We're all brothers/sisters

Are the Russians different from the Americans? No, comrad. As long finance is concerned there is not that much difference if we observe the course of the S&P500 and the CEE ETF, which is investing in Eastern European and Russian stocks.

It’s summer. Fish are jumping in our harbor (literally). Time to close down the week and going for walk to my local (read: pub) for a good pint of Guinness and a jolly sing-along.
Adios to everybody and enjoy the weekend.

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Figures and more figures

From Bloomberg.
More than 150 companies raised 82.2 bln USD this second quarter in new equity. A faster pace of equity issuance than at the height of the bubble in 2000.
The biggest issuer is the financial sector.
All these new shares are diluting shareholdership, the value of the existing shareholders and the earnings per share.
If the S&P500 is taken as a benchmark then the new shares have diluted corporate earnings by 3%. Total shares in this index have grown with 3.4% since March 31.

More figures. After paying back 68 bln USD in exchange for bonuses, there is still a long way to go. Western governments own roughly an estimates 450 bln USD in banks. Central banks provide generous collateral rules for borrowing in an effort to provide banks with liquidity. But the system needs to refinance some 25.6 trln USD of wholesale finding by 2011. No matter what happens, they never gonna succeed if there is no government back stop.

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I want my bonus back

Yesterday was another trading day that can serve as an example how ridiculous markets have become lately. Regulated, well observed, big markets.
The S&P500 was trading lower by 1% throughout the day on very low volume and suddenly some institutionals bought massive blocks of the SPY. It were the comments of Paul Krugman, some yelled. No, the Chrysler news did it, was written by others. It’s just old fashioned manipulation.

Today there is TARP news: an announcement will be made which banks are allowed to pay back the TARP money and are in to repay bonuses again.

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Technicals

Another picture. We are looking to the advance-decline volume of the NYSE, charted in a cumulative way. We observe how this indicator trended upward with the upward sloped market trend starting in March 2009. However, since May there is consolidation.
While equity market sentiment is getting more and more positive, other indicators are not following. This is one of them.

This consolidation is confirmed by the number of issues figuring above their 50-moving average. Still 88% have a positive trend. Of course this consolidation can continue a long time.

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The sky is not the limit

Technically we’re off to the races. If one looks to the chart of the S&P 500, he’ll have to admit how bullish the chart pattern is. However, this pattern is painted with mark-ups. Meaning that in the end of the session suddenly high volume let prices soar. This was the case on Friday and yesterday.

First let’s look to the opening of yesterdays session. A lot of money came in to paint the steeply higher opening.

And then at the end there was another volume surge in order to paint the tape in a rather positive way.

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A lot is going on

There is a lot going on for the moment.
Most important things: month-end flows have triggered a wave of dollar buying. One of the reasons could be the FX-flows from equity fund managers due to the MSCI rebalancing exercise scheduled for tomorrow. 78 securities will be added and 99 will be deleted from the MSCI Global Standard Indices.

From the Washington Post: "Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said. The agency would be a key element in the administration's sweeping overhaul of financial regulation, which officials hope to unveil in coming weeks, including the creation of a new authority to police risks to the financial system as well as a new agency to protect consumers, according to three people familiar with the matter. Most of the proposals would require legislation. The powers would include oversight of previously unregulated markets, such as the derivatives trade, and of market participants such as hedge funds. "

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Exit

GM on its way out…

GM’s bondholders have reached a deal after failing to agree on 27 bln USD in unsecured debt. GM had proposed an exchange where bondholders would receive 10% of the equity of the restructured company.
A new proposal was filed whereas bondholders would receive 10% and an option to purchase up to 15% on condition they did not oppose the government-sponsored restructuring. The US Treasury would own 72.5% and the United Auto Workers 17.5%.
The exchange offer will be open to bondholders until Saturday 5 p.m.

And the: Which company will replace GM in the indices?

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What we are not told

As usual newspapers linked the action on the American stock markets yesterday to the better than expected consumer confidence figure. I am always wondering why media are not able to educate people better how the action on those markets is generated.
This comment comes from a trader, fed up with blatant manipulation of the S&P500 future.

All I know is that every time the technicals tell me to sell, I get crushed. (I trade ES futs) Case Schiller came out this am at 830 and we sold off 3 or 4 handles and then rallied 10 handles + right on the open even before the consumer confidence came out @ 10 for no reason other than to create a BS short squeeze in the ES. It was as if the people that needed to know to move the market knew in advance the CC#, and i'm pretty sure if that # had been terrible we would have rallied anyways. We have tested the 875 - 880 level in ES now 7 times. This market wants to go lower. There is no legit equity buying above 900. Real money sells above 900 and takes us down to 880 where futures traders set up short positions and get crushed and forced to puke and take us higher. See 5/18 ... and today. How else do you explain a 4% rally from open lows on NO NYSE volume... the first 25 handles of the rally today (up to 905) was entirely ES short covering leading equities. Notice when ES volume died at 1035 and everyone finished puking we only managed to rally 5 more handles the rest of the day. It really just makes you wonder who is controlling these ES futures like this. I never bought into the whole PPT thing…thought it was a crutch for shitty traders, but someone is definitely manipulating these things to induce short covering rallies at key points when we traders are positioned short and we would normally roll over. At this point with no equities volume I can't see a way this market ever sells off.

We saw Rick Besignor of Execution LLC on CNBC. This is what he heard:

The market is up 2.75% and sell-side desks are completely dead. You’ve got computers doing all this buying.

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It's a long way to Tipperary...

How do I love this song written in 1912.

But a long way it is.

I have a friend who’s a bond dealer at D.
I spoke him this morning and he confirmed what is becoming clear the last couple of days in the market: the demand for good credits is booming.
It seems that credit markets are on their way back.
This theme is also reflected in the Credit Derivatives Swap markets where spreads are tightening. No, not all is lost. But it will take a long time.

Having said this, friends, I as you attention as the bull movement is overbought with the minute now.

All technical indicators are screaming now that the equity markets are overbought. Look to this indicator showing how many stocks of the S&P500 are humming above their 50-day moving average... Spooky

So, be careful out there

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An odd couple

What’s this?
It’s a very odd relationship.
What could be the relation between the ratio of long term yields versus short term yields and between gold and silver?
On a monthly basis - and maybe this is a complete coincidence – we observe that as the yield curve is inverse, silver is rising more quickly in price than gold. And vice-versa.

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We can fly...

The swine flu prompted the WHO to increase its alert to an unprecedented phase four.

Should we be scared?

Why don’t they do the same thing with stock exchanges as we are confronted with this phenomenon in opening (avance/decline market breadth is a whopping three:one on the NYSE)
It’s a wonderful world.

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Where eagles dare...

Soon it will be the only way to escape the Emerald Isle as Irish carrier Aer Lingus announced some news about revenue and other numbers. Everything seems to detoriate even quicker than the government fortunes. A sort of landing has set in.
Time to sell?

Elsewhere we observe a take-off…

Although we think a correction is well underway, we observe that some beaten stock markets continue to perform well. We want to mention Russia. After the steep fall, Russian stocks are gaining track again.

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