Post by brosin on Aug 15, 2010 23:19:23 GMT -5
Ukarl might be back soon?
Caldaro: Support for the SPX is at 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum was extremely oversold on thursday, then rallied to neutral on friday before ending at slightly oversold. Typically, during these types of pullbacks, we would be looking for a positive divergence on the hourly RSI on the next series of lows. Key support is the at the OEW 1058 pivot. If this pivot does not hold we are likely dealing with an extended Primary wave II correction. To turn the market positive again the SPX needs to recapture the OEW 1090 pivot. The market traded under this pivot during thursday and friday.
Cobra: The bottom line, the short-term trend is down, I did nothing today but still hold tiny short position over the weekend. I believe there’s at least one more drop ahead. I’m not sure if the market would pullback to around 08/17 then rebound to around 08/23 or the worst case, go straight down to around 08/23. The straight down to 08/23 is more speculative then bottoms around 08/17 then rebounds to 08/23. I’m pretty sure that around 08/23 would be an very important pivot date either top or bottom.
Why I think there is at least one more drop? 1.0.0 S&P 500 SPDRs (SPY 60 min) shows a possible Bear Flag or Pennant in the forming, plus no positive divergence yet on the RSI above, so likely the pullback isn’t over yet.
Bespoke:
-Dow Member Overbought/Oversold Levels
Below is an update of our custom portfolio trading range screen run on the Dow 30 members. A week ago, the majority of Dow stocks were trading in overbought territory (represented by the end of the tail for each stock below). After this week's pullback, the majority are now trading in neutral territory. Five stocks in the index are now in oversold territory, with Hewlett-Packard (HPQ) and Cisco (CSCO) being the most notable. Hewlett has gotten hit hard this week after its CEO resigned, while Cisco had an earnings report that investors clearly didn't like. Both are now in extreme territory, with HPQ literally off the charts. Bank of America (BAC), Intel (INTC), and Procter & Gamble (PG) are the other three Dow members that are currently oversold, but Procter is also one of only two Dow names that is up over the last week. McDonald's is the other stock that is up over the last week.
Ritholtz:
-Stocks vs Bonds
My disdain for the efficient market hypothesis came about by observing the difference between the stock and bond markets. It was apparent that the Fixed Income traders were of a “rational” mindset so often lacking in the equity world.
Indeed, I have frequently called Bonds the market that acts as “Adult Supervision.”
So I got a kick out of Mike Santoli’s reminder this morning in Barron’s:
“It’s for good reason the stock market was dubbed “the bond market’s idiot kid brother.”
Mike also points out an interesting data point regarding the Industrial’s dividend yield:
“Telling a similar story in a different way, the dividend yield of the Dow Jones Industrial Average components, at 2.65%, is essentially equal to the 10-year Treasury yield. The folks at Morgan Stanley note that over the past 50 years the Dow’s yield has exceeded that of the 10-year Treasury for only one period—the end of 2008 into early 2009, as the financial crisis climaxed.”
Idiot kid brother indeed.
&
-Weekend Miscellany
A few items I thought noteworthy for weekend perusal:
Corporations are issuing debt on record terms (and in the junk market in record volume). IBM recently issued three year paper at a meager 1 percent. And JNJ just set the record for longer paper — “around 3.10% for the 10-year maturity and 4.5% for the 30-year paper if market conditions hold.” In a nutshell, while there are many variables at play, front and center is investors’ desire for safety and income. It also partially explains why junk paper is being issued at a record clip. Need I say that this dovetails nicely into the demographic theme I’ve been harping on?
The Journal floats a story — I haven’t seen this one in a while — about the “Hindenberg Omen.” Now, I’m open to all manner of data analysis. But when you tell me (toward the end of your story) that (emphasis mine): “The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes,” you have pretty much wasted my time. Wake me up when you find something with an actual correlation — last I checked, 25% isn’t even in coin-flip territory. And where was this indicator prior to the flash crash, or does that not count?
Third, the Journal’s Kelly Evans did a great one-on-one interview with the inimitable David Rosenberg. This is not sound-bite, dodeca-box TV. It’s good stuff, and absolutely worth 26 minutes of your time.
Last, but not least, Economics of Contempt has some of the truly priceless, must-read research that the sell side was pumping out on Lehman Brothers just before the firm went under. EOC is, in my opinion, one of the blogosphere’s best kept secrets.
&
-Why Are Exchanges For-Profits?
Call it the revenge of Dick Grasso:
Since May 17, 1792, when the Buttonwood Agreement was signed by 24 stock brokers outside of 68 Wall Street (under a buttonwood tree), the NYSE has been a non-profit, run for the greater benefit of the public companies that trade there.
Following the brouhaha over NYSE Dick Grasso’s pay — New York State law at the time prohibited excess compensation for executives at non-profits — that changed. In 2006, the NYSE and ArcaEx merge, creating NYSE Arca — forming the publicly owned, for-profit NYSE Group. They later merge with Euronext.
Why is this significant?
As a for profit entity, the exchange is concerned with maximizing profitability. Hence, selling co-located servers for high frequency traders becomes a new revenue source. Allowing flash traders to see order flow of the public — also for a fee — is permitted, consequence be damned.
The SEC investigation of the so-called Flash Crash will be out next month, and these HFT are likely to be blamed, at least in part, for the disruptions.
Jim McTague in Barron’s reports:
“A final report on the Flash Crash by the staffs of the Securities and Exchange Commission and the Commodities Futures Trading Commission, due in September, will reveal that when the market went into an apparent death spiral around 2:30 p.m., virtually every professional trader immediately high-tailed it for the hills, an SEC staffer indicated in a public meeting last week. As a result, panicked retail investors were left on their own, struggling to liquidate their positions to save the profits they had amassed from the beginning of the year.
With the pros gone, so was liquidity—the ability to convert equity into cash. Bids on stocks that the pros—hedge funds, institutions, and high-frequency traders—had posted earlier disappeared with the big boys. The market suddenly had no depth. The dam had burst, and the reservoir was empty. All that was left, the SEC staffer suggested, were “stub quotes,” bid and ask prices ridiculously outside the usual trading range of a stock. The prices get posted to satisfy an essentially pointless regulation.”
Anyone care to hazard any guesses about the following?
• What was the cause of the crash?
• How much are the exchanges themselves to blame?
• What proposed solutions will the SEC suggest ? What might they insist upon?
• What will HFT look like in the future? Will it be modified slightly, dramatically curtailed, or banned outright?
Caldaro: Support for the SPX is at 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum was extremely oversold on thursday, then rallied to neutral on friday before ending at slightly oversold. Typically, during these types of pullbacks, we would be looking for a positive divergence on the hourly RSI on the next series of lows. Key support is the at the OEW 1058 pivot. If this pivot does not hold we are likely dealing with an extended Primary wave II correction. To turn the market positive again the SPX needs to recapture the OEW 1090 pivot. The market traded under this pivot during thursday and friday.
Cobra: The bottom line, the short-term trend is down, I did nothing today but still hold tiny short position over the weekend. I believe there’s at least one more drop ahead. I’m not sure if the market would pullback to around 08/17 then rebound to around 08/23 or the worst case, go straight down to around 08/23. The straight down to 08/23 is more speculative then bottoms around 08/17 then rebounds to 08/23. I’m pretty sure that around 08/23 would be an very important pivot date either top or bottom.
Why I think there is at least one more drop? 1.0.0 S&P 500 SPDRs (SPY 60 min) shows a possible Bear Flag or Pennant in the forming, plus no positive divergence yet on the RSI above, so likely the pullback isn’t over yet.
Bespoke:
-Dow Member Overbought/Oversold Levels
Below is an update of our custom portfolio trading range screen run on the Dow 30 members. A week ago, the majority of Dow stocks were trading in overbought territory (represented by the end of the tail for each stock below). After this week's pullback, the majority are now trading in neutral territory. Five stocks in the index are now in oversold territory, with Hewlett-Packard (HPQ) and Cisco (CSCO) being the most notable. Hewlett has gotten hit hard this week after its CEO resigned, while Cisco had an earnings report that investors clearly didn't like. Both are now in extreme territory, with HPQ literally off the charts. Bank of America (BAC), Intel (INTC), and Procter & Gamble (PG) are the other three Dow members that are currently oversold, but Procter is also one of only two Dow names that is up over the last week. McDonald's is the other stock that is up over the last week.
Ritholtz:
-Stocks vs Bonds
My disdain for the efficient market hypothesis came about by observing the difference between the stock and bond markets. It was apparent that the Fixed Income traders were of a “rational” mindset so often lacking in the equity world.
Indeed, I have frequently called Bonds the market that acts as “Adult Supervision.”
So I got a kick out of Mike Santoli’s reminder this morning in Barron’s:
“It’s for good reason the stock market was dubbed “the bond market’s idiot kid brother.”
Mike also points out an interesting data point regarding the Industrial’s dividend yield:
“Telling a similar story in a different way, the dividend yield of the Dow Jones Industrial Average components, at 2.65%, is essentially equal to the 10-year Treasury yield. The folks at Morgan Stanley note that over the past 50 years the Dow’s yield has exceeded that of the 10-year Treasury for only one period—the end of 2008 into early 2009, as the financial crisis climaxed.”
Idiot kid brother indeed.
&
-Weekend Miscellany
A few items I thought noteworthy for weekend perusal:
Corporations are issuing debt on record terms (and in the junk market in record volume). IBM recently issued three year paper at a meager 1 percent. And JNJ just set the record for longer paper — “around 3.10% for the 10-year maturity and 4.5% for the 30-year paper if market conditions hold.” In a nutshell, while there are many variables at play, front and center is investors’ desire for safety and income. It also partially explains why junk paper is being issued at a record clip. Need I say that this dovetails nicely into the demographic theme I’ve been harping on?
The Journal floats a story — I haven’t seen this one in a while — about the “Hindenberg Omen.” Now, I’m open to all manner of data analysis. But when you tell me (toward the end of your story) that (emphasis mine): “The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes,” you have pretty much wasted my time. Wake me up when you find something with an actual correlation — last I checked, 25% isn’t even in coin-flip territory. And where was this indicator prior to the flash crash, or does that not count?
Third, the Journal’s Kelly Evans did a great one-on-one interview with the inimitable David Rosenberg. This is not sound-bite, dodeca-box TV. It’s good stuff, and absolutely worth 26 minutes of your time.
Last, but not least, Economics of Contempt has some of the truly priceless, must-read research that the sell side was pumping out on Lehman Brothers just before the firm went under. EOC is, in my opinion, one of the blogosphere’s best kept secrets.
&
-Why Are Exchanges For-Profits?
Call it the revenge of Dick Grasso:
Since May 17, 1792, when the Buttonwood Agreement was signed by 24 stock brokers outside of 68 Wall Street (under a buttonwood tree), the NYSE has been a non-profit, run for the greater benefit of the public companies that trade there.
Following the brouhaha over NYSE Dick Grasso’s pay — New York State law at the time prohibited excess compensation for executives at non-profits — that changed. In 2006, the NYSE and ArcaEx merge, creating NYSE Arca — forming the publicly owned, for-profit NYSE Group. They later merge with Euronext.
Why is this significant?
As a for profit entity, the exchange is concerned with maximizing profitability. Hence, selling co-located servers for high frequency traders becomes a new revenue source. Allowing flash traders to see order flow of the public — also for a fee — is permitted, consequence be damned.
The SEC investigation of the so-called Flash Crash will be out next month, and these HFT are likely to be blamed, at least in part, for the disruptions.
Jim McTague in Barron’s reports:
“A final report on the Flash Crash by the staffs of the Securities and Exchange Commission and the Commodities Futures Trading Commission, due in September, will reveal that when the market went into an apparent death spiral around 2:30 p.m., virtually every professional trader immediately high-tailed it for the hills, an SEC staffer indicated in a public meeting last week. As a result, panicked retail investors were left on their own, struggling to liquidate their positions to save the profits they had amassed from the beginning of the year.
With the pros gone, so was liquidity—the ability to convert equity into cash. Bids on stocks that the pros—hedge funds, institutions, and high-frequency traders—had posted earlier disappeared with the big boys. The market suddenly had no depth. The dam had burst, and the reservoir was empty. All that was left, the SEC staffer suggested, were “stub quotes,” bid and ask prices ridiculously outside the usual trading range of a stock. The prices get posted to satisfy an essentially pointless regulation.”
Anyone care to hazard any guesses about the following?
• What was the cause of the crash?
• How much are the exchanges themselves to blame?
• What proposed solutions will the SEC suggest ? What might they insist upon?
• What will HFT look like in the future? Will it be modified slightly, dramatically curtailed, or banned outright?