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Still in a Tight Range

Fri, 04 Dec 2009 21:10:23 +0000

Weekly comment on the market from Larry McMillan:

SPX Through 12-4-09

The S&P 500 Index ($SPX) has still not been able to break out of its 1080-1110 trading range on a closing basis. This is a very tight range that has lasted for nearly a month (since November 9th, actually). Our indicators are modestly bullish, so the odds slightly favor an upside breakout.

The $SPX chart remains mostly bullish. The rising trend line connecting the March and October lows is at about 1070 and rising. Coupled with the just mentioned support at 1080, this means that the trend is still bullish. However, a close below 1070 would be problematic for the bulls.

Equity-only put-call ratios have begun to clearly decline and thus generate buy signals. In normal times, we would be encouraged by that fact, but with the distortions caused by the heavy hedging activity since July/August, we still view the signals from these put-call ratios tentatively. These are not our primary indicators at this time.

Market breadth, on the other hand, has been a much more accurate signal during the rally since March. Breadth has given a sell signal each time that $SPX has approached the top of the trading range and then fallen back. Today was no exception, as yet another sell signal has been issued after the $SPX failure to break out on the upside.

VIX Through 12-4-09

Volatility indices have generally declined, with both $VIX and $VXO near yearly lows earlier today. Declining volatility is bullish for the broad stock market.

In summary, $SPX has been unable to break out of the trading range. Perhaps Friday’s Unemployment Report will provide a catalyst for the breakout. Traders should wait for the breakout before taking speculative positions.

[An unexpectedly good unemployment report did send the S&P 500 up 1.5% at 10 AM but it quickly fell back and closed up 0.5% at 1106.]

Dubai Drops Dow

Sat, 28 Nov 2009 01:28:16 +0000

Mohamed El-Erian CEO of PIMCO and co-CIO with Bill Gross talks about the Dubai Debt Crisis. The markets have gone up indiscriminately on liquidity alone. The money from the Fed hasn’t made it to the real economy so all asset classes went up. Dubai World needs six months to resume debt payments is an event that triggers a re-pricing of assets.

Asian markets were down 5% on the news but the S&P 500 futures were down 24 on Globex over Thanksginving, but today the damage was 19 points. So it looks like the market considers it contained.

Still In a Range

Fri, 17 Jul 2009 21:03:26 +0000

This is the weekly comment from Larry McMillan, in this video, he explains what indicators he looks at and why.

S&P 500 Through 17th July 2009

SPX continues to remain within the confines of its 880-950 trading range on a closing basis. A clear breakout in either direction can and should be “played,” but so far the stock market — [in] it is best contrarian form — has created the image of false upside breakouts (in early June) and false downside breakouts (in early July). The fact that today $SPX closed above prior resistance at 930 likely means that it is headed for a test of the 950 level. However, a breakout is by no means guaranteed.

Market breadth has been the most accurate indicator in recent weeks. The breadth oscillators that we use are able to swing quickly between buy and sell signals — something that seems to be necessary in this environment. Buy signals were issued late last week and early this week. But now these same breadth oscillators are very overbought. So it is going to be necessary to keep a close eye on these breadth oscillators.

Equity Only Put-Call Ratio 17 July 2009

Weighted Equity Only Put Call Ratio 17 July 2009

The equity-only put-call ratios had remained on sell signals since early June. But yesterday, the standard ratio rolled over to a buy signal (as confirmed by the computer programs we use to analyze the put-call ratio charts). The weighted ratio hasn’t chimed in yet, since the computer program does not rate it as being on a buy at this time; in fact, the computer says there’s only a 60% chance that the weighted ratio has rolled over.

VIX through 17 July 2009

Volatility indices ($VIX and $VXO) have continued to decline, and thus remain bullish. Twice, it has appeared that $VIX was rising and it did indeed break above its downtrend line. But both times, it soon fell back sharply, and thus the general trend of $VIX is still lower — which is bullish for the stock market. In one sense $VIX is in its own trading range, between 25 and 33.

So, what does this all add up to? A market that’s still in a trading range, that’s what. A clear breakout over 950 would be bullish, of course, but it frankly seems too early to say that will occur. Right now, the market is too overbought to break out, in my opinion.

So, we’ll watch for the next breadth sell signal, or for the breakout over 950. One or the other should occur soon.

Earnings and Prospects

Mon, 13 Jul 2009 09:39:49 +0000

Hang Seng (Hong Kong): -2.56%

Australia: -1.65%

Nikkei 225 (Japan): -2.55%

Asia down quite a bit.

FTSE 100 (UK): +0.11% at 10 AM

DAX (Germany): +0.14% at 11 AM

CAC 40 (France): -0.11% at 11 AM

Europe flat from a down open.

S&P 500 (Globex): -0.7%

Nasdaq (Globex): -0.14%

Economic Indicators: Treasury budget for June at 2 PM EST. May deficit was $33.5 B, June is expected to be -77.5B.

CSX Corp (CSX), a railroad, Fastenal (FAST), maker of screws and other construction suppleis, and Novellus, a semiconductor manufacturer, announce earnings. So we get indications of the future from three directions today.

Europe is a stronger indicator of our open, so it might be flat to up at the open.

End the Week with a Whimper 10 July 2009

Fri, 10 Jul 2009 12:36:25 +0000

Hang Seng (Hong Kong): -0.46%

Australia: +0.02%

FTSE 100 (UK): -0.67% mid-day

DAX (Germany): -0.67% mid-day

CAC 40 (France): -0.79%

S&P 500 (Globex): -0.69%

Nasdaq (Globex): -0.46%

Economic Indicators: Trade balance for May and export prices ex agricultural products for June and import prices ex oil for June at 8:29 AM EST

At 10 AM EST the preliminary Michigan consumer sentiment survey is announced.

Infoyss IIFY announces earnings today, it will shed light on outsourcing industry.

Doesn’t look like a good end of the week.

A Good Start to Earnings Season?

Thu, 09 Jul 2009 11:31:20 +0000

Hang Seng (Hong Kong): +0.39%

Australia: +2.12% (Good for resources stocks today?)

FTSE 100 (UK): +0.69% mid-day

DAX (Germany): +1.21% mid-day

CAC 40 (France): +0.71%

S&P 500 (Globex): +0.66%

Nasdaq (Globex): +0.33%

Yesterday, the S&P 500 spent most of the day negative, going as low as 870 before closing over 880.

Initial claims for unemployment insurance for last week is announced at 8:29 AM EST. The consensus estimate is 603K new claims, last Thursday’s number was 614K. Dropping initial claims signals the bottom of the recession.

Wholesale inventories for May is announced at 10 AM EST. This doesn’t affect the market.

Alcoa Aluminum (AA) announced another quarterly loss last night, but better than expected, so shares rose in overnight trading. AA is seen as the start of the earnings season which helps the market find its level.

Which Volatility To Look At?

Wed, 08 Jul 2009 15:27:31 +0000

Jason Goepfert compared the VIX, at six month lows, to the CSFB volatility index, which measures the skew three months out. He compares other times that the VIX has been low and the CSFB has been high and states that the S&P has declined three months out.

Here is the chart from his post:

SPX on top, VIX in the middle, and CSFB skew index bottom

Adam Warner doesn’t see that the CSFB skew index adds much value. He points out the huge dip in CSFB last October when VIX was hitting the 80s. That has put many people off this index, why would there be a dip there?

CSFB tells you what your deductible would be on the put side if you were paying for it with a 10% out of the money call three months out. What that means is, find the price of the call three months from now that is 10 % above the market. Then look for the put three months out that sells for the same amount. How far is that below the market? That is CSFB for today.

To put on a zero- cost collar with options that expire in three months, sell the 990 call (SPX at 900) and that will finance the put 19% below, at 729. This is about 2/3rds of the max skew that CSFB has seen.

So last October, all the puts had high vol so the skew was low. Counterintuitve, but possible.

One detail straight off is that the comparison should be with the VXV not VIX since VXV and the skew index measure three months out. Here is what VXV looks like:

S&P 500 Options Volatility Three Months Out

Not very different than VIX, a little higher, but still at a low point of the last six months.

Quiet Tuesday Morning

Tue, 07 Jul 2009 11:49:16 +0000

To get an idea if there has been a large move overnight, I look at Asia and Europe and where the index futures are trading. The economic indicators that come out during the day can move the market too. It is a way to get oriented to the day’s market action.

In Hong Kong, the Hang Seng closed down 0.65% and Australia up 0.27%. Japan was down 0.34%, but it doesn’t usually affect our market.

Europe is up almost a percent to mid-day: the FTSE 100 (UK) +0.89%, the CAC 40 (France) +0.62%, the DAX (Germany) +0.86%.

The S&P 500 future is up 2 points and the Nasdaq future is up 5 points. Quiet so far.

There are no economic numbers coming out today. And no market movers announcing earnings today.

Ugly Start to the Week

Mon, 06 Jul 2009 11:26:54 +0000

Looking at Asia first, since it has closed for the day already, we see that the Hang Seng ended the day down 1.23% and Australia was down 1.46%. Not pretty.

Europe up to their lunch break is down too. The FTSE 100 (UK) is down 1.3%, the CAC 40 (France) is down 1.67%, and the DAX (Germany) is down nearly 2%.

The S&P 500 is down 9 points at 6:30AM, a little over 1%; and the Nasdaq is down 13 points.

The Institute of Supply Management (ISM) reports on the service sector at 10 AM EST. The numbers are trending upward, though still contracting. The only piece of it that had reached neutral in May was deliveries at 50. The consensus estimate is that the number will drift upward a little more to 46.

Last Trading Day This Week

Thu, 02 Jul 2009 10:41:09 +0000

Hang Seng closed down 1.09% and Australia closed down 1.35%.

Europe is down at their mid day, the FTSE 100 (UK) is down 0.60%, the CAC 40 (France) is down 1.1% and the DAX (Germany) is down 1.4%.

The S&P 500 is down 5 points, or one half of one percent.

8:30 EST the employment numbers come out. Initial claims for unemployment insurance for last week, which is expected to be 615,000 compared to 627,000 for the week before. This is still below the peak in initial claims reached in the beginning of April, which means the bottom of the recession was mid May.

The hourly earnings and average workweek will still show that there is no rise in employment. The unemployment rate is expected to go to 9.6% from 9.4%.

Tomorrow is a market holiday, so the weekly SPX and OEX will start trading today.