11/26/11…rally…what rally?

Bloomberg Top Stories:

*Europe Struggles for Remedy to Euro-zone Crisis as ‘Final Package’ Fades – good for stocks?

*Yen Strengthens to Record Against Dollar as Stocks Fluctuate, Metals gain – fluctuate???

*Ford Motor Posts $1.65 Billion Third-Quarter Profit on SUV, Pickup Sales

*Hedge Funds Balk at Meeting Different Disclosure Requirements at SEC, CFTC

*Joke is on Europe as Sarkozy Laughs at Berlusconi’s Prowess – political we can hope!

*Incensed Moynihan Pushes Back at BofA’s Critics With Localized Campaign – too little, too late!

*Ex-Goldman Director Gupta Said to Face Criminal Charges, Surrender to FBI

*Corzine’s MF Global Enters Distress With 18% Bond Yield – formerly GS, formerly Mass. Gov.

*Sprint Reports Narrower Loss on Reduced Spending, Fewer Lost Subscribers

*Groupon IPO Said to Seek Valuation Tripple Amazon’s Price-to-Sales for 2012 – want to buy it?

*Merkel Puts European Rescue Fund to German Vote Before Debt-Crisis Summit – thumbs down

*Gold Ignites a Backlash Against U.S. Retail Chain Promoted by Robin Leach – too many shops
Volume rose slightly to a still average 4.37B shares from 4.28B shares on a huge down day negating the sustainability of the rally…why not? The world is in turmoil and corporate profits are declining! The Russell 2000 and NYSE Financials led the way. NYSE stocks executed on the Big Board tanked to 768M shares from 986M shares, lowest since July 22nd and making just three 1B plus share days in the last 12 sessions, none of them back-to-back! The significance is that prior to that we had 13 straight 1B+ shared days, all but one above 1.1B. Five were down days and five were the bounce from the selloff lows. Advance/Declines were weak following two straight positives: -5:1 vs +5:1 vs +6.5:1 vs +2:1 vs -2.6:1 vs +5:1 vs -4.5:1 vs +5:1 on NYSE and -4:1 vs +5:1 vs +3.5:1 vs -1.1:1 vs -3.2:1 vs +2.3:1 vs -4.5:1 vs +3:1 on Nasdaq. Breadth was even worse: -9x!!! vs +6.5x vs .+5x vs +2x vs -5x vs +13.5x!!! vs -7x vs +6x on NYSE and -5x vs  +1.5x vs +4x vs -1.1x vs -3.5x vs +5.3x vs -5.3x vs +3.2x on Nasdaq! New 52 week highs were halved to 69 from 148, while new lows rose modestly to 43 from 29. The ratio is the third positive but now only +1.7x, in the black for a third straight session though but only the sixth positive ratio in months, all in the last nine trading days. VIX rose sharply following a two day plunge to 29.26 – the second lowest close since 8/3. It slammed above 30, now support closingn 31.96 +2.69!

Here are the results for the past eight days. Dow  -1.7% vs +0.9% vs +2.3% vs +0.3% vs -0.6% vs +1.6% vs -2.1% vs +1.5%; Transports -2.2% vs +1.8% vs +2.2% vs +1.6% -1.3% vs +3.1% vs -2.8% vs +2.2% vs -0.6%; S&P 500 -2% vs +1.3% vs +1.9% vs +0.5% vs -1.3% vs +2% vs -1.9% vs +1.7%; Nasdaq Composite -2.3% vs +2.4% vs +1.5% vs +-0.2% vs -2%! vs +1.6% vs -2% vs +1.8%; Nasdaq 100 -2% vs +2.1% vs +1.3% vs -0.5% vs -2%! vs +1.3% vs -1.6% vs +1.9%; Russell 2000 -2.8% vs +3.3%!!! vs +2.3% vs +0.3% vs -2.1%! vs +3.0% vs -3.4%!!! vs +2%; NYSE Financials -2.7%!!! vs +2.1% vs +2.3% vs +0.9% vs +1.7% vs 3.6% vs -2.9% vs +1.2%. BofA fell 3.7%, Citi -2.2%; GE -1.3% the top three volume leaders.

 

Global stock markets are higher: FTSE +0.2% vs -0.2% vs +0.3% vs +1.1%; CAC 40 +0.5% vs -0.7% vs -0.2% vs +1.5%; DAX +0.4% vs +0.9% vs -0.1% vs +2.1%; Nikkei -0.2% vs +1.9% vs flat vs -1% vs -1.6% vs +1.5% vs -0.9% vs +1%; Hang Seng +0.5% vs +4.1%!!! vs +0.2% vs -1.8% va -4.2% vs +2% vs -1.4% vs +2.3% vs +1.0% vs +2.4%; Korean KOSPI +0.3% vs -0.5% vs +3.3%!!! vs +1.8% vs -2.7%!!! vs -1.4% vs +1.6%; Indian Sensex +0.4% vs +1.9%!!! vs +0.9% vs +0.9% vs -0.9% vs -1.6% vs -0.3% vs +1.2%; US futures also up: DOW +69; SPX +7.60; NDQ +12. Bonds giving up some of yesterday’s gains: 10 yr now 2.15% -5/16, off a RECORD low 9/23 of 1.6855%; 30 yr 3.16% -5/8; Long TIP slipping BUT to just 0.90% -7/16.

Gold continues to rally, for a fourth straight session, closing yesterday at $1700.40.10 +$48.10!!!, following 9/26’s low of $1534, lowest since 7/6!), first time above $1700 since 9/23, nearly eradicating the entire decline and is now $1712.00 +$11.60 overnight!  9/23’s low was nearly to the 200 day, $1536.60, now critical support. The record high is $1923.70, a buying climax on 9/6. Res/sup is $1700, then the 40 day: $1724, then the 50 day: 1741. First support $1600! Crude had another strong session with the high at $94.65, ten cents below the 200 day which is major res!!! It is up slightly overnight to $93.47 +.30 after closing at $93.17 +$1.90? Was yesterday a peak? Consider demand in a weak economy. Support is the convergence of the 40 and 50 day m/a’s at $85.55.

…last week TB warned that corporate profits were slowing…first it was G.E. that missed not only on revenues but on margins, and more have followed, like 3M yesterday, with the only big exception being CAT, but it is in its own world. Corporate profits peaked in Q4 2010 and are slip-slidin’ away.

 

Then of course there is Europe and if you believe that problem is solved…TB has a beautiful bridge, or two in San Francisco he will sell you on the cheap. Why are we so oblivious to Europe and more importantly that we cannot escape its malaise? The only thing we have over the other major industrialized nations is demographics meaning, we can solve our problems if we set our hearts and minds to it, instead of attempting to create panic as the Tea Party has done…and with flawed solutions that only guarantee a prolonged recession…or worse. Not in recession? Well according to ECRI which bases that on GDP but which is subject to further revision, we are not there yet, just in stagnant growth…not to be confused with stagflation, a term coined by Gary Schilling, yet that is.

 

Thus the failure of the rally that began on last Friday’s options expiry should not come as a shock, particularly when the Nasdaq indices and Russell 2000 were only in lockstep on Monday, and yesterday’s downdraft was across the board. Note that NYSE volume…true NYSE volume on the Big Board not the algorithmic ETN’s, was the lowest since July 22nd – during the summer doldrums! What does that tell you? REAL buyers were not there on the way up and they weren’t there on the way down…you are playing outside your league if you try to secondguess the computers and quants who program them. The Dow peaked Monday just 27 points shy of the 200 day m/a.

 

. . .   – – –  . . .
Hope your day is a good one! Happy trading!

 

TB

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3 Comments »

  1. ldh said

    thanks for adding a few more benefits of etf’s yesterday. they are truly a revolutionary way to add some temporary exposure to a market or sector as needed. it gives small investors access to some tools that were earlier available to only the largest managers through futures overlays and the like. also, the biggest drawback versus mutual funds may have been the trading commission when reinvesting dividends. many of the big brokerages now waive the commission for selected etfs, too. great development, except for the esoteric and leveraged ones. i use em for BAB, VYM, XLU so far… perhaps more later!

    • traderbill said

      Lyman…I know Schwab and most likely Ameritrade and the others don’t charge for dividend reinvestment. On that score, if the total return over a one year period is less or equal with dividend reinvestment I cancel the option. The next step if performance lags is outright sale. Thanks for commenting. TB

  2. ldh said

    that’s a new one to me on sell decision criteria. taking it “onboard”. thanks, TB

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