4/18/13…all that glitters…a (speculative) gold induced panic?

From the Friars Club Encyclopedia of Jokes: “No problem is too big to run away from.” – Charles M. Schultz

Bloomberg Quote of the Day: “It is far harder to kill a phantom than a reality.” – Virginia Woolf

Bloomberg Top Stories:

*Morgan Stanley Profit Beats Analysts’ Estimates as Brokerage Revenue Grows

*Stocks Rise in Europe With Spanish, Italian Bonds Climbing; Copper Slides

*Nokia Sales Hit 13-Year Low as Phone Demand Wanes on Android Competition

*Gold Producers Lose $169 Billion as Price Plunge Compounds Pain From ETF’s

*Aviva to Trim 2,000 Jobs From U.K. to Asia While Cutting Redundancy Payout

*Montag’s Bank of America Trading Unit Trails Peers on 20% Revenue Decline

*Apple Slowdown Threatens $30 Billion Supplier Sales as Cirrus Slumps – hmmm

*Oil Companies Break Promise on Biofuels as Chevron Resists California Law

*Boston Bombings Bring Americans Closer to Living Life on the World’s Edge

*Texas Ammonia Plan Explosion Kills as Many as 15 People With 160 Injured

*Boston Probe Said Focused on Person Dropping Black Bag at Bomb Site


NOTE (repeating): I have never seen in my 40 years three consecutive days of trading in stocks, bonds, and commodities…a trifecta. The volatility in bonds normally doesn’t occur except over a minimum six month timeframe! This is a major warning!

Three straight sessions – down, up, down – where virtually all indices moved by >1%! How many times have you seen that? Never? Again yesterday: you cannot beat the high frequency traders at their own game PERIOD!!! They take the market up, they take it down…often in the same day…and when you add in Friday’s options expiry and sharp swings in volatility, they are in heaven! Furthermore, that middle day is now proven to be  simply a dead cat bounce! Was it all due to Gold or was that just the catalyst?

Today we will focus only on the activity of the past three days…isn’t that enough?

Total NYSE Volume rose again to 4.21B shares vs 3.63B vs 4.64B from a series of mid to low 3B shares sessions. A/D’s and Breadth were both highly negative and overpowered Tuesday’s positives. The VIX not only surged again but obliterated Monday’s high of 17.27 to a high 18, not seen since 2/26, before closing at 16.51, still up 18% vs -19% vs +43%!. Forget Friday’s options expiry at your peril…sell in April and…

*Dow Transports -1.5% vs +2.2% vs -3.8%!!!. Russell 2000 -2%!!! vs +1.8% vs -3.8%; Dow Utilities -0.6% vs +1.2% vs -1.3% – even they aren’t safe in a flight to quality! The S&P 500 fell 1.4% vs +1.4% vs -2.3%. Nasdaq Composite -1.4% vs +1.5% vs -2.4% while the Nasdaq 100 -1.8% vs +1.5% vs -2%. The Dow fell 0.9% vs  +1.1% vs -1.8%. NYSE Financials plunged 1.8% (Brokers -1.6%. KBW Banks -2%!, Nasdaq Banks -1.5%)…losses ranged from 1% (USB) to -4.5% (UBS)!

*NYSE Volume rose sharply again to 4.21B shares vs 3.63B vs 4.64B (bested only by the 4.93B 12-month high on the last options expiry on 3/15!). REAL Volume also rose to 866M shares vs 723M vs 976M –the range since 2/11 is 558M to 1.825B on 3/15’s options expiry and a near 12 month high, second only to 12/21’s 1.88B shares. Note that 3/15’s (options expiry) was the only day since 2/28 to register over 1B shares! Ave vol. 12 mos. 735M, ytd 717M. There have been just thirteen 800+M shares in 2013 – almost exclusively on DOWN days!

  1. new 52 week highs which had ranged from 121-709, dropped to 100 vs 155 vs 154. New lows more than doubled to 237 vs 120 vs 197. Note that with stocks near record highs it is very hard to get a new low!!! …but getting easier!
  2. Advance/Declines were highly negative again: -3.5x vs +4.4x vs -7.1x on NYSE and -4.2x vs +3.5x vs -8.1x vs -1.5x vs -1.1x vs +3.8% vs -1.2x vs +1.5x vs -1.5x vs +1.8x vs -3.3x on Nasdaq. Breadth was worse, note for FOUR days: -10.5x!!! vs +6.4x vs -7.2x vs -2.2x on NYSE and -5.2x vs +6.2x vs -12.8x!!! vs -1.4x vs -1.2x on Nasdaq.
  3. The Dow was -0.9% vs +1.1% vs -1.8%. Dow Transports fell 1.5% vs +2.2% vs 3.8%!!! and never confirmed the rally!  Dow Utilities fell 0.6% vs +1.2% vs -1.3%…best of the lot as they should be! The Nasdaq Composite fell 1.4% vs +1.5% vs -2.3%, and the NDQ 100 was –1.8% vs +1.5% vs -2%. The 100 performed worse due to AAPL which fell 4.5% to $398.11 before bouncing to $402.80 – a 12 month low, and subtracted 23 points from the 100 or 41% of the total loss (Google took away 11 and there were only five gainers!) – what Apple gaveth it has now taken away from index performance! The Russell 2000 fell 2%! vs +1.8% vs -3.8%!!! NYSE Financials fell by 1.8% vs +1.8% vs -2.5%. All down big led by BAC -4.7% (and closing back below $12) vs +2.8% vs -1.6% Citi  fell 2% vs -4% vs +0.2%….why it rallied is anyone’s guess? GS -2.4%; MS -1.7%; UBS -4.5%!; WFC -1.3% USB -1% – best of the lot!
  4. Volatility (S&P VIX), continues to be…well…volatile…almost beyond comprehension rising to 16.51 (high 18, not seen since 2/26) vs 13.96 vs 17.28  (high and close, +43.2%!). The range is 12.06 (multi year low) to 17.28, and is way above the 40/50 day (13.53/13.49) and the 200 day at 15.48…ytd,  the average has been 16.49 with a range of 19.28 (2/25!) to 11.05 (3/14) – 12 mo. ave 16.49!!! This could be one very exciting options expiration!!!

European equities stronger for only the 3rd time in 8 sessions, Asia weak, ex-India: UK +0.4% vs +0.7% vs -0.2% vs -1.1%!!! vs -0.4%; France +0.8% vs -1.6% vs flat vs -1%! vs -1.1%!; Germany +0.4% vs -1.8% vs flat vs -1%! vs -1.5%!!!; Japan -1.2% vs +1.2% vs -0.4% vs -1.6%! vs -0.5%; Hang Seng -0.3% vs -0.5% vs -0.5% vs -1.4%! vs -0.1%;  Korea -1.2% vs +0.1% vs +0.1% vs -0.2% vs -1.3%!!!; India UP 1.5%??? vs -0.1% vs +2.1%!!! vs +0.6% vs -1.6%. U.S. stock futures mixed???, tentative and trading in a very narrow range: DOW +36??? vs -103 vs +140; SPX -22.56!!! vs -12.20 vs +14.70; NDQ +11.25??? vs -24.75 vs +26.50 (comparisons are to prior two sessions)

Bonds closed little changed yesterday and are slightly lower overnight: 10 yr Treasury 1.70% -1/16 (recent range now 2.06% to 1.68%), and the 30 yr’s 3.26% to 2.86%, 2.89% -1/4. The long TIP also weak – after setting a new (record?) low of 0.36% on 4/5, before backing off to 0.52%, now 0.47% +5/16. The high yield was 0.67%! NOTE: I have never seen in my 40 years three consecutive days of trading in stocks, bonds, and commodities…a trifecta. The volatility in bonds normally doesn’t occur except over a minimum six month timeframe! This is a major warning!

Libor update: 0.240% 3 mos., 0.433%!!! 6 mos. Foreign bond yields mixed with another big move in Greece: Germany 1.24% +1; UK 1.70% +2; France 1.79% +1, Italy 4.21% -3; Spain 4.62% -4; Portugal 6.02% -1; Greece 11.18% +10! vs 11.08% vs 11.10% vs 11.05% vs 11.05% vs 11.06% vs 11.25% vs 11.43% vs 11.53% vs 11.94% vs 11.20% vs 11.94% vs 12.09% (recent range 10.58%-12.57%!).  

Gold too couldn’t hold on to Tuesday’s ‘dead cat bounce’ (Paulson’s losses now estimated at $900 million!) following its worst decline since 1980 – coming off a record high then! It was a very narrow ‘inside session’ following Tuesday’s intraday low of $1321.50 – lowest since Sept. ‘10). It closed at $1382.70 -$4.70 The loss over the last four days is now $106 with Monday’s $149 loss to a 52 week low of $1361.10 being the most disastrous. Where is resistance? Dunno…a moving target. Look at the 40 day/50 day to see how bad this is: $1564-1580 and dropping! Overnight it is $1396.10 +$13.40, but with a session high of $1402, creating a double top from Monday! Crude was slammed again yesterday to $86.68 -$2.04 on a parallel session –  resistance at the 40 day ($92.73) and the 50 day ($93.47)….but first the 200 day at $91.63 – all dropping fast. The high of $97.80 on 4/1 was highest since 2/15! day Overnight it is modestly higher at $87.31 +.63 – but with a session low of $85.61which obliterated Tuesday’s $86.20!. The range is now $85.61-$97.80 since June 29, 2012!!!!

Some random thoughts:

Note the headline above showing that gold producers have lost $169 billion of value…not if they had shorted the Gold ETF! Yesterday, the loss to central banks gold reserves was reported at $569 billion! Why did this happen? Excess speculation…plain and simple and made possible by the two Gold ETF’s! for a while there was a disconnect between the gold producers and the ETF, but since the ETF’s only intrinsic value comes from speculation – someone has to be on the other side of the trade you know. In spite of this a few months ago I read that the market cap of the ETF’s was equal to NINE years of  production. That cannot stand! Furthermore, it became a self-fulfilling prophesy because as the ETF ownership grew, the funds had to buy more gold to cover the asset per their prospectuses. Of course, what drives it up drives it down just as badly (worse?) to the downside.

This begs two basic questions: why own gold in a period of low inflation, and secondly why buy inflation protection from U.S. Treasury TIPS? FIrst, theTIPS are very difficult to understand due to phantom income etc. caused by the ‘inflation accrual’ factor, which on the current 30 year TIP adds about 3/4 to the dollar price. With CPI low this can produce a major problem in valuation. Perhaps sometimes it is best the trust the Fed Chairman (even if you disagree), since his track record on controlling inflation has been spot on and will be – until it isn’t!

Look at returns through this morning, 4/18/13 (10am EDT):

YTD                  Q1           12.mos     3/31/08 (annualized)

Dow Industrials





Dow Transports





Dow Utilities





S&P 500





Nasdaq Composite





Nasdaq 100*





Russell 2000





NYSE Financial





Gold ETF (GLD)





*Apple (APPL):                                 -24.7%           -16.3%        -33.4%      22.8%

(included as it was THE Major factor in Nasdaq 100 and S&P 500 performance!)

…you decide…oh, and have a nice day!



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