Buzz Bits: DOW 11,000 in Sight
Enjoy the weekend Minyans!
As we roll into the close on Snapper's back, the technical damage has already been accomplished. New sell signals dramatically exceeded new buy signals today, and this late day move does little except take quite a few broken things back to initial resistance levels.
Your Delta Tau Chi pledge name is... - Todd Harrison - 1:23 PM
Is it that time already? The summer intern interview process has officially begun as young lads from Wharton and Harvard make their way throught the 'Ville. The first question I always ask? "What weighs more, a ton of feathers or a ton of bricks?" (note: the correct response is "You do, Toddo, why don't you go on a diet already?!?)
Over in Minxville, the tape is scraping towards the weekend. Snapper is doing all he can to orchestrate a reversal of fortune but bunk breadth and sloppy (former) leaders (semis, brokers, small caps) are filling in the sell side. As discussed, the traction in large cap land is notable and we're seeing that dynamic manifest a bit (GE, IBM, DELL).
While this morning was beginning to look like Black Friday, calmer heads have prevailed and kept the window open for the "can't get 'em down" crowd. I'm not pressing or guessing, I'm simply staying long gamma with the vibe that volatility will continue to uptick. That's usually a bearish confluence--and I'm leaning short--but I've got stops set slightly above (on select risk) should the natives get restless.
Has anyone ever met a rested native?
Flashback! - Bill Meehan - 1:09 PM
This day in market history...
- Closing levels 2 years ago found
- DJIA: 10,613.85
- S&P 500: 1145.54
- Naz: 2075.33
- Crude: 34.03
- Gold: 405.90
This day in Minyanville history...
- In '05, Prof. Reamer dove into his complexity theory in Price, as companies continued to report earnings
In other news...
- In 1897, "All the news that's fit to print" appeared on the front page of the NY Times for the first time.
Mini-Minyan Mailbag - John Succo - 1:00 PM
The Federal Reserve recently took a survey of loan officers. In the fourth quarter, demand for residential loans decreased. In an effort to not loose loan volume, banks loosened their lending standards for commercial real estate loans. They are witnessing a slowdown in housing demand and at the same time funding additional supply. Did the ghost of JP Morgan come to these loan officers and say "build it and they will come?" Is this the way things always worked?
Despite the fact that people think the Fed has great power, in reality it only has the power to do two things: dictate margin (reserve) requirements for banks and make credit more available (through repos and coupon passes) to the system (they can't force the system to take those loans).
The Fed has nearly nothing left in lowering margin requirements to banks; they must resort to "talking" them into making riskier loans. This is one reason why we are long very cheap volatility on banks: we are likely to see more volatility in their earnings as a result of riskier loans.
Get outta Dodge? - Tom Peterson - 12:48 PM
We've mentioned that money flow was not confirming the move to new highs in Phelps Dodge (PD), making it vulnerable to more consolidation. The drop in the past week off the tested high is very troubling, though it is still above the main blue trendline. It decisively broke the 50-day m.a. for the first time since making its interim low in May 2005. Money flow has shifted into distribution mode.
If it can hold the area between $137 and 140 it can develop a 'tested low' appearance; if it has to probe lower, say between $132 and $136, it has a chance to 'spring' the Dec. and Jan. lows and try for a rebound. We should see demand enter fairly soon.
But we warn investors that it is giving the early appearance of a terminal 'broadening top' formation. That means it really needs confirmation on any rebound attempt forthcoming, or all it will be able to do is a fib retrace of the drop from $167. Investors will use the area from the 50-day m.a. to the $153 area as sell-zone resistance until it can prove demand is returning.
Note: Last year we predicted the yield curve would invert eventually - now it has. Unfortunately, 'hard' commodities are deflating, housing is deflating and bonds are inverted. This all adds up to deflation, which is the one weakness of the idea that price momentum can keep the metals and energy plays safe from overall declining markets. Please make careful note of this development. TRP
Shrinkage? - Scott Reamer - 10:57 AM
Our models suggest an important peak has been made in the Russell 2000 (RTY) index and, by extension, in all indices, as the RTY was the seat of most of the speculation (risk-seeking) and liquidity that has been manifest since the 2002 lows.
Thus, the action in the RTY holds many important ramifications for the larger deflationary credit contraction call. As well as it SHOULD lead the way down in an environment where liquidity is decreasing, time preferences are decreasing, and risk seeking is turning into risk aversion (see 30 yr bond auction yest).
Net/net: the indicators of a deflationary credit contraction look very much like what we have seen both in market-priced data as well as macro stats:
- beta underperformance (RTY, NDX etc)
- commodities showing blow-off peaks amid historic extremes of optimism (metals, energy)
- historic decrease since 2004 in real liquidity: money AMS (Fed, commercial banks, corporations, consumers)
- widening of credit spreads (in lower quality paper first )
- largest consumer credit contraction (monthly and quarterly) in data series since 1941
- a meaningful housing industry slowdown (greatest beneficiary of credit)
- yield curve inversion
- no/slow wage growth
More from Pfizer legal... - David Miller - 10:23 AM
- Will seek "full amount of damages" (usually legal-speak for treble damages) in the patent fight they won on Acupril (quinapril) against Ranbaxy and Teva (TEVA). Those two companies sold $300M at generic prices since December 2004. The courts said the patent infringement was "willful."
- Will aggressively pursue what they say are labeling errors against Teva and Sandoz Generics version of the blockbuster antibiotic Zithromax (azithromycin). They will also also seek patent remedies, believing a more recent derivative patent is still in effect.
More on inversion... - Bennet Sedacca - 9:50 AM
We think the oversold bounce in 10's will end soon into the minor cycle high that occurs next week. Then negative seasonality hits its stride. The multi-year support at 107-16 on the 10 year contract -see chart here from yesterday's Buzz-should then be attacked (and defended) and eventually broken. I have learned over the years that 'quadruple bottoms' aren't the greatest of setups. The reason? It shows a lack of demand if it must be tested that many times. If the support is broken, what you basically have is a situation where everyone that has bought 10's the last couple of years are losers, and become a source of supply.
With Boom Boom likely to raise rates in March and May to 5% if the unemployment rate stays low, and if 10's break, we could end up with a curve that actually flattens out in the 5 to 5.25% area, before a parallel shift down occurs later in the year, or even a steepening, as seasonality in bonds improves, and seasonality in stocks turns sour after April1. The one caveat here is the new 30 year bond issued yesterday. It has its own set of technicals and may stay inverted to 10's.
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