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Market Wrap

Op-Ex Bear-B-Cue

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Bulls ran the ball on what proved to be a post op-ex fumble, with an opening decline bought on weak volume. A flat, boring sideways-upward drift followed for several hours, until it broke to the upside, gaining strength in the final half hour. Bonds, gold and oil were all strong throughout the day.

Volume breadth was weak on the Nasdaq until the final hour, strong on the NYSE throughout the day. Exchange volume was strong, though QQQQ traded only a fraction of Friday's volume. The NYSE was notably stronger than the Nasdaq throughout the session, with QQQQ never testing Friday's morning high while the Dow broke easily above it from the open. The NYSE made new record highs in the final hour.

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The big news this morning was from General Motors (GM), which held a press conference to announcing that it will eliminate 5,000 more jobs from its previous plan, bringing its projected 3-year total workforce reduction to 30,000 as it closes 12 North American facilities. The company aims to reduce its capacity to 4.2 million unites by 2008, a 30% reduction in production capacity from 2002's levels. The costs from its restructuring are expected to be "significant" but hops to reduce costs by $7 billion by the end of next year. It will reduce retiree health liabilities by 25% or $15 billion, and hopes to cut health-care costs by $3 billion per year.

S&P announced that it would leave GM, GMAC and related entities on Creditwatch without change from its October 3rd alert, expressing concerns about sales and pricing for GM products, the adequacy of its cost-cutting strategies, fallout from Delphi's bankruptcy and the continuing SEC investigation into GM's accounting practices. Deutsche Bank, however, had earlier upgraded GM debt to "buy" from "hold," evidently more impressed with GM's substantial efforts to restructure and reduce its liabilities and commitments.

GM rose on the news but could not hold its gains, finishing lower by 1.95% at 23.58 after reaching an intraday high of 24.95.

Daily Dow Chart

The Dow broke 10800 and never looked back, closing +54 at 10820. 20 day Bollinger resistance at 10861 was not tested, but rising trendline resistance on a possible rising wedge was. The daily picture has been muddy since the August high was taken out, causing the 10-day stochastic to begin trending in overbought territory. Despite the light volume and unconvincing price action during op-ex week, the current move remains entirely bullish, with new highs for the year being printed again today. 10700-720 is confluence support above which the daily cycle trending move continues. Only a close below that level would suggest something more serious than the bullish consolidations we've been seeing on every pause and pullback.

Daily S&P 500 Chart

The SPX also blew out Friday's high, reaching new highs for the year at 1255.89. The pullback at the close resulted in a 6.58 gain at 1254.86, also a new closing high. As with the Dow, the move has been looking extended for a week, cycle-wise, but price-wise is another story. Friday's break above the August high sets up support at 1245-46, with wedge support just below that. Again, while the move looks extended, the price trend is as strong as it's been at any time since the move commenced in late October. Until we see successive lower lows and highs for the day, the trend remains up.

Daily Nasdaq Chart

Although weaker than its peers, the Nasdaq tacked on 14.6 to close at 2241.67, a new closing high for the year and less than a point off its 2242.30 intraday high. The move stalled the downtick in the 10-day stochastic. There was a notable divergence between the Nasdaq, which made a higher high and higher low, and the QQQQ and NQ future, both of which broke nominally lower below Friday's low and failed to even touch Friday's high. In any event, support at 2220 was confirmed today (session low 2219), below which 2200-05 is the next confluence area.

Daily TNX Chart

Ten year notes were strong out of the gate this morning, and despite a pullback toward session's end, remained strong throughout. Ten year note yields (TNX) finished lower by 4.1 bps at 4.461%, holding above last week's low but spending the session below Friday's range. 4.44% remains confluence support for the move, 4.52%-4.54% immediate upside resistance.

On the liquidity front, the Treasury announced the size of the upcoming 4-week bill and 2-year note auctions. $18 billion of 4-week bills will be sold, paying down maturing debt and raising an additional $6 billion of new cash, which effectively drains that amount from liquidity available to the market. However, the 2-year note auction will be for $20 billion to refund $25.35 billion in maturing notes, paying down $5.35 billion and effectively adding that amount to the pool. Today's 13- and 26-week bill auctions totaled $34 billion against $32.9 billion maturing, raising $1.1 billion in new cash, the net result of all of which is a net drain of just under $2 billion in available liquidity.

That drain was supplemented by the Fed's open market operation from Friday, with $2 billion in weekend repos expiring. This drain was reduced by the coupon pass from Friday in the amount of $1.1 billion, however, and so there was only net $900 leaving the dealers' hands. The Fed stepped up with a $7.5 billion overnight repo this morning, for a net add of $6.6 billion against that $900 million expiring for the day.

At 1PM, the Treasury's $34 billion 13- and 26-week bill auction results were released. Foreign central banks took a solid $12.7 billion of the total. The high-rate on the 13-week bills was 3.94%, yielding 4.034%. The bid-to-cover ratio on the 13-week bills was 2.59. The 26-week bills sold for a high-rate of 4.155% yielding 4.303%, with a 2.52 bid-to-cover ratio. This was a strong showing, and treasuries held the bulk of their gains into the close.

Daily Chart of Crude oil

Crude oil opened higher this morning as the financial press reported the arrival of... you guessed it, snowstorms. Also reported, digging slightly below the headlines, was an announcement from Saudi Arabia that a "roadmap" will be needed in order to avoid production gluts and shortfalls. Recent supply issues, it said, have been due more to a paucity of information than of actual crude oil. Saudi Oil Minister Ali Naimi also blamed recent record price highs on "excessive and inaccurate speculation."

If you dug still further, there was news that Metrologix expects higher than normal consumption of heating fuel in Boston, Buffalo and New York City, which compounded a report from the Minerals Management Service to the effect that Gulf of Mexico output remains 47% below normal levels in the wake of the hurricanes. With roughly 50% of platforms still offline and winter upon us, there were few bearish newsbytes circulating in the oil markets today.

Crude oil rose .55 to close at 57.75. The daily chart suggests that Friday's low may have been a daily cycle low, with confirmation to come on a continuation of today's rise in tomorrow's trading. Another positive day should be enough to kick off the first 10-day stochastic buy signal, with confluence resistance at 59.50. A closing break of that level would targets descending trendline resistance at 60.25.

In other news, Beijing's State Reserve Bureau may be forced to disclose its copper position for the first time in what is proving to be a growing squeeze in copper. Still missing is trader Liu Qibing, reportedly missing after building an unmanageable short position. Estimates are placing the amount of copper that could be required to be delivered by the SRB at 200,000 metric tons, but the SRB has been quoted as saying that it has as much as 1.3 millions tons. Bloomberg reports last week's record high at $4,243 per ton, a 34% gain this year following last year's 37% gain.

Today's lone economic report was Leading Economic Indicators for October. At 10AM, the Conference Board reported that LEI rose .9% to 137.9 following September's large decline on the hurricanes. Expectations were for a .7% rise. September's decline was revised from -.7% to -.8%. 7 out of 10 leading indicators rose in October, while 2- building permits and stock prices- declined.

Jean-Claude Trichet, president of the European Central Bank, once again stated that the ECB is ready to increase the overnight rate at its next meeting, characterizing the move as "preventative" based more on the ECB's perception of risks than on hard figures. This has been a continuing theme for Trichet, but he followed it up with a statement to the effect that it's not "safe" to assume a series of rate hikes. The euro had been rising until that qualification, following which it gave back most of its earlier gains. Euros were trading -.31% at 1.1745 as of this writing.

Campbell Soup (CPB) reported Q1 earnings that rose from $230 million or 56 cents to $302 million. Net of items, the company earned $242 million or 58 cents on sales of $2.11 billion, up $200 million from the year-ago quarter. These results beat estimates by 2 pennies on EPS while falling short by $200 million on revenue. CPB closed higher by 4.21% at 30.95.

Sprint Nextel (S) announced its agreement to purchase Alamosa (APCS) for $4.3 billion in cash and the assumption of $900 million in debt, in a deal that values APCS at $18.75 per share. APCS is a Sprint PCS provider, and the deal will bring 1.48 million wireless subscribers in 242 service areas under S's umbrella. S expects the deal to close in Q1 2006, subject to APCS shareholder and regulatory approvals. S closed +.92% at 25.17, and APCS gained 12.85% to close at 18.35.

Intel (INTC) and Micron (MU) announced their intention to form a joint venture for the manufacture of flash memory. The companies reported that AAPL has already paid each company $250 million to secure a "significant portion" of the joint venture's production. INTC and MU will contribute roughly $1.2 billion to the new company, "IM Flash Technologies LLC" and intend on paying in an additional $1.4 billion each during the next 3 years. The company will be owned 51% by MU, 49% by INTC. INTC closed lower by .2% at 25.25, MU closed +.02 at 14.20, and SNDK closed lower by 16.65% at 46.84.

This Thanksgiving week is scheduled to be light for economic data, with the minutes from the Nov. 1st FOMC minutes to be released tomorrow, followed by Initial Claims, Michigan Sentiment, the Help Wanted Index, and the weekly mortgage and petroleum data on Wednesday. The bond market is scheduled for an early close on Wednesday, and the equity and treasury markets will be closed Thursday. The NYSE and the treasury markets will close early on Friday- 1PM for the NYSE and 2PM for the bond market.

Although ETF volume was light, volume for the broader indices was strong. The big question for tomorrow will be whether the final hour runs were the real deal, or a mere flash in the pan. On the one hand, the Fed was generous via its overnight repos, and we saw strong closes for gold, bonds and stocks. The op-ex hangover should be over, or close to it, and short call holders didn't seem to be in any hurry to dispose of their new stock. With so many citing the poor volume, poor breadth and dubious price action throughout much of this rally, sentiment has yet to reach the unanimous bullish extreme that would suggest a top. Wherever that top may or may not be, however, the trend is your friend, and it's not down. Given how toppy the daily and weekly cycles are in the process of becoming, there should be plenty of time for a new trend develop, once the current one ends. Until that time, however, the dips to support are just that. We will be analyzing the intraday action tick by tick in the Market Monitor and Futures Monitor- see you there tomorrow.
 

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