The major averages put in a mixed-to-lower trade as traders fine-tune positions into this week's option expiration.
The big guns in the Dow Industrials ($INDU) provide the bulk of the activity and gyrations. Earlier this week it looked as if the Dow Diamonds (DIA) $115.40 -1.00% were going to pull free of their August "Max Pain" theory tabulation of $115.00, which is a culmination of all option open interest (calls and puts), but with two sessions left, the diamonds appear pinned.
Such may also be true for the S&P 500 SPDRs (SPY) $128.57 -0.60%, where after some decent short-covering action on Friday that saw this tracker's parent S&P 500 Index (SPX.X) 1,285.83 -0.29% lurch to as high as 1,313 on Monday, a seemingly gravitational pull with the SPY's August "Max Pain" theory of $128.00 keeps traders on their toes.
The small caps of the Russell 2000 (RUT.X) 747.69 +0.36% and its tracker the iShares Russell 2000 (IWM) $74.58 +0.36% continue to hold steady, with the IWM holding well above its August "Max Pain" theory value of $71.00.
A resurgence of bullish optimism in shares of Apple Computer (NASDAQ:AAPL) $179.30 +1.45% in recent days has this most heavily weighted NASDAQ-100 Index (NDX.X) 1,942.02 +0.04% and its tracker the QQQQ $47.70 -0.20% back above its August "Max Pain" theory tabulation of $46.00.
It wouldn't be a volatile session that saw stocks dart lower at the open, then reverse losses by mid-afternoon, to then finish mixed-to-lower unless there were economic reports, some weekly energy inventory data, weekly housing data, Fed speak, limit up conditions in the grain markets and chatter surrounding the financials.
Oh, don't be disappointed, as there was plenty of that.
Economic data released prior to the opening bell here in the U.S. had July total retail sales falling for the first time in five (5) months, as shoppers avoided buying cars as they paid more for gasoline. Total retail sales fell 0.1% month-over-month, which was slightly below consensus of 0.00%, while core retail sales (excluded automobiles, which can be volatile) rose 0.4%, but was below economists' forecast of +0.5%.
While traders, investors and economists were chewing on the retail data, US import prices (m/m) were also being released. After rising 2.9% in June, import prices rose 1.7% in July, which was above economists' forecast for a 1.0% rise.
The benchmark 10-year Treasury Yield ($TNX.X) darted lower on the retail data, with its yield falling to as low as 3.869%, but then began reversing course, hitting a high intra-day yield of 3.966% just before the 02:00 PM EDT tick.
Then at 10:00 AM it was time to see what U.S. business was doing with inventories. The Census Bureau said inventories rose 0.7% from May, which was above economists' forecast for a 0.5% The closely watched inventories/sales ratio at the end of June was 1.23, as June sales rose 1.7% from May.
Then, roughly 35-minutes later, at 10:35 AM EDT, it was time to see just what the Energy Information Agency (EIA) had to report on weekly crude oil-related inventories, and see just what the heck those refiners had been doing.
Some benchmark prices I noted in the OptionInvestor.com market monitor just seconds before the EIA release had the DIA at $115.33 -1.06%, the USO $91.96 +0.51%, Petroleo Brasiliero (NYSE:PBR) $49.09 -0.70%, which I had profiled deep out-the-money August $45 puts (07/17/08 as the stock was trading $57.62), Exxon/Mobil (NYSE:XOM) $77.50 +0.81%, Chevron (NYSE:CVX) $84.15 +0.70% (DIA and SPY heavyweights).
Then the numbers hit.
The EIA said U.S. crude oil stockpiles fell by 400,000 barrels, but it was the U.S. total gasoline stockpile decline of 6.4 million barrels that seemed to garner trader's attention.
Refiners weren't taking holiday, but it looked like it, as total distillates fell by 1.76 million barrels. The decline here looks to have come from ULS Diesel (less than 15ppm sulfur), which fell by 1.13 million barrels. Heating oil (greater than 500 ppm sulfur) inventories rose for 10th-straight week, up 1.0 million barrels to 34,777. It's remarkable, but heating oil stockpiles now down just 3.77 million barrels from a year ago, or -9.88%. This spring, heating oil stockpiles were down roughly 30% from year-ago levels.
Still, I think the two-weeks of consecutive draws in the gasoline complex certainly had to have some oil bears coming in and covering shorts at the institutionally monitored Quarterly S1 and Monthly S1.
My "chart of the week!"
U.S. Oil Fund (USO) - Daily Intervals
Airline bulls and oil bears probably stepping up some profit taking today. PBR traders could feel the pressure each day as we neared Friday's expiration, but I don't think today's data and technicals were going to give it to us.
Using the USO as a guide, I think a close above $94.60 could see bears further locking in gains, or stepping up their short covering. If bull's nerves aren't frazzled enough with the sudden reversal in the euro/$, then a move below Quarterly S1 ($90.45) will bring trader flash-backs to hedge fund Amaranth, which went belly up as natural gas prices plummeted before JP Morgan came in an picked up the pieces for penny's on the dollar.
Global Equities, Currencies, USO, GLD, HUI.X, OIX.X and XLF
Fascinating, fascinating indeed.
Asia struggles for a second Wednesday-to-Wednesday benchmarking. I can't say for certain, but while the Olympic Games are taking place, some of the "shut down" to control pollution on the mainland may be taking its toll.
European bourses give back the bulk of prior week's gains. Note the sharp 3.10% decline in the euro (FXE/euro) as depicted by the Euro CurrencyShares (FXE) $149.50 +0.05% on the session. Certainly some jitters here. MARKETS do NOT like that type of move in a currency.
Remember when the greenback had some sharp down days?
This week, I added the CBOE Oil Index (OIX.X) 810.69 +3.01% on the session, and the Financial SPDRs (XLF) $20.57 -2.88% on the session.
While the S&P 500 (SPX.X) 1,285.83 -0.29% is a broad-based index, financials and "energy" are heavy-weights.
Now, one thing I think I do need to follow up on is what we are observing in the Russell 2000 Index ($RUT.X) and how it is really starting to show signs of "outperformance" relative to some of its peers (INDU, OEX and SPX).
I've been warning some commentators of being "general" with their market calls in recent weeks and the RUT.X has been anything BUT a good short with a stop just above the day's high.
One reason I think this is not only because of the "stable" underlying economic trends here in the U.S., but market participants may have been factoring in a recovery in the U.S. Dollar, or the weighted basket of foreign securities against the dollar and the U.S. Dollar Index (DXY).
Please believe me when I tell you that I have probably looked at three (3) "small cap" earnings reports, and I can't say for certain, but smaller companies probably don't have the exposure to exchange rates that some of the LARGER cap companies do.
What's rather FASCINATING about the RUT.X performance is that its HEAVIEST WEIGHTED GROUP is FINANCIALS!
That then begs the question ... "what the heck are the BIG caps of the NASDAQ doing then?" Why aren't they "mirroring" the INDU, OEX, SPX?
Aha! the NASDAQ-100 Non-Financial Index (NDX.X) 1,942.02 +0.04% and its tracker QQQQ. Or maybe we should call it the NASDAQ-99 and one energy stock index.
The NDX/QQQQ has just one (1) "energy" stock in it. Patterson UTI Energy (NASDAQ:PTEN) $27.01 +2.81%.
On June 30, 2008, which would have been the END of Q2, PTEN was trading $36.13! Right near its all-time high for several days of $36-ish. If I slapped PTEN in the above table as an "oil" type of stock, its Q3 2008 would be about -25%. On Wednesday of last week, PTEN closed $26.41, so up about 2.25% from last Wednesday.
Please note that PTEN is what many would consider to be an OIL SERVICE company, and while I'd love to have the Oil Service HOLDRs (OIH) $185.57 +4.14% in the above table too, there's only so much I can update, and still meet, or be late for editors deadline.
Note the DXY +5.1% so far Q3.
But hold on a minute!
On Monday evening, I was looking at Dorsey/Wright and Associates table of New Highs and New Lows on a sector-by-sector observation.
What SECTORS do you think showed the GREATEST number of stocks hitting new highs?
Here's what I saw and I just about fell out of my chair.
52-week High/Low Summary - 08/11/08 Conclusion
"Banks" showing 16 new highs and right up there with healthcare and retailing?
I reviewed the 16 names in the "banks" and they were NOT stock symbols many of
us would recognize. There were likely SMALL CAP.
What this would suggest to me is that the "financial problems" can't be so wide spread. Isn't the MARKET smart enough to not have ANY bank trading a 52-week high?
In the above sector breakdown, I quickly point to other "financial" and "energy" related New Highs and New Lows.
Yes, just as I'll do the same on some very BEARISH days, or inflection points, I do the same on some BULLISH days.
I like to see what was LEADING (new highs), or strong; and what was LEADING (new lows), or weak.
U.S. Market Watch - 08/13/08 Close
What do you think? Some short-covering in oil/energy and gold/silver miners?
Could be a more sustainable rebound, but U.S. Dollar Index (DXY) was steady today.
If playing any type of oversold bounce, I'd stay ENERGY-related, not GOLD/SILVER/Miner related.
This week's Mortgage Bankers Assoc. weekly survey didn't show much again. Purchases index up 0.3%. The government purchase index (largely FHA) was a more notable +7.2%.
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The Dow Jones U.S. Home Construction Index (DJUSHB) 281.71 -1.34% on the session. They're "hanging tough," but 300 resistance holding. Not that far below their 12/31/07 close of 324. Stability is "good," but broader market bulls would like to see this group wake up again as they did this spring.
No MAJOR observations since last week's wrap.
However, here is something I noted today as it relates to STRONGEST iShares Russell 2000 (IWM) and a back test of another downward trend being broken to the UPSIDE.
Similar action as to what we saw in early July.
IWM - Daily Interval Chart
Small caps may not have as much option open-interest surrounding them as the LARGE cap names.
Most technicians see an UPSIDE break of DOWNWARD trend as a sign of strength, and we'll monitor the broken trend. If BEARS are giving up, they'll turn to cover at the trend.
Now the also-broad but still WEAK S&P Depository Receipts (SPY).
SPY - Daily Intervals
About the ONLY thing the IWM and SPY have in common would be HEAVIER financial sector(s) weightings, broadness of stocks. SPY/SPX components may be about 50/50 domestic economy/foreign economies as it relates to revenue/earnings.
I did have Market Monitor traders SELL the UNDERLYING ProShares Ultra S&P 500 (SSO) $61.52 -1.17% last Thursday at $60.40 for a decent gain.
Staying BULLISH, but REDUCING capital exposure, I thought bulls should get back on board Friday morning with a SUC-IJ at $3.10 as the SSO was $61.41.
At Tuesday evening's close, INTERNAL measures were still suggesting BULLISH bias.
To be HONEST, IWM and QQQQ are technical LEADERS.
SPY and OEX are "weak"
INDU/DIA are "weakest."