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lots of emphasis on cash in PR
"We plan to take more control on the available cash in our subsidiaries
and move into higher market potential and higher margin specialty
pharmaceutical products," says Peter Wang, CEO and Chairman of Board.
With internally available resources, there would be no
need to raise additional capital to complete the transactions. This is
expected to improve current performance and increase operation stability.
"This new direction is expected to preserve available cash position and
give us more operation flexibility," says Chunhui Shu, the new interim
Chief Financial Officer.
"In view of improvement and progress on
our current operation results, we have made this plan to take more effective
steps to strengthen our control over operating subsidiaries, preserve cash,
apply available resources to, and refocus on higher margin, less
competitive products with greater market potential."
http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/11-20-2007/0004709608&EDATE=#linktopagebottom
It's a refreshing for a PIPE investor to have that attitude. They have a good track record and see quality in CBPC.
"Vision invested early in China. One of its most successful investments was American Oriental Bioengineering Inc. (AOB)"
Anyway, I'll be close enough to Hangzhou early next year, and I'm thinking of scheduling a day where I possibly tour Zhejing Tianyuan BioPharma's facility.
VISION OPPORTUNITY MASTER FUND... saw this article: http://www.zangani.com/node/334
I like this quote from article below:
“We earn more by betting on the upside, and everyone wins, not just the investor. If the stock doubles, we can make, for instance, 10 times our money, and the CEO and other shareholders might make multiples of that. Even retail investors win,” Benowitz says. “That makes us different from everyone else, because we’re helping companies navigate Wall Street, providing market support and helping the company find additional business and investors.”
Playing New York Hold ’em
Mon, 03/12/2007 - 09:51 — Zangani
Adam Benowitz of Vision Capital Advisors LLC likes betting on quality companies.
Vision is located in a low-key office on the 12th floor at 317 Madison Avenue in New York City. Benowitz and his team of 12 staff members plus some contract analysts specialize in helping micro-cap and small-cap public companies raise capital through PIPE investments.
Benowitz started Vision Capital Advisors, LLC with his childhood friend Randolph Cohen as an advisor. Despite their early friendship, Benowitz and Cohen took very different paths to Wall Street.
After receiving his degree at the University of California at Berkeley, Benowitz wasn’t quite sure what he wanted to do, so he focused on something he was very good at and became a professional poker player. Eventually, someone he met playing poker offered him a job at Susquehanna Investment Group, one of the largest specialist firms in the country, as a derivatives and bonds trader on the floor of the Philadelphia Stock Exchange.
He later moved on to the American Stock Exchange, as a specialist in biotech and other equity stock options for Susquehanna. More recently, he has been a head trader for three major investors, including Rose Glen Capital, one of the world’s largest Regulation D (PIPE) investment companies, which at its height controlled over $600 million in capital.
Cohen, on the other hand, took the academic route, first earning his Ph.D. in finance from the University of Chicago and then landing a job teaching at Harvard Business School, where he teaches the Investment Management course in the Elective Curriculum of the MBA program. Professor Cohen is an expert in the investment management industry, especially equity markets and PIPEs in particular.
The two came together to run Vision Capital Advisors, specializing in PIPEs, because they realized in 2003 that this niche in the market lacked long-term and, more importantly, long-only investors willing to take companies under their wing and help them succeed with financing.
The childhood friends function as left and right sides of the brain at the firm, holding separate roles and responsibilities. Benowitz is responsible for the day-to-day operations overseeing the deal team, while Cohen tends toward long-term thinking — that is, strategic planning, valuation and risk management.
Cohen is known for his academic rigor, turbo-fast talking and dedication to strong analytics and research. He brings a note of conservatism to the company, although appearance-wise, he’s lucky if he chooses a jacket and pants from the same suit.
Sporting jeans and T-shirts more often than pinstripes, the affable and boisterous Benowitz seems to thrive on chaos, dealing with a dozen things at once. Staff members pop in and out of his office nonstop. He’ll interrupt his own sentence to take a phone call, answer a question, render judgment on an issue, and then finish the sentence. He inhabits the room completely. He is doing difficult work, where a lapse in judgment could cost millions, and he clearly enjoys every minute of it.
And then there is his right eye. Benowitz lost the use of it in a camp accident as a kid. It’s a bit disconcerting when you first meet him because the eye looks off in another direction. With only one good eye to see through, he makes broad head motions and has to peer closely at his cell phone to read the display. He doesn’t seem self-conscious, however. In fact, he even jokes about it. “Randy and I named the company Vision Capital because I’m blind in one eye and he’s got the world’s worst eyesight,” he laughs.
And there it is. Two sight-challenged but insightful friends from the suburbs of Philly united by a common belief that small companies are where the real opportunities lie. Vision Capital specializes in micro-cap and small-cap strategies. These strategies span a range of options: common stock or a derivative security convertible into common stock, or even a combination of equity and debt.
Because companies receive money prior to filing a registration statement with regulators, PIPEs can be a more efficient way to raise money. In a PIPE transaction, companies can bank the proceeds within a matter of weeks, as opposed to months or years in a public offering. This prompt funding is probably the main reason why, in 2005, the PIPEs market grew to $25.8 billion, up from $18.7 billion a year earlier (PrivateRaise.com).
Knowing When to Hold Them
Vision Capital Advisors differs radically from other PIPE investors, which have been known to bet against a company and make money on “shorting,” or wagering that the company’s stock price goes down.
“We earn more by betting on the upside, and everyone wins, not just the investor. If the stock doubles, we can make, for instance, 10 times our money, and the CEO and other shareholders might make multiples of that. Even retail investors win,” Benowitz says. “That makes us different from everyone else, because we’re helping companies navigate Wall Street, providing market support and helping the company find additional business and investors.”
Micro-cap and small-cap companies fascinate Benowitz because on Wall Street they are the classic underdogs. “If the company is IBM, everyone on Wall Street is on the company’s side,” he says. “A big investment bank can make $500 million on a $10 billion IBM bond offering. Those bankers won’t be bothering with this niche. So, what we do is help small companies by allying ourselves with them.”
What’s the potential downside? Vision bets with the company, and because they do not short, “We could lose all our money alongside of the company, so we’re very motivated for them to succeed. We’re revolutionizing the space by not being predators.”
Vision Capital also boasts a longer holding period than most investors in PIPEs. Vision generally holds its companies for one to two years, and often will re-up for additional financings.
Shuffle Up and Deal
Due to the length of time it takes to file a public offering through the SEC, PIPEs have become the preferred popular source of funding for small public companies. There were a total of 1,657 PIPEs deals in 2005. These transactions have changed the industry. David Skriloff, one of Vision’s team leaders, explains, “There used to be this road show circuit, a multi-city tour that public companies would take to fund a public offering. Today, everyone comes to New York and has meetings with one PIPE investor after another.”
The process may be quicker through a PIPE, but that doesn’t mean that it is less intensive. Companies that show up on Vision Capital Advisors’ horizon are thoroughly vetted by Vision’s crack analyst teams.
All applicant companies go through initial pre-qualifying research. Vision takes a pass on most of them. However, companies that are presented by certain known sources, who have earned a reputation for doing a thorough job packaging the company’s data and information, will frequently be moved to the head of the line for a more serious look.
Next, Vision analysts, and sometimes Benowitz himself, will visit the company at its location. Benowitz feels that this is a very important step that allows Vision to get a true sense of the culture and potential of a company.
If they still like what they see, Vision then asks the company to come to New York for a substantive meeting with an analyst team. The teams are mixed and matched for each deal, based on the individual team members’ specialties and talents. The company officers will run a gauntlet of questions on virtually every subject the team brings to the table.
The team then produces a report recommending the terms of the deal, which is determined by a number of factors but is a direct reflection of how the team has assessed the company. At this point Benowitz and the team members debate the deal as recommended.
“I believe you surround yourself with the very best and most talented people,” says Benowitz. “And then you create an environment where everyone is encouraged to speak up. Our meetings are often very dramatic. Everyone says their piece.”
Benowitz will then set the terms of the deal that is offered to the company. “It’s not always the same as my team’s report recommended,” says Benowitz. “I’m the negotiator here.”
Companies are thrilled, because in the process Vision has identified all of the strengths and weaknesses and usually suggested or even provided the means for businesses to improve. “We take care of a company,” says Benowitz. “The stock goes up because we take care of their capital needs. We breed champions.”
Benowitz has a healthy distrust for technology companies, feeling that what is in today will be out tomorrow, a passing phase. “Maybe my attitude is because, with my eye, I don’t really use the computer at all,” he quips. Instead, he likes established companies that make an actual product or that offer unique content.
One such company is Edgewater, Inc. The Company farms, processes and markets high-quality, high-value marine species, primarily scallops, with a small sablefish (black cod) hatchery still in its infancy. Edgewater has successfully operated the scallop farming and marine hatchery business for 15 years. Its scallop farms are situated on Vancouver Island, and it is the largest private marine research hatchery as well as the first fully integrated shellfish producer in Canada.
Benowitz is also very interested, although extremely cautious, in China and the rest of Asia. “In China, practically every company is a growth company,” he says. “Their infrastructure has been neglected for so long, and now the whole country is exploding with growth. Just about any company — even one that makes water purifiers — is a value stock that can be too attractive to ignore.”
Vision invested early in China. One of its most successful investments was American Oriental Bioengineering Inc. (AOB), a leading Chinese manufacturer of products in the fields of nutraceuticals and pharmaceuticals. AOB uses proprietary processes to produce soybean protein peptide more efficiently than with traditional extracting techniques. Soybean peptides are used widely in general foods, health foods and medicines, among other applications.
Vision recently sent a deal team leader, John Finley, and analysts on yet another of several weeks-long due diligence trips to China to examine companies.
“The way we invest, the downside is somewhat mitigated,” Benowitz says. “I mean, if a company earns a certain amount of money, the stock can only go down so much. We’re not hedging. That’s not what we do. We’re old-fashioned investors. That really is what we are. We hedge the market, but we don’t hedge any stocks.”
That doesn’t mean the Vision overpays for growth. Benowitz and Cohen strive to emulate Warren Buffett’s investment philosophy. Although the billionaire investor is famous for value investing, less well known is the fact that some of his best investments have been made through PIPE deals. While Buffett plays in mega-giants like Gillette, Vision Capital is focusing on the micro-cap and small-cap arenas.
Playing Position
It’s 5 o’clock p.m. and we’re walking down Madison Avenue to The Core Club, a very chi-chi new club that has a reputation of inviting the most influential members from a wide variety of backgrounds — especially entertainment movers and shakers. Benowitz, a member, has reserved a spot in a Texas Hold ’em tournament being held in the club’s library.
“I haven’t the slightest idea how I came to be invited to join this club,” says Benowitz with a slight smile. My guess is that was just a bit of self-deprecating humor. He probably knows exactly how his name was proposed, because networking is everything in the fund business. Meetings begin with a round of the “I know So-and-so — Hey, so do I” game — a little something like Six Degrees of Kevin Bacon. Accompanying us is Vision analyst Christopher Wall, who has thrown on a jacket and brought plenty of business cards.
As we walk into The Core Club, it’s obvious that Benowitz is well known. The club is very hip and sophisticated. Its Ian Schrager–like interior design features a well-curated collection of contemporary art. I could spend several days just perusing the artsy coffee table books lining the library, where the tournament is being held.
Benowitz finds his table and is seated across from the dealer before most of the other participants have finished socializing. The tournament begins. There are five elimination tables. The winner of each will progress to the final table.
I watch enough poker on TV to know that Benowitz is not getting very many good hands, but he is patiently playing his position very well against the rest of the table. He emerges the victor at his table and progresses to the final table, despite the fact that I’ve seen him draw only one really good hand.
At the final table, he’s once again getting poor cards, but he manages to make it to the final two players before his opponent wins the tournament.
Still, he really seemed to enjoy himself. I commiserate with him on the loss and comment about his luck. “I guess you noticed I only got one good hand,” he says. When I said I thought it was remarkable that he made it to number two considering, Benowitz says, “The tournament ended right. The guy who beat me was the best player here tonight.”
Maybe. The other guy seemed to get plenty of strong hands. I got the impression that all Benowitz would have needed was one more good hand to take the tournament. Which gets me to thinking about comparisons between playing poker and what Benowitz does for emerging companies as a registered investment advisor.
You are rarely ever dealt strong hole cards in the micro-cap arena. You’d really have to know the strategy of the game extremely well, know when to fold, play aggressively when your position allows for it, and hold the cards long enough to see them play out. You’d have to stick to your game. If you can do all that consistently, you’ll be at the final table a lot.
John F. Murray to resign
http://www.sec.gov/Archives/edgar/data/1190132/000114420407059986/v093698_8k.htm
On November 13, 2007, the Board of Directors (the “Board”) of China Biopharma, Inc. (the “Company”) by unanimous written consent approved Mr. John F. Murray to resign from the position of Chief Financial Officer for personal matters, and appointed Mr. Chunhui Shu to serve as Interim Chief Financial Officer of the Company, effective immediately.
Chunhui Shu, 37, has been serving as the Financial Controller of China Biopharma Limited, a wholly owned subsidiary of the Company since its inception in 2006. Meanwhile he also served as General Manager of Quantum Communications (China) Co., Ltd., a wholly owned subsidiary of China Biopharma Limited, from 2001 till present. From 1997 to 2001, he served as accounting supervisor at Hangzhou UT Starcom Co., Ltd. Mr. Shu received his bachelor degree in accounting from Zhejiang Radio & TV University in 1992.
Mr. Shu has no family relationships with any of the executive officers or directors of the Company. There have been no transactions in the past two years to which the Company or any of its subsidiaries was or is to be a party, in which Mr. Shu had, or will have, a direct or indirect material interest.
China Biopharma owns 65% of the joint venture and its partner, Zhejiang Tianyuan Bio-Pharmaceutical Co., Ltd., owns the remaining 35%.
http://chinabiopharma.net/Index_2_Read.asp?PressType=1&ID=59
PR from 2007-01-16 ^^^
CBPC is majority owner
ZHEJIANG TIANYUAN BIO-PHARMACEUTICAL CO., LTD. Hangzhou City, China
http://72.14.203.104/translate_c?hl=en&langpair=zh%7Cen&u=http://www.ty-pharm.com/template/page2.htm
http://www.ty-pharm.com web site is both chinese and english, but google link above translates everything.
navigate across the top... many of top links have two pages
I find it interesting how the company stresses european standards for vaccine mfg, and that westerners are in top management.
pics of mfg facility:
http://72.14.203.104/translate_c?hl=en&langpair=zh%7Cen&u=http://www.ty-pharm.com/template/page5.htm
http://72.14.203.104/translate_c?hl=en&langpair=zh%7Cen&u=http://www.ty-pharm.com/template/page11.htm
CBPC
"I don't fight against the MM's. I rather play their game."
You were buying at .038 two days ago.
11/28/07 1:00 pm my guess for 25 mil post
I'm seeing this as a long term play too. My ave. PPS is just over .10 in a Roth IRA and in a second cash account. Both have GTC sell orders well above $1.00 I'm not around during the day to flip... I chose CBPC as a something I could play as a long term hold.
This $900 Million Bet Has Global Traders Talking…
By Keith Fitz-Gerald
Contributing Editor
Insiders trade when they know something. They’re not supposed to, but they do anyway. It’s just a fact of life.
Most of the time, it’s pretty petty-ante stuff, but occasionally a trade comes along that makes even jaded professionals like me sit up and take notice.
Just such a trade surfaced last Wednesday when anonymous parties agreed to buy and sell 120,000 SPY September call options using deep-in the-money strikes ranging from 60 to 95.
If you’re not options savvy, don’t worry. SPY (AMEX: SPY) – also referred to as a “Spider” in trader parlance – is an exchange-traded fund (ETF) that mimics the performance of the stock market’s closely watched Standard & Poor’s 500 Index (INX). These strike prices equate to a SPY trading between 600 and 950, or roughly 35.81% to 59.46% below where it was Monday.
Any way you cut it, this is a monster trade because it controls 12,000,000 SPY shares. In fact, at a blended price of $7,500 per option, this works out to a $900 million bet that will play out by Sept. 21, when these options expire.
Why haven’t you heard about this on your favorite cable TV money show, or read about it in the business section of your favorite newspaper? Simple: There are just so many possible explanations for this trade that your head would spin. The chances are good that the current lot of reporters just aren’t able to make heads nor tails out of this deal; and with nobody talking, there are simply no warm bodies to interview.
But that hasn’t stopped the professionals in the trading community from trying to figure it all out. In fact, since the trade first came to light about a week ago, the professional trading community I’m a part of has been abuzz with conjecture. That alone makes this a highly unusual trade because – like any small, professional community – we can usually figure out who’s doing what to whom and why – without even having to rely on more than one or two educated guesses. We just know.
But this time around, nobody’s talking.
Naturally, this silence has put the conspiracy theorists on edge and set the blogosphere aflame. Most of the theories are outrageous, but there are a couple that – quite frankly – aren’t so farfetched and even make some sense. But I have to stress, once again, that nobody who’s actually a party to either end of this transaction has been identified or is talking, which makes this all the more noteworthy – and maybe even a little spooky.
So absent the “who,” let’s take a moment and see if we can’t focus on, and figure out, the “why.”
Pushing aside anything that has to do with UFOs, the “third gunman” on the grassy knoll, the Philadelphia Experiment, or the Soviet K-129 submarine’s failed nuclear strike on Pearl Harbor, my experience as a longtime global-capital-markets trader tells me that there are actually some very real and very rational possibilities amidst the wild hypotheses circulating on the Internet. But, they’re just that – possibilities. And even with my admittedly conservative analysis, the scenarios I provide here could be wrong … either completely, or in part. Conversely, there may be an element of truth to one or more of these.
So let’s take a look at several of the possible scenarios that I’ve crafted for you.
A ‘Dividend Capture’ Strategy: Such a trade could conceivably be part of a monster dividend capture strategy used by several hedge funds and even one of my favorite ETFs, Alpine Dividend Dynamic (Nasdaq: ADVDX). Under this scenario, it’s possible that whoever bought these options will exercise them immediately prior to securities going ex-dividend on Sept. 21, before dumping or selectively rotating out of stocks that don’t immediately take off upon dividends being issued. Such a trader would profit from a rise in the SPY.
A Major ‘Covered Call’ Play: If this is the scenario, we’re talking about one of the largest covered-call plays in recent memory, if not market history. In contrast to retail investors who commonly use out-of-the-money strategies, many professional traders like me prefer to use deep-in-the-money covered calls that reduce risk and enhance returns at the same time. It’s a volatility play that you won’t read about in any options trading textbook. But it’s also one that doesn’t require a trader to go this deep in the money to pull off, which would make this scenario a bit too strange. [Incidentally, I’ll be talking about this particular trade, as well as some of my other favorite options-trading strategies at the World Money Show in Florida next year].
A China ‘Dollar Dump’ Play: China hasn’t been stung by the subprime-mortgage mess – or, if it has, it hasn’t reported it, yet. But what if its financial system has been torpedoed by this growing global credit crunch? Well, although China has publicly promised not to, one possible consequence is that the country’s government may be planning to dump dollars in the next few weeks. This would obviously create havoc in the U.S. financial markets, but it would also subsequently give whoever shorted these options the chance to buy them back for pennies on the dollar after a knee-jerk “correction” that creates panic selling sometime over the next three weeks. Assuming China can even collect a mere $5 per option, the victor in this scenario would bank a cool $60 million for their efforts. A $10 profit per option would net $120 million, excluding carry and execution costs … (but with that many zeros, why sweat that “small stuff.”
The Dark Possibility: The fourth and final possibility I see out there is considerably more ominous. In essence, this trade potentially suggests that a very large player has effectively sold his or her SPY holdings for cash, without pressuring the market downward. If this is true, whoever placed this trade is essentially betting that the SPY – and, by extension, the broader market – will lose anywhere from 35% to 55% of its value in the next three weeks. Now – and I stress this – the “why” here is moot to even discuss; we have no idea what their thinking or motivations might be. What is important to understand here is that if this scenario is correct, whoever sold out did so to maximize the value of their SPY holdings, while at the same time avoiding the potential loss in value that such a large block transaction would inevitably cause under normal market operations.
Stick To The Facts
My advice is that this trade is an important piece of information for investors. Sure you can read the conspiracy theories or plug into the professional traders network, but at the end of the day, all you’ll be left with is still more conjecture.
That’s why I’ll stop short of advancing my own theories as to who made this trade and why.
Instead, I urge you to focus on the facts that we know, which is that somebody traded some very large blocks of options at some very unusual price points a mere three weeks prior to expiration. This means that at least one-half of the traders involved expect something big to happen, and pronto, while the other half hopes that nothing will happen – and feels confident enough to believe that they’re correct.
Interestingly, since I’ve been investigating this admittedly fascinating topic and talking about it at length with my network of professional trading colleagues, there’s been continued trading in the September 60, 65 and 70 strikes, which have added another 6,000 lots of open interest between them in the last few days.
Now for the $64,000 question…
How To Play This Information
There are clearly two courses of action available to individual investors, and each is uniquely dependent on what the investor thinks that this trade suggests.
Investors who believe this trade suggests an upside opportunity. If you see this big options transaction as a harbinger of higher stock prices, you could effectively cover your SPY trades with one deep-in-the-money SPY call option for every 100 SPY shares you own, and capture the volatility skew this trade exploits on the call side when your SPY shares are called out at expiration. Depending on your basis, you could conceivably use strikes as low as the mystery traders did to achieve that objective.
Investors who view this as a “preview of coming attractions,” that consists mostly of a sharp sell-off in stocks. If you’re more of a “half-empty” type of thinker, and expect stock prices to fall, you could buy a “grundle” of SPY puts at those same strikes – 90 and lower – for between 0.03 cents and 0.05 cents per lot (at least, that’s where they were trading as I write this). Then, if the market does tank for whatever reason in the next three weeks, you will benefit not only from the fall in price, but also from the resultant explosion in volatility that goes with such an event. The beauty of this trade possibility is that – depending on how far and how fast the market falls – you may not even have to see your puts come into the money to profit if you’re nimble enough. The obvious limitation in this scenario is that the time-value component of each option decays at a very high rate, and is working against you, meaning that the odds are very high that you’ll lose all of the money you use to purchase your put options if nothing ends up happening.
The Bottom Line
The bottom line here is that we may never know who placed the trades. But what we do know is that the trades were placed, and that other investors are apparently piling on for reasons that will only become known in hindsight – if at all.
And this, my friends, makes the trades noteworthy – if for no other reason than they are, like so many things in the global capital markets these days, a complete enigma at the very moment the decisions you must make are at their toughest.
Related Articles:
Money Morning Report:
China Insists it Won’t Dump Dollars.
http://www.moneymorning.com/2007/08/29/this-900-million-bet-has-global-traders-talking%e2%80%a6/
I've been following these "bin laden trades" discussion on this thread. It's been attracting a lot of comments/explanations
http://www.tickerforum.org/cgi-ticker/akcs-www?post=4669
(for example last night, this reposted):
OK, this from another board. Guy sounds like he knows what he is talking about. Beats me. Smart people here, please let us know if this seems right...
-- begin quote from another board ---
The SPX cash options are traded on the Chicago Board Options Exchange. The open interest for the 700 CALL is 61,730.
The first clue this is not a smart way play a crash is to see that you could buy the 900 PUTS for .05, the cheapest increment. So why synthetically buy the 700 puts, over 20% lower?
The second clue is to look at the 1700 PUTS. The open interest is 61,740.
Also look at the open interest in the 700 puts and 1700 calls.
It is common practice to trade deep (wide strike) "boxes" in the SPX...buying call, selling put, and selling call, buying put...for interest rate reasons.
There is no early exercise in the CBOE SPX and no market risk by doing this. All brokers/clearing firms have an interest spread that applies to their customers. If a firm has sold a lot of option premium in its overall portfolio it is receiving interest at the lower rate on it's positive assessed balance...say about 4.6% now. If a firm has bought a lot of option premium then they will have a negative assessed balance and the clearing firm w/ charge them a higher rate for the money to carry that position...say about 5.6% right now. This is NOT a market risk calculation, that is separate, but a money & banking issue.
So these two firms meet in the middle and price a BOX in the SPX so that the implied interest rate is say... 5.1% and they both come out ahead.
Sorry if this explanation/theory is somewhat less exciting than the one postulated above.
Finally, trading deep in the money options are a proxy for stock. You do not need a crash to make money if you are short a deep option. It moves up and down with the market, no matter the size of the move.
The following statement is simply incorrect: "The entity who sold these contracts can only make money if the stock market totally crashes by the third week in September."
Now if the blogger is attempting to say the initiating BUYER of these calls was trying to hide his/her real intentions and the sold enough S&P futures to make the calls into synthetic 700 puts, then that would be true. But here again, those puts are offered at .05, so if the trades were efficiently put on, .05 x 100 multiplyer x trade quantity would be the $$$ at risk, or about $300k. Again, he could buy the 900 puts for the same price...over 20% higher...would be a dumb play, and not the correct read on the trade as explained above.
-- end quote --
-- start another quote (from the same guy, I think - both were anonymous) --
Just to be clear re: above "Box" trade post. This call trade was part of a spread trade that involved one party buying approximately 60,000 700 calls, selling 60,000 700 puts, buying 60,000 1700 puts and selling 60,000 1700 calls simultaneously.
Traders making this interest rate trade use the widest possible "strikes" to maximize the dollar amount of each trade, so that that can do the least quantity possible to achieve their goal, while minimizing commission expense. The 700 strike is the lowest available in the SPX and the 1700 is the highest...for September 2007 options.
There are 1000 SPX points between the 700 and 1700 strikes. 1000 x $100 multipier x 60,000 = $6 billion, which is in fact a pretty large number. If they traded the 700/1200 "BOX" then they would have to do 2x as many to get the same dollar amount and pay 2x the commissions.
Again, realize that if you buy a 700 call and sell a 700 put your trade is essentially like buying/getting long the stock market. If you offset that by buying the 1700 put and selling the 1700 call, your trade is essentially selling/getting short the market.
This is why this trade gets down to interest rates only. If you sell the deep options (700 call and 1700 put) you recieve a premium credit. If you buy the deep options (again 700 call and 1700 put) you must pay out a debit to purchase them.
The market can go up or down...no effect...because you are long and short the market at the same time. This is purely an interest rate motivated trade. Interest on $6 billion is no small number, but as a stretch, if a trader is trying to play an interest rate change from a market crash by locking in a rate for the next month or so...this is a poor way to do it IMO.
-- end quote --
2007-08-28 22:18:33
(and this, reposted):
I pointed out that this may be, in effect, a "loan on the market".
If it is, however, its even worse than a bet on a crash because someone can't get the money cheaper somewhere else.
Now what happens if they can't pay it back on expiration day? Oh oh.... and that's an assload of money.
2007-08-28 22:29:29
Anyone see this huge option contracts sale story? Any thoughts?
I saw it posted on thelion.com and googled some of the text below for another link: http://www.abovetopsecret.com/forum/thread299029/pg1
http://www.thelion.com/bin/forum.cgi?msg=1165201&tf=wall_street_pit&cmd=read
THEY DID IT AGAIN. . . . ANOTHER HUGE SALE OF OPTION CONTRACTS ON $4.5
BILLION WORTH OF STOCKS BETTING THE MARKET WILL LOSE 30%-50% OF ITS
VALUE IN FOUR WEEKS!
THIS SALE ON THE SPY.X AND THE ONE FROM YESTERDAY ON THE SPY.Y
(MENTIONED TWO STORIES BELOW) ARE BEING REFERRED-TO BY FOLKS IN THE
MARKET AS "BIN LADEN TRADES" BECAUSE ONLY AN ACT OF TERRORISM AKIN TO
9-11 (WITHIN THE NEXT FOUR WEEKS) COULD MAKE THESE OPTIONS VALUABLE.
There are 65,000 contracts @ $750.00 for the SPX 700 calls for open
interest. That controls 6.5 million shares at $750 = $4.5 Billion. Not a
single trade. But quite a bit of $$ on a contract that is 700 points
away from current value. No one would buy that deep "in the money"
calls. No reason to. So if they were sold looks like someone betting on
massive dislocation. Lots of very strange option activity that I haven't
seen before.
The entity or individual offering these sales can only make money if the
market drops 30%-50% within the next four weeks. If the market does not
drop, the entity or individual involved stands to lose over $1 billion
just for engaging in these contracts!
Clearly, someone knows something big is going to happen BEFORE the options expire on Sept. 21.
THEORIES:
The following theories are being discussed widely within the stock and
options markets today regarding the enormous and very unusual activity
reported above and two stories below. Those theories are:
1) A massive terrorist attack is going to take place before Sept. 21 to
tank the markets, OR;
2) China, reeling over losing $10 Billion in bad loans to the sub-prime
mortgage collapse presently taking place, is going to dump US currency
and tank all of Capitalism with a Communist financial revolution.
Either scenario is bad and the clock is ticking. The drop-dead date of
these contracts is September 21. Whatever is going to happen MUST take
place between now and then or the folks involved in these contracts will
lose over $1 billion for having engaged in this activity.
-------------
"$1.78 Billion Bet that Stock Markets will crash by third week in September
Anonymous Stock Trader Sells 10K Contracts on EVERY S&P/Y "Strike"
Shorts Stocks "in the money" effectively selling all his SPY holdings
for cash up front without pressuring the market downward
This is an enormous and dangerous stock option activity. If it goes
right, the guy makes about $2 Billion. If he's wrong, his out of pocket
costs for buying these options will exceed $700 Million!!!
The entity who sold these contracts can only make money if the stock
market totally crashes by the third week in September.
Bear in mind that the last time anyone conducted such large and unusual
stock option trades (like this one) was in the weeks before the attacks
of September 11.
Back then, they bought huge numbers of PUTS on airline stocks in the
same airlines whose planes were involved in the September 11 attacks.
Despite knowing who made these trades, the Securities and Exchange
Commission NEVER revealed who made the unusual trades and no one was
ever publicly identified as being responsible for the trades which made
upwards of $50 million when the attacks happened.
The fact that this latest activity by a single entity gambles on a
complete collapse of the entire market by the third week in September,
seems to indicate someone knows something really huge is in the works
and they intend to profit almost $2 Billion within the next four weeks
from whatever happens! This is really worrisome."
more here: link to www.tickerforum.org
http://www.tickerforum.org/cgi-ticker/akcs-www?post=4669
5/25/2007 9:45:00 AM
Nice article. thanks
Richard van Duyse, COO, will speak on: "Creating a world class quality vaccine manufacturing plant in China" at the World Vaccine Congress in June
Here's his google translated bio from Tianyuan Biotech (which CBPC is majority owner of)
http://translate.google.com/translate?u=http%3A%2F%2Fwww.ty-pharm.com%2Ftemplate%2Fpage3.htm&lan...
also check out "Management and Strategy" along top bar for an additional photo
I bought some yesterday in my IRA account at .135. I've been keeping an eye on this company for about a year or so. I'm actually thinking very long term, like 5 years out. I think it's an interesting gamble, and it'll be interesting to see where it is 5 years from now.
Bill Cara: The why and how America is in trouble
http://www.billcara.com/archives/2007/03/the_why_and_how_america_is_in.html
The why and how America is in trouble, Mon., Mar. 12, 2007, 10:33 PM
For several months, several of the US homebuilder companies acknowledged an abnormal supply as well as pricing pressures in the marketplace. More recently, the sub-prime mortgage companies that recklessly financed the bulk of the industry’s business discovered a problem with delinquencies and foreclosures. This is the story that will finally push the stock market from Bull to Bear, and the economy into recession.
Traders are nervous, with the upshot being a swing to cash and gold.
Why gold? Under the circumstances that exist today in the financial marketplace, any rise in interest rates will certainly pass the tipping point to where millions of Americans will be forced from their homes and put out on the street. So there is a glass ceiling to any rise in interest rates, but at the same time there is no end in sight to the printing of money. That's a formula for taking down the $USD and pumping up the price of gold.
The whole of the world watched TV images of the inhumane treatment of the poor of New Orleans following Hurricane Katrina. With great respect to those couple hundred thousand disadvantaged souls (as my readers know I have), I believe those ugly TV images may even look mild compared to the scenario that would follow angry mobs across America if market interest rates rise beyond the tipping point that would collapse the entire US mortgage market.
Yes, I believe there will be a US economic recession, but the elements are now in place for the first time in 80 years for America to sink into a depression.
Should a depression unfold, there will be big name financial houses that will fail. Accordingly, the owners and managers of wealth ought to be researching today how to protect themselves beyond FDIC-insured accounts. I shall write a lot about this in the next month.
Today, there was much talk of the Sub-prime and Alt-A mortgage industry problems. One report I received today came from Credit Suisse whose analysts opined that the problems will get much worse. I agree that this is a situation we must watch closely.
“In the past five years, subprime purchase originations have more than doubled in share to approximately 20% of the total in 2006. Over this time period, subprime lenders eased underwriting standards in an effort to gain market share. Loans were made to first time homebuyers with little or no down payments, as 2006 subprime purchase originations posted an alarming 94% combined loan-to-value, on an average loan price of nearly $200,000. Even more distressing is the fact that roughly 50% of all subprime borrowers in the past two years have provided limited documentation regarding their incomes…
Given the recent credit deterioration in the subprime and Alt-A markets, and the likely fallout throughout the entire housing chain, we are of the opinion that there is a very real threat of “pent-up supply” that will hit the market in the next six-to-twelve months as a result of the lax underwriting standards of recent years.”
The first two sections of the Credit Suisse report focused on providing a backdrop of the mortgage market, and how it has evolved in recent years. The authors discussed the mortgage products that are at greatest risk for increased scrutiny from regulators and highlighted some recent events and potential courses of regulatory action.
They concluded that “while much of the focus in the next few months for the builders will likely be on credit tightening and how that will impact homebuyers’ ability to get financing, we do not want to underestimate the impact that rising foreclosures and delinquencies will have on the supply and pricing dynamics of the housing market.”
But rather than point to specific comments in the Credit Suisse report, I decided to pull a number of exhibits that hopefully will open your eyes to the seriousness of the problem.
In a recent blog, I remarked that this data will come out and, unlike information that is produced by the US Administration, it is the type of data that cannot be easily manipulated.
(about 30 charts here on link)
--------------------------------------------------------------------------------
From the list of the top sub-prime lenders of 2006 (Exhibit 14), with over 80 pct market share, I created the following charts. Several lenders are units of other companies. Two of them (New Financial NEW and First Franklin FFHS) ceased trading in the past few days. I suspect that the others will be examined closely, and some will also cease to trade.
From Exhibit 22, I recall the 1990-91 period when North American banks pulled any and all non-performing loans during a similar period of credit contraction. My parent's neighbor had a country home valued at $1.1 million with a $950,000 mortgage. When he couldn't pay, the property was listed at $950,000, then $575,000 as I recall, and then my parents bought it for $300,000. I suspect the same type of thing is just starting today.
Before this period is over, it will be remembered for many years in history. Long-time readers will recall what I wrote about CNBC's Real Estate Roadshow in 2Q05. I said that was the cycle top and I called myself the Rat Catcher. Look at what's happened to the homebuilders since.
America is in deep trouble because it loves a good story -- Goldilocks, Pied Piper and all. For some reason, the people trust these story-tellers. Well, listen and weep.
Money market, online bank comparison site:
http://www.bestcashcow.com/
I was looking for a good savings rate, and found http://www.eloan.com/ at 5.38% APY, FDIC insured
I read it everyday Bullwinkle and appreciate it very much.
Happy New year
hal turner show is aryan nation website
check the disgusting stories posted there today.
here's a good money market 5%
http://www.discoverbank.com/index.asp?pID=rates
I noticed their rates even ticked up a bit around Nov. 1. The $25K rate was 4.93%, now it's 4.98%
11/22/06 7:13 am
Paulson re-activates secretive support team to prevent markets meltdown
By Ambrose Evans-Pritchard Last Updated: 12:09am GMT 30/10/2006
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/30/ccview30.xml
Monday view: Paulson re-activates secretive support team to prevent markets meltdown Judging by their body language, the US authorities believe the roaring bull market this autumn is just a suckers' rally before the inevitable storm hits.
Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the 'plunge protection team' (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.
Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.
Mr Paulson says the group had been allowed to languish over the boom years. Henceforth, it will have a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis.
The top brass will meet every six weeks, combining the heads of Treasury, Federal Reserve, Securities and Exchange Commission (SEC), and key exchanges.
Mr Paulson has asked the team to examine "systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis".
"We need to be vigilant and make sure we are thinking through all of the various risks and that we are being very careful here. Do we have enough liquidity in the system?" he said, fretting about the secrecy of the world's 8,000 unregulated hedge funds with $1.3trillion at their disposal.
The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.
"They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem," he said.
"In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall," he said.
The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929. The level of moral hazard is subtly different.
Mr Paulson is not the only one preparing for trouble. Days earlier, the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15pc, down from a range of 25pc to 50pc.
The ostensible reason is to lure back hedge funds from London, but it is odd policy to license extra leverage just as the Dow hits an all-time high and the VIX 'fear' index nears an all-time low – signalling a worrying level of risk appetite. The normal practice across the world is to tighten margins to cool over-heated asset markets.
The move is so odd that conspiracy buffs are already accusing SEC chief Chris Cox of juicing the markets to help stop the implosion of the Bush presidency.
As it happens, I used to eat Mexican enchiladas with Mr Cox 20 years ago at a dining club in Washington, where California Reaganauts gathered to plot the defeat of Communism. Die-hard Republican he may be, but I can think of nobody less likely to betray the public trust in such a way.
So one is tempted to ask if Mr Paulson and Mr Cox know something that we do not: whether other hedge funds are in the same sinking boat as Amaranth Advisers and Vega Asset Management, keel-hauled by bets on natural gas and bonds.
Or whether currency traders with record short positions on the Japanese yen and the Swiss franc are about to learn the perils of the Carry Trade, a high-stakes game of chicken where you bet against fundamentals with high leverage to make a quick profit. Everybody knows it will blow up if the dollar goes into free fall.
They had a fright last week when US growth for the third quarter came in at just 1.6pc, and new house prices plummeted 9.7pc year-on-year in the sharpest drop since the property crash of 1981.
The dollar dived from 119.65 to 117.57 yen in a heartbeat. With $2.9trillion of derivatives now trading daily on the currency markets alone – according to the Bank for International Settlements – is this the start of the most vicious short squeeze ever seen?
The futures markets have priced in a 77pc chance of a flawless soft-landing for America's obese economy, now living 7pc of GDP beyond its means off foreign creditors. They are counting on moderating oil prices, and – a contradiction? – another year of torrid world growth. Nice if you can get it.
They have not begun to price in the risk of recession, typically entailing a drop in the S&P 500 stock index of 28pc from peak to trough. Evidently, the equity markets assume the Fed can and will rescue them by slashing rates in time, if necessary.
They should examine a recent report by the New York Fed warning that whenever the yield on 10-year Treasuries has fallen below 3-month yields for a stretch lasting over three months, it has led to each of the six recessions since 1968.
The full crunch hits 12 months later as the delayed effects of monetary tightening feed through, even if the Fed starts easing frantically in the meantime. By then it is too late. "There have been no false signals," it said.
As of last week, the yield curve was inverted by 29 basis points, was continuing to invert further, and had been negative for over three and a half months. If the Fed is right this time, the recession of 2007 is already baked into the pie. Those speculative positions may have to be unwound very fast.
rogue, thanks for posting article
Gas price decline explanation:
http://financialsense.com/Market/daily/monday.htm
(charts on link)
RUNNING ON EMPTY
As most of you folks who drive a car are more than aware, over the past six weeks we’ve all been on the receiving end of welcome reprieve in the price of gas at the pumps. In fact, a good many commodity prices have moderated somewhat over the course of the summer.
While I “welcome” cheaper gas just as much as the next guy, I also like to get my head around the reason[s] for precipitous price movements – particularly in prices of commodities that have such a profound influence in my life. After all, it’s often said that knowledge is empowering, isn’t it?
Well, if you happen to be a “Commodities Bull” - last week [Thursday, September 21, 2006] the Wall Street Journal ran an inauspicious article in “Section C” titled, Some Investors Lose Their Zest For Commodities. With the article being “buried” in Section C and the fact that the newsy bit received zero TV time – I wouldn’t be at all surprised if you all missed it.
One person who did not “miss it” was Bill King – he of the King Report fame. Not only did Mr. King “not miss it,” he quickly understood the implications of the content of the article, namely that,
Goldman Sachs [on July 12] tweaked the composition of their “benchmark” Goldman Sachs Commodity Index [GSCI].
Not A Big Deal, Right?
For those of you who might figure a little “tweaking” of an index is not such a big thing, you might want to consider this;
“The Pimco fund has a rival in Oppenheimer Real Asset Fund (QRAAX), which doesn’t use commodity swaps and is therefore unaffected by the SEC ruling. It tracks the Goldman Sachs Commodity Index, which is much more volatile than Pimco’s benchmark.”
Or this,
“It is public knowledge that PGGM and ABP, two of the largest pension funds in the world, are benchmarked to commodities via a passive allocation to the Goldman Sachs Commodity Index, with ABP between 2-4% and PGGM 4%. Since ABP manages $155bn and PGGM $50bn,….”
So let’s just say “a little tweak” in the composition of the much watched and followed Goldman Sachs Commodity Index can [and does] have a profound influence on the composition of funds and institutional money that is tracking it.
The Tweak…
So here is what Goldman Sachs did to the GSCI,
Prior to Goldman's revision of the Goldman Sachs Commodity Index in July, unleaded gas accounted for 8.45% (dollar weighting) of the GSCI. Now unleaded gas is only 2.30%.
So What’s Wrong With This?
As Bill King points out,
“Goldman's changes probably induced arbs, commercial hedgers, and other traders to sell September and October unleaded gasoline future contracts to avoid possible (settlement, delivery, etc.) problems.
September futures expired in August; October contracts expire September 29. So unleaded gasoline prices collapsed in August and September.”
I would like to “restate” what Mr. King said: What this means folks, is that hedge funds and institutional money that “TRACKS THE INDEX” were FORCED TO SELL 75% of their gasoline futures to conform with the reconstituted GSCI. And if anyone hasn’t noticed the timing of the price of the gasoline price collapse…just in time for November’s Mid Term Elections!
So don’t be fooled into believing that potential energy shortages have “magically been solved.” In all likelihood – much of the recent decline in the price of gasoline we have all “welcomed” has been the result of paper tricks being played on what amounts to a wealthy flock of sheep.
But in the meantime, filler up!
InvestmentHouse.com weekend summary
(this weekend newsletter is free)
* * * * *
9/1/06
* * * * *
TONIGHT:
- Bullish bias holds to the end as stocks drift higher on low volume.
- Economic data paints the same picture: expansion losing steam.
- Bond yields tank as ‘new’ Fed study reveals inversions lead to recessions.
- The return of money supply to monetary policy: why Bernanke is far superior to Greenspan.
- Market ready to start the mean season with a lead in from a late summer rally.
Stocks fight off early attempt to sell, continue the rise for the week.
Stocks handled the jobs report that was basically in line and showed a modest dip in hourly earnings month to month, rising pre-market and on the open. It did not take long for that move to lose its direction. With the lower ISM and tumbling construction report at 10ET the market really got the dips with NASDAQ and SOX turning negative. Indeed, the chips were down pretty much from the open as some gains were booked and some big names struggled (e.g. BRCM had its antitrust case against QCOM dismissed). The upside move looked to be out of gas.
There was not much selling volume, however, and the indices started to show some life an hour into the session. Without the volume the sellers could not keep a lid on a rebound. That rebound turned into a morning, lunch, and then afternoon rally as the bullish bias for the week was not ready to give way to the fall.
Technically SP500 made a nice move, pushing well past 1305 and to the top of the March and April range. Sure wish it would have made the move Thursday; things really could have turned interesting. Instead we get a low volume rise to finish the week, basically on a lack of interest ahead of the start of fall. That does not provide a lot of confidence the move will stick.
NASDAQ rallied over the early July high as it too cleared some resistance, though it again struggled at the old up trendline starting in 2004. SP600 rallied up to the 200 day SMA intraday and then faded to the close; it made it to the resistance we though it would, and it did not go a nickel further.
SOX was the stick in the mud, falling for the second session and the only index t close negative. It was one of the leaders in the rally off the July low; well, maybe it just came to life and seemed to be a leader after a pretty good butt-kicking after peaking in February. In any event, it pulled back toward the 10 day EMA. That can be rather innocuous, just a test after a good run. After all it was moving up while SP500 slid sideways last week. It also tends to be an early warning canary for the techs as was the case when this downtrend started and continued lower. It turned lower ahead of all the other indices and then they followed. That makes this test quite important as SOX has a nice reverse head and shoulders going. If it can continue higher here that is a major support for the SP500 as it breaks toward its highs, not to mention NASDAQ as it tries to clear its own version of a reverse head and shoulders.
Overall it was good to see the market generally hold its gains and push higher even as semiconductors rested. We took some more gain off the table as we had been doing all week in what turned out to be very good timing for the semiconductors that we were cashing in on Wednesday. Most of our positions remain very well . . . positioned, so we let many of them run without closing positions wholesale.
The reason being, aside from the solid patterns, is that early September often gives solid pops higher as new money hits the market. In good economies the move can continue. In so-so economies you get the pop and then some selling. Only in really crappy times (e.g., 2000 and 2001 was there no upside pop. Even in the bottoming process in 2002 when the market was diving, it managed an upside move the first part of September. Moreover, it can rally into September and still continue upside as the new money hits.
Thus we look for some more upside to start the week. After that it depends upon the market’s read of the economic future. Bonds are not necessarily happy, but the indices have fought back into some pretty good patterns. As long as they can hold those even if there is another pullback then the outlook is much improved.
THE ECONOMY
Friday data shows the economy is hanging in but still getting a bit flabby.
The jobs report was mostly in line as was the ISM. 128K jobs created versus 125K expected. The unemployment rate fell back to 4.7% from 4.8%. Hourly earnings rose 0.1% versus the 0.3% expected and the 0.5% in July. The ISM fell to 54.5 from 54.7 (54.7 expected), continuing the weakening from the October 2005 peak over the past year (58). Prices remained over 70 while new orders weakened to 54.2. Interestingly, employment improved to 54 as the rest of the report softened. Typical; we have said all along employment lags in the business cycle. Michigan sentiment moved up nicely from the preliminary reading (82.0 versus 78.7 prior and 79.0 expected). Construction was weak; hard to argue around a 1.2% drop when you expected it to hold steady.
ECRI shows modestly easing inflation and continuing slowing growth.
ECRI’S future inflation gauge continued to soften in August, down to 123.1 from 124 in July. It peaked in October with a 5.5 year high, but it is stubbornly refusing to give us a sharper break lower.
ECRI’s leading economic index held steady but at the 2006 low with its 4-week annualized rate falling again, down 1.7% to a 2 year low. At this level ECRI is still forecasting slowing growth but no recession.
Bond yields continue their fall, cracking below 4.80%. New Fed study reveals what we all knew.
Man what a week for bond yields. They started the week far below the Fed Funds rate (5.25% after the last Fed rate hike) ranging from 4.85% to near 4.9% with an 8 basis point spread between the 2 year and the 10 year. The 2 year and 10 year dove lower Friday with the 2 year outpacing the 10 year to the downside. At the close Friday yields were 4.76% versus 4.73%, just a 3 BP inversion. That is not enough to really scare up a recession, but as discussed Thursday, the spread between the Fed Funds rate and nominal bond yields is huge, almost 50 BP with the 2 year note. What nominal yields are saying, indeed screaming, is that the Fed Funds rate is too high for the economy, not too mildly suggesting the Fed should think about cutting some rates.
Interestingly, the Chicago Fed has produced a study of bond yields and the correlation to economic cycles. The study indicates what we all knew it would: inversions between short term bond treasuries and longer term treasuries tend to foretell economic slowdowns. The Fed study suggested a 30 BP inversion between the very short term yields (e.g. 30 day) indicates a recession. The study also concluded that the longer the inversion the more likely a significant economic slowdown.
Now Mr. Greenspan was telling us last year not to worry about an inversion, that it was due to extraneous factors such as heavy foreign buying of treasuries. There is no doubt that is ongoing, but even Mr. Greenspan said he was not sure to what extent the buying contributed to the inversion. Thus he was saying ‘trust me, don’t worry’ about an inversion, but in the same breath implied the trust was not well placed. Now the Fed itself has concluded it doesn’t matter what the reason is; big inversions or inversions that last a long time foretell economic slowing.
This report is similar to other government grants to fund a study that concludes if kids stay up past midnight and don’t do their homework they don’t perform as well at school. Who needed a study to conclude that? Just look at history. Same with this report. The problem is, Greenspan made it necessary to do this with his speculation and resultant conclusion that the inversion was not as good an indicator as in the past. Of course being a politician Greenspan hedged his statement, but nonetheless that sent us down the wrong path on monetary policy once more, and likely the Fed has raised rates too long without really attacking the root of the problem, i.e. excess liquidity until AFTER Greenspan left.
Money supply coming back into favor as a Fed tool?
We have all heard the past few years about how money supply is no longer a very good indicator for the economy or for what should be done with monetary policy. Seems strange; after all monetary policy is part and parcel money supply. As strange as it seems to anyone with common sense, however, money supply has diminished in its apparent importance, at least to the academics, or more accurately, the Greenspan academics.
That is why, even with 1.5 years of rate hikes under Greenspan, inflation still managed to rise above the Fed’s comfort zone. Up to 2006, when Greenspan retired and Bernanke took over, money supply was growing at a 6.2% annual rate. It was going strong even as Greenspan raised rates to purportedly prevent inflation. But inflation is a monetary phenomenon, i.e. too much money for the economic growth rate. In other words, economic activity is not great enough to absorb all of the money in the system, so that excess money is used to bid up prices because money is seen as cheap. You can raise rates all you want, but if there is still excess money compared to economic activity, prices rise. Indeed, you EXACERBATE the problem with high interest rates and high money supply. Many borrowers cannot gain access to money they need because of high rates, but there is still money circulating that is not being invested because those wanting to invest it cannot borrow at the high rates. Thus the economy slows more but money supply remains high. That equals inflation.
Bernanke’s first order of business, despite saying he was going to continue Greenspan’s policies, was to cut the money supply growth rate in order to sop up the excess liquidity. He started selling treasuries to get money out of the system. Money supply growth dropped from 6.2% to 0.2% this year. He did not pull a Greenspan as back in early 2000 and suck the economy dry of money all at once. He did not even start contracting money supply. After all of the rate hikes he did not want to crush the economy, and he knew the impact of the rate hikes was not fully felt. No, he just curtailed money supply growth in order to let the economy continue to run and work at sopping up the remaining excess itself. Thus you don’t get the vapor lock you got in early 2000 when suddenly there was no more money. Not surprisingly we have seen inflation pressures peak here in the US as shown by ECRI.
We have said it before, despite his public maligning and his ‘loss of economic manhood’ as Kudlow proclaimed, Bernanke has been focused and even-handed in his views and application of monetary policy. We are reminded of Ronald Reagan, who was ridiculed as a simpleton but whose economic policies proved to be right on the mark and brought the US back from an interesting but failed economic experiment in the 1970’s to once again the world economic powerhouse. After years of getting ‘Greenspanned’ and brainwashed by his approach to monetary policy that, despite the ‘maestro’ label was a disaster as shown by a track record no better than any other Fed chairman (indeed the size of his disasters were unprecedented but for the 1929 Fed), we are now seeing what we believe is the work of a true scholar of monetary policy, one that understands, appreciates, and uses history in his formulation of policy. We hope we don’t eat these words; we might still get a recession out of this but there would be an asterisk because Bernanke inherited a system that had inflation built into it due to Greenspan not lowering liquidity, inflation he had to get under control before he could really take action. If he pulls it off without a recession, however, it will be a great feat, similar to winning the World Series after being down three games to none or coming back to win the Rose Bowl after being down 12 points with less than 5 minutes to play.
THE MARKET
MARKET SENTIMENT
VIX: 11.96; -0.35. VIX remains at very low levels, holding in a very tight range the past two weeks. This is the level where the market has run into trouble, i.e. topping in past rotations. It can move at this level, however, for a long time before it takes its toll and the market sells.
VXN: 16.8; -0.59
VXO: 11.02; -0.29
Put/Call Ratio (CBOE): 1; +0.1
Bulls versus Bears:
Bulls: 42.1%. After a sideways move for a few weeks, bulls are starting higher, rising from 40.0% the week before (40.2% and 41.5% the week before). Bulls are still well below the early 2006 highs and even the April high. The low of the cycle was in June at 38.7%. It remains below the levels hit on the last market sell offs in October 2005 and March 2006, but above the June low when it kissed the bears.
Bears: 33.7%. Continuing the decline from 34.7% last week and the 36.6% the week before and 37.1% hit in July. The 37.1% was the highest level in this entire cycle, easily clearing the 34.4% hit in late June back when bulls and bears kissed, just missing a crossover. Hit a new post-2002 high in that late June move, eclipsing the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: +9.41 points (+0.43%) to close at 2193.16
Volume: 1.383B (-22.19%). Low volume to close out the summer, not expected given the three-day weekend ahead. A decent increase in volume as it moved higher this week, but volume still remained below average; it was, after all a summer rally.
Up Volume: 808M (+134M)
Down Volume: 472M (-613M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Advancers led 1.1 to 1
New Highs: 96 (-8)
New Lows: 28 (-4)
The Chart: (Click to view the chart)
NASDAQ continued its move higher Friday, topping off a solid upside week, the third leg higher in its late summer rally off of the mid-July lows. It made it just past the July high (2195.50) on the Friday close, hugging the August 2004/May 2005 up trendline (2197), unable to punch on through. It showed a hanging man doji on the candlestick chart, and that often indicates a move is running out of gas and needs a breather. NASDAQ is working in a 16 week base, forming a 12 week reverse head and shoulders. It may need a short pullback to set up a better breakout move, perhaps after a move toward the 200 day SMA (2225) to start the week. NASDAQ continues its attempt to put together its recovery base; if it holds up and avoids a serious breakdown that bodes well for the rest of the market.
SOX (-1.05%) lagged all session and was the only index to close lower. It fell back through the 90 day MA (446.71) and below the mid-August closing high (446.11) on the close, but it did hold its 10 day EMA (441.25). This is where we want it to hold and deliver more upside this week. SOX can be a harbinger for the rest of the market. If it holds and rebounds that is a very good signal. We will see; still very concerned about September after the initial few sessions.
SP500/NYSE
Stats: +7.19 points (+0.55%) to close at 1311.01
NYSE Volume: 1.126B (-15.14%). Volume hit the low for the week, but that did not stop prices from climbing. Without any big buyers the market bias for the week took hold and the NYSE indices moved further upside.
A/D and Hi/Lo: Advancers led 1.92 to 1. Solid breadth as the large caps came back to life and joined the small caps in the upside move.
Previous Session: Advancers led 1.49 to 1
New Highs: 178 (-4)
New Lows: 16 (-3)
The Chart: (Click to view the chart)
Sweet price move from SP500 as the large caps came back to life after stalling Wednesday and Thursday on rising trade. They were churning as money moved around, but once that was over the upside drift kicked in and SP500 put the moves on 1305. If it can hold the move to start next week there will be more short covering to drive it higher. SP500 has now risen to the top of its March and April trading range. If it breaks through to the upside the shorts will howl and it will move. It is set up to make that move as long as the buyers come in to start the fall.
SP600 (+0.28%) made it to the 200 day SMA as anticipated, and that was all it wrote for the week. It faded back off that level, holding a modest gain to the close. It continues working on the bottom of its 16 week base, making a couple of higher lows and higher highs in August. That is good technical action in building the pattern, but near term it looks as if it is going to come back after the 200 day SMA test before taking it back on. Key index for the market as it along with NASDAQ is a growth index, relying on an expanding economy to post gains. Thus if it continues base building here that is a good indication for the market down the road.
DJ30
DJ30 jumped higher along with SP500, clearing resistance at 11,400 and taking a bead on the prior high at 11,670. It looked to be slowing and ready for a test, but the large caps enjoyed what buying there was on Friday. Still likely to test before it is able to take on that May high.
Stats: +83 points (+0.73%) to close at 11464.15
Volume: 168M shares Friday versus 156M shares Thursday.
The Chart: (Click to view the chart)
SEPTEMBER BEGINS
One of the more feared months of the year kicked off Friday, and it was a gain. It is often a gain early in the month as some new money is put to work. Even after Labor Day it can post a gain as the summer officially ends and the fall begins. All the players have to get back to work and put some of that money to work. Once that is over, the true colors of the month come out.
The indices overall still look good heading into the fall, but of course it was a low volume rally to end the summer, sort of a late summer fling at the beach before the fall semester starts. Volume started to rise toward the end of the week, but it was still low overall. That is what, despite the nice move to end summer break, is what makes this such a serious transition point.
It is still somewhat of a mixed market with NASDAQ and SP600 still lagging the large cap NYSE indices. The small caps and NASDAQ are still below the 200 day SMA and still have quite a bit of work to do. They are putting in some good work on a bottom, but have not made the break yet. They are growth indices and thus economic indicators, and if they can keep building their bases, even after a September sell off that is a good indication for the market overall.
In other words, even if we get a sell off in September that does not mean the market is saying the economy is going into the tank. They can sell and still hold their current bases, indicating an economic slowdown but no crash. Indeed we expect the market to run into some September issues even given the nice move to end the summer and a few more upside sessions to start the post-Labor Day market.
The changeover in the ‘season’ of the market is always something of a wildcard. The market is set up well heading into September and the leaders look solid. Thus we let many of our plays hold over into next week. We will meet more upside by taking some more gain as it presents itself. Then we see how the leaders move. Really watching the semiconductors to see if the Thursday and Friday test was just that. Strong chips such as NVDA have faded back and are in position to continue the breakout if that is in the cards. If upside volume comes in strong we are going to be ready for these.
This is one of those times that you like what you see but you have to be ready to take what the market is going to give. If the market starts to distribute at some point next week we will be glad we have taken some gain off the table and then move to close out positions. We will be looking at safety zones for the upside such as healthcare and drugs as well as some downside plays. If that strong upside trade comes in we will look for rebounding leaders such as those chips along with technology in general.
Support and Resistance
NASDAQ: Closed at 2193.16
Resistance:
2190 is the July 2006 high and is giving way
2197 is the August 2004/April 2005 up trendline
The 200 day SMA at 2224.5
2230 is the June 2006 peak
2250 is the March 2006 closing low.
Support:
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2177 is the December 2004 high.
2168 is the August intraday high.
The 10 day EMA at 2163
2158 from the May 2005 low.
The 50 day EMA at 2131
2100 from the early and mid-2005 peaks
2072 is the June closing low
2050 from the summer 2005 lateral range lows
S&P 500: Closed at 1311.01
Resistance:
1311 is the April closing high.
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
1326.70 is the May 2006 high
1334 is an October 1999 peak
Support:
1302 the recent August highs
The 10 day EMA at 1300
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 50 day EMA at 1280
The 200 day EMA at 1277
1262 is an old trendline from the August 2003/August 2004/October 2005 lows.
Dow: Closed at 11,464.15
Resistance:
11,642 is the May 2006 closing high
11,670 is the May intraday high
Support:
11,401 from the September 2000 peak and April 2001 highs
11,384 is the August intraday high.
The 10 day EMA at 11,357
11,350 from the May 2001 peak
The March 2006 highs at 11,329 to 11,335
The 18 day EMA at 11,307
11,279 is the late May closing high
11,243 is the early August peak closing high.
11,228 is the July closing high.
The 50 day EMA at 11,203
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,068
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the ‘Economy’ section.
September 6
- Productivity, revised (Q2) (8:30): 1.6% expected, 1.1% prior
- ISM services, August (10:00): 55.0 expected, 54.8 prior
- Crude oil inventories (10:30)
- Fed Beige Book (2:00)
September 7
- Initial jobless claims (8:30): 316K prior
- Wholesale inventories, July (10:00): 0.7% expected, 0.8% prior
September 8
- Consumer Credit, July (3:00): $7.0B expected, $10.3B prior
Business Week cover story: Nightmare Mortgages
http://www.businessweek.com/
History of Home Values graph
http://askmerv.choice3realty.com/images/27leon_graph2.html
A Requiem for a Housing Bubble:
http://www.sprott.com/pdf/marketsataglance/08-2006.pdf
Sprott makes a case for a hard landing
fyi, Mike Burk report:
has charts, can't post, but you can recieve it free in email. here's conclusion:
Conclusion
Because of the lack of new highs it is likely the move last week was a bear market rally rather than the beginning of a new bull market.
I expect the major indices to be lower on Friday August 25 than they were on Friday August 18.
This report is free to anyone who wants it, so please tell your friends.
They can sign up at:
http://alphaim.net/signup.html
interesting comments on ECRI and bond market...
SUMMARY:
- Market closes out the week with gains in a tame expiration Friday.
- Sentiment takes a tumble on gas prices, Middle East.
- Another week of mixed economic data while ECRI leading indicators hit a
2 year low.
- A key, 'interesting' week: will the big money return to buy?
Momentum kicks in and drives stocks to a positive close to round out the
week.
Stocks were a bit weaker Thursday and Friday they started down. Futures,
however, were improving into the open and looked to be ready to turn up
once the action started. Not quite. Stocks instead turned back down at
the open and thumped lower. NASDAQ lost 20 points as the technology bid
dried up. Looked as if the old expiration week volatility was kicking in;
strong moves up on some short covering midweek and now some giveback as
positions were shuffled some more.
A half hour into the session NASDAQ bottomed. That started a solid,
steady rebound that held on into the close. Seems nothing could keep
stocks down last week even when the leading stocks for the week (techs)
lagged the rest of the market Friday. Indeed, when tech lagged energy
stepped in as we thought it might. With the bullish tape last week,
whether short covering, long buying, or both, the market had the momentum
to finish out an up week with a come from behind gain. The fact that the
energy stocks stepped in when tech slowed (semiconductors were even down
on the day) a bit is even a sign of some almost bullish rotation.
Technically there was no real change in the market position. Sure the
indices closed higher (except SOX), but all they did was push marginally
higher with no significant moves; those were made earlier in the week when
SP500 broke out and NASDAQ broke its downtrend. Friday SP500 pushed a bit
further into the next range of resistance while NASDAQ didn't come close
to challenging the July high. Volume fell way off pace as well, not
nearly enough to push the indices toward resistance, and certainly not
enough to get them through. Of course we did not expect much of a move
given the strong gains earlier in the week shot a lot of the ammunition.
Seems the market got all of the volume out of its system early on,
something much more common over the past year.
Despite Friday showing no technical change, it showed that bullish
intraday high to low action to cap off a strong week of gains. There was
actually some accumulation on NASDAQ though a lot of the action was also
short covering after the move started, feeding on itself given that
expiration loomed. Of course all rallies start with short covering, and
as we discussed Thursday night, there is some NASDAQ accumulation as shown
by the patterns of more and more tech stocks. Again, NASDAQ broke its
downtrend with a gap reversal; quite bullish. SP500 broke out from its
double bottom with handle.
Good action to close the week, but that solid move in itself along with
some slowing action Thursday and Friday indicate the market needs a bit of
a breather. That can mean a pullback to some near support or it can mean
the market just pauses in place for a few days and then starts higher.
Tired and in need of a pause that refreshes, so we were not too eager to
jump into a lot of new positions. If it holds the line (i.e. gives up
little ground) and starts back up we can participate in that move when it
begins. There was some good action last week but leadership remains
scattered, and that is always a problem for a sustained move no matter how
good the index moves look. Unless leadership comes along much better we
still feel we are looking at another 2 to 3 weeks upside and then a
serious challenge starting in the first half of September.
THE ECONOMY
Sentiment tumbles, purportedly on gas prices and Middle East issues, but
politics is there as well.
Michigan preliminary sentiment dropped sharply to 78.7 from July's 84.7
reading (83.6 expected). Now you have to take Michigan sentiment with a
few grains of salt to begin with and given this was the preliminary
reading it is even more problematical. The data pool is so thin it is
hardly an accurate sample. One wonders why they would put out a
preliminary in the first place. Well, we all know; it gets the name out
there twice, hypes up the product, etc. Marketing.
If it holds it was the lowest reading since just after Katrina. The
worries focused on continued gasoline prices and the Middle East turmoil
with consumers (all 200 of them) actually voicing concerns about inflation
as a result. As of yet this concern has not shown up in retail sales, but
of course the monthly retail reports lag real time events. Thus retail
sales could be falling as we write.
Could be. Retail sales and consumer activity usually do not track
sentiment until it gets to very low levels, i.e. in the mid-sixties to the
fifties. At that point the consumer is concerned enough to start leaving
the wallet on the hip, the purse on the shoulder, the checkbook in the
desk drawer. Of course, there are always credit cards, right? In short,
the preliminary reading may be way off. Unfortunately, we don't get any
corroboration from the Conference Board's sentiment reading until August
29. Further, the decrease to this level, while not the trend you want to
see, is not at the point to cause enough consumption slowdown to threaten
recession.
Two of the best leading indicators continue to soften, however.
Sentiment is not really a leading indicator, at least not a LEADING
leading indicator. In other words, other indicators give you a better
heads up than trying to gauge whether the consumer has had enough. Two of
the best, however, are not as positive as we would like, but they are also
not flashing critical mass just yet.
ECRI's annualized growth rate toppled to a near two year low this week,
falling to -1.4. That follows the prior week's -0.8 reading. As ECRI put
it, "with the leading index growth now at a 93-week low, the US economic
growth prospects continue to dim." Continue to dim. That means, as we
have reported, that the ECRI indicators, very accurate indicators at that,
have been trending lower. Last weeks decline did not suggest a recession,
and this week's decline does not either. It is, however, showing a
continued trend of slowing, and the recent data suggests it is picking up
some speed. If it continues then the risk starts growing fast. Very
accurate leading indicator.
The bond market is also a key leading indicator. For months we were told
that the bond market was no longer valid given foreign buying of US
treasuries pushing rates artificially lower. That was Greenspan's
conundrum and he attributed it to that foreign buying (petrodollars,
Chinese boom). That melted away over the past several months as the new
Bernanke Fed took over. Oh for sure Bernanke still followed the Greenspan
line, but the bond market changed. Yields rallied on talk of a pause with
the curve reverting to normalcy, then fell as economic data started to
weaken. That is traditional bond market action, looking at the economic
future and adjusting accordingly.
Bond yields started to recover after the Fed pause, indicating the market
believed the Fed got it right, but this past week they waffled. Rates
fell and yields inverted once more (4.90% on the 2 year, 4.86% on the 10
year). We want to see yields move back over 5% and on toward 5.25% (the
current Fed Funds rate) to show the bond market has confidence money will
be in demand down the road. After some promise they are now indicating
less demand, particularly for the longer term. That is never good. If
the inversion holds for several weeks that does not forebode well for the
economy.
Thus we have the two accurate indicators for economic activity in a
weakening state. Not at a recession state, but at a 'the economy is going
to slow' state. Of course, even the Fed says the economy is going to
slow. The problem is, there is a difference between thinking it will and
then putting a quantity to it, i.e. how much it will slow. ECRI is not
showing recession yet, and was not showing a significant slowdown. If
this recent trend holds a few more weeks it is something to start worrying
about.
THE MARKET
MARKET SENTIMENT
VIX: 11.64; -0.6. Volatility is diving as the market rallies. It is
rapidly approaching the July and December 2005 lows. In December the
market just kept on rising. In July it made an interim top when
volatility hit this level. What does this tell us? Be cautious, but low
volatility does not always correlate to market tops.
VXN: 18.45; -0.51
VXO: 11; -0.57
Put/Call Ratio (CBOE): 0.89; +0.02
Bulls versus Bears: High readings helped trigger the rally seen the past
few weeks, but topping out a bit for now.
Bulls: 40.9%. Ticked higher from 40.2% but still down from 41.5% the
week before, continuing the retreat toward 38.7% five weeks back. It
remains below the levels hit on the last market sell offs. On the last
pullback bulls hit the lows for this rally, i.e. since 2003. That put it
below the 42.3% hit on the last low and the May and October 2005 readings
that preceded new upside runs.
Bears: 36.6%. Bears became more scarce, falling from the jump to 37.1%,
but holding well above the 36.2% and 34.5% hit in the preceding weeks.
The 37.1% was the highest level in this entire cycle, easily clearing the
34.4% hit in late June back when bulls and bears kissed, just missing a
crossover. Hit a new post-2002 high in that late June move, eclipsing the
March 2006 high (33%) and well above the 2005 highs that spawned new
rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: +6.34 points (+0.29%) to close at 2163.95
Volume: 1.743B (-11.4%). Volume tanked Friday, falling below average in
a different twist for expiration. Stocks moved on pure momentum and a
definite lack of intervention from sellers that had to cover a lot ahead
of the expiration.
Up Volume: 983M (-215M)
Down Volume: 731M (+27M)
A/D and Hi/Lo: Advancers led 1.12 to 1. Weak, bespeaking of the lack of
conviction on the day.
Previous Session: Advancers led 1.44 to 1
New Highs: 68 (-42)
New Lows: 61 (-17)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Volatile session on low, below average volume and modest breadth. Dipped
first then rebounded in a long, steady rally to the close. Thursday
NASDAQ closed off its high on lower trade, and Friday it was all over the
map on below average volume. It is showing some wear and tear after the
move, needing a breather before it can take on the July high (2191). Two
to three days of rest and it is ready to try the July high.
SOX (-0.05%) was down and up similar to NASDAQ, reaching down to 435 on
the low, still easily above the 50 day EMA (429) it broke through
Wednesday. Thursday it also closed well off its high; as with NASDAQ that
indicates the move is getting a bit tired and needs a blow. Still solid
reversal of the trend, and it just needs to regroup and build for the next
move to take on some resistance at 450.
SP500/NYSE
Stats: +4.82 points (+0.37%) to close at 1302.3
NYSE Volume: 1.342B (-14.58%). Very low volume as the NYSE indices
pushed their gains to varying degrees. No accumulation but also no
sellers daring to come in yet.
A/D and Hi/Lo: Advancers led 1.37 to 1. Mediocre, but better than the
Thursday read. The breadth coupled with the stronger upside moves in the
large cap indices tells us this is more of a large cap story. Not hard to
see that over the past six months.
Previous Session: Advancers led 1.18 to 1
New Highs: 91 (-31)
New Lows: 23 (-16)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 showed solid intraday action, starting with a fade and then that
same steady rebound to close at the session high. Same type of action as
on NASDAQ and SOX the past two sessions, i.e. off the high to close on
Thursday and then a more volatile Friday session. It pushed through
resistance at 1300 but did not make significant inroads. Basically a
probing session given the very low volume. Same story as with NASDAQ:
looking for some type of pause to start the week then a move up from
there.
SP600 (+0.12%) was down and up as well, tapping the 50 day EMA (364.32) on
the low and rebounding for a modest gain. Still trapped below the 200 day
SMA (370) for now. The fact it is below the 200 day when SP500 is above
that level tells the story of how the small caps have turned from leader
to laggard.
DJ30
The blue chips continued higher as well, approaching the late April
lateral range before the spurt higher into May that ended the rally. That
is the next resistance point for the Dow before a run at the May high
(11,670). Volume jumped higher as it made the move, the first above
average showing in a month. Some movement into the industrials at
expiration.
The transports rebounded Tuesday and Wednesday, coming back to the 200 day
SMA. Thursday and Friday they tested modestly. Important juncture for
the transports. A failure here is dangerous for the Dow.
Stats: +46.51 points (+0.41%) to close at 11381.47
Volume: 282M shares Friday, versus 243M shares Thursday. Best volume in
a month, but it was on expiration.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Now that expiration is in the bank and the rally showed a bit of age to
end the week (just a bit) the issue is whether the action last week was
just an overheated short covering run ahead of expiration or if there is
some sustainable buying taking place. The move started in July with a
bounce, then a three week test, then last week's surge. There was
something stirring before last week; it's just that last week made it very
clear.
There is definite improvement in leadership, though from basically none to
better is not a quantum leap. It will have to continue to build to make
this rally stick beyond August. During the 2000 bear market we saw many
rallies that held out promise ultimately fail due to lack of leadership.
The selling paused and stocks rebounded, but no groups would form up
accumulation patterns and break higher after the initial rebound move.
Consequently the rally attempts failed. There is leadership appearing;
the report has many. It is not at the point, however, where stocks are
ready to take off en masse.
Short covering and some buying drove techs last week. Energy perked up
Friday, rebounding from the recent slump. We will have to see if they
pick up the slack again this week after what we expect to be an early week
pause. It will be interesting to see if the two can rally together.
This move definitely has some upside strength but we have to see if it can
continue past the expiration week jump. A pause to reload and we think it
can run on into September. After that we still anticipate a dip if the
ECRI readings and the bond market continue their present course. If they
do that would mean more significant economic slowing ahead than many
anticipate, and the market would start factoring that in. September and
early October are good times to do that, i.e. historically months the
market suffers through weakness.
Given this scenario we will have to do what we always do, i.e. take what
the market gives us. We are focusing on solid stocks in solid patterns
that will be testing back from solid moves or preparing to make the
breakout after forming up good bases. Oil rebounded Friday and energy
stocks did as well. Some remain in solid patterns while others are
fighting back. We like the action we saw in several on Friday, coming
back from selling. We will again be looking at them as well to see if
they can muster strength after some vigorous takedowns last week. We will
ride any of our plays as far as they will take us; we still have to be
cautious of a late summer fade after another run, so we still want to take
interim gains as our plays make good moves, banking some profit and
letting the remainder move higher as long as they will.
Support and Resistance
NASDAQ: Closed at 2163.95
Resistance:
2177 is the December 2004 high.
2185 to 2182 is the September 2005 peak and interim high from November
2005.
2190 is the July 2006 high
The 200 day SMA at 2225
2230 is the June 2006 peak
Support:
2158 from the May 2005 low.
The 50 day EMA at 2115
2100 from the early and mid-2005 peaks
2072 is the June closing low
2050 from the summer 2005 lateral range lows. It has held the past three
weeks.
2045-47 from June and October 2005 lows and June 2004 highs
2037 at the October 2005 closing low
2020 is the July closing low
2019 is the April 2005 interim high
S&P 500: Closed at 1303.30
Resistance:
1315 is the May and May 2001 peaks
1311 is the April closing high.
1324 to 1329 from the October 2000 lows.
Support:
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 200 day EMA at 1273
The 50 day EMA at 1271
1259 is an old trendline from the August 2003/August 2004/October 2005
lows.
1239 from the late June consolidation range.
1225 from the March 2005 high
1223 is the June 2006 closing low.
Dow: Closed at 11,381.47
Resistance:
The March 2006 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
11,642 is the May 2006 closing high
11,670 is the May intraday high
Support:
11,279 is the late May high
11,243 is the August closing high.
The 10 day EMA at 11,239
11,228 is the July closing high.
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,127
11,044 is the January high.
The 200 day SMA at 11,030
10,965 from Q4 2000
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10,737 to 10,730 from December and February lows
10,706 is the June 2006 closing low
10,705 - 10,965 from July/August 2005 range top to bottom
Economic Calendar
These are consensus expectations. Our expectations will vary and are
discussed in the 'Economy' section.
August 23
Existing home sales, July (10:00): 6.58M expected, 6.62M prior
Crude oil inventories (10:30)
August 24
Durable goods orders, July (8:30): 0.0% expected, 2.9% prior
Initial jobless claims (8:30): 312K prior
New home sales, July (10:00): 1.1M expected, 1.131M prior
Congrats you guys! eom
CC
SUMMARY:
- Market surges higher on jobs data, gives it back again, but shift to
larger cap industrials remains intact.
- Fed likely to hike and say it is done given the continued rise in
commodities.
- Market advance remains tenuous even after pre-FOMC rally.
Market surges then struggles on a weaker jobs report.
Thursday's reversal from low to high set the market up for a rally on the
jobs report, and when jobs came in at 113K (145K expected) and the
unemployment rate jumped to 4.8% from 4.6%, it did not matter that hourly
earnings rose more than expected, at least not right away.
Stocks were down pre-market on word that AAPL would delay its earnings
report as it was further investigating the options scandal involving Jobs
and others at the company. As we wrote in April and May, that options
scandal is getting to be a problem for NASDAQ, kind of a back up negative
for the threat of a slowing economy that impacts NASDAQ's growth stocks
and the small cap growth stocks. Then the employment data hit and bang .
. immediate reversal. Futures not only turned back from negative, they
shot higher by 90 at the high point (versus FV) on DJ30.
The open was rip-roaring, but we said in the morning alert it had to be
watched even with the solid low to high Thursday reversal. Within minutes
it started to come off the early high; nothing necessarily bad about a
quick test of the opening gap, but the market did something it is known
for in this downtrend, i.e. it just languished the rest of the session in
a steady, day-long slide.
In June the market did the same thing on the jobs numbers, but it rallied
and started to sell even before the open. This time it made it into the
first half hour of 'live' trade. After that NASDAQ flipped more than 50
points from the high to the low, SP500 20 points. Huge, huge intraday
reversal. Was it the revenge of the average hourly earnings again? No,
it was the Hamptons. Sure the initial surge was used to sell into, but
volume was still rather modest in that it did not chalk up any huge gains
on the session. What happened was a pre-Fed weekend where many fund
managers and floor traders left early. After the initial round of profit
taking on the first surge bids bit the dust. No one wanted to jump into a
lot of new positions on the weekend ahead of the most critical FOMC
meeting since June 2004, the month it started this last Quixote campaign.
It had its pre-Fed run the past two weeks, and the news got to be as good
as it could get before the Fed actually delivers its edict. Time to punch
the ticket for the rally.
Technically not a collapse, but this is where it gets interesting.
Technically it was not great action, but it was far from a slaughter. We
took some interim gain off the table on the early surge when it was pretty
clear the news was as good as it gets for now. Most of our positions held
up quite well even with the reversal. Some are back at the lick log, i.e.
where they have to put something back in the kitty, but overall there was
not much technical damage.
Indeed, that held over to the market as well (generally). DJ30 and SP500
surged higher early, and though they could not hold their gains they along
with the other indices recovered in the last hour. The result was they
did not damage to their technical position. Volume was lower on the NYSE:
it was hard to sustain the move on lower trade, but the rollover was not a
surge in selling. As noted, it was just a lack of interest after that
first surge.
NASDAQ volume crept higher as it turned over so there was some
distribution though volume remained below average. It too rebounded late
and shaved 15 points off of its losses, basically two-thirds of its loss
on the session it regained in the last hour. Of course it blew a 17 point
advance that required the late recovery to saves its bacon. On the high
it tapped the 50 day SMA and faded back below its trendline. It held the
18 day EMA, but it made it to the 50 day, must about where we thought it
would on this trip and where it stalled in early July. Very important
time for the NASDAQ right here. It has looked better the past couple of
weeks, but any movement would have been grand compared to its May, June
and first half of July. Now it has to put up some real numbers to show
this is not just an oversold bounce to resistance in a continuing
downtrend.
NYSE remains in good shape outside of the small caps, and more of late the
mid-caps as well. There remains the ongoing shift from growth to large
caps, e.g. industrials, financials, consumer staples and drugs. Heck, if
the economy is slowing, no wonder the drug purveyors are performing
better; have to get rid of those business-related headaches. As the
expansion 'matures,' a nice way of saying slows, the growth areas lag and
the large caps traditionally outperform. Now they are doing that. As you
recall, the small caps were declared dead for the last two years when the
economy was still expanding and thus they were as well. Now that the
economy is really slowing we hear touts of small caps as well, but as a
group they are likely to start to under-perform overall. If the expansion
just slows they will not tank. If it picks up again they will improve
once more but typically not as strong as in the first part of the economic
recovery.
THE ECONOMY
What the Fed is likely to do in order to save face, avoid a stampede.
We could talk about the jobs report, tear it down and analyze the minute
details, but it really did nothing to alter anyone's view on the economy
or change what the Fed thinks. Basically it was the same as last month:
job growth (though not as big as some forecasts or as low as others) and a
continued rise in worker earnings. Sure the unemployment rate jumped, but
that is bad-mouthed so much by the Fed it has, at least on the surface, no
significant impact.
What we really need to talk about is where the economy is going based on
what the leading accurate indicators say, specifically the financial
markets.
First, a look at commodities. Back in 1999 the Fed was hot on the trail
of inflation. It hadn't shown up, but with the expansion lasting so long
the Fed was sure it had to be just around the corner. Greenspan forgot is
'follow the markets' philosophy and started 'fine tuning' the economy in
order to prevent the non-existent inflation from showing up. At the time
we wrote extensively about the commodities market and what that meant for
the economy. Indeed, we were in the middle of a terrible drought and crop
yields were literally withering. Corn, bean, wheat, cattle, chickens:
they were all dropping around the world. Why, we asked, was the Fed so
set on inflation when the commodities were showing more deflationary
action? As it turned out, the Fed kept hiking, and when the economy broke
one of the main concerns became, not surprisingly, deflation. Commodities
were talking but the Fed was not listening.
Now we have commodities running higher and higher, not the sign of
deflation, but typically inflation. Oil just hit a new high recently, and
while many commodities are off their May highs, after that initial blow
off they have recovered and are holding up quite well. Two years into the
rate hikes after an extended period of too-easy money, however, the Fed is
ready to end the hikes with commodities still very strong. The Fed feels
the economy is going to slow and thus commodity prices will fall. As we
know, however, a slow economy does not necessarily equal lower inflation.
It is a monetary thing; if you have too much money even in a slow economy
you still have inflation. As we have written for years: ECONOMIC GROWTH
HAS NOTHING TO DO WITH INFLATION. You can have a recession yet have
inflation if you have too much liquidity. Commodities are suggesting
there is lower liquidity (the hard post-May fall), but still too much in
the system.
What about bonds?
Second, the bond market. Bonds have rallied ahead of the FOMC meeting,
driving rates for both the 2 year and the 10 year below the 5.25% Fed
Funds rate, indeed well below it by a full rate hike. Until last week the
curve was slightly inverted again after straightening out in July. This
week it ended modestly inverted again with yields at 4.90% on the 2 year
and 4.89% on the 10 year. Bond yields are below the Fed Funds rate just
as they were in 2000 when the Fed hiked into an inverted curve. When this
happens bonds are saying the demand for money longer term will be lower.
Indeed, right now bonds are saying the Fed is not going to raise rates but
that it needs to cut them in order to try and keep the economy moving
forward.
Wow, cut rates. Well, that is not going to happen. At best it is going
to pause. Who is right? Is the bond market wrong here in the short term,
overreacting to what the Fed may or may not do, or are bonds really saying
that the economy is going to fade?
How do you reconcile the bond market with the commodities? Well, the bond
market may be overreacting, but it also may be completely in line with
reality, saying the higher commodities prices are going to put an end to
the world economic expansion given the added strain of higher interest
rates. Liquidity may still be a bit high, but rates don't need to be.
How the Fed will likely do it?
Fed funds futures are back below 40%, and within a couple of days of an
FOMC meeting, that historically is a dead-on indicator. Cannot believe I
am writing this, but this time it may not be right. The Fed feels there
is a slowdown coming, and has suggested that will slow inflation.
Inflation is hardly out of control, but 1970's refugees still fear it a
lot; deflation is terrible but inflation is not picnic.
As we have said, inflation is not dependent upon economic activity. The
Fed, however, still has to appear tough on inflation despite Bernanke's
closet desires (at least they are now after getting slapped around when he
voiced them at the beginning of his term) to stop with the rate hikes and
let the economy run. Thus the Fed is likely to hike rates 25BP and say it
is done unless things turn around sharply, blah, blah, blah.
What the Fed really needs to do is buy back some treasuries and take money
out of the system. That is the surest way to reduce liquidity, and it is
very manageable unlike rate hikes. It is the quiet method because the
rate hikes get all of the press, but that does not render it ineffective.
But wait a minute. What happens when the Fed buys back bonds? Prices
rise and yields fall. What are prices and yields doing? Rising and
falling. Hmmmm. The Fed is trying to dry up liquidity behind the scenes
of rate hikes, and thus Bernanke is correctly not so gung ho about more
hikes. He has been ridiculed in public, even called an 'amateur' by a
rather preposterous figure of a Congressman. To us he is showing a very
real and rather accurate understanding of the economy, though he still
talks of inflation targets. Hey, nobody is perfect, and we feel his
actions show you don't have to play to the common but misguided
conventional wisdom in order to do the right thing. Even with that,
however, it is a toss-up as to whether he raises rates for the final time
on Tuesday given this is his first fight with inflation as a new Fed
chairman.
THE MARKET
MARKET SENTIMENT
VIX: 14.34; -0.12
VXN: 21.63; +0.51
VXO: 14; -0.01
Put/Call Ratio (CBOE): 1.17; +0.28. Reversals typically rile the
options market as short term options players have to close positions, roll
out of positions, etc. to keep from getting hammered. Thus the spike in
put activity on the surge and then reversal.
Bulls versus Bears: Big jump in bears even as market improved shows a
good contrarian indication.
Bulls: 41.5%. Bulls got a little long in the face again, falling from
42.2% the week before. After moving in a holding pattern at 42ish, good
to see a bit of a fall back toward the 38.7% level from a month back. It
remains below the levels hit on the last market sell offs. On the last
pullback bulls hit the lows for this rally, i.e. since 2003. That put it
below the 42.3% hit on the last low and the May and October 2005 readings
that preceded new upside runs.
Bears: 36.2%. Quite a spike from 34.5%, and the highest in this entire
cycle. The past two weeks top the 34.4% hit a month back when bulls and
bears kissed, just missing crossing over with the bulls. Hit a new
post-2002 high in that late June move, eclipsing the March 2006 high (33%)
and well above the 2005 highs that spawned new rallies (30% in May 2005,
29.2% in October 2005).
NASDAQ
Stats: -7.28 points (-0.35%) to close at 2085.05
Volume: 1.895B (+0.75%). Volume climbed closer to average as NASDAQ
gapped higher and reversed. Not a big volume surge, but stronger than on
the upside sessions this week, indicating once more that the sellers,
despite some improvement in NASDAQ's overall picture, remain in control of
the index.
Up Volume: 773M (-348M)
Down Volume: 1.1B (+366M)
A/D and Hi/Lo: Decliners led 1.33 to 1. Quite modest, but such is a
reversal session.
Previous Session: Advancers led 1.45 to 1
New Highs: 98 (+9)
New Lows: 78 (-40)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher and rallied to the 50 day SMA (2116) on the high.
That was it. A 50 point reversal from high to low (2.3%) was about as
violent as big as it gets in one session. A last hour rebound that
recovered 15 points held the 18 day EMA (2081) and kept the session from
the 'complete rout' category. NASDAQ made it to the 50 day MA, just about
where we felt it would rally to on this move. The close took it back
below its trendline (2097) and indeed, the 50 day MA is where NASDAQ
stalled in early July after a very similar looking June recovery melted
away. NASDAQ made its move, showing some modest accumulation and some
modest distribution, but more distribution overall. In short, it
rebounded form some harsh July selling, but did not show a lot of
accumulation. It hit the downtrend and turned back on Friday. It is the
lick log time for NASDAQ once more, and technically it is not in a great
bargaining position. We will see this week if it has drawn an inside
straight.
SOX (-0.96%) rallied up to 425, an interim resistance point from the late
June low, and that stalled it Friday. It gave back 13 points from high to
the close (late rally helped), but it managed to hold the 18 day EMA
(410.66) and the down trendline at 408 on the close. Not great technical
action with the tombstone doji, but it did hold the trendline break
without rolling right back over. Some promise, but it has to work with
NASDAQ to recover, and both are at the point where they test this last
recovery attempt to either hold and try higher toward the 50 day EMA or
fold for now.
SP500/NYSE
Stats: -0.91 points (-0.07%) to close at 1279.36
NYSE Volume: 1.724B (-4.94%). Volume faded as the NYSE indices ran
higher then gave it all back to close modestly lower. A lot of running up
and down to get back to flat. No distribution so that is a modest
positive, but there was also no accumulation on the upside run. NYSE
price/volume action, however, remains more positive overall versus NASDAQ
as money flows to the large caps.
A/D and Hi/Lo: Advancers led 1.32 to 1
Previous Session: Advancers led 1.51 to 1
New Highs: 179 (+62)
New Lows: 46 (-13)
The Chart: http://investmenthouse.com/cd/^gspc.html
The large caps jumped well past 1280 and over the June high (1290.68).
Looking good, at least for an hour or so. Then it faded and could not
even hold the breakout over the July high. Three sessions, three tries,
three failures. The pattern is not a failure, but as with baseball, the
market usually gives you three tries. We will see. SP500 remains in its
pattern, showing solid volume to end the week as it butts against the
breakout. At the same time the 50 day EMA is coming up to test the
crossover of the 200 day SMA; the repeated failures may be suggesting
something with respect to that crossover. Large caps continue to get the
money. Tech rallied the past two weeks, but they were playing catch-up in
a relief move. SP500 has a real pattern in progress.
The small cap SP600 (-0.36%) surged through the 200 day SMA (369.17) on
the high (371.29) and then it peeled back and closed again below the 50
day EMA (366.05). It is trying to break higher on toward that July high
at 378, but the 200 day is where we thought it would reach and it did so
only to reverse and close lower. Trying to keep a double bottom attempt
together but it has a lot of work just to get back to the 'hump' that is
the January high.
DJ30
Similar theme: early surge to a new post-May high (11,344) but it could
not hold the move, giving back 104 points. Hard to be happy about that at
all. DJ30 tested nicely to start the week and then started higher, making
the breakout Thursday. Volume did not move with it, however, coming well
below average. Then the big surge Friday and failure. May come back some
more to test and set up again. Large cap industrials still getting money
as the pattern indicates.
Stats: -2.24 points (-0.02%) to close at 11240.35
Volume: 210M shares Friday versus 211M shares Thursday. What a
competition in mediocrity. No wonder it could not hold the break higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
FOMC week, a one-day affair this time around with results Tuesday at
2:15PM. The market moved higher for two weeks ahead of the meeting where
the bond market is expecting a cessation to the rate hikes. If the Fed
does not hike the market may like it but not like it, i.e. it won't
satisfy all of the investors in bonds, gold, etc. and thus turmoil.
Actually the best result would likely arise from a rate hike and a
statement that says the Fed is done unless it really sees some trouble.
The result? The Fed Funds futures say no hike and as noted, it is
typically dead b**ls on accurate at this juncture. That is one reason we
feel the Fed will actually raise and then say 'no mas.' That would work
to satisfy most everyone though it may not be what the economy needs. The
economy needs no more rate hikes and a bit less liquidity. The Fed is
drying up liquidity with some treasury purchases, and thus helping US
inflation, inflation that still shows a peak in October 2005. It was up
the past week but still has not reversed the trend lower. As we noted two
weeks back, the real problem is the rest of the world; the US has been
fighting inflation for everyone else. At least last week the BOE raised
rates unexpectedly, thus helping the US out some. See, there are some
positives regarding the world's central banks.
As for the market, it may have had its pre-FOMC last call rally. With the
meeting on Tuesday and two weeks of upside (ragged as it was) behind it,
there is not a lot to be gained just ahead of the actual result. Look at
how Friday turned out: good news, a surge, but then the inevitable 'what
next?' question. With the bond market pricing in the need for the Fed to
lower rates due to economic growth concerns, the market may not like the
answer. After all the Fed cut rates on January 3, 2001 for the first time
since it started its campaign against prosperity, and the market surged
only to rollover the next month. The economy is the most powerful
variable with respect to the market, and the market prices in economic
moves ahead of time. If bonds are correct, the economy is slowing much
more than the Fed thinks, and the need for a 25BP rate cut now may be more
if things are not tended to.
Lots of stocks faded after the early move Friday, but lots of stocks held
near support on lower volume. As we noted with the NYSE indices, the
action was not great but it was not fatal at all with respect to those
indices and their stocks. Those have to be the upside focus ahead what
with NASDAQ struggling at its downtrend. NASDAQ perked up last week, but
this is the key for the move now that it has moved to its trendline and
has to show its stripes. We have to be careful of a pause leading to a
surge that just does not last. We won't mind at all as that will let more
of our positions run toward their targets, but we will have to see how
that move holds to really ramp up a lot of new buys.
Support and Resistance
NASDAQ: Closed at 2085.05
Resistance:
2100 from the early and mid-2005 peaks
The May downtrend at 2100
The 50 day EMA at 2122
2177 is the December 2004 high.
2185 to 2182 is the September 2005 peak and interim high from November
2005.
2190 is the July 2006 high
Support:
2072 is the June closing low
2050 from the summer 2005 lateral range lows.
2045-47 from June and October 2005 lows and June 2004 highs
2037 at the October 2005 closing low
2019 is the April 2005 interim high
2008 is the January 2005 low
1971 from an October 2005 peak and 1973 from a March 2005 low.
S&P 500: Closed at 1279.36
Resistance:
1280.37 is the recent July peak.
The late January peak at 1285
The early June high at 1288
1297.57 is the recent February high.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
Support:
1272 to 1268 is the November and December 2005 closing highs and March
2006 closing low
The 200 day EMA at 1269
The 50 day EMA at 1265
1254 is an old trendline from the August 2003/August 2004/October 2005
lows.
1239 from the late June consolidation range.
1225 from the March 2005 high
1223 is the June 2006 closing low.
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 11,240.35
Resistance:
11,279 is the late May high
The March 2006 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
Support:
11,228 is the July closing high.
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,084
11,044 is the January high.
The 200 day SMA at 10,987
10,965 from Q4 2000
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10,737 to 10,730 from December and February lows
10,706 is the June 2006 closing low
10,705 - 10,965 from July/August 2005 range top to bottom
10,678 to 10,665
Economic Calendar
These are consensus expectations. Our expectations will vary and are
discussed in the 'Economy' section.
August 4
Non-farm payrolls, July (8:30): 113K actual versus 145K expected, 121K
prior
Unemployment rate, July: 4.8% actual versus 4.6% expected, 4.6% prior
Hourly earnings, July (8:30): 0.4% actual versus 0.3% expected, 0.4%
prior (revised from 0.5%)
Average workweek, July (8:30): 33.9 actual versus 33.9 expected, 33.9
prior
August 7
Consumer Credit, June (3:00): $4.0B expected, $4.4B prior
August 8
Preliminary Productivity, Q2 (8:30): 1.1% expected, 3.7% prior
FOMC decision (2:15)
August 9
Wholesale inventories, June (10:00): 0.6% expected, 0.8% prior
Crude oil inventories (10:30)
August 10
Initial jobless claims (8:30): 315K prior
Trade balance, June (8:30): -$64.5B expected, -$63.8B prior
Treasury budget, July (2:00): -$47.8B expected, -$53.4B prior
August 11
Retail sales, July (8:30): 0.6% expected, -0.1% prior
Retail sales ex-auto (8:30): 0.5% expected, -.3% prior.
Business inventories, June (10:00): 0.5% expected, 0.8% prior.
T4M, no hurry, but when you get a moment, you could give me a comment on this PR:
Techedge Board Approves Debt Conversion
Monday July 31, 10:00 am ET
ISELIN, N.J.--(BUSINESS WIRE)--July 31, 2006--The board of Techedge Inc. (OTCBB: TEDG - News) has unanimously approved to convert some of its current debt into restricted company shares at open market price. The total debt to be converted is $1,234,502.29 and consists of loans, payments and accrued salaries for the company's key managers. "We are pleased with this debt conversion," said Peter Wang, Chairman and CEO of Techedge Inc. "This debt conversion shows the confidence and commitment of our management team, and will significantly improve the company's financial situation."
T4M, does converting debt into restricted shares sound like bad news to you?
Thanks,
CC
This is from subscription letter that I'm lucky enough to view daily, but on the weekend this service offers a free letter. Info on link to get free weekend report. I think this author usually has a good read of the market imo.
* * *
7/29/06 Investment House Daily
* * * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: AMX; HWAY
Trailing stop alerts: NGA; DIA
Stop alerts: CSH
The market alert service is a premium level service where we issue
intraday alerts relating to the general market conditions, when stocks hit
action points (buy, stop, target, etc.), and when we see other information
impacting the market or our stocks. To subscribe to the Daily alert
service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Stocks rally on views of a pause and soft landing, but volume continues
to lag.
- Q2 GDP helps spark a market rally, but the numbers are not that
pleasant.
- Showing momentum ahead of Fed pause, but thus far lacking strong buying
heading into another week heavy on earnings, economic data.
Look, up in the sky, it's the Fed ending its rate hikes.
Certainly that was the idea Friday with Q2 GDP coming in at 2.5%, much
less than expected. More to the point, there were many statements that a
soft landing was taking place. Bonds had rallied all week, pushing the
yields closer and closer to 5%. The GDP data basically sealed the deal
Friday with the 2 year closing at 4.97% and the 10 year at 4.99%. The
curve reverted to positive by a hair, a good sign, but as noted Thursday,
rates are overall very low when compared to a 5.25% Fed Funds rate. That
is telling you two things. First, the Fed is indeed done as the Fed Funds
futures contract estimates less than a 30% chance of a rate hike on August
8. Second, its telling you that money is too tight given the
deteriorating economic conditions and some economic slowing is ahead if
the current pace holds. If the Fed backs off perhaps some confidence is
restored and the economic investment can continue and thus a resumption in
growth.
That is what bulls were talking about Friday with their 'soft landing'
predictions. At 2.5% they figured if the Fed halted its hikes then things
should pick back up a la 1995 and everyone is happy at Christmas. To that
end stocks started higher on the bell. A good early surge was followed by
a test as the leading DJ30 and SP500 climbed near the July highs and
started to waffle. Volume was running lower and that looked as if it
could be a problem for a continued move. Stocks caught their second wind,
however, rallying into the afternoon with SP500 and DJ30 closing right at
the July highs. Even NASDAQ and SOX helped out, moving through near
resistance for the first time in two months. After earnings guidance
failed to spark a rally and indeed led to selling, it took the idea the
Fed would stop rate hikes to get the market back into recovery mode.
To keep it going, however, economic growth will need to pick up. As
noted, earnings guidance has been tepid despite 14.5% earnings growth
year/year and 70% beating estimates. The market is not being kind to
companies in the current economic environment either; if you guide lower
you are slaughtered. IBD reports that 39 $10+ stocks suffered a 20+% one
day loss the past three weeks. Seventy-six fell 15%, and 185 dropped 10%
in one day. That is brutal. In addition, stocks have sold off, bonds
have rallied to ridiculous levels versus the Fed Funds rate, and
transports, always a leading indicator, have been clocked. They just
managed to recover the 200 day SMA on the Friday rally. As if that were
not enough, inflation is still showing signs of life with a jumping PCE,
and business investment is lower.
Technical action not strong but doing what needs to be done.
Technically it was nice price day. The NYSE indices finally made it to
where we said a couple of weeks ago we would like to see them, i.e. the
July highs. They acted as if they didn't want to do it, but the past week
picked up some headway. That complements the price pattern on SP500 and
DJ30 as they are now at the 'hump' in the double bottom patterns that
formed with their bottoms in June and July. They even had some help from
NASDAQ and SOX as both broke through the 18 day EMA, finally trying to
give that long awaited higher bounce in their downtrends.
That last party kind of sums up the move for the week, however. Though
prices rose, volume was not kind. Monday's strong price move was on low
volume. Tuesday trade was up but still below average. Wednesday the
market churned and lost some ground on above average volume. Thursday
they sold on higher volume. Friday's nice move started the week as it
finished: up but disappointing trade levels. In sum, simply not much
volume support, indeed some distribution. The buyers were in control, but
there were not that many slinging money back into the market.
Leadership tells a lot of the story. There has not been much. Friday
there was definitely positive movement in some leadership caliber stocks
that are not in too bad of shape. Many, however, still need more work
before they are ready to sustain a rally, but they are working on it.
While the buying strength has not been what you would want, the fact that
the leaders are forming up, massing at the borders so to speak, indicates
there is some positive build ongoing
The likely outcome.
The market typically factors in the end of a Fed rate hiking campaign
before the actual event. With bonds rallying all week the stock market
started factoring in the end as well. NASDAQ and SOX were due for a
bounce as well, and they look to be finally making that move, adding some
support to the SP500 and DJ30 moves.
Of course, what is factored in ahead of the event is typically taken out
some after the fact. After all, Fed rate hikes can take a year to impact
the economy, and simply saying 'we are done' has some immediate impact,
but after that there are still rate hikes out there on their way down to
land on the economy. Stopping the hikes won't change the immediate course
of the economy.
Thus after the pause or stop or whatever you want to call it the market
will have to get over the excitement of the Fed getting off its back and
then deal with the reality of where the economy really is. That will lead
to a test where those patterns that started to build during the pre-Fed
run will test back. That is likely where the bottom will be set unless it
turns out the Fed just went too far given all of the other economic
factors (e.g., energy, housing, war). After all, we had an inverted to
flat bond curve for over a month, and that was AFTER the inversion in 2005
and early 2006 that was argued to be caused by foreign buying of
treasuries.
There is an economic slowdown in progress, and it is likely to continue
through Q3. If the Fed is done, however, the economy will likely recover
and the market will start pricing that in ahead of the event. Thus the
timing of another test after a pre-pause run is just about right for a
'typical' year of a bottom in Q3. Of course we have to watch the
price/volume action as it unfolds, and very importantly, how leadership
continues to develop during that period.
THE ECONOMY
GDP drop rounds out a week of definitely mixed economic data.
From surging durable goods orders to a lower than expected GDP gain in Q2,
the week was again all over the map regarding economic data. Of course
GPD received the headlines to end the week, particularly given that it
showed a lower 2.5% reading than expected (3.0%). That prompted the 'soft
landing' commentary noted above, even getting the IMF to chime in that the
US could have a soft landing if it stayed on top of inflation. Well gee
whiz, if the IMF says its so then it must be 180 degrees from reality.
GDP breakdown shows the quarter was not that great.
Despite the hope of a Fed cessation resulting from the lower GDP growth
number, the GDP numbers were not very positive, and indeed, one would
almost wonder why the market would rally based on the results.
Specifically, inflation concerns were compounded with a much higher than
expected PCE (personal consumption expenditures), coming in at 4.1%, an
all-time high. Even the core was smoking, coming in at 2.9% versus 2.0%
before. That is the highest level since 1994 when the Fed was also in a
tightening cycle. Further, the Employment Cost Index rose 0.9%, the
highest in five quarters. Instead of dwelling on the Fed's favorite
indicator (PCE) or the labor market, stock investors focused on the bond
market rally as reason for a Fed halt.
Business investment, the missing ingredient in the 2001 recession, helped
lead the economy back after solid investment incentives in the second
round of tax cuts restarted business spending. Since then it has been a
mainstay of the economy, and indeed many pundits are saying that when the
consumer slows, as he has started to do (2.5% growth in Q2 versus 4.8% in
Q1), it will be business spending that keeps the economy going. After
all, corporate balance sheets are loaded with cash as we hear every day on
the financial stations, so they should spend, spend, spend and keep us all
happy. Well, they were not spending as much in Q2 with capital spending
falling to 2.7%, the smallest gain since early 2004 and far behind the
13.7% registered in Q1. While overall business buying slowed, spending on
equipment and software actually declined.
Thus we are starting to see not only slowing growth rates but declines in
some areas as the GDP growth rate was almost cut in half from Q1 to Q2.
Meanwhile the Fed's inflation indicators continue to rise, but as we have
discussed in the past, those are lagging. As the economy slows, inflation
will climb, peaking after the economy. Thus while the readings were
higher, they don't necessarily suggest any big change in the lay of the
land: the economy is slowing as we have noted, and inflation that was
allowed to jump up due to easy liquidity, is still climbing based on some
reports. As we have noted, however, ECRI says that inflation peaked in
October 2005 and pressures are actually declining despite the bump higher
in the Q2 GDP report.
The market may have gotten ahead of itself with this rally on the
likelihood of a Fed pause given the slowing economic data, but as usual
there are underlying fundamentals for the rally. It senses the Fed is
almost done and it also realizes that very accurate economic forecasting
models such as ECRI still suggest just a slowdown and no recession in the
economy. After two years of Fed rate hiking, the market is more than
happy to come away with economic slowing as opposed to a recession. All
things considered, that was reason to rally.
THE MARKET
MARKET SENTIMENT
VIX: 14.33; -0.61
VXN: 19.26; -1.53
VXO: 13.44; -1
Put/Call Ratio (CBOE): 0.88; -0.17. After a series of closes above 1.0
the put/call ratio eased back during the Friday rally.
Bulls versus Bears:
Bulls: 42.2%. Bumped back up to the level two weeks back as bulls are in
a lateral holding pattern. (42.1% last wee, 42.2% the week before).
There was a big spike higher from 38.7% two weeks back, but we hoped for
more here. At this level we note it is below the levels hit on the last
market sell offs. On the last pullback bulls hit the lows for this rally,
i.e. since 2003. That put it below the 42.3% hit on the last low and the
May and October 2005 readings that preceded new upside runs.
Bears: 34.5%. Bears are moving higher the market sold off and then
rebounded. Up from 33.7% last week and 33.3% the week before. Still
lower than the 34.4% hit three weeks back, but on the climb again. Kissed
the bulls to end June, just missing crossing over with the bulls, but that
in itself is not a bad indication for the upside. Hit a new post-2002
high in that late June move, eclipsing the March 2006 high (33%) and well
above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in
October 2005).
NASDAQ
Stats: +39.67 points (+1.93%) to close at 2094.14
Volume: 1.877B (-14.08%). Substantial volume decline dropped volume back
to below average on what many said was an important move. Without the
volume it as not that important, however. Sure it was a summertime
Friday, but what about all of the other days NASDAQ moved higher on lower
volume? One day can be an exception. Several days start making the rule.
Last week volume was basically down when it needed to be up, and up when
it needed to be down (i.e., on the down days).
Up Volume: 1.54B (+778M). Those that were in the market were buyers.
Down Volume: 326M (-1.079B)
A/D and Hi/Lo: Advancers led 2.32 to 1. Solid advancing breadth as NASDAQ
actually recovered through its 18 day EMA and brought more covering into
play.
Previous Session: Decliners led 1.66 to 1
New Highs: 83 (+10)
New Lows: 101 (-28)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ made its first push through the 18 day EMA (2080) since early July
before the earnings tumble lower. That clears near resistance in its
downtrend, and when it did not hold and confirm a more severe downtrend,
the shorts started to cover, and that helped push NASDAQ even higher.
Looks as if 2100 is going to be tested, and if the pre-FOMC pause rally
continues, the 50 day EMA (2131) is definitely in play. That would be the
lick log for NASDAQ. It stalled at the 50 day on its last rebound
attempt, and if it fails there again it will have established a rather
well-defined downtrend. That would really keep us on alert for a longer
market decline as a leading growth area would have confirmed its
downtrend. For now, more of a bump higher appears appropriate ahead of
the Fed.
SOX (+3.04%) surged through the 18 day EMA (410.72), clearing it on the
close for the first time since early May when the selling really started
to get ugly. After that long decline it finally looks ready to make its
higher bounce in its downtrend to test higher resistance near the 50 day
EMA (436.61).
SP500/NYSE
Stats: +15.35 points (+1.22%) to close at 1278.55
NYSE Volume: 1.689B (-7.2%). Volume could not match the price action as
SP500 in particular enjoyed a nice price day. Trade declined but managed
to hold average, much better showing than on NASDAQ. NYSE suffered some
distribution last week, but not as much as NASDAQ. Pretty much in line
with the differences in performance of the two indices the past couple of
months.
A/D and Hi/Lo: Advancers led 4.05 to 1. Another very impressive breadth
session as stocks were bought across the board. Volume did not match, and
it has not matched, the upside breadth figures. They appear too volatile
to us, too extreme whether to the upside or the downside, and that
suggests the market is still in for more of a struggle.
Previous Session: Decliners led 1.31 to 1
New Highs: 120 (-1)
New Lows: 66 (-26)
The Chart: http://investmenthouse.com/cd/^gspc.html
Came back from a mid-session wobble to close near the highs and just off
the July high at 1280. After volume churned Wednesday and showed some
distribution Friday, it was lower as SP500 made its grand move. It tapped
right at 1280, but could not punch through without the volume. This is
where we figured SP500 should get on this bounce and then do some more
work laterally to build a handle and then try to move on. It sort of
built the handle Wednesday and Thursday; not much of one, and of course
volume was not low as you want in a handle. Thus the move remains a bit
under a cloud, but with the FOMC meeting coming and an anticipated 'no
action' vote, SP500 could push higher to 1290 and even 1300 ahead of the
meeting before forming that handle. If that occurs over a 2 week period
and then forms the handle, that would just be about perfect timing for a
low in September and then a recovery and break higher that month or in
October. A test higher will also put in the test of the crossover of the
50 day EMA over the 200 day SMA. Typically an index will make the break
and then rebound; the 50 day EMA lags the move back up and thus we can see
SP500 continue to rise but still see the crossover hold. That is another
important point we are watching as the rebound continues.
SP600 (+1.96%) was stellar in its session gain, but with respect to its
pattern it is still in the doghouse. Its pattern here more resembles a
head and shoulders than a double bottom, and that is unfortunately in line
with a slowing economy and a growth area in the market. That said, with
the market bouncing its first test is the 50 day EMA (367) and the 200 day
SMA (368), and there it is likely to find some serious resistance. How it
reacts at that level will be something of a canary or leading indicator to
the rest of the market.
DJ30
Similar to SP500, the blue chips rallied up to the July high (11,228),
closing just off that mark. Lower, below average volume on the move;
still not a lot of buyers pushing things higher, just more of them than
sellers. A solid week for DJ30, the best move since 2004 or something
like that. Nice double bottom pattern has set up and as with the other
indices it can still run higher here with next resistance from 11,275 to
11,335 and then take time to form the handle.
Stats: +119.27 points (+1.07%) to close at 11219.7
Volume: 270M shares Friday versus 286M shares Thursday. Below average
trade all week as DJ30 made its run. As with the other indices, upside
volume was the obvious missing element.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
No Fed meeting until the following Tuesday. That means just more earnings
and another boatload of economic data (Chicago PMI, personal income and
spending, ISM, factory orders, and the jobs report.
The market has a lot to chew on once more as the leading indices, SP500
and DJ30 test the July highs. The market has some momentum after its best
Dow week since the fall 2004, but the move lacked any volume. A Fed pause
is a big incentive to rally further, but even with that idea starting to
permeate the market, volume was still missing last week. Thus we can see
the indices move higher to next resistance but unless more trade comes in
the NYSE large caps start working on a handle to their double bottoms. At
the same time we will watch how NASDAQ, SOX and the small caps react to
next resistance in their continuing downtrends.
Thus despite the other factors this week the market has some momentum on
the Fed anticipation. How long that lasts against lack of real volume on
the move, continued earnings guidance, and leadership that still needs
more recovery remains to be seen. Scanning several thousand charts this
weekend we see some leadership caliber stocks moving into position to put
together sustained rallies. We see many more still needing more time to
set up, similar to the overall market. We also see a lot of chip and tech
stocks that have rebounded, but remain in downtrends. On balance there is
improvement, but we have to remain defensive in the sense we stay with
well positioned stocks versus jumping into rebounds from downtrodden
patterns. The market has rebounded but has not shown a lot of strength on
the move, and that keeps it susceptible to another turn lower after this
rebound stalls. Even if it does, that is part of the rebuilding process
for the next sustained run higher.
Support and Resistance
NASDAQ: Closed at 2094.14
Resistance:
2100 from the early and mid-2005 peaks (and the 18 day EMA as well).
The 50 day EMA at 2131
2177 is the December 2004 high.
2185 to 2182 is the September 2005 peak and interim high from November
2005.
2190 is the July 2006 high
Support:
2072 is the June closing low
2050 from the summer 2005 lateral range lows.
2045-47 from June and October 2005 lows and June 2004 highs
2037 at the October 2005 closing low
2019 is the April 2005 interim high
2008 is the January 2005 low
1971 from an October 2005 peak and 1973 from a March 2005 low.
S&P 500: Closed at 1278.55
Resistance:
1272 to 1268 is the November and December 2005 closing highs and March
2006 closing low
1280 is the recent July peak.
The late January peak at 1285
The early June high at 1288
1297.57 is the recent February high.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
Support:
The 200 day EMA at 1266
The 50 day EMA at 1263
1252 is an old trendline from the August 2003/August 2004/October 2005
lows.
1239 from the late June consolidation range.
1225 from the March 2005 high
1223 is the June 2006 closing low.
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 11,219.70
Resistance:
11,228 is the July closing high.
11,279 is the late May high
The March 2006 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
Support:
11,097 to 11,137 is the last peak from the February top.
The 50 day SMA at 11,059
11,044 is the January high.
10,965 from Q4 2000
The 200 day SMA at 10,964
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10,737 to 10,730 from December and February lows
10,706 is the June 2006 closing low
10,705 - 10,965 from July/August 2005 range top to bottom
10,678 to 10,665
Economic Calendar
These are consensus expectations. Our expectations will vary and are
discussed in the 'Economy' section.
July 31
Chicago PMI, July (10:00): 56.0 expected, 56.5 prior
August 1
Personal Income, June (8:30): 0.7% expected, 0.4% prior
Personal Spending, June (8:30): 0.4% expected, 0.4% prior
Construction spending, June (10:00): 0.3% expected, -0.4% prior
ISM Index, July (10:00): 53.5 expected, 53.8 prior
August 2
Crude oil inventories
August 3
Initial jobless claims 298K prior
Factory Orders, June (10:00): 1.1%, 0.7% prior
ISM services, July (10:00): 56.5 expected, 57.0 prior
August 4
Non-farm payrolls, July (8:30): 145K expected, 121K prior
Unemployment rate, July: 4.6% expected, 4.6% prior
Hourly earnings, July (8:30): 0.3% expected, 0.5% prior
Average workweek, July (8:30): 33.9 expected, 33.9 prior
China BioPharma, Projects $10,000,000 in Sales for 2006
7/18/2006 9:00:00 AM EST
BIOWIRE
Techedge Inc. (OTCBB: TEDG), having previously announced its intent to change its name to China BioPharma, Inc., is pleased to issue the following corporate update.
Techedge Inc. has repositioned itself as a developer, producer, and distributor of human vaccine products in China. Techedge has acquired China BioPharma Limited ("CBL") and established its operational joint venture, Zhejiang Tianyuan Biotech Co., Ltd. ("ZTB") in Hangzhou, China. Techedge's wholly owned subsidiary, CBL owns 65% of ZTB and Zhejiang Tianyuan Bio-pharmaceutical Co., Ltd. owns the remaining 35%. Techedge Inc., through its subsidiary ZTB, currently markets two human vaccines. ZTB anticipates the sale of 3 million doses of Influenza Vaccine and 1 million doses of Epidemic Hemorrhagic Fever Vaccine in 2006.
Techedge Inc., through ZTB, will commercially introduce Japanese Encephalitis Vaccine (JEV) by the first quarter of 2007. The State Food and Drug Administration of China (SFDA) approved this vaccine for distribution in December of 2005. Techedge Inc. will continue with its efforts to develop new human vaccines, and introduce them into the market in the future.
With the flu vaccination season starting in August, ZTB has launched its sales effort and anticipates approximately $10,000,000 in sales revenue, and positive in Net Income, for the fiscal year 2006. The Chinese market for Flu vaccinations has grown from 3,920,000 doses in 2000 to 22,300,000 doses in 2005.
The main customers of ZTB are local Centers for Disease Control and Insurance companies within China. ZTB is also in the process of registering its flu vaccine products with several other countries for the purpose of exporting the flu vaccine outside of China.
With the advantages of its production and distribution capabilities, and fast growing economy in China, Techedge Inc. wants to build its strategic value by introducing advanced technology, better product, and experienced management team into its operations in China.
FORWARD-LOOKING STATEMENT DISCLAIMER
http://www.genengnews.com/news/bnitem.aspx?name=3383227
T4M, any thoughts on TEDG.OB
http://www.theasianinvestor.com/content/tedg_presentation.pdf
http://finance.yahoo.com/q/h?s=tedg.OB
Just curious if you've had any thoughts on its prospects yet. I've got a small tracking position in it.
CC
OT: Hedge funds, failure to deliver, short selling, systemic failure
interesting presentation... lasts about an hour
http://www.businessjive.com/nss/darkside.html
OT: PP, I'm watching
GL
CC