Thursday, July 8, 2010

08/07: Markets quieter, no longer fiercely trending

Markets put in a quieter session today, in comparison to the post- July 4th fireworks of this week's first two trading days. /ES futures, after closing yesterday at 1056, quite near the session high, today opened higher, declined modestly through the meat of the session (a peak to trough decline of 13.75 points, or about 1.3%, from 1067.75 to 1054), and rallied impressively into the close, settling at 3:00p just two ticks shy of the intra-day high. Sentiment was boosted with a bullish unemployment claims report released at 7:30a CST. Here's the day's chart:

As already mentioned, markets rallied into the close, which marks a stark departure from markets' habitual PM weakness of the last several weeks. Of course, late-day sell-offs are hallmarks of bearish markets, and afternoon buying, particularly into new highs (which /ES futures today proceeded to set shortly after the 3p CST closing bell), augers well for further gains over the near term. Further bolstering bulls was a decline in Treasuries; /ZN futures declined to below two-seek support of 122'05.

(Editorial aside: To follow-up yesterday's brief commentary regarding the spelling of the plural of Treasury, referring to the bond, today's Financial Times records the spelling of the instruments as 'Treasuries,' which aligns more with my intuitive sense of correctness than the WSJ's reliance on 'Treasurys.' Hence, going forward, I'll stick with the FT's example.)

The bears retain at least two important arguments in their arsenal, the past three sessions' price action notwithstanding. Most importantly, volume failed to climb into above-average territory; today's NASDAQ volume clocked in at 2.06 billion, below the 20SMA of 2.24B and firmly below the volume levels of three particularly active sessions of the recent past: 6/25, 6/29, and 7/1, each of which had volume in excess of 2.65B. (I don't include NYSE volume readings here, as I am finding conflicting values of the metric from various sources; also, I am concerned about the metric's continued reliability, as more trading shifts off the NYSE and onto alternate exchanges.)

Furthermore, /ES futures continue to remain in a 2.5-month, downward sloping price channel; the upper line of the price channel is presently at approximately 1100, which /ES futures would have to top in order to firmly enter more bullish territory. In the region of /ES = 1100 also lurks the all-important 200SMA. Caveat emptor.

Wednesday, July 7, 2010

07/07: A one-way day, markets shoot higher

Days like today are rather frustrating for traders with a predilection for contrarian strategies, of which I am one. Here's the whole story, in a single chart:

Relentlessly, indefatigably, most remarkably, markets climbed higher, higher and higher still, with /ES advancing 40. Only twice during that dizzying rally did the instrument stray more than 5 points from its hitherto-notched intra-day peak, once by 5.5 points and another time by 5.75 points. Thus, a trailing stop on a long ES position with a mere 6 points of "leash," entered at the pre-market nadir, would have captured the whole 40 point rally. Remarkable!

By the closing bell, the S&P-500 had advanced 32 points, or 3.1%; the DJIA bulked up by 275 points, or 2.8%; and the NASDAQ added 66 points, or 3.1%.

The rally may yet be all smoke-and-mirrors, however, which is why I've refrained from taking any long positions into the overnight hours. Today's rocket-ship was not fueled by above average volume (see below), there was no particular news that might have provided a durable impetus for buying, and other measures of risk aversion, e.g. Treasurys, as measured by /ZN futures, remain elevated. That said, there are certainly plenty of other risk metrics showing marked improvement over the past two sessions, including /CL (crude futures; up), EUR/USD (up, and rising since a nadir on 6/6), and even to some extent /HG (copper futures; somewhat firmer).

(As an aside, I've noticed that the WSJ refers to the plural of Treasury, when referring to the financial instrument, as Treasurys. Could it really be so? Until I hear otherwise, I'll be employing the convention, as I've done in the above paragraph.)

Here's how the day's volume stacks up, quite literally, against the past 180 days, first on the NYSE, second on the NASDAQ. Apologies for failing to slap on a 30EMA, or similar.


I am most curious what tomorrow's markets will bring! /ES = 1100? Or /ES = 1000?

Tuesday, July 6, 2010

July Fourth in the cradle of American liberty

Sunday, July 4th saw me take a characteristically lightning-paced swing through a distant city, flanked by mileage-earning flights purchased at favourable cost-per-mile ratios. In this case, the destination was Philadelphia, most fitting given the date.

My plans for travelling to Philadelphia hatched a few days earlier, on the preceding Monday. US Airways was offering a July 4th special on Twitter: $56 all-in for MKE-PHL-MKE (MKE being, of course, Milwaukee, WI), and other East Coast and Midwest cities were pricing similarly. Chicago was, however, excluded; indeed, MKE was the farthest airport from PHL included in the sale. Naturally, I was interested, and my mind was firmly settled once I saw the most favourable timings on offer: a departure at 6:00a, my absolute favourite time of day to fly, and a return in the late evening (at 7:55p), allowing for a full-day visit to the destination city.

The morning of July 4th had me waking to my iPhone's relatively pleasant "Doorbell" alarm at 3am sharp, and I was soon off after swift execution of the 'ole morning routine and consumption of a full three-course breakfast -- for those interested: Whole Food's honey and oats cereal, cottage cheese with pear-and-pear-juice-from-a-can (quite tasty actually!), and pumpkin seed bread with thinly-sliced smoked turkey and muenster cheese. I was engaging the dance music within my car's CD player by about 3:50a.

Sadly, the twin risk factors of an empty highway and a holiday-linked, augmented police presence meant that I was cruising quite close to the posted speed limits on the morning's 77-mile journey from the 60630 ZIP code to one of MKE's $5/day remote parking lots. In a departure from my usual keen sense of situational awareness -- if I may say so --, I missed the road construction- obscured exit for Mitchell airport, necessitating a detour of 2 or 3 miles. The few minutes' extra travel time, through leafy and deserted residential areas just north of the airfield, revealed an interesting similarity between the Germanic-heritage Milwaukee and the contemporary motherland -- traffic lights set for an efficient yellow- or red-blinking (depending on whether the street is a capillary or an artery) regime during the dead night-time hours!

I parked, was picked up by a waiting shuttle bus, and found myself entering the terminal (pre-security) at approximately 5:20a. The expeditious progress was most fortunate, as I received at ~5a a phone call and voicemail from one of my contacts: "US Airways Elite." The VM, along with a corresponding email, reported the news in a single voice: my flight to PHL was delayed until 7:00a. Thus, I scurried into the terminal and towards the departure board with great haste, knowing I had the perfect excuse to re-route via CLT (that's Charlotte, NC, another of US' hubs) if there was a timely flight. And indeed there was, at 5:40a.

My scurrying turned into a full-blown run. To the security screening checkpoint, discombobulation and "re-combobulation" with a flair and efficiency honed by too much experience and too little time, a final dash to the C18 -- naturally, the farthest gate from the security checkpoint. I arrive to a gate area deserted of passengers, but, thankfully, the jetbridge door remains open and two gate agents are milling about. I present my case. I learn that the PHL flight is delayed by a mechanical, which might last beyond 7am. (Indeed, the flight was eventually cancelled at approximately 10:00am.) I board the CLT-bound bird at 5:30a taking 8A, my preferred exit row seat. I have just enough room to read the Weekend FT, though turning the pages requires the practiced skill of a contortionist.

What fantastic luck, however! I absolutely adore the "maximized" airport experience, where I can achieve the most with the least amount of inefficiency. Surely, re-routing onto a more scenic (and more rewarding, vis-a-vis mileage accrual) pathway, savouring the emotional rush of successfully negotiating one's full demands with the airline counterparty, and executing the entire labyrinth of airport entrance to gate re-booking to aircraft seat in a mere ten minutes is deserving of underscore! Likewise, a time of 2:40 for all I'd hitherto accomplished that morning was worth noting with satisfaction.

The journey down under to CLT was most pleasant, though certainly nothing as sensual as might be implied to the particularly keen reader. Though other road warriors might (vehemently) disagree -- as though I were trying to inculcate Freud's thoughts on religion to a red state -living, large gun -toting, earmarked Bible -thumping man with a particularly large and red neck, with the veins practically bulging out -- I like the CRJ. I admit, the statement applies not if I should suffer the misfortune of daily or weekly commutes on the stubby bird, and indeed, the craft are particularly susceptible to that circle of hell known as interminable-delays-due-to-late-inbound-aircraft-that-are-not-communicated-in-advance-and-announced-in-15-minute-increments-and-average-hours. But for a 5:40a joy-thrust (not a mere joy-ride) into the blissful heavens, anything that flies will do. Yes, I might have low standards because I am deprived, relative to my natural desire of multiple weekly go's. Yes, I mean flights.

Arriving in CLT, I had enough senses about me, despite having just enjoyed an enthralling read of the pink pages and surprisingly pleasant service from the FA (An actual coffee refill! Without needing to ask!), to snap a picture of the curvy beauty:

The adventure, of course, continued. A "classic" Boeing 737-400 would be my chariot to Philadelphia, the layover was a tolerably short fifty minutes (only 25 once zone 1 boarding is taken into consideration), and I would be again riding exit row, this time with an empty adjacent middle. Life is good. And -- Eureka! (Sorry, I could not resist.) I made quite the earth-shattering discovery on this sector. Just see for yourselves:

The flight itself did not disappoint. Jetting from the Southeast, a product of the Coca-Cola company was in order, particularly as I was a shareholder at the time of the flight. To my surprise, the FA took quite extraordinary care with the serving of my Diet Coke, pouring in little bits at a time as the foaming subsided, such that I was left with a "perfect" (plastic) glass of copious black liquid and just a centimeter or so of vigorous foam, all the way up to the brim. Mmmm. My seat was in the Foxtrot column; thus, views of the Bay prevailed, rather than the more enticing District depictions.

We kissed the City of Love's 27L around 11:00a, just as my original MKE-PHL was about to post a cancellation. Thank goodness I navigated to and through MKE with such alacrity! And so, two SEPTA rides the wiser, I emerged in central Philadelphia, just before Independence Hall, where I was greeted with a parade literally at the subway steps (I was expecting nothing less) --

And what a glorious day it was! A parade to greet my arrival, the sunshine and cloudless sky matching conditions I might expect in Waikiki, an entire afternoon for refinement of my trading operation's Business Plan (it is ceaseless, eternally-ongoing labor, almost Sisyphean, though certainly not devoid of its peculiar pleasure) -- the day was mine for the seizing. And carpe diem it was. I shall not bore you with the gory details of underlining here, annotations there, glances interspersed at the idyllic location of shady park behind Independence Hall, boy choir singing at its foot, patient reader (and somewhat confused reader, too, for you are wasting your precious time with this blog's effusive dribble -- the content is lacking; the words are in wasteful abundance).

In due time, I decided that the twelve-hour interlude between proper meals was just too long. It was time for a cheese-steak, a culinary adventure I'd never previously enjoyed within Philadelphia's city limits; my iPhone was indicating "Jim's" to be a popular choice, and it certainly passed the litmus-test of having a plausibly working class, folksy appellation. I was off to its South Street location, a jazzy drag reminiscent of Washington's Adams Morgan or Chicago's Division Street. And while I did not opt for the cheeze-whiz (note its gooey application in the first pic below), my creation was still authentic (and oh so delicious!) --


Somewhat satiated -- I honestly could have eaten two more of the sandwiches, showing virtually no resistance to its salty and greasy components, qualities that are generally verboten in my day-to-day diet of whole grain bread, brown rice, and sparkling water -- I ventured into the city for a long-ish walk. The architecture was just begging for my iPhone's studied glances; I wish I had a capable SLR, for the beautiful vistas of the afternoon surely demanded a higher caliber of photography. Some highlights:



After a quick visit to Sts. Peter and Paul Cathedral, off of Logan Square, for about half of the late afternoon Mass, I was quickly finding myself approaching the twilight of my stay in Philadelphia. And yet, the sun, still somewhat temporally removed from its own decline, was still moderately high in the heavens, its waves of heat lapping, at once gently and urgently, against my skin. No matter the time of day, however, a jaunt to Philly without at least a token moment of laying in the grass of Rittenhouse Square just would not do. And boy, was it idyllic! A precious few minutes were even mined from my schedule for an obligatory visit to the Square-side Barnes and Noble, where I skimmed through the Georgetown Journal of International Affairs, finding an article by one of my former professors, Balbina Hwang. Ah, school pride! Here I am, resting in the grass, contemplating Thoreau:

At this point, only an expeditious dash to 30th Street station would do; the airport-bound, R1 SEPTA would not wait! The dash turned into a full-throated run somewhere on the Walnut Street bridge over the comically-named Schuykill River. Such is one of the hazards of being a time-maximizer.

In no time, I found myself back in my comfort zone -- exit row on the CRJ. The journey to Milwaukee's Mitchell Field was terribly expeditious, with wheels-up only 4 minutes after scheduled departure time, a feat virtually unheard-of @ PHL. (Lighter traffic of the July 4th holiday surely helped.) Bucolic scenes serenades past my window:


Thanks for travelling together with me!

06/07: A short-lived dead cat (?) bounce

Markets notched a most interesting session today. After tanking approximately 10 points in the final hour of trade on Friday, July 2, ahead of the July 4th market holiday, /ES futures proceeded to drill to fresh 2010 year lows on July 5th, as the U.S. holidayed. Yet, on touching most-powerful support just above 1000 (1002.75 was the overnight low), the futures market ignited on a powerful, sustained, and near-unbroken rally that lasted over 12 hours, taking /ES futures to 1025 by today's pre-market and upwards to 1038 by the mid-morning CST.

And that's where /ES ran into resistance from a robust price channel off the 180-day chart, recoiling in fear. Bears retook control, and markets came to only a few points of their intra-day low of last Friday (which was /ES = 1010.75). Here's the chart I referenced:

Of note is the performance today of the Treasuries market. In the face of rising equities during the pre-market and early market hours, Treasuries firmly held onto their recent gains. Generally, Treasuries and equities (or, more generally, risk assets) are negatively correlated; as investors' outlook improves, they buy risk assets and sell safe-haven assets, of which 10-year Treasuries are the 500-lb gorilla. And, to be clear, Treasuries can be viewed in terms of price or yield. The above statements refer to the price of Treasuries; but if speaking in terms of yield, which moves inversely to price, then Treasury bond yields and equities are positively correlated.

Two windows onto the 10-year Treasury market follow, both charts of /ZN, which are 10-Year U.S. Treasury Note Futures. First, a 90-day chart with 2-hour bars, which is at the high of its range. Second, a 9-year chart with weekly bars, showing a wide-angle perspective onto the market; note how Treasuries spiked during the worst throes of the financial crisis.


Finally, /GC, the Gold Futures contract, has been exhibiting notable price action as of late. The 3.5-month chart -- the longest intra-day period available to my current technology -- shows marked deterioration, with one important and robust price channel pierced, and another in danger of violation. Gold should see support at the $1180 level, at least during the intra-day period, but a break downward is certainly a possibility. I'm considering a short of the GLD if /GC prices at $1170 or below. Here's the chart:

Happy trading!