by Zero Hedge - June 30th, 2011 9:08 pm
Courtesy of Tyler Durden
So much for the Japanese renaissance which somehow is supposed to lead to a surge in Q3 US GDP growth. Following yesterday’s surprisingly strong factory production growth rate of +5.7% (the second highest in history), every economist (and Joe LaVorgna), was already shifting their strawman from declining energy costs (which are now back to early June levels courtesy of the IEA idiocy), to Japan as the last bastion of growth. Alas, the just released Tankan quarterly index of large manufacturer confidence has confirmed that the rumors of Japan’s economic reincarnation have been greatly exaggerated after it dropped by the most since the Lehman collapse, plunging from +6 in March to -9, well below the economist (and Joe LaVorgna) consensus of -7. From Bloomberg: “Forecasts by Panasonic Corp. (6752) and Hitachi Ltd. for weaker earnings have added to signs of depressed demand. Monetary tightening by Asian economies grappling with inflation means that Japanese companies also can’t count on customers within the region for boosting sales. “The global economy is starting to slow, heightening uncertainties about its future direction,” Ryutaro Kono, chief economist at BNP Paribas in Tokyo, said before the report. “The downside risks to China and other emerging economies seem to be on the rise.” In other words, the global economic growth is impacting Japan, and it is not the Japanese slowdown that is impairing some mythical global growth story. Of course, by the time the economist (and Joe LaVorgna) pool figures this out, QE 3 will be well on its way.
Household demand has also been weak, with consumer outlays sliding 1.9 percent in May, a report today showed, a larger drop that predicted by analysts. The unemployment rate unexpectedly fell to 4.5 percent as more people gave up on looking for work and disaster areas were excluded from the survey. Consumer prices excluding fresh food increased 0.6 percent in May, the government said.
Panasonic last week forecast full-year profit will tumble 59 percent in the fiscal year started April after the earthquake disrupted factories and suppliers. Sales of car-related components and mobile phones will probably drop because of supply-chain bottlenecks, Panasonic’s Chief Financial Officer Makoto Uenoyama said.
Hitachi Ltd. last month forecast net income will drop 16 percent this fiscal year after the temblor crippled its factories.
Recent data indicates
by Zero Hedge - June 30th, 2011 7:48 pm
Courtesy of Tyler Durden
In another case of purely coincidental serendipity, three days ago Zero Hedge informed readers that the “NYSE Boerse [sic] has just announced its purchase of Kingsbury International Ltd., which surveys managers for the Chicago Business Barometer, also known as the company that hosts the Chicago PMI data, in order to bring PMI data direct to feed subscribers. Net result: expect even more market volatility at each PMI release, now that the market is not two but three-tiered, and consisting of regular HFTs, HFTs with access to the Deutsche Boerse feed, and everyone else.” We concluded: “It is unclear if the ultra-speed, HFT friendly feed would be activated before its next release on June 30. That said, we will certainly coordinate with our friends at Nanex for any trading abnormalities, primarily in the critical ES futures, this Thursday at 9:42am, keeping a close eye on the tape, and indicating precisely when the tiered data release hits.” Well, as promised here is the Nanex data. As expected, it’s a stunner.
The shocker, however, resides not in the stock arena, but in what is now becoming the go to place for bulk frontrunning high frequency trading algorithms to chase what little volatility is left in the equity market: options, which, as previously noted, we now are confident will be the cause for the next big market wipe out.
Approximately 1/2 second before the 9:42 release of the Chicago PMI report, the option market exploded setting new records in quote rates, saturation, and delays. We have not yet determined why the equity market did not see a record explosion of quote traffic; rather it experienced the normal saturation/delay that happens all too frequently every trading day.
The electronic S&P 500 futures experienced a withdrawal of liquidity beginning about a minute before the release of the PMI number. At approximately 9:41:59.550, 1275 contracts cleared through 4 levels of the offer side of the order book. This coincided with the explosion in OPRA quote traffic.
The first image shows quote message rates for each of the 12 CQS data lines that carry data for NYSE, AMEX, and ARCA equities and ETFs in 2ms intervals. Notice how quickly activity drops after the peak compared to the OPRA images below it. Normally, options activity follows equity activity very closely.
by Chart School - June 30th, 2011 7:35 pm
Courtesy of Doug Short
In addition to the monthly updates, last year I made a couple of generic studies of momentum investing with moving averages.
Investing strategies are not the primary focus of my website, and I don’t personally track the performance of the Ivy Portfolio other than to highlight the monthly signals. For ETF performance tracking and backtesting, I use ETFReplay.com, an excellent website for analyzing the performance of individual ETFs and ETF portfolios based on customized moving-average strategies. There are many free tools on ETFReplay.com. However performance backtesting of portfolios does require a paid subscription.
The image below illustrates my research on the Ivy Portfolio since 2007. If you click the image, you’ll open a HUGE version that also shows the monthly performance over the complete range as compared to SPY (SPDR S&P 500 Index). For cash, I’ve used SHY (Barclays Low Duration Treasury (2-yr).
Now, the portfolio in this illustration doesn’t *exactly* match the Ivy five. I picked 2007 as my starting point to show the performance from before the market peak in the Fall of that year. Thus I was forced to make one substitution for the Ivy ETFs — EFA (iShares MSCI EAFE Index Fund) in place of VEU (Vanguard FTSE All-World ex-US ETF), which was launched in early 2007 and didn’t produce a 10-month signal until December of that year. But the substitution presumably understates the all-Vanguard IVY portfolio: I make this assumption because the latest VEU monthly close has outperformed EFA since the March 2009 monthly close (84.5% versus 73.0%).
For anyone interested in researching momentum investing with ETFs, the ETFReplay.com website is an outstanding resource, one that I’m pleased to include in my dshort Favorites.
by Chart School - June 30th, 2011 6:46 pm
Courtesy of Declan Fallon
For a fourth day in a row markets posted gains. This took lead indices to resistance, although the Dow bucked the trend by smashing through.
I haven’t focused on the Dow as it hasn’t done anything unique, but today the Dow broke declining resistance connecting reaction highs for April. Volume climbed to register an accumulation day, supporting the validity of the break.
The S&P wasn’t able to achieve the same success, finishing the day at declining resistance. Volume was also lighter, although it was able to close above its 50-day MA. It might be a tall ask to see a fifth day of gains, but with the Dow comfortably ahead it’s not outside expectation (although unlikely).
The Nasdaq was interesting. Like the S&P it finished at resistance, but unlike the S&P and the Dow, technicals turned net bullish. So while price action underperformed that of the Dow, technically it’s better positioned for further gains. Volume climbed to register an accumulation day.
It’s supported by declining resistance breakouts in supporting breadth indicators, like the Percentage of Nasdaq Stocks above the 50-day MA.
Finally, the Russell 2000 is in a similar position to the Nasdaq; finishing at resistance with technicals net bullish.
For tomorrow, despite bullish technicals for the Russell 2000 and Nasdaq, look for modest losses as bulls prepare to drive a break of resistance and follow the lead of the Dow. The S&P is perhaps in the weakest position and the index most likely to show downside. The chief area lacking has been volume, this will have to increase if a break of declining resistance is to stick, irrespective of the index.
by Chart School - June 30th, 2011 6:35 pm
Courtesy of Doug Short
Quick take: Today was the last day of QE2, culminating in a four-day rally in stocks that probably had more to do with end-of-quarter accounting than then end of the Fed’s intervention. Yields have popped and Treasuries have plummeted across the spectrum. The ten-year note, which closed last week at its lowest yield since last November, is up 30 basis points in four days.
The behavior of Treasuries has been an area of special interest in light of the Fed’s second round of quantitative easing, which was formally announced on November 3rd. The first chart shows the percent change for a basket of eight Treasuries since November 4th.
The next chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed’s website for the FFR.
Here’s a closer look at the past year with the 30-year fixed mortgage added to the mix (excluding points).
Here’s a comparison of the yield curve at three points in time: 1) the Fed’s QE2 announcement, 2) the February interim high for the 7, 10, 20 and 30-year yields 3) and the latest curve.
The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.
The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note (TNX) and the S&P 500.
For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.
by Zero Hedge - June 30th, 2011 5:38 pm
Courtesy of Tyler Durden
by Chart School - June 30th, 2011 5:35 pm
Courtesy of Doug Short
Valid until the market close on July 29, 2011
The S&P 500 closed the month of June 1.83% below the previous monthly close. However, all three S&P 500 monthly moving averages we’ve been tracking are signaling an equities position. See the specifics here.
The Ivy Portfolio
The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. I’ve also included a table of 12-month SMAs for the same ETFs for this popular alternative strategy.
Backtesting Moving Averages
Over the past few years I’ve used Excel to track the performance of various moving-average timing strategies. But now I use the backtesting tools available on the ETFReplay.com website. Anyone who is interested in market timing with ETFs should have a look at this website. Here are the two tools I most frequently use:
Background on Moving Averages
Buying and selling based on a moving average of monthly closes can be an effective strategy for managing the risk of severe loss from major bear markets. In essence, when the monthly close of the index is above the moving average value, you hold the index. When the index closes below, you move to cash. The disadvantage is that it never gets you out at the precise top or back in at the very bottom. Also, it can produce the occasional whipsaw (short-term buy or sell signal), such as we’ve experienced this summer.
Nevertheless, a chart of the S&P 500 monthly closes since 1995 shows that a 10- or 12-month simple moving average (SMA) strategy would have insured participation in most of the upside price movement while dramatically reducing losses.
The 10-month exponential moving average (EMA) is a slight variant on the simple moving average. This version mathematically increases the weighting of newer data in the 10-month sequence. Since 1995 it has produced fewer whipsaws than the equivalent simple moving average, although it was a month slower to signal a sell after these two market tops.
by Zero Hedge - June 30th, 2011 5:33 pm
Courtesy of Tyler Durden
Three weeks ago, when discussing the failed (yes, failed) Maiden Lane 2 auction by the New York Fed, we said: ‘Something quite disturbing happened during today’s latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale." Subsequently we noted the sudden radiosilence from the Fed on this issue on Twitter. To be sure, every MBS trader and the kitchen sink promptly complained that the Fed was saturating the market with toxic AIG garbage, which prompted us to declare that: "unless someone opens up a release valve, we are about to see a massive regurgitation and even more massive repricing of credit risk, first in IG, then in HY and ABX/CMBX, and lastly, and most massively, in equities, which continue to exist in their own world and which are now totally disconnected with HY, which they used to track so very closely." We just got the release valve: from Bloomberg: "The Federal Reserve Bank of New York is halting its sales of mortgage bonds acquired in the rescue of American International Group Inc. "Given prevailing market conditions” for residential mortgage-backed securities, “we do not anticipate any sales of bonds in the near term or until such time as the New York Fed deems it will achieve value for the public," Jack Gutt, a New York Fed spokesman said in an e-mail." Uh, what prevailing market conditions: a Nasdaq which has ripped over 100 points in one week (granted on no volume and on unprecedented market manipulation but so what). Regardless, this is a huge slap in the face for the Fed, which has just proven that even in a surging market it can not unwind an amount from its book that is less than 1% of its total asset holdings without actually crashing the market.
We certainly can not wait for BTIG’s spin on this news tomorrow.
In the meantime, we remind readers of what we predicted, accurately, on June 9:
If dealers and funds are unable to handle a mere $31 billion MBS portfolio disposition, and its weekly sale (think of its
by Insider Scoop - June 30th, 2011 5:16 pm
Courtesy of Benzinga
The ruling can be found at this link.
In relevant part, the ruling reads, “Notice is hereby given that the U.S. International Trade Commission has determined to affirm in part, reverse in part, and remand in part, the final initial determination issued by the presiding administrative law judge on January 24, 2011, finding no violation of section 337 in the above-captioned investigation.”