Daily Report for Tuesday, Jun 16, 2009

[8:52am ET] Monday opened in North America with a thud as a wave of selling engulfed the market for the first two hours as equity prices dropped to major support levels of S&P 920 and DJIA 8600. Although the levels remained stable thereafter, and commodity prices started catching bids at 12 noon ET, the final result was a serious blow to the Bulls, as all 30 DJIA components and 99 of 100 Cara 100 stocks closed down on the session.

The weakening of certain economic data, particularly in Europe, resulted in a decline in the Euro and rally in the $USD. That put downward pressure on commodity markets and equity markets, which were led down by energy and metals in Europe, which selling then continued across the pond.

By the close, portfolio managers were no longer talking about end-of-quarter window dressing that might save their jobs, but on whether or not technical support levels would hold. At the bell, the DJIA (8,612.13 -187.13 -2.13%), S&P 500 (923.72 -22.49 -2.38%) and NASDAQ Composite (1,816.38 -42.42 -2.28%) were all down over two percent. At least the damage was done at the open and was not as bad as suffered in Europe.

The Toronto Composite (10,394.78 -250.18 -2.35%) and Toronto Venture Board (1,132.95 -21.86 -1.89%) both followed the other markets south, which in the case of Canada, a commodities producer, was expected.

Earlier today, equity weak in Austral-Asian markets except India. Japan’s Nikkei 225 (9,752.9 -2.86%), Hong Kong (18,165.5 -1.80%), Shanghai (2,776.0 -0.48%), and Aussie All Ordinaries (3,957.9 -1.80%) were well down, while India’s BSE 30 (14,957.9 +0.55%) closed higher.

In mid-day trading, the European equity bourses had turned north, although the gains were not large. The French CAC (3,238.1 7:56AM ET +0.57%), German DAX (4,912.2 7:41AM ET +0.46%) and UK FTSE 100 (4,357.1 7:41AM ET +0.72%) were making a rebound attempt after the previous day’s smashing.

In US trading yesterday, all sectors were lower, while Technology (XLK -1.0%) was best. Basic Materials (XLB -3.4%) and Healthcare (XLV -3.1%) and Industrials (XLI -3.1%) were particularly weak.

The was no standout industry, and with the strong $USD it was expected that Goldminers ($XAU -3.6%) would be down. REITs ($DJR -5.3%) were weakest. The $XAU has dropped -6.7% over two days.

There was a single Cara 100 company stock that lifted, which was Best Buy (BBY +0.3%). There were some big hits in commodity-related stocks, like Silver Wheaton (SLW -8.0%), some banks like Deutsche Bank (DB -7.5%), and stocks of higher-risk emerging nations, like India’s Tata Motors, Brazil’s Gerdau Steel, and Russia’s Vimpel-Communications ( (TTM-6.9%, GGB-6.4%, VIP-6.3%).

The $USD rallied sharply again yesterday (81.18 +0.95 +1.18%) and so did the Yen against the USD (102.20 +0.60 +0.59%), which was a sign that risk was being sold, traders being nervous. The other major currencies dropped sharply against the USD, including the Euro (137.93 -2.24 -1.60%), British Pound (102.20 +0.60 +0.59%), and Cdn Dollar (88.28 -0.92 -1.03%).

In active US bond market trading, the US Treasuries followed through the prior two day’s gains. The US long Bond lifted ($USB 116.62 +0.84 +0.73%). The yields for 30-year (4.555 -0.78 -1.68%), 10-year (3.713 -0.75 -1.98%), and 5-year (2.720 -0.65 -2.33%) sank for the third straight day, after the World Bank on Thursday forecasted a deeper -3.0% global economic contraction for 2009 versus the earlier -1.7% prediction.
http://www.washingtonpost.com/wp-dyn/content/article/2009/06/11/AR200906....

Treasury bill yields were weaker again (0.155 -0.10 -6.06%) as traders continued to park cash.

On Thursday we bought the bonds (TLT), figuring this counter-trend action would happen.
http://stockcharts.com/charts/gallery.html?tlt

On Monday, $GOLD closed down -$11.00/oz (928.20 -1.17%). With the European economic data looking worse than expected, gold closed last week weakly (939.20 -15.30 -1.60%), and this loss adds to doubts of the goldbugs. But we are writing puts (a bullish tactic) and cautiously looking for opportunities to acquire real asset-based equity prices at a discount.

Crude Oil (72.75 -0.73 -0.99%) also took a hit after rallying on Thursday.

The spot (cash) market prices for precious metals this morning were modestly higher, as follows:
Gold (936.18 +5.08 +0.55% 07:58am ET);
Palladium (245.5 +1.5 +0.61% 07:57am ET);
Platinum (1224.5 +7.5 +0.62% 07:56am ET); and
Silver (14.345 +0.175 +1.24% 07:58am ET).

Prices in the precious metals began to improve after noon on Monday.

Dollar futures were up down this morning, while the Euro was trying to rebound (1.3891 +0.0116 +0.84% 07:45am ET).

Crude Oil futures were also down on the day (71.31 -1.44 -1.98%), but earlier this morning look to be improving (72.00 +1.38 +1.94% 07:43am ET).

US equity futures for the DJIA were quiet earlier today (8630 +11 +0.13% 07:45am ET).

CTAB trader’s conference call notes:

Markets inhale and exhale, a living breathing organism, large impulse moves followed by dull periods of consolidations. Like the exhausted sprinter after a track meet, markets need to rest and regenerate, getting the heart rate down, catching one’s breath, before mustering the energy to race again.

After exploding over +40% higher off the early March lows, somewhat like Jamaican sprinter Bolt, equities needed to cool down, spending the last six weeks going nowhere fast, momentum, and participation (volume) dwindling by the day. Intra-day high-low ranges and day-to-day price movement (volatility) have sharply contracted leaving traders few ways to make money, each of us anxiously anticipating a move out of this narrow trading range, loosely defined by S&P boundaries of 920-950. The range Friday was the smallest in 27 trading days, a signal the recent congestion pattern is close to exhaustion, a multi-day directional trend about to emerge.

The stock market needed a kick-save late Friday afternoon to reverse early losses, falsely giving the illusion of strength, an invitation to unsuspecting traders to go long equities, simply because they refused to go down. With overseas markets heavily in the red and the dollar sharply higher early Monday morning, however, US stocks were under pressure from the opening, wilting under the weight of its previous hefty advance, ultimately testing critical lower support at 920, before firming ever so slightly into the close (S&P –2.38% closing at 923.7).

While the seeds of a sell-off have been sown (slowing momentum with negative divergences on many oscillators, tepid upside volume, high speculation with a declining put/call ratio and NASDAQ volume consistently running significantly above NYSE volume, etc.); until price action confirms a reversal in trend, selling short would be premature speculation.

Pro traders are not gamblers.

We anticipate the market to move lower, but await price confirmation before moving aggressively short. Precious metals remain our favorite long-term play. We anticipated this recent pull-back, and we anticipate writing more puts if gold and silver continue to decline.

Have a great day.