thx for that AA
fwiw same here, although I'm looking to lightly fade any decent rally back to resistance on weak volume. I imagine many shorts are well in the money now and taking profits,but letting remainder positions ride, so I'm closely watching supports on my tech trash favorites for some heavy volume at major weekly supports, signifying covering...and big bite tradable bounces.
...only trading my setups...period.
TrimTabs Liquidity News - Latest
This news is an edited version of our weekly liquidity research report published on Monday.
August 20, 2001
LIQUIDITY STAYS NEGATIVE. HUGE NEW OFFERINGS OF CONVERTIBLES THE KEY. ENCOURAGING SIGNS OF PICK UP OF NEW CASH TAKEOVERS AND STOCK BUYBACKS.
Liquidity remained bearish last week, at -$3.8 billion. Given the steady drop in stock prices last week, it was no surprise that US equity funds had an estimated $2.1 billion in outflows. There were two bullish events. One was a steady stream of new buyback announcements, although the number was more than the prior week without any jumbos, the total dollar amount was less. The second, and perhaps more important longer term, were several decent sized cash takeovers of public companies. In fact, there were more cash than stock deals.
What was a surprise was that the amazingly strong new offering calendar poured forth another $4.5 billion of newly printed shares last week even though the overall market dropped 2.1%. Indeed, the new offering calendar has topped $4 billion for nine of the past 10 weeks the only respite being July 4th week. Last August there were $21 billion worth of new offerings the most ever during August. While this August's total is unlikely to top that pace, it should come close. However, the big difference between this August and last year the US stock market rose 8.6% in August 2000 making its all time market cap high of $19.2 trillion at the end of the month. So far this August, the market cap is down close to 4%.
$7.5 BILLION MTD CONVERTIBLE ISSUANCE, 62%, CONTINUES TO DRAIN THE US EQUITY MARKET.
That could lead one to ask how can underwriters continue to sell new shares if the market keeps going down? The simple answer is the free riding on convertibles. As we have been saying many times over the past few months, hedge funds can buy new convertibles using no cash by shorting the underlying stock..
Morgan Stanley¹s ConvertBond.com web site reports that of the so far this August, $7.5 billion of new convertibles have been sold, 62% of the $12.1 billion total month to date new offering calendar. That compares with. just $3.3 billion in convertibles sold during all of August 2000 or just 15% of all that month¹s new offerings. In other words, without converts, there would have been less than $5 billion of new offering done so far this August.
To again repeat ourselves, as long as new offerings keep draining cash from the US equity markets at the current pace, no long term rally is possible.
ARE CORPORATE INVESTORS TURNING BULLISH?
Corporate investors are the best leading indicator of future market direction. Since November 1999 corporate investors have been net sellers of new shares on balance. That is why we keep watching the new cash takeover and stock buyback announcements so closely. We must admit to being somewhat encouraged by the signs of life that have occurred over the past few weeks.
Yes, the new offering calendar is draining lots of cash from the US equity markets. No CFO can turn down the ability to raise cash at below market interest rates combined with a 25%+ plus premium over the current market price. Perhaps we are being foolish in expecting that a resurgent cash takeover and stock buyback climate will be sufficient to add more liquidity to the US stock market than will be drained by convertibles.
We are still uncertain as to the outcome of the battle between the rising tide of new cash takeovers and stock buybacks and continuing outpouring of convertibles. That is why we remain neutral on the US market.
EQUITY FUNDS HAVE OUTFLOWS FOR 3RD WEEK. BOND INFLOWS CONTINUE.
Equity funds continued to have outflows over the five days ended last Thursday, at an estimated pace of $2.3 billion. The bulk of the outflows were from US equity funds this time. Both Aggressive Growth and Growth funds had significant redemptions..
Bond funds continue to attract fresh cash for one simple reason, their Net Asset Values have been rising, albeit slightly. In this environment a small steady gain appears much more attractive than the alternative.
Not all bond funds got inflows. High yield funds had a small, but noticeable outflow late last week, as the concern about when the long expected recovery will arrive has been souring investors on stocks and stock equivalents.
WE REVISE JULY'S EQUITY FUND OUTFLOW ESTIMATE TO $7.3 BILLION.
We revise July's equity fund outflow estimate to $7.3 billion from $14.7 billion. The major fund families that do not release daily, nor weekly data, reported outflows at a somewhat slower pace than the families we do track daily. The aggregate outflow pace for July was 0.2% of assets at the combined fund families having just over 50% of the entire ICI universe. Therefore, we are reducing our outflow estimate accordingly.
So far this August, equity fund outflows are at roughly the same pace as during July.
Again, retail money market funds had outflows, primarily due to the unfavorable interest rates being offered vs. aggressive bank savings plans.
WITHHOLDING DROPPED YEAR/OVER/YEAR FOR 2ND TIME IN THREE WEEKS - A RECESSION?
Income and employment taxes withheld by employers and paid to the US Treasury over the important mid-month pay period dropped by 1.7% from the amount collected over the same five days last year. That makes for the second time in three weeks that weekly comparisons have been negative. That is not healthy.
However, since withholding rates have been cut by 0.5%, take home pay over the past three weeks is still growing, although at a miniscule pace. Add in a few billion in refunds, and the after tax gain rises a bit more. The key is whether corporate America has finished cutting back on excess capacity or not. If not, then incomes look to perhaps indicate we are in a recession. Remember, even though daily withholding data has not been available on line for very long, preliminary indications are that withholding is a lagging, not leading, indicator.
Corporate income tax collections during mid-August this year were down 27% vs. last year. That drop was more than the 21% decline of mid July 2001 week vs. mid July 2000.
BOTTOM LINE: WE REMAIN CAUTIOUS, BUT COULD TURN BULLISH IF NEW OFFERINGS STOP.
We keep expecting that reality will win out and the new offering calendar will stop given the poorly performing stock market. That has not happened, yet. At some point this month the new offering calendar will slump. If new cash takeovers and stock buybacks continue to perk along, that could be a signal that the corporate recession will be ending sometime soon.
However, if underwriters keep giving corporate CFO's huge amounts of virtually free cash in exchange for new converts, then the US stock market will continue to drift lower over the longer term.
A RISING EURO NOT HELPING THE US STOCK MARKET.
Since the mid 1990's, August has been one of the weakest months for the US stock market. Last August was an exception. However, what boosted the stock market 8.6% last August was foreign mainly European buying of both US stocks and entire US companies outright as the Euro kept plunging. Over the past few weeks, the Euro has been rising against the greenback. UBS Warburg's weekly report on net buying and selling by their customers has been showing steady net selling of US stocks by Europeans. Obviously, if that trend continues that will not be bullish for US stocks.
WE RECOMMEND AGGRESSIVE TRADERS GO LONG S&P 500 FUTURES AND SHORT NASDAQ 100.
We have been neutral for three weeks now. Given the poor overall liquidity, the NASDAQ 100 looks quite vulnerable. Even if the market does rally sometime soon, the rally most likely will be in the better capitalized conventional economy stocks. Therefore, we will go long four S&P 500 and short four NASDAQ 100 futures.
TrimTabs Liquidity News Weekly Update is posted on Wednesday after the close.
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