Tuesday's Opening View
The market was finally receptive to another piece of positive economic
data out of the U.S. The Institute for Supply Management (ISM)
manufacturing index for November surged to 62.8 from the 57.0 posted in
October, the fastest monthly gain since December 1983 (Reagan?). Looking
at some of the components, the new orders index hit 73.7, up from 64.3 in
the prior month. This is the sole "leading indicator" in the group and
speaks highly about the prospects going forward. Additionally, the
Production Index improved to 68.3 from 62.6 in October. Possibly the
greatest positive data out of the report, the employment index finally
moved into expansion territory for the first time in over three years at
51.0. October fell short at 47.7.
Manufacturers actually started to rebuild dwindling inventories, as the
index improved to a balanced 50.0 from 44.5 in October. No, yesterday's
advance was not part of the so called "Santa Claus Rally." This event
encompasses the last five trading sessions of December and the first two
sessions of January (just a little something extra to look forward to).
Equity option activity on the CBOE yesterday had 324,169 put contracts
trade compared to 597,095 call contracts. The resultant 0.543 single
session put/call ratio has lowered the 21-day moving average 0.625. The
CBOE Market Volatility Index SPX Implied (VIX ? 16.77) rose by 2.76
percent (OEX Implied calculation VXO ? 15.97, down 4.43 percent had set
yet another 52-week low at 15.71. For the record, the 21-day historical
volatility stood at a historic low of 11.72 percent yesterday. The OEX has
not been this tame since the 21-day historical volatility hit 11.52
percent on December 5, 1996). The Nasdaq-100 Trust Volatility Index (QQV ?
24.18) jumped by 4.45 percent and the CBOE Nasdaq Market Volatility Index
(VXN ? 26.29) added 2.58 percent.
Yesterday's internals were quite impressive. Volume on the NYSE came in at
a "strong" 1.35 billion shares. The advance/decline ratio surged to 2.74
(2,397 advancing issues to just 874 declining issues). The 614 new annual
highs belittled the eight new annual lows. Volume on the Nasdaq came in at
a "strong" 1.83 billion shares. The advance/decline ratio ramped up to
1.83 (2,088 advancing issues to 1,141 declining issues). New annual highs
came in at 452 while new annual lows made it to 11.
I've had numerous inquiries as to what constitutes strong or substantial
volume. In the future, I'll use the 10-day and 20-day moving averages as
the area of demarcation. Above both trendlines="strong," within these
trendlines="average," and beneath both trendlines="anemic." (This little
snippet will remain in this space ad infinitum as a reminder).
As for today, the two weekly reports on the health of the retailing sector
may carry additional clout this time around. Both reports are for the week
ending November 29, which includes "Black Friday" (that day after
Thanksgiving on which customers are supposed to knock down the doors of
retailers and put them in the black for the year) and its companioned
Saturday. For the prior week the verdict was mixed with the BTM-UBS chain-
store sales advancing by 0.4 percent, while the Redbook Retail Sales Index
for the same period declined by 2.9 percent. With all of the positive talk
over last Thursday's numbers, both reports had better be standouts as
expectations were driven quite high. The pressure does not let up, however,
as many retailers will report their same-store-sales figures on Thursday.
Maybe it's just my imagination, but it seems that futures trading started
to break beneath consolidation following the release of the Bank of Tokyo-
Mitsubishi-UBS Retail Chain-Store Sales Index. The index slipped by 0.1
percent (compared to the week before) on a seasonally adjusted comparable-
store basis for the week ending November 29. As stated above, this
compilation includes the two shopping days after thanksgiving.
In futures trading, the December contracts on the SPX (1070.12, plus 1.13
percent and set a 52-week high of 1070.47), DJIA (9899.05, plus 1.19
percent, its highest close since May 31, 2002), and the NDX (1447.08, plus
1.60 percent, its highest close since April 1, 2002) are currently
consolidating beneath their respective fair value numbers with no trend in
place. We might see a little "profit taking" on today's open. At this
point in time session lows and highs: SP/Z3 (1067.50/1069.40), DJ/Z3
(9870.00/9887.00), and ND/Z3 (1440.00/1444.50).
Overseas markets seem to be enduring a rather bland session with 10 of the
15 markets that we track offering up marginally positive performances. The
cumulative average return on the group stands at a positive 0.128 percent.
Both the CAC 40 and the Frankfurt DAX hit 52-week highs yesterday. The
Producer Price Index in the Euro Zone rose by an expected 0.1 percent in
October, and stood higher by 0.9 percent on a year-over-year basis. This
seemingly tame report on inflationary pressures should allow the European
Central Bank (ECB) a little breathing room when it meets this Thursday to
decide near-term interest rates.
The U.S. Dollar Index (DX/Y ? 90.35) added 12 cents in yesterday's market,
recovering from a new 52-week low at 89.88 set earlier in the session. The
index managed to close above the key 90.00 level. Continuing sound
economic data finally puffed a breath of fresh air beneath the faltering
currency, proving synergistic with strong performance in equities. Only
the yen and the real could book advances on the U.S. dollar.
In early trading this morning, the U.S. dollar has only been able to
advance versus the real and the Canadian dollar (which is coming off of a
fresh 52-week high set last Friday):
Currency Last Change
euro ($/?) 1.1973 0.00030
British pound ($/BP) 1.7217 0.00290
Japanese yen (¥/$) 109.2657 0.00160
Brazilian real (R/$) 2.9300 -0.00128
Mexican peso (P/$) 11.3598 0.00019
Canadian dollar (CD/$) 1.3048 -0.00130
Swiss Franc (F/$) 1.2885 0.00530
The December future contract on gold (GC/Z3 ? 403.80) surged by $5.80 and
finally posted that elusive close above the 400-level. In early trading
this morning, the 400 level has held, with the contract trading as low as
401.00 and setting another 52-week high at 403.70. Currently the contract
is lower by 60 cents to 402.10. London spot was quoted at $401.50/402.20.
The December future contract on the 30-year bond (US/Z3 ? 108'27) traded
lower by 14/32 in yesterday's market, as strong economic data raised the
perception of inflation as well as calling into question the timing of the
next Federal Reserve rate change (higher). The yields on the 2-year and 10-
year notes stood at 2.096 percent and 4.385 percent respectively, rising
as the notes declined. The 2-30 year yield spread stood 306 basis points.
On a daily basis, traders will be trading on the latest economic report
with their eyes focused on Friday's U.S. monthly employments numbers.
Already one U.S. bank has revised its non-farms number up to plus 350,000.
The report has pressured early London trading today, and may give traders
added confidence to "short" the group ahead of the actual release:
2-year note was at 99-18/32 down 1/32 to yield 2.10 percent
5-year note was at 99-22/32 down 2/32 to yield 3.43 percent
10-year note was at 98-23/32 down 7/32 to yield 4.41 percent
30-year bond was at 103-6/32 unchanged to yield 5.15 percent
The yield curve, as measured by the 2-30-year yield spread, stood at 305
basis points.
The January contract on sweet crude oil (CL/F4 ? 29.95) slipped by 46
cents yesterday, suffering its fourth consecutive close beneath the 30
level. While the crude contract may vacillate as traders ponder what OPEC
will do on Thursday, one thing is for sure and potentially supportive of
the complex. Natural gas for January delivery climbed as high as $5.38 per
million British thermal units on the New York Mercantile Exchange
yesterday. The contract closed at $5.283, up 35.8 cents, or 7.3 percent to
it highest closing level since late October as the forecast for cooler
weather has warmed traders. The crude contract is higher by 17 cents in
early trading this morning.
Today's Economic Calendar :
6:20 a.m.: Federal Reserve Vice Chairman Ferguson addresses the
International Center for Business Information's risk management conference
on Basel II in Geneva
7:45 a.m.: BTM-UBS chain-store sales for the week of November 29 (last
plus 0.4 percent)
8:55 a.m.: Redbook Retail Sales Index for the week of November 29 (last
minus 2.9 percent)
10:00 a.m.: November Challenger Layoff Survey (last plus 125 percent)
Earnings expected today with current estimates :
ADC Telecom (ADCT) 4Q 0
Chico's FAS (CHS) 3Q 0.27
Finisar Corp. (FNSR) 2Q -0.06
Navistar Intl (NAV) 4Q 0.71
Sports Authority Inc. (TSA) 3Q 0.14
Utd Natural Foods (UNFI) 1Q 0.34
- Al Schwartz (aschwartz@sir-inc.com) |
