Domiciled in a Functionally-Challenged Chronometer

by gmak

The Chief Economist for the SEC has resigned when, after finding that short selling increased when stock prices went UP, the SEC imposed rules to hobble those evil speculators (heh) anyway. At the same time, the market was goosed yesterday by rumours, innuendo, and rumours about rumours. Cash at fund managers is at one of the lowest levels ever – yet in the absence of sellers, it appears that the market will drift up like a dandelion seed on the breeze.

Cisco announces the next generation of the internet – as if it will make any difference when the fat files won’t squeeze through the small pipe into my house. I guess Algos are more gullible that J6P, now, as the bid under that stock intensified.

China is thinking of raising interest rates. Japan’s machine orders fell 3.7% MoM. This is certainly a dirty finger in the eye of the economic recovery.

Meanwhile, closer to home, occupants of 32 story condo towers in Florida are tired of living alone in the building and want out. Maybe Fannie and Freddie can take them over, securitize them, and use the Treasury to sell them to the same clowns who will be rushing in to scoop up Citi, Fannie and Freddie shares that supposedly the .gov now wants to unload within 3 months. They know what will happen when the slosh dries up. Three months, boys and girls, three months. http://www.youtube.com/watch?v=u2mqqCMu-LM

“The smallest movement in the price of a security”. “Oral communication between human beings”. “A small blood-sucking arachnid”. “An abbreviation for Theory of Constraints”.

EQUITY

SPX, overbought pastiche of a fading economic empire, has left another interesting symbol on my doorstep called a “bar”.  I have labeled my daily SPX chart with the bar codes. Note that I changed the divisions along the bar (expressd as a ratio to the high minus low)  to 0% – 8% – 38.2% – 50% – 62.8% – 76.4% – 92% – 100%; each interval still numbered from 1 to 7. The number is expressd as Open – Close, so a ’17’ means opened at the low and closed at the high.

Here is the frequency distribution:

As one can see, the most frequent bar type is where the open and close are at opposite ends of the bar, with the bullish bar being more frequent than the bearish bar. This is no surprise since the data history begins in 1982 when the FED first discovered how to use the liquidity faucet.

Yesterday was a ’24”.  The highest probability is that today would be either a 16, 17 or 71. Again, no surprise given the above table.  This is somewhat disconcerting as it indicates that it would not be easy to play intraday on the assumption that direction doesn’t matter – i.e. that both the high and the low would be far enough from the open to permit an “agnostic” trade and still make money within the high – low range.

The best setup for this would be an open in the 3 – 5 levels on the bar. yet this only happens 28% of the time. For now, pending further analysis, the agostiic trade does not have good odds.

In other probability news, SPX has been above the 55 DMA for 6 days, not counting the one where it crossed over. The highest probability is that SPX crosses back below the DMA by the end of the 10th day. There are only 4 days left counting today. Given the average move of the daily SPX, it is still feasible. If we don’t get there, the probability goes up that there will be more than another week before the cross below would occur (assuming that it occurs at all in the short term).

 Asia was mixed, with emerging mainly red, and developed mainly green (Japan and Australia were red – does this mean the risk trade is on or off? It’s hard to keep track anymore). Europe is mainly green but barely and without breadth. The DAX did not gap today and is stuck in a narrow range peaking around 5900.  Materials, Utilities, Financials, Telecomm are green. Seems like a kind of conservative trade based on inflation expectations, no?

ES was stuck in a tight range overnight, as well. The neutral pivot at 1139 was a solid floor and the range was no more than 3 – 4 points, most happening at the Europe open forward.  There is what appears to be strong TD resistance at 1142.75 and it has been there all night (price exhaustion for those keeping score).  Volumes in ES have been declining since the peak in theJan / Feb sell off.  ES Pivots:

• R2: 1152.75 = Would be a new high. I still think this needs to wait for OPEX week.
• R1: 1146.50 = This could be a perceived base camp for the assault on the Jan. high.  It is within striking distance. The longer SPX stays above the 55 DMA, the more likely it could be.
• Neutral: 1139 = The floor right now, with an underthrow around the Europe open.
• S1: 1133 = Would be nice for the bears. Without the ramp into the close yesterday, this would be the target for today.
• S2: 1125.50 = Always a bridesmaid…..

FX

The EUR was tightly range bound all night until into the Europe open (my P/L thanks the EUR profusely). The floor until then was the neutral pivot at 1.3591.  It bounced off of the S1 pivot at 1.3548 amid rumours of CB bids starting to stack up below that. Right now, the R1 pivot at 1.3646 does not look like it will be in play, given the offers between here and there (for the time being).

The CAD is still holding its strength, although flat since midnight. The JPY is weaker, and above 90 again. This should be no surprise given the BoJ jawboning about underpinning the currency trade again. The GBP is weaker since midnight (hey, we need a point of reference in a 24 hour market). 

I really have become partial to the bollinger play on the EUR. I also like the agnostic play  = pick a spot in the middle of the volatility and a “coin toss” direction – probably best if it is in the direction of the broad trend. Put on the trade. Even if it goes against you, the EUR always seems to come back to that middle point and go the other way at least once in a 12 hour period.

NEWS

Greece  crisis is over. It must be true. Prodi says so (former EC president). He’s gotta be impartial, right? Global confidence dips due to Greece. Guess the sheep aren’t falling in line anymore. Emerging Market stocks are now in the green for 2010. Buyout firms can’t find anything to buy with $503 bb of Investor cash burning a whole in their collective pockets. Hint: the FED wants to sell Citi, Fannie, and Freddie crap.

Mfg in the UK “unexpectedly” plunges. Pundits are so deaf and blind. Do they wake up a find their spouses “unexpectedly” beside them in bed? Sex ends at 70 for most Americans due to poor health. Clearly the researchers didn’t interview couples with newborns.

DATA

MBA morgage applications were up 0.5%. Maybe those lonely Florida condo residents will get some company. If they plan it right, the two sets of lit windows can look like eyes on the building.

10AM = WHolesale inventories – this is an important number given all the attention to GDP growth. This should show what is driving it decisively and possibly reveal that the emperor has no clothes.

Cheers.

UPDATE:

The comments from DIsqus are NOT loading for me, so I am unable to present additional information, nor respond to comments. Suffice to say, the chart above is basic. The left hand column shows where the open is on the High – Low range. The top row shows where the Close is on the High – low range. An open and close at the low and high of the day would be a 17. The values in each cell show the percent occurence of that bar in the data series.