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09Jun2015 Market Update: U.S. Markets Rise From The Morning Gloom Into The Green, But Will It Last

Written by Gary

U.S. stocks were little changed in early afternoon trading today following three straight days of decline and has been the pivotal turning point for equities in the past. However, volume levels have been very low today suggesting investors are not on to the bull train and are still concerned with the possibility of a market correction.

Markets looking weak and may turn down before the closing bell.


Here is the current market situation from CNN Money

North and South American markets are mixed today. The S&P 500 is up 0.17% while the Bovespa gains 0.05%. The IPC is off 0.13%.

Global stocks were lower, with weak Chinese economic data adding to investors' gloom.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 43%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 35%
Investors Intelligence sets the breath Above 50 bullish 55.8%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold.

-53.69

StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages.

50.53%

StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 61.10%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 62.00%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value

24.13

StockChart.com Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 75.88
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,940

What Is Moving the Markets

Here are the headlines moving the markets.

Meet China's New 'Investor' Class: "It's A Lot Easier To Make Money From Stocks Than Farmwork"

After a very modest drop last week, outstanding margin trading balances in China have resurged to record highs this week as 'correction' dip buyers rampage back into the markets, hopeful of China's inclusion in (and devastation of) the MSCI indices.

With China's market cap now nearing $10 trillion (40% of USA's, up from just 14% last year)...

...we thought a profile of just who is buying Chinese stocks - from plastic umbrella makers up 3000% this year to ponzi schemes like Hanergy. As one middle-aged rural Chinese chap exclaimed jubilantly, "it's easier to make money from stocks than farmwork."

So - do you really want this kind of volatility in the MSCI indices? If China corrects now it will wipe out trllions of wealth from the average Chinese person... at a time when regulators are urging professional asset managers NOT to speculate in stocks.

U.S. job openings hit record high; small businesses upbeat

WASHINGTON (Reuters) - U.S. job openings surged to a record high in April and small business confidence perked up in May, suggesting the economy was regaining speed after stumbling at the start of the year.

Heavy Short Overhang Results In Solid 3 Year Auction Despite Broad Treasury Weakness

After today's latest selloff in the Treasury complex which has again sent yields to the widest levels since October, many were watching today's first of the week bond auction with trepidation to see if the rout in the secondary market would spill over into the primary. It did not. In fact, pricing at 1.125%, this was precisely on the screws of the When Issued at 1pm, suggesting there was no notable weakness in demand for today's $24 billion in 3 Year paper.

The breakdown: the bid to cover was 3.33, flat with last month's 3.34 and above the LTM average of 3.29. The internals were hardly spectacular either with Indirects (aka central banks) taking down 50.7% of the auction, a fraction weaker than May's 52.7% but far stronger than the LTM average of 41.5%, leaving 9.7% to directs, also a slight drop from the prior month, and 39.6% to Dealers.

In conclusion, it is likely the auction would have been well weaker had it not been for the substantial short into the auction. As the following chart shows, the amount of shorting of the underlying was so heave that 3Y paper has been consistently negative in repo for the past week. In fact, contrary to spin, there is a material shortage of paper along the entire curve right of the 3 Year, as everything is now special...

... but nothing more so than On the Run 10 Years which once again are the most shorted securities, a fact which will likely make tomorrow's 10Y auction far better than what most expected.

Wall St. little changed after more strong economic data

(Reuters) - U.S. stocks were little changed in early afternoon trading on Tuesday following three straight days of decline, as another batch of strong economic data gave weight to views that the U.S. Federal Reserve could raise interest rates in September.

"Reduce Risk, Boost Cash, Go Underweight Stocks" SocGen Warns

The writing has been on the wall for a while.

First, in March Ray Dalio who heads the world's biggest hedge fund, said that "though prices of risky assets are high... these things are not in relation to existing levels of interest rates and liquidity. However, should interest rates rise and liquidity levels decline materially, that picture will change. Further, though cash returns are terrible, few investors in risky assets have given much attention to how quickly losses of capital can be worse. For the reasons explained, we do not want to have any concentrated bets especially at this time."

Then, just last week, Goldman which has repeatedly refused to boost its S&P year end target from 2100, also warned that if indeed the Fed is hiking, that the party is coming to an end:

"by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us."

Today it is SocGen's turn, which overnight advised clients that with "US ...

Gun maker Colt heads toward bankruptcy showdown with bondholders

WILMINGTON, Del. (Reuters) - Famed U.S. gun maker Colt appears to be headed into a bankruptcy duel in the coming week if its private equity backers and bondholders cannot overcome widely differing views on the best way to heal the company's financial wounds.

You Don't See This Every Day...

Day in, and day out, American investors are bombarded with bloviation on how the American economy is leading the world (and that's why you need to buy moar stocks). The only problem is... it's a lie, as the following chart clarifies.

Pent-up GDP growth?

h/t @RBS_Economics

HP pays $100 million to settle Autonomy-related class-action suit

AMSTERDAM (Reuters) - Hewlett-Packard agreed on Tuesday to pay $100 million to settle a class-action lawsuit stemming from its ill-fated 2011 acquisition of British software company Autonomy.

Greek leader seeks party backing as EU warns on cash deal hopes

ATHENS/BRUSSELS (Reuters) - Greek Prime Minister Alexis Tsipras called on his fractious Syriza party to rally behind the government on Tuesday as time runs critically short to unlock funding from international lenders and avert a debt default.

U.S. weighs charges against GM over ignition switch recall: WSJ

WASHINGTON (Reuters) - Federal prosecutors are weighing criminal wire fraud charges against General Motors Co over the company's failure to recall vehicles equipped with faulty ignition switches, the Wall Street Journal reported on Tuesday.

U.S. State Finances Lack "Truth and Integrity" Volcker Warns

U.S. State Finances Lack "Truth and Integrity" Volcker Warns

- U.S. state budgets rely on "faulty practices" â€" Volcker
- Shoddy budget practices push costs to future generations
- Faulty budget practices lead to poor policy making
- "Problems hidden by lack of truth and integrity" â€" Volcker
- No common definition of balanced budget allows for gimmicks

goldcore_chart1_09-06-15
The highly regarded former chairman of the Federal Reserve, Paul Volcker, has severely criticized the State Governments in the U.S. over "faulty practices" used to devise budgets which mask the true financial position of those states.

Mr. Volcker, who as Fed chair reined in escalating inflation and stabilised the economy during Ronald Reagan's tenure, announced in 2013 his intention to form the Volcker Alliance to focus on reforming democracy in the U.S.

It was in a report from the Volcker Alliance that the criticisms were published.

"The palpable erosion of trust in our democratic institutions of government demands a response," he was quoted as saying.

Mounting fiscal problems in Obama's Illinois, Detroit's bankruptcy and the financial troubles coming to a head in Puerto Rico demonstrate the importance of developing better financial policies according to the report.

The dire state of finances in many states has intensified in recent years due to drastic cu ...

The Noose Around Syria's Assad Tightens

While Obama is currently under fire for stating at the recently concluded G-7 summit in Germany that the US "does not yet have a complete strategy" how to deal with ISIS, the reality as relates to the true US strategy, namely the ouster of Syria's president al Assad, could not be more different. Because while ISIS continues to deflect attention from what is really happening in the middle east, the noose around Syria's Assad is tightening one day at a time, with the latest blow coming overnight after Syrian "rebels", also supported by the US (and allowed to call in B-1B strikes), scored a major military victory capturing the second biggest Syrian army base in the south of the country, located in the city of Daraa near the border with Jordan, and just 100 km south of Damascus.

Reuters reports that Syrian rebels said they had captured a major base from the Syrian army in the south of the country on Tuesday, a setback that would increase pressure on President Bashar al-Assad after his recent losses elsewhere.

"We announce the liberation of Liwa 52," Issam al-Rayyes, spokesman for the "Southern Front" alliance of mains ...

Western Govts Give Saudi Arabia Pass To Violate Human Rights

Anger is spreading through the human-rights community, over the latest UN-backed summit on the subject. The reason is that the venue is Saudi Arabia - which is notorious for dishing out violent judicial punishment. And there's a long list of why campaigners find the choice of the talks' location to be preposterous.

European Stocks Plunge To 4 Month Lows, Suffers Worst Losing Streak Since 2014

European stocks (Euro Stoxx 600) are down 8.45% from their April highs, down 6.15% in the last 9 days and are down 6 days in a row for the first time since December... In other words, either a) Q€ is not working as Draghi et al. say it is; b) Grexit contagion risks are anything but contained; or c) The European economy is not recovering as per the talking heads and investors are being slapped into that realization.

And don't try and claim that Bund yields are surging because investors think the recovery is here (or inflation is picking up).

Charts: bloomberg

GM CEO Barra says Fiat Chrysler chief sent email on possible merger

DETROIT (Reuters) - General Motors Co Chief Executive Officer Mary Barra said on Tuesday that Fiat Chrysler Automobiles NV CEO Sergio Marchionne sent an email proposing a potential merger, and that GM's board gave "strong support" to her strategy of going it alone.

McDonald's Adds Former Obama Adviser Gibbs to Executive Team

McDonald's has named former White House press secretary Robert Gibbs as its global chief communications officer, as the fast-food giant looks to improve its image.

The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi

Two topics we've deemed critically important to a thorough understanding of both global finance and the shifting geopolitical landscape are the death of the petrodollar and the idea of yuan hegemony.

Last November, in "How The Petrodollar Quietly Died And No One Noticed," we said the following about the slow motion demise of the system that has served to perpetuate decades of dollar dominance:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.

The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the ...

HSBC to shed 50,000 jobs in quest for higher payouts

HONG KONG/LONDON (Reuters) - HSBC pledged a new era of higher dividends on Tuesday, laying out plans to slash nearly one in five jobs and shrink its investment bank by a third to combat sluggish growth across its sprawling empire.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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