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08Sep2015 Market Update: Markets Have Rallied All Morning And Are Holding Gains, Crude Has Peaked, U.S. Dollar Steady, Volume Moderate As Sideways Trading Continues

Written by Gary

Global equities were higher this morning following an uptick in eurozone GDP growth and contrasting German and Chinese trade data. Markets opened almost 2% higher as analysts are claiming this might be just an overreaction.

While the data was good in Europe, it was poor in China, although the figures have no doubt sparked hopes of more loose economic policy in the country - hence the rise in stocks.


Here is the current market situation from CNN Money

North and South American markets are mixed today. The S&P 500 is up 1.79% while the IPC gains 0.50%. The Bovespa is off 1.09%.

Markets have continued sideways trading as predicted on August 25th. and will likely continued to do so until the 'next' group of 'investors' decide to jump ship.

However, oil was adding to yesterday's sharp losses amid concerns about the economy - notwithstanding today's equity markets - and flailing attempts to curb oversupply. The DOW is up 308 and the Nasdaq is up over 2%, but keep a close eye out for a reversal.

Chinese imports fell for the tenth month in a row, tumbling a greater than expected and a drop of 8.1% in July. The fall in imports reflects lower global commodity prices and sluggish internal demand.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 60%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 12%
Investors Intelligence sets the breath Above 50 bullish 27.7%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -0.70
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 19.79%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 34.56%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 30.40%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 21.90
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 75.03
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,055

What Is Moving the Markets

Here are the headlines moving the markets.

Brent up 4 percent riding equities rally; U.S. crude down

NEW YORK (Reuters) - Brent crude futures jumped 4 percent on Tuesday as strong stock markets helped the global oil benchmark recover substantially from a 6 percent tumble in the previous session.

Wall St. follows world markets higher after holiday weekend

(Reuters) - U.S. stocks were higher in late morning trading on Tuesday as investors returned from a holiday weekend after a late rally by Chinese shares lifted global markets.

U.S. Stocks Rally, Taking Cues From Overseas

Global stocks rallied Tuesday, buoyed by a late-session rebound in Chinese shares, as investors cautioned that more volatility could be in store for markets.

GE wins U.S., European antitrust approval to buy Alstom unit

WASHINGTON (Reuters) - General Electric won U.S. and European antitrust approval to buy Alstom's power unit on condition that some of the French company's assets would be sold.

GE power chief Bolze says 'ready to roll' on Alstom deal

(Reuters) - General Electric Co will be "out of the box very strong" as it seeks to wring out $3 billion in cost savings over five years from its long-awaited acquisition of the power business of France's Alstom , GE's power chief said on Tuesday.

Criminal Charges Filed Against Nomura Traders For Skimming Off Bid/Ask Spreads, Making Millions In The Process

Nearly three years ago, we explained why when it comes to fixed income traders in the traditional, and very lucrative, over the counter market, "the days of rampant skimming on top of the bid/ask spread, and with them record bonuses for bond traders and salesmen, may just ended with a whimper not a bang, and all bond traders hoping to make millions by misrepresenting what the true purchase or sale prices are to buysider clients, even if completely voluntary on both sides, may want to seek employment elsewhere.

They have Jesse Litvak to thank for it.

Jesse is a former MBS trader from Jefferies, who got just a little too greedy, and proceeded to rip virtually all of his clients on seemingly every single trade he executed for the three years he was employed at Jefferies, lying to everyone in the process: both clients and in house colleagues, generating some $2.7 million in additional revenue for Jefferies for the duration of his tenure, and who knows how much in personal bonuses."

Today, in the first official criminal action following the Litvak bust from 2013, the SEC confirmed that our assessment was spot on after the regulator announced fraud charges against three traders "accused of repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS)."

In the complaint, the SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked. They misrepresented the bids and offers being provided to Nomura ...

Old Lessons Regarding Markets

Via EconomicNoise.com,

In our day-to-day world, old lessons regarding markets are easily forgotten. Nowhere is this observation more true than in the stock market where people expect stocks to always rise.

Wall Street is dominated by optimistic youth know little about real economics or history. They succeed via optimism, by convincing others that markets always go up. When markets decline, it is always a buying opportunity. That is all they have experienced. The first decade of this century saw two market corrections where the S&P 500 Index dropped more than 50% from its highs. Most investors were told to hang on. In retrospect that was good advice. In another sense it was not.

stockcrashimages (1)

The economy is a mess. The Federal Reserve now only influences one variable — the pricing of financial assets. Arguably, for the last fifteen years financial asset pricing has been the only positive in the economic sphere. An entire generation of financial advisors and stock brokers has never seen a true bear market. Indeed, they have never seen a non-manipulated market.

They never learned the old lessons because they never lived through such times. What are some of the old lessons? Here are a few:



P/E multiples drop under 10.

Dividends increase to 5 or 6% (only because stock prices fall).

There are no bad stocks in a bull market.

There are no good stocks in a bear market.

Don't chase yield too soon.

All market collapses start with "dips" perc ...

The Global Credit Supercycle: Full Frontal

Over the past several years, one of the prevailing, if completely incorrect, conventional wisdom memes was that the US, and especially the private sector, had undergone a deleveraging and was ready to load up on debt again. This was wrong because as we showed over the years, the only deleveraging which US households underwent was due to defaults and nothing to do with voluntary debt reduction.

Furthermore, the compounding effect of soaring student loans - which at $1.1 trillion eclipse the total credit card debt of the US - is one of the reasons why the US labor participation rate is at 38 year lows: millennials are unwilling and unable to enter the labor force opting to rollover student loans instead (until said loans are forgiven), while aged workers, those 55 and over, thanks to ZIRP crushing the income-creating capacity of their savings, don't have the resources to exit the labor force.

As for US banks whose "fortress" balance sheets have supposedly never been more solid due to the collapse in net leverage, here is a chart showing total US commercial bank cash balances when adding the $2.5 trillion in "transitory" Fed excess reserves, and what happens if one were to "pro-forma" the Fed's monetary spigot out of bank balance sheets.

Germany's Schaeuble Blasts Central Banks: Money Printing Leads To Financial And Debt Crises

Thanks largely to his prominent role in Greece's protracted bailout negotiations, German Finance Minister Wolfgang Schaueble has become something of an international symbol for fiscal rectitude.

Over the course of six painful months of talks between Athens and Brussels, the incorrigible FinMin was the go-to source for the prompt denial of any and all "Greece is fixed" rumors and by the time it was all said and done, Schaeuble managed not only to humiliate Alexis Tsipras by forcing the Greek premier to effectively sell out the Greek people's referendum "no" vote, but also to serve notice to France and any other EMU debtor countries who might be listening that anyone unwilling to get in line may be served with a euro "time-out" notice from Berlin.

By "get in line", we of course mean adopt the German version of fiscal responsibility, which is the subject of some debate currently as pressure mounts to find a solution for the region's worsening refugee crisis.

Speaking to the Bundestag on Tuesday, Schaeuble delivered a sharp critique of the world's addiction to debt and central bank printing press money, excerpts from which along with some commentary, can be found below, courtesy of Reuters:

An excessive reliance on debt and central bank stimulus is no way to manage an economy, German Finance Minister Wolfgang Schaeuble said on Tuesday, defending Berlin's pursuit of a balanced budget.

Germany has faced calls from European peers to invest more to stimulate demand with a view to generating more growth across the euro zone, but Schaeuble said a policy aimed at delivering sustainable public finances was the best course Berlin could tak ...

August 2015 Conference Board Employment Index Suggests Improving Jobs Growth In the Future

Written by Steven Hansen

The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months - improved, and the rate of growth improved relative to last month. Consider that this projected growth is six months from now.

China imports sink in August, shares rally but volumes dive

SHANGHAI (Reuters) - China's imports tumbled in August, raising concerns about the health of the world's second-largest economy and its contribution to global growth.

2008 Was a Crisis¦ It Was Not THE Crisis

The 2008 crash was a warm up.

Many investors think that we could never have a financial crash again. The 2008 melt-down was a one in 100 years episode, they think.

They are wrong.

The 2008 Crisis was a stock and investment bank crisis. But it was not THE Crisis.

THE Crisis concerns the biggest bubble in financial history: the epic Bond bubble... which as it stands is north of $100 trillion... although if you include the derivatives that trade based on bonds it's more like $500 TRILLION.

The Fed likes to act as though it's concerned about stocks... but the real story is in bonds. Indeed, when you look at the Fed's actions from the perspective of the bond market, everything suddenly becomes clear.

Bonds are debt. A bond is created when a borrower borrows money from a lender. And at the top of the financial food chain are sovereign bonds like US Treasuries.

These bonds are created when someone lends the US money. Why would they do this? Because the US SPENDS more money than it TAKES IN via taxes. So it issues debt to cover its extra expenses.

This cycle continued for over 30 years until today, when the US has over $16 TRILLION in size. Because we never actually pay our debt off (or rarely do), what we do is ROLL OVER debt when it comes due, so that investors continue to receive interest payments but never actually get the money back... because the US Government doesn't have it... because it's still spending more money than it takes in via taxes.

This is why the Fed cut interest rates to zero and will likely do everything in its power to keep them low: even a small raise in interest rates makes all of this debt MORE expensive to pay off.

This is also why the Fed had the regulators drop accounting standards for derivatives... because if banks and financial firms had to accurately value their hundreds of trillions ...

EU still open whether will charge Google over Android

STRASBOURG (Reuters) - The European Commission has still to determine whether it will charge Google with market abuse over its Android mobile operating system, Competition Commissioner Margrethe Vestager said on Tuesday.

The Biggest Red Herring In U.S. Shale

Submitted by Arthur Berman via OilPrice.com,

Rig productivity and drilling efficiency are red herrings.

A red herring is something that takes attention away from a more important subject. Rig productivity and drilling efficiency distract from the truth that tight oil producers are losing money at low oil prices.

Pad drilling allows many wells to be drilled from the same location by a single rig. Rig productivity reflects the increased volume of oil and gas thus produced by each of a decreasing number of rigs. It does not account for the number of producing wells that continues to increase in all tight oil plays.

In other words, although the barrels produced per rig is increasing, the barrels per average producing well is decreasing (Figure 1).

Figure 1. Bakken oil production per rig vs. production per well.

Source: EIA, Drilling Info and Labyrinth Consulting Services, Inc.

(Click image to enlarge)

Rig productivity is a potentially deceptive measurement because it does not consider cost and apparently it always increases. It gives a best of all possible worlds outcome that seems to defy the laws of physics. Drilling productivity gives the false impression that as the ...

Four Reasons Why JPMorgan Is No Longer Bullish On US Stocks

With just 10 days until the Fed's supposed first rate hike in 9 years according to most pundits (but not Goldman), many are hunkering down such as Bank of America which overnight cut its S&P500 forecast from 2,200 to match Goldman's 2,100 year end price target, and while it hedged that "we're still bullish on S&P 500" it added that "as we approach the end of the year, we turn our focus to the medium and long term, particularly given the increased volatility and uncertainty surrounding slowing global growth and the Fed liftoff" and that "the worst is probably behind us, but the road is still bumpy."

A much more notable call, however, came also overnight from perpetual optimist JPMorgan (yes, we all miss Tom Lee), which overnight issued a report by Mislav Matejka warning that it is not "time to re-enter the US" because "upside is limited at this stage of cycle." Still, just like BofA, JPM felt the need to hedge: "too early to position for recession." Odd, because if one actually looks at either the factory orders data, or the inventory accumulation vs actual sales numbers, the recession may have already started several months ago.

That said, we can understand why one of the pillar of the "bull market" will not make a recession call until it has become consensus. So what does JPM warn? Here is JPM's warning in 4 key bullets:

Time to re-enter the US? No, upside is limited at this stage of cycle, but too earl ...

ECB Bans Media From 'Behind-Closed-Doors' Speech To Hedge Fund Managers

Fool me once, shame on me; fool me twice, shame on you; fool me a third time, you must think we are all just idiots!! Following The ECB's Benoit Coeure "internal procedure error" where he leaked the imminent actions of the central bank to a group of well-heeled hedge fund managers - who proceeded to dump EURUSD ahead of the announcement, The ECB has decided - in all its arrogant wisdom - to decamp to Luxembourg to speak, once again, to participants in the world of high finance behind closed doors. The media aren't invited (though the ECB will publish some prepared remarks from the board members.).

As we detailed previously, back in May, Mr. Coeuré gave a dinner speech to an audience that included hedge fund managers and other investors in London in which he said that the ECB would front-load its bond purchases in its QE program before the summer lull. The problem was that his comments weren't published until the following morning. Once they hit newswires, the euro fell and stocks rose.

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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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