Intra-Day Reversal
It’s rarely any one single element that leads to major reversal such as we saw today. However, we can identify a half dozen elements today are significant and contributed the mid-day sell off:
1) The intraday reversal was set up by the opening exuberance and emotional New Year buying – not fundamentals.
2) The drop in Copper and Oil is reflecting a slow down in the United States economy; The CRB Index broke support at 300
3) ADP data – which in the past has been none too reliable -- surprised to the downside significantly;
4) Both Ford and GM saw sales declines of 13% in December;
5) ISM remains near the flatline, as Manufacturing is still struggling with inventory and decreased demand; (who is all excited about 51% and change?)
6) FOMC minutes reveal inflation remains the primary risk to the economy, even as it shows signs of being a "touch softer" than the Fed previously believed.
Note that the selloff in equities began an hour prior to the FOMC minutes . . .
It's still early, and after dropping 150 points, equities are clawing back. Regardless, today is quite interesting.
~~~
UPDATE January 4, 2006 5:55am
Trader Mike has a good couple of charts and several worthwhile links to those who are interested in the Technical underpinnings of the reversal . . .
Wednesday, January 03, 2007 | 03:32 PM | Permalink
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Comments
gotta think today's volatility is going to make people pause.... esp since we haven't seen such volatility for a while.
Posted by: emd | Jan 3, 2007 3:44:25 PM
giant DOJI or bearish engulfing or key reversal...none are bullish.
Posted by: lurker | Jan 3, 2007 3:52:01 PM
is this what quiet distribution looks like? don't want to spook the market too early.
Posted by: emd | Jan 3, 2007 3:55:36 PM
where does one go to look at inventory data??
Posted by: gsym | Jan 3, 2007 3:57:28 PM
It was a nice set-up. I played both sides.
The message is when the FED coughs, run!
This helped the up/down>
Today the moon goes full @7:57 AM cst. The Full Wolf Moon/After-Yule full moon, take your pick...
Either way, the wolf is hungry.
Posted by: Bucky Katt | Jan 3, 2007 3:59:01 PM
The irrepressible dip buyer is alive and well and determined as ever to prevent a correction. Amazing.
Posted by: S | Jan 3, 2007 4:02:08 PM
Guy falls into a coma in 1982. Wakes 25 years later. First question: "How's President Reagan?" "I'm sorry. Reagan is dead." "Oh my God! That means that idiot Bush is President!" DJIA up 12pts after being closed for a rare 4 consecutive days. Therefor the DJIA has traded +100/-100pts for the past week. Nohing happened despite an extended coma.
Posted by: Robert Coté | Jan 3, 2007 4:15:57 PM
This is great..... I hope the bulls run it up. It will give me a chance to correct my errors of not fading earlier today.....
Failing rallies should not be overlooked.... I would be cautious if I were long.
Posted by: Andrew | Jan 3, 2007 4:21:25 PM
I focused on the following:
-Where was volume on the stocks that I follow? Big early? Big late? Heavy/light volume?
-(Long) Industry pros came back from a week off (and 4 days - longest break since 9/11 - to those who were in last week) delighted to see some solid fundy data...and it bolstered the indices early. But, when the other shoe dropped, they were (presumably) quick to the exits.
-My 'old faithfuls', i.e. tobacco and utilities to name a couple, held up pretty well into the afternoon.
-Does it really matter if oil goes to $50 considering a lot of the 'hot wealth' created in the last 12-18 months is invested in those stocks which got el whacko today as the result of oil prices dipping? Point being - I've heard many state that if oil continues its slide that it will be some sort of antidote to the markets.
-Long the VIX?
Good stuff...great start to '07.
Posted by: CDizzle | Jan 3, 2007 4:22:08 PM
Cramer says the sell-off was due to a seller in the futures market...when the seller was done, the markets reversed to the upside. Personally, I don't believe that explanation because it seems too simplistic to me...plus I'm just a student of the markets and don't any better!! But....I'd certainly like to hear other's opinions.
Posted by: glenn_in_MA | Jan 3, 2007 4:28:11 PM
" 5) ISM remains near the flatline, as Manufacturing is still struggling with inventory and decreased demand; "
Well, actually these numbers were better than concensus across the board, and especially prices paid...was down 7.5 points vs expectations.
I'd be curious what numbers would imply a soft landing to you Barry?
Thanks
Posted by: Fred | Jan 3, 2007 4:28:53 PM
Barry,
I am still amazed by the statistic that 75% of home building is in private hands. Are there details on that anywhere?
Posted by: GerryL | Jan 3, 2007 4:35:16 PM
It looks like a sector rotation to me.
According to today’s $TICK, the first major sell program fired at 13:15, it was followed by multiple major sell program artilleries ($TICK < -1000) roughly until 14:45.
The first major buying program fired at 15:30 ($TICK > 1000) with a few following it.
P.S. Maybe it was because many hedge fund managers went to pick up their bonus checks. Most were out of the office this afternoon and nobody was in charge of manipulating the market. Some folks have witnessed an army of hedge fund managers driving in their Ferraris to the bank to make deposits.
http://www.exoticcarsite.com/multimedia/wallpapers2/ferrari-12.jpg
Posted by: V L | Jan 3, 2007 4:50:58 PM
Fred, I don't think Barry thought much of the "better" than expected numbers and expects further declines in the coming months. Monthly numbers can be noise for all intents and purposes.
I would worry more about the ISM non-manufacturing. Considering the ADP report hints that employers overhired/expanded last November and consumption beginning to decline as liquidity is beginning to turn off into a little credit crunch. It could really tumble.
Posted by: ac | Jan 3, 2007 4:52:01 PM
Don't know if anybody saw this yesterday.
The National Association of Credit Managers runs a monthly diffusion index similar to ISM. The results for December were discouraging, particularly in the service sector:
http://www.nacm.org/resource/press_release/CMI_current.shtml
"The service sector fell for the third consecutive month, dropping 2.5% as eight of the 10 components fell. “It is worthwhile noting that five of the 10 components are now below the 50 level, indicating a contraction in activity,” he said. There have not been this many components below 50 since March of 2002, and the total services index has not been this low since March of 2003."
Apparently, more folks are getting stiffed. The "Accounts placed for collection" category plummeted from 52.5 to 44.7, and the "Dollar amount beyond terms" category fell from 49.7 to 46.1. The only categories that saved the services index from unmitigated disaster was bankruptcies, up to 58.3 from 59.2, and new credit applications, up from 56.3 to 58.9.
Posted by: winjr | Jan 3, 2007 5:06:47 PM
Fred, I don't think Barry thought much of the "better" than expected numbers and expects further declines in the coming months. Monthly numbers can be noise for all intents and purposes.
I would worry more about the ISM non-manufacturing. Considering the ADP report hints that employers overhired/expanded last November and consumption beginning to decline as liquidity is beginning to turn off into a little credit crunch. It could really tumble.
Posted by: ac | Wednesday, January 03, 2007 at 04:52 PM
Hey, that's pretty good... I almost might have written that myself. It's nice to be loved I suppose.
I'm not sold on this ADP report, though.
My argument would be more along the lines that we've seen a stimulant effect from oil in Q4. And that Roubini's hypothesis that falling oil prices were indicative of a rapidly slowing economy was wrong - the decline in oil prices resulted more from a minor speculative bubble bursting, and thus a positive for the economy. Longer term I expect the effect from housing to overwhelm and positive effects of lower energy prices.
This is just a regurgitation of my interpretation of David Rosenberg's position.
I'm ready to jump into the soft landing camp if somebody will just explain to me where the US consumer will get the money to keep spending with a negative savings rate now that house prices are unequivocally falling (and they no longer have the cushion of their primary asset rising in value).
Posted by: ac-clone | Jan 3, 2007 5:22:28 PM
The savings rate is a flawed number, that doesn't include retirement accounts, and capital gains. If you're waiting to see that come back, you'll be waiting a long time. The US invests. It also uses leverage (many times to a fault), but buying everything for cash, and carrying no debt went out with the Depression.
Japan has good savers. Is that the model that you want??
Posted by: Fred | Jan 3, 2007 5:33:28 PM
GerryL -
I know whose input you asked for and I know I'm not him, but, I'll offer the following:
Take for instance the St. Louis MSA. Roughly 2,250,000 people. Solid SF construction growth for several years. Several local homebuilding companies with annual revenues of $50-100 million. ZERO homes built by publicly traded companies in St. Louis in the last 5 years (as far as I know).
I imagine that St. Louis is in the minority of metropolitan areas without a publicly traded builder in the market, but it goes towards Barry's figure of 75% private.
Posted by: CDizzle | Jan 3, 2007 5:35:37 PM
I was taking a walk this afternoon when I turned around and ran back to my office to short the q's. Too late, I missed the drop. The reason I turned around? I got to thinking about Bush's announcement that he's sending more troops. I had a Vietnam flashback and those seventies sell-offs due to a budget out of control, inflastion rising and a president completely out of touch. It occurred to me that it will be next to impossible to paint a rosey picture of the US with an out of control president throwing money and lives down the toilet. That's why I believe we've hit a top. Maybe not a nasty sell-off, too many have a hand on the emergency brake, but a chipping away and then an occassional break down. Nothing to do with those minutes or the adp, everything to do with the actions of an insane president. Basically the guy is out of the closet... had Ford not pardoned Nixon, this clown would never have assumed office because guys like Cheney would have been witnesses in that trial and nobody would have ever forgotten it. Meanwhile, Tricky Dick's boys and their stool pigeon have flushed the economy along with the goodwill of the nation down the toilet.
Posted by: fenner | Jan 3, 2007 5:38:49 PM
"If you're waiting to see that come back, you'll be waiting a long time."
Is that so? How long might that be? It's been negative for only 20 months now, so should I not expect the savings rate to be positive until ... when? ... 2010? Later?
I'd like to know why you think the savings rate is a dinosaur. I suppose you must mean that capital gains is the new income supplement, no?
Posted by: winjr | Jan 3, 2007 5:43:40 PM
One thing for sure. There were a lot of stock holders with their fingers on the "sell now, ask questions later" button today.
Posted by: Bob A | Jan 3, 2007 5:57:26 PM
CDizzle,
I dont doubt Barry's numbers. I am just very surprised by them. I knew that the home building sector was very segmented without any builder having a dominant share. However, I didnt realize the major builders together controlled such a small percentage of the market. I think that if there were a small number of players controlling the market they would be more disciplined in cutting back on building.
Posted by: GerryL | Jan 3, 2007 6:22:33 PM
major factor for today's intraday sell-off was a pretty large rebalancing :
seller $780M S&P's (notional)
buyer $265M MidCap contracts
buyer $160M Russell 2000 e-minis
Posted by: jj | Jan 3, 2007 6:33:03 PM
This is how the bulls-in-denial see it (as always they did not see it coming):
"The concern is that the Fed was seeing something at their last FOMC meeting that suggested potentially more pronounced weakness than we had all been anticipating in the economy," said Drew Matus, senior economist at Lehman Brothers Inc.
Posted by: V L | Jan 3, 2007 6:37:52 PM
Those aren't Barry's numbers, they're from the CEO of Beazer Homes at the UBS homebuilder-CEO panel. Click through a couple times and listen for yourself.
If I wanted to confirm the data, here's what I'd do: grab the 10-Ks from the largest public builders (CTX, DHI, KBH, LEN, MDC, PHM, RYL, TOL) and sum the units delivered in the last fiscal year. Go to the census web site and check the total number of new housing units. Subtract. It won't be exact, but it'll give you a really rough idea.
Hell, I'll do it. Click.. click.. click..
CTX 39,232
DHI 51,980
KBH 31,009
LEN 42,359
MDC 15,307
PHM 45,630
RYL 16,673
TOL 9,099
-----------
tot 251,289
From the census (XLS), total completions for single-family units from 05Q4-06Q3 are 1,686,000
So, the largest public builders are delivering 15% of the units. My guess, though there is no way I am doing the lifting on this data, is that you get to 25% by adding all the other little public builders, and by looking at revenue rather than units.
Still, I'd say it is easily defensible that 75% of the homebuilding business is private.
Posted by: wcw | Jan 3, 2007 7:11:03 PM
