Market to reverse as everybody long and (soon) wrong?
As we have written over the past sessions. Market is trying to break up, but lacks the conviction, while trading on very light volumes. Santa rally is fading, but has attracted many new longs, that wish not to be long. Volatility has collapsed, and people are once again starting to believe, “this market is so boring and will not move“. These are classical signs of people “giving up”. Too many have been too bearish, all predicting the end of the Eurozone. With the past week’s market action, people are slowly giving up on the bear argument. When liquidity dries up, volatility collapses and bears become bulls, things could suddenly change. Today was such a day, with a rather big reversal.
All we need is the junior quants to start telling us Vol is staying low, because it is now in the short term Garch model.
Some random charts to enjoy, before going to long….
Chart Update-false break?
Markets are continuing climbing higher on relatively low volume. Below some short term charts. Let’s see if the market has the conviction of breal´king the resistance with volume, or if this will just be another false break out?
30 day charts below.
Algo Training
While the market continues climbing higher on diminishing volumes, the HFT still trade and test the new strategies. From Nanex.
We have detected what looks like algo testing in individual stocks and ETFs. A tell-tale symptom is rapid fire quotes coming from multiple exchanges which flutter the NBBO hundreds and sometimes thousands of times each second. Often, there are few or zero trades during the event, and in several cases, trades occur shortly before and/or after the test event.. These tests can occur at anytime and are frequently found during regular trading hours. Several of the exchanges involved did not previously show a significant level of HFT infestation. This behavior previously involved Nasdaq, Arca and sometimes BATS. This example shows a high rate of nonsense quotes from no less than 5 exchanges. There were no trades during this event. A few small trades did occur near the end of the event at prices outside the range shown here. The black area is the NBBO. Note how the NBBO of this inactive stock goes from a few cents (and stable), to 25 cents (and wildly unstable).
Food Prices decline sharply
Remember when people used to care about food rices, inflation etc? Latest on food prices out of FAO.
» The FAO Food Price Index (FFPI) averaged 211 points in December 2011, 2.4 percent (5 points) down from November and 11.3 percent (27 points) below its February 2011 peak. Sharp falls in international prices of cereals, sugar and oils were behind the December decline. Bumper crops coupled with slowing demand and a stronger US dollar weighed on prices of most commodities. In spite of some weakening during the second half of 2011, the FFPI averaged 228 points in 2011, 23 percent (42 points) more than in 2010, exceeding the previous high of 200 points in 2008 and the highest level (in both nominal and real terms) since FAO started measuring international food prices beginning in 1990.
ECB leaves rates unchanged. Watch Live press conference.
ECB leaves rates unchanged, just as expected. (Hugh Hendry is not happy). From Bloomberg.
With the euro area on the brink of a second recession in three years, some signs of economic resilience have given the ECB room to assess the impact of its stimulus to date, which includes injecting a record amount of cash into the banking system. The central bank may be pressed back into action soon if looming budget cuts and a credit shortage prove too powerful for the economy to withstand.
“The ECB is taking a breather because it needs to see how its measures are feeding through and also keep politicians on their toes,” said Carsten Brzeski, senior economist at ING Group in Brussels. “It’s unlikely to rush into cutting rates below 1 percent, but it’s pragmatic enough to do so if the economy tanks.”
For the pressconference continue below.
ECB (quick facts)
With all eyes on the ECB, Reuters presents quick “facts” graphically.
Deposits surging, balance sheet resembling the Fed and much more.
The question is how will this end? Next up is super Mario.
China Collapse next focus?
As the markets cheer the Spanish Bond auction, maybe it is time to start looking beyond the European mess. Growth is not coming out of Europe, that’s for sure. The US is trying to persuade us growth is back, but we can’t really see it, yet. What about China, the saviour, and still the World’s number 1 growth place? China is slowing. From the Guardian.
Albert Edwards, head of strategy at Société Générale and one of the UK’s leading “bears”, said the next 12 months would be the “final year of pain and disappointment”.
Predicting a sharp slowdown in activity in the world’s fastest-growing emerging economy, Edwards said: “There is a likelihood of a China hard landing this year. It is hard to think 2013 and onwards will be any worse than this year if China hard-lands.”
Although China emerged rapidly from the downturn of 2008-09, Edwards said the recovery had been the result of a massive reflationary package by the Chinese government. Beijing, he added, could not afford another big stimulus to offset a weakening of the economy. Falling imports have led to a widening of China’s trade surplus, but Edwards said exports were set to slow and a trade deficit was looming.
It’s back-Short Ban extended in Italy.
Doing the same thing over and over, but expecting a new outcome is the definition of a mad person. Latest out of Italy is a new extended short selling ban. Just because it didn’t work last time, it “must” work now? Wonder just how people are expected to hedge positions when shorting is not allowed? Stupidity never ends. From Bloomberg;
Italy’s securities regulator extended a ban on short selling financial shares until Feb. 24, according to an e-mailed statement from Commissione Nazionale per le Società e la Borsa.
The restrictions, in place since August, prohibit investors from betting against the shares and equity derivatives of banks and insurance companies, Rome-based Consob said yesterday.
The short-selling ban covers securities such as UniCredit SpA (UCG), which has plunged 40 percent in 2012 and slumped to a record low this week. Regulators in France, Spain, Italy and Belgium imposed temporary bans on the bearish bets in August to stabilize markets amid Europe’s sovereign-debt crisis.
“The risk is that they’re not allowing investors to get a clear signal about which of these stocks are healthy and which ones are sickly,” Kevin Byrnes, a West Chester, Pennsylvania- based analyst at TFS Capital LLC, said in a phone interview. “That can clog up the price discovery for the entire Italian stock market.”
News That Matters
Ft.com
RBS will announce on Thursday it is shedding another 3,000 to 4,000, the WSJ says, citing a person familiar with the matter. It will announce that it has hired investment bank Lazard to advise it on the sale of parts of its investment-banking business, http://ftalphaville.ft.com/thecut/2012/01/12/829841/rbs-to-announce-up-to-4000-job-cuts/
Infosys, India’s second-largest software exporter by revenue, posted a better-than-expected rise in its third-quarter consolidated net profit, but cut its dollar revenue forecast for this fiscal year through March for the second time, http://ftalphaville.ft.com/thecut/2012/01/12/829851/infosys-profits-up-but-forecasts-cut/
Nationwide, the UK’s largest building society, is considering offering loans to small and medium-sized businesses to broaden its traditional customer base and fill a void left by the country’s biggest banks. The plans are at an early stage and it is unlikely that Nationwide will be in a position to offer SME loans until at least next year. http://ftalphaville.ft.com/thecut/2012/01/12/829741/nationwide-considers-loans-for-smes/
The US Treasury sold 10-year debt below a yield of 2 per cent for the first time on Wednesday, with investors locking up their money at low returns for the safety of owning government debt, the FT reports. The $21bn of new paper was sold at a yield of 1.90 per cent, http://ftalphaville.ft.com/thecut/2012/01/12/829671/hunt-for-safety-pushes-treasuries-below-2/
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