Behind the Market Headline News

In my 7/8 post ( Just the beginning? ), speculator's futures and options contract positions were examined, it indicated that crude would begin long over due correction. I used speculator's futures contract positions this week to assess the indication of crude oil movement. US crude futures market had a very significant sentiment change based on this Friday's data from CFTC's release for market close 7/22. For the first time in the last 17+ months, "non-commercial" participants, or speculators held net short crude futures positions at NYMEX (see chart "Crude weekly price and speculator net crude futures positions"). The net short positions of 3,640 contracts were mainly caused by closing nearly 12,000 long positions and increasing over 14,000 short positions for the week. The total outstanding short positions for speculators stood at over 201,600, the second highest level (the highest level was 203,000, happened two weeks ago on 7/8) since the beginni...

The headline news of this morning's NAR reports on US existing home sales did not paint a pretty picture at all for current US real estate markets. The existing home sales tumbled to the lowest level since data was compiled in 1999. The median home price dropped more than 6% from previous year. The report seems providing no indications the ending of housing market slide. However, if there was any silver lining from this report, it was the single family home prices had stabilized and actually on a gradual climb monthly since the 1st quarter. The chart below depicts single family median and average price monthly change since the end of 2007. As the chart showed that home price dipped the most in Jan, then had been increasing month over month since. News media picked up the headline numbers of y-o-y declining 6.1% for median price and and 16.7% drop in total sales. But it is quite evident that entering the second quarter this year the speeds of declining home price had decelerated sig...

Equity market experienced some major corrections in response to credit stumbles in Jan, March and July this year, VIX spiked over 30% in both Jan 22 and March 17, but failed to close above this perceived extreme reading in the latest equity sell-off in last two weeks. Many market pundits were expecting to see the spike of VIX over 30%, and which were believed to be the indicator that the market finally reached "capitulation" point and hence short term "bottom." The 30% has been regarded as such an important bogey might come from the observations that VIX pierced through the 30% every time when S&P500 index went through risk repricing (corrections) process since last August (see the chart "Historical VIX and SPX " below.) However, VIX didn't broke above this "magical" mark during the latest downturn ( VIX did briefly touch 30% intra -day on 7/15 though), the final indicator for the market bottom. Most of other market sentiment indica...

AAPL delivered another great quarter after market closing yesterday (7/21) , beating both EPS and revenue street estimates ($1.19 and $7.46 billion vs. $1.08 and $7.37 billion.) The stock took a beating after AAPL failed the Wall Street's expectations in gross margin and EPS for the coming Q4 and concerning of Steve Jobs's health. It is well known and perceived for many on the street that AAPL has traditionally provided very conservative guidance for coming quarters so that the management have some insurances to delivery positive surprise when it is time reporting earning. I believe there is significant truth about the practice and it is common for some market participants to use the tactics to spin the lack luster business operation into positive light. For long term (>1 year) investors, however, what AAPL did may prove to be a responsible management strategy. Considering the fact that AAPL has continuously developed some amazing new products distinguished them with "c...

I made an argument that the S&P500 may have reached the bottom in previous post ( 7/13 ) by using speculator's net S&P500 index futures and options as a proxy. The speculators have build up their long positions for last three weeks and most importantly that the net long positions increased incrementally from closing short position and increasing long positions. There are two other market sentiment indices also point to the possible S&P500 bottom in the near term. The first measure is the ratio of numbers of stock reaching 52 week high to 52 week low for the total US markets (52 HL ratio, thereafter) calculated from Bloomberg database (the data is available beginning on 10/25/02). Using the last 5+ years data, the 52 HL ratio is a very good contrarian market indicator (See chart below). For all the market corrections we have experienced during the study period, the 52 HL ratio exhibited as an almost perfect turnaround indicator. Whenever the ratio reading was close ...

Since reaching all-time high of 13.31, natural gas has joined with crude oil beginning their equally breath-taking downward spiral as when they marched up at beginning the year. In my early post (7/4), I made a case that natural gas might have much room left to continue its upward momentum comparing to crude oil. The arguments were partly based on the futures market data on Henry Hub ( HH ) natural gas futures swap that the speculators have incremental increased their bullish bets ( net long positions ) since starting of 08. There have been no signs that the smart money reduce their bets on long side based on this Friday's CFTC release, granted the net long positions declined somewhat but still on significant on the bullish camp. This really puzzled me considering the size and momentum of long positions on the HH natural gas swap futures market. If the momentum for natural gas has shifted, we certainly would expect the speculators, if not lead the pack, at least join the crowd. T...

The dramatic equity pricing gyrations, the spike of VIX (briefly broke 30 intraday on 7/15) and heavy trading volumes on Friday just might be the early signs that the market is inching closer and closer to the near term bottom, if not the bottom, many have been waiting for or expecting in the last few months. If there is any bright spot in this seemingly dismal markets from a contrarian perspective, then looking no further than the equity futures markets. Even the market looks and feels horrific, the smart money has significantly reduced the bets on declining S&P500. This Thursday's (7/10) release of the exchange short interests shows that short sales on both NYSE and NASD declined in the late June. And most importantly in the futures market, the non-commercial users, or so-called speculators, have significantly increased their wagers on the S&P 500 turn around, at least in the near term. The speculators have maintained net long positions on S&P500 index since 6/24...