Behind the Market Headline News

Since hitting the multi-year low $33.87 measured by front month future contracts trading on ICE on 12/19/08, Western Texas Intermediate ( WTI ) light sweet has been stuck at a trading range between $34 and $48 so far this year. Today front month contract was closed at $33.98, almost exactly the same lowest level occurred two months ago. The most interesting question, intriguing many commodity and equity investors alike, is this the temporary bottom or just the beginning of another leg downward spiral to further unwinding excess bullish positions that had built up prior to the July peak last year . If we examine the current future term structure, we may come out with the conclusions that likely outcome in next few weeks WTI would go higher than lower. Since the term structure shifted from backwardation in late July last year to current contango , the spread between front month and 2 nd month contracts has increased steadily. Today the spread reached highest level, about $8 (see...

Nasdaq markets have been dominated by some of well know large cap tech companies and many smaller less know names too. Not surprisingly, Nasdaq markets measured by NASAQ-100 have been much volatile than SP500. However, since tech bubble busted in 2000, the Nasdaq volatiles measured by VXN declined dramatically and has gradually converged to broad market volatility represented by SP500, VIX (see Bloomberg chart below). Actually, as credit and mortgage market began to melt 18+ months ago, VIX and VXN have been almost in parities. SP500 was much volatile than NASDAQ100 in two of these period, first when Bear Sterns hedge funds fiasco and second time happened in last Nov when financial system was in the breaking point. Financial sector was the one of largest sectors until last year because of market value evaporation from some celebrated financial names, like Bear Sterns, FNMA and Freddie, Lehman and Citi. Almost all these financial firms were traded at the big board and are members of SP5...

BlackBerry device maker, RIM, report its the 3rd quarter results after the bell, as expected, the company's earnings were significantly impeded by the global economy slow down, GAAP net income increased about 7.0% from $370mm to $396mm ($0.70 vs $0.66 per share) with revenue coming in at $2.8 billions. Most interesting to me in the earning release, though, was that RIMM sold 6.7 million BlackBerry devices and booked $2.3 billion revenue. For comparison, in AAPL last quarter (ended 9/27/08), AAPL sold 6.9 million iPhone, but only $806 millions revenue was recognized. So even about 200,000 more iPhone were sold with assumed higher ASP than Blackberries in three month period, AAPL booked 2/3 less revenue than RIMM. The culprit is that AAPL book its iPhone sales using so-called "subscription accounting", namely recognized revenue over 24 month period, but not as sales occur. When AAPL only sold average about 1 mm iPhone in each previous few quarters, iPhone sales have limited...

Following the significant equity market consolidation or profit taking in Asian markets overnight, the stocks in the states were under enormous pressures from the opening bell in the morning. The declines were broad based and no safe place to hide (only two stocks of S & P 500 index ended in positive territory). However, the sell-off was due to happen considering the historical magnitude of rallies we have witnessed in the last week (>17% in 5 sessions) and potential huge amount tax related portfolio balancing at the year end. Any opportunities to book meaningful gain or any any sign of momentum shift would trigger consolidations. Today's movement is no exception, the broad based indexes steadily went to downward throughout morning session (we can see the ARMS gradually reach the usual upper limit of 2.0, then the index suddenly spiked right over 6.0 around 2:45. After this momentum shift the market went to unstoppable downward spiral. Because of the way that ARMS constru...

The financial chaos and sudden downward spiral of global economy have created a wide spread fear in the market places that the impending risk is the possibility of deflation as Japan had experienced in the last decade. This left "real" yield on current 5 yr treasury TIPS at 2.293%, about 29 bps HIGHER than the nominal yield on its big brother, 5-yr treasury note, which was traded at about 2.00%. The yield differences between 5 yr note and TIPS reached at par about a month ago and have steadily declined into negative territories (see the Bloomberg chart below). The spread for 10yr sector also collapsed from long term historical average 210 bps to only a few basis points above zero according to Bloomberg data. What market offer now for investors is you can lock-in at least 2.20% "real" yield if the security is hold until maturity and if there is any positive inflation comparing to the negative "real" yield for the nominal treasury notes. The only risk to hol...

One of most intriguing event, which barely got any attention in the market, was that, for the first time in the history, 30 year USD swap spread dropped into negative territory today. The US treasury 30 year bond traded at 4.027% and the same maturity US dollar swap traded at 4.051%, i.e, 30 year swap spread was about -2.4 bps (see attached Bloomberg chart below) . The 30 year swap rate only go back to early 1994 in Bloomberg data base, in the last 14 years, swap curve was always and should traded at discount to the treasury benchmark, "risk-free" bogey. So what is mean for the equity and credit market? Or most importantly, is the swap market trying or pricing the much deep recession or an early signal of Japanese-style deflation market has feared in 2003? Is the US treasury credit quality put into challenges? Or just the abnormally due to temporary market forces? Isn't the market facing the greatest CREDIT crisis we ever face since the Great Depression? Should we expect...

Today's dramatic 1000 point reversal of Dow 30 may be just the capitulation point that market has been looking for in this free fall market. Many other sentiment indicators, such as AAII bull and bear readings, VIX and 52 week high/low also point to the extremes. Underneath this gloomy and Armageddon scenario, one of most significant and interesting piece of data is in the futures market, specifically speculator's reading in this scary market. According to today's data release from CFTC, it looks that speculators have positioned for market (S&P500) turnaround. As this past Tuesday, speculators have built more than 102,000 long S&P500 positions, a highest in last five years. More importantly, the speculators also have reduced the bearish bet, short positions to just about 43,000, a lowest level in two years. Without questions, in the last few weeks, the equity market was the darkest period for the long side, but the end may be in sight at least in the short term. Th...