Tuesday, October 28, 2008

A Stock Market Breakout and Other Tuesday Observations

* Upside Breakout - The chart above shows the 2 hour moving average of NYSE TICK (pink line) versus the ES futures for the last four trading sessions. When we corrected back toward the ES 860 level during the 1-2 PM CT hour, the TICK moving average stayed positive, showing underlying buying interest. This accelerated through the afternoon, as buyers lifted offers--keeping the broad list of stocks trading on upticks--creating a powerful breakout move to multiday highs. The persistent, strong TICK readings were an excellent tell for those who might have been tempted to fade the move.

* Some Good Readings Suggested By Alert Readers:

-- Trader perspectives (incl. yours truly) on trading in tumultuous markets;

-- Fed. working paper: Much of what we hear about the credit crisis is based on myth;

-- An inside look at the credit market collapse;

-- Prospects for quantitative easing in the U.S.

* Some Good Blog Readings:

-- AlphaTrends video: flexibility of opinion the key to daytrading these markets.

-- Thoughts from GlobeTrader about creating an investment plan in the current beaten-down market.

-- Treasury's unprecedented financing needs, the capitulation myth, and much more from Kirk.

-- Fibs and the holy grail, crazy options market, and more updates from Trader Mike.

1 comment:

gaius marius said...

re: the minneapolis fed paper -- there are some good perspectives there about nominal rates, but i find the paper rather scary -- the authors clearly don't have a broader grasp of what is happening.

to claim that bank lending is healthy based on the fact that credit lines are expanding is to misunderstand the situation. banks would very much like to stop, but are contractually committed to large undrawn lines for large corporate clients. those lines are being drawn down now because these large corporates cannot get financing in the capital markets except at punishing rates. the result is a highly bifurcated market, where pre-existing large corporates get loans the banks don't want to make and everyone else can get no credit at all. this is not characteristic of health. at least the authors recognize the possibility and belabor the lack of data, but of course that isn't adding much.

it's also questionable to characterize as healthy an interbank market where the central bank is virtually the only source of funding for term, as opposed to overnight. the same can be said of commercial paper, where vast sums coming to term are (beginning this last monday) having to be rolled onto the fed because term lending is unavailable at any rate.

again, while pointing out that cost of funding is not purely a function of spreads is certainly telling truth, the authors don't seem to be adding much to the debate. if this is the level of understanding at the minneapolis fed, i'm more nervous about official understanding of the crisis in general -- and at least thankful that they aren't running treasury.