Charts I’m Watching: May 28, 2014

The PPT swinging into action this morning in the unrigged “market.”  The 10-yr note is coincidentally bid at the former lows…

2014-05-28-TNX 15 0545

NKD catches a bid at the channel bottom…

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…and, ES catches a bid at the 1.618 it should be reversing off of.

2014-05-28-ES 5 0600


Make no mistake, the market should be tanking.  But, the month end is Friday, and it would look really bad if it ended on a sour note. So, it’s time to pull some tricks out of the bag, like this takedown in the 10-yr futures last night.

2014-05-28-ZN 5 0600

By far the most startling data I’ve seen lately was posted on Zerohedge yesterday.  For those who have been wondering where all the buying pressure at all-time highs is coming from… wonder no more.  Per Zerohedge:

According to the most recent CapitalIQ data, the single biggest buyer of stocks in the first quarter were none other than the companies of the S&P500 itself, which cumulatively repurchased a whopping $160 billion of their own stock in the first quarter!

Screen Shot 2014-05-28 at 9.46.04 AM


Should the Q1 pace of buybacks persist into Q2 which has just one month left before it too enters the history books, the LTM period as of June 30, 2014 will be the greatest annual buyback tally in market history.  And now for the twist.

Unlike traditional investors who at least pretend to try to buy low and sell high, companies, who are simply buying back their own stock to reduce their outstanding stock float, have virtually zero cost considerations: if the corner office knows sales and Net Income (not EPS) will be weak in the quarter, they will tell their favorite broker to purchase $X billion of their shares with no regard for price: the only prerogative is to reduce the amount of shares outstanding and make the S in EPS lower, thus boosting the overall fraction in order to beat estimates for one more quarter.

Compounding this indiscriminate buying frenzy is that ever more companies (cough-apple-cough… and IBM of course) are forced to issue debt in order to fund their repurchases. So since the cash flow statement merely acts as a pass-through vehicle and under ZIRP companies with crap balance sheets are in fact rewarded (as even Bloomberg noted earlier) the actual risk of the company mispricing its stock buyback entry point is borne by the bond buyer who in chasing yield (with other people’s money) serves as the funding source for these buybacks.

Happy trading!

UPDATE:  1:15 PM

The “market” is stuck trying to decide whether the stick save will suffice.  Note the distinctive flag pattern on 10-yr note yields.  There’s much more potential downside, but they’ve done a fair job of turning it sideways for now.

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ES shows a likely IH&S Pattern in the works (targets 1918.55.)  The only problem is that 1.618 extension at 1910.51. The neckline at 1911.50 matches up with SPX’s high of 1913.62.

Note: the equivalent 1.618 for SPX is way up at 1918.36 — an obvious mismatch and another source of the “market’s” confusion.

2014-05-28-ES IHS 0952

The upside is having trouble getting going because USDJPY — which is stalling at the SMA20 — badly needs a trip down to the 200 SMA and purple channel bottom, and TNX has plenty more downside.  In short, the USDJPY/ZN/NKD ramp hasn’t shown up yet — and might not, today.

Tomorrow is setting up as a weak market on the face of it.  But, if the rampers can reset overnight, the upside targets have a shot — especially since it’s the biggest POMO day of the month.  Keep a close eye on the futures tonight.


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