CTA Trader's Conference Call Notes

CTA Trader's Conference Call Notes:
Click here for a link to ORIGINAL article:

By Bill Cara | 15 October 2009

In the old days, high profile stocks gapping to new highs on news related announcements, and reversing lower, then finishing near their daily range lows, would be said to be under distribution. Smart investors (large enough to influence price) use the good news to unload their stock at a handsome profit, happy to lock in gains and look elsewhere for undervalued situations.

After reporting sharply higher quarterly earnings, Intel (INTC +1.66%) traded up almost +6% Tuesday evening in after-hour trading on peanut volume, opening in the morning +3.5% at yearly highs before selling off on large volume, settling near the lows. JP Morgan (JPM +3.29%) also reported better numbers, opened on its high, and closed lower even though the broad market spent the day powering high all day long (S&P +1.75%). Linear Technology (LLTC -2.18%) beat estimates, opened near its highs, and actually closed lower on the day.

This is distribution, pure and simple.

US bonds (TLT -1.48%) took it on the chin Wednesday, the Fed's Permanent Open Market Operations (POMO) nearing completion; other buyers will have to step forward to purchase huge volumes of these securities in order for the US to continue borrowing money at artificially low rates. Support for TLT stands just above 94, with its upwardly sloping 89-day Moving Average, an up-trend line off the June lows, and the 50% retracement of the recent rally all converging in that same general area. The last thing the US needs right now is higher oil (USO +1.55%) and higher interest rates, the combination— perhaps a lethal one-two punch to a wobbly economic recovery. We think the Chinese, Saudis, and Japanese have their fill of US debt and are not inclined to be buying the same quantity of bonds at these levels.

Goldman Sachs (GS +2.70%) and Citigroup (C +3.52%) are reporting before the opening today, and that should set the tone for early morning action. But, with the Dow over 10,000 and the S&P barreling in on 1100, what can the market do for an encore? Time will tell. Time will also tell how long the $USD can be pushed lower by HB&B in order to support higher market prices. Beware; these people will coordinate the reversal, and that's how they make $100 million a day trading against you and me.

*********************

In any case, you might find the following article of interest. It was published in the Portuguese language in a European publication today, and is not likely something that would be heralded by the players in Washington and New York. I ran the Portuguese through the Google Translator, which was surprisingly accurate. [[As well, I did some additional cleanup, where the intent seemed plain: normxxx]]

(Heading) European Companies Abandon The NYSE (Sub-head) High Costs, Bureaucracy, Crises And Scandals Caused Stampede Since the outbreak of the crisis of housing loans due to excessive risk— the sub-prime crisis— more than 40% of European companies that trade on U.S. exchanges have left the largest financial market in the United States, the New York Stock Exchange (NYSE). European companies complain about the high cost to negotiate roles in New York and the excessive bureaucracy to prove the 'transparency' of transactions. Since 2007, companies like Allianz, BASF, E. ON, Vivendi, Lafarge, Suez and GDF Fiat returned to their home markets, like London, Paris, Milan and Frankfurt. The withdrawal began in April 2007 and coincided with two factors: the worsening of the subprime crisis, and the 'reform' of financial accounting standards and the Security Exchange Commission (SEC) which, among other things, facilitated the withdrawal of foreign companies. Since then, players like Danone, British Airways, Adecco and Telekom Austria have abandoned the U.S. market, opting to trade their securities in squares closer to their headquarters, here in Europe. The last major group to announce its departure was a German insurance company, Allianz. "When we first joined the NYSE in 2000, we wanted to have international visibility and attract the attention of new investors," argued a spokesman for the company in the newspaper Le Monde. "But things have changed, and 95% of our shares are traded on the German market. Frankfurt is our place". The company also makes markets in Milan, London, Paris and Zurich. A similar decision had already taken the French advertising group Publicis, for which the cost of maintaining a place on the U.S. exchange was not worth it, since only 1% of their securities transactions are made in the USA. In 2007, Sergio Marchionne, CEO of Fiat, had taken the same initiative in terms of excessive costs. Marcus Schenk, chief financial officer of German utility E. ON, justified its decision the same way. "Our goal is to reduce complexity and costs," he said at the time. Procedure Dear These decisions weigh more heavily on the U.S. exchange than its competitors. Between 2000 and 2007, the number of European companies that trade stocks on the NYSE had risen 4%, even with the entry of legislation considered adverse to foreign companies into force— the Sarbanes-Oxley, after the Enron scandal in 2001— that created 'new' rules of 'accounting transparency', making it yet more difficult/costly to maintain shares in the U.S. market and, above all, increasing the complexity of the process. Since then, the European presence has fallen 40%. The explanation of the phenomenon may be found in the early '90s, in the Nasdaq, the index of mostly 'high-tech' companies. With the breakdown of that index, many European names withdrew from the list of offerings in New York. Coincidence or not, the rout experienced by the NYSE comes amid a succession of crises and scandals [[and relatively poor performance: normxxx]]: subprime, Lehman Brothers, and Madoff are but three examples. "The [U.S. markets] were tarnished by the Enron scandal in 2001. The financial crises and scandals that followed, such as Madoff, only accentuated the loss of credibility of the U.S. market," believes Jean-Pierre Agazzi, expert cabinet audit accounting firm Deloitte. In contrast, 71 new companies, largely foreign accented, settled on the London Stock Exchange (LSE) between 2006 and 2007. This argument is not well accepted by three researchers at the University of Toronto, Craig Dodge, Andrew Karolyi and Rene Schultz. According to the study they produced on the subject, the decline in the number of companies has more to do with acquisitions, mergers, restructurings and bankruptcies. The fact is that while the NYSE loses European companies— but wins Chinese and Latin American— European markets are preparing for a resumption of new businesses, possibly in the first quarter of 2010. Companies like Polarcus Norwegian, Dutch Delta Lloyd, and the German Germany(?) and Unity Media have announced the raising of capital on the bourses of the European Union bloc. — Andrei Netto, Correspondent, Paris

Have a great day.