Thursday Market Fuel – Toa Chie PBOC!

At just about 1 am (1pm in Shanghai) the PBOC announced a POMO-type measure that sent equities flying off the floor at 2,000 – firing the market up 3% to 2,060 in less than 20 minutes (not good for the bears!) and settling out at 2,056 – up 2.6% with promises of MORE FREE MONEY to come.  

The Hang Seng finished the day up 234 points (1.1%) and even the Nikkei turned green on the news, moving from an open at 8,850 to close at 8,949.  Rumors were, of course, flying that more stimulus was on the way and no one wanted to be caught short ahead of a week-long holiday for the Chinese markets next week.  Shanghai Securities News, operated by the Xinhua News Agency, said there was speculation the CSRC would announce 10 measures to boost equities while Zheshang Securities Co. said there was market talk the regulator might suspend IPOs.

“Stocks are up because of the speculation that there’s an announcement about IPO reform later at 4 p.m.,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Even if it is true, it will be a short-term rally because the main issue is economic growth. After reaching new lows yesterday, investors are also finding excuses to buy today and make quick profit before the last day of trading tomorrow.”

The Shanghai Composite has lost 7.6 percent this quarter, the most in a year, and is the worst performer among global markets after Cyprus and Mongolia. It’s valued at 9.5 times estimated earnings, compared with the average of 17.9 since Bloomberg began compiling the weekly data in 2006.  All part of the reason I said yesterday that China was bottoming at 2,000.  

Also bottoming yesterday was oil at $90 but we got all the way down to $89 before it finally turned around.  As you can see from Dave Fry's USO chart, that $33 line is very solid support but we're a little wary of using oil for more than a day trade as there is still a massive glut of inventory as well as a massive glut of open NYMEX contracts for oil that no one really wants. 

We went into all that nonsense last week, when we caught the $10 drop in oil (see big red line on chart) and it looks October is going to be another disaster for energy traders as we get closer to the next rollover date but it's not until the 22nd so plenty of time to fake it between now and then.  Just look how they faked it in September until the last minute.  

We went ahead with our plan and did some bottom-fishing in yesterday's Member Chat and we thought we got some pretty good deals but this morning we have a VERY SCARY collapse in Durable Goods – down 13.2% on the headline but that includes a strange 101.8% drop in Civilian Aircraft orders indicating not only were there no orders, but some returns from last month. 

If we throw that out (and who doesn't like throwing out bad numbers?), we're down 1.6% ex-Transports and, while that does nothing to reverse the almost 2-year downtrend in orders that everyone has been ignoring anyway, at least it gives us easy comps going forward…

In more bad data the MSM can ignore for us:  Q2 GDP in the US has been revised down to 1.3% from 1.7% and that's a pretty shocking 23% downward revision that nobody expected but everyone will ignore.  The Chicago Midwest Manufacturing Index fell 1.2% for the month to an adjusted level of 94.1 – with 2007 equaling 100 so we're about 6% off our 2007 levels and back to my argument that the market should be reflecting that (6% off the top) and not re-testing all-time highs.  

Initial Jobless Claims were "only" 359,000 last week so a bit of improvement there and our Corporate Masters made an additional $21.8Bn in Q2 but taxes on Corporate Income fell $10.3Bn leading to an after-tax profit increase of $31.9Bn. Dividends increased $20.4Bn (taxed at the favorable 15% rate, of course) and all this is DESPITE a $39.7Bn decrease in Q2 Financial Profits in the Appleconomy.  The "Rest of the World" corporations also increased their profits by $33.6Bn, despite the suffering of the rest of the people in the World.  Why does all this put me in the mood for Rollerball?  

Let the games begin!