Morning Update/ Market Thread 7/29

Good Morning,

Equity futures began rising after the close yesterday and have not looked back. The dollar is down, and bonds are down as well which is supportive of higher equities this morning. Both oil and gold are down slightly, with oil in the $76 range, having failed to break above $80 resistance.

Slipping below most people’s radar, wheat has been one commodity that has been on a wild ride. Below is a chart showing the daily price movement, and on the right is the weekly. On the daily, you can see that price of wheat has risen from $425 to $659 in about a month and a half. That’s a 55% rise! And that move is absolutely straight up, the type of parabolic move that you know is going to reverse hard at some point, and that point may be approaching. If you look at the weekly chart you will see that price collapsed and then began a volatile trading range, wheat is now at the upper end of that range. I would not attempt to play it here, but a breakout may be talking to us, as would a reversal, so it’s worth watching. Corn has also been moving up, but not as dramatically:



This morning the jobless claims came in at 457,000, slightly lower than the prior week’s 464k (revised to 468k), and slightly less than consensus of 460k. Yet another very elevated report, it is troubling that this number is not coming down. It’s my thesis that debt saturation is the underlying cause, and that employment will not return to health until that condition is truly cured. Here’s Econoday:

Highlights
Initial jobless claims for the July 24 week were down by 11,000 to 457,000, slightly lower than expected by analysts. However, the number of initial claims was revised up to 468,000 from 464,000 in the prior week. The four week average dropped by 4,500 to 452,500 in the July 24 week and the lowest since the May 8 week when the average was 450,500.

Continuing claims in the July 17 week were up by 81,000 to 4.565 million. The four week moving average here was down by 18,000 to 4,548,250, the lowest level since the December 27, 2008 week. The seasonally adjusted insured unemployment rate rebounded to 3.6 percent in the July 17 week after edging down to 3.5 percent in the previous week.

Tomorrow will be data intensive with the first crack at Q2 GDP. The consensus is looking for 2.5% growth. The Chicago PMI and Consumer Sentiment are also released tomorrow.

The rising wedge that everyone thought was occurring is now pretty much excluded as being in play. Our first clue is that prices normally drop hard out of a rising wedge, and instead we got sideways with a little bit of down. That movement created the lower boundary of what now looks like an up channel. Inside of that channel you can clearly see that it looks like we have made 4 waves and thus it looks probable that we will see a final wave higher. Just remember that 5th waves are wild cards, they can truncate or extend, so picking a target is difficult and requires paying attention to fib levels and prior resistance. Below is a 30 minute chart showing those waves within the brown up channel, that channel comprises wave c of an a,b,c that is inside of a larger up channel:



The good thing about having a well defined channel is that it gives us a clear indication of the next trend change and that boundary line will make a good entry/ stop point.

I find the move lower in the dollar interesting, it has come quite a long way. The Euro, however, is coming up on resistance soon and bonds are still close to their recent highs. The VIX is another item to watch, yesterday it produced a hammer just over the 200dma. Should it fall and stay beneath the 200, it would be bullish, but it is stubbornly remaining above it for now. Support is at 1090 and 1100. Resistance will be found at the 1107 pivot, the 50% fib at 1115, the June high of 1131, as well as a pivot at 1136. The 61.8% of the entire move since the April peak is at 1140, so there is quite a bit of resistance to chew on.

The market moves in waves, as manipulated as it is, it is still a part of nature and contains a rhythm. It’s our job to get in synch with that rhythm…

Carlos Santana - Oye Como Va


*The first sentence is actually “Oye como va mi ritmo,” meaning “Listen to how my rhythm goes.”

Morning Update/ Market Thread 7/28

Good Morning,

Thank you again to those who participated in an enlightening manner on the market threads while I was away! While I’m back for today, I am only partially up to speed and will be gone again off and on the rest of this week. Next week the markets should get my full attention.

Equity futures are lower this morning and they have broken my rising wedges on the futures – but not yet on the day only charts. It is possible that they simply broaden and morph into an up channel, we will have to watch the action to see. A rising wedge should break down fairly hard if it’s truly in play, if we move sideways then there may be another wave higher coming. Below is a snapshot of the rising wedges as depicted on a 15 minute chart, DOW on the left, S&P on the right:



The dollar is flat, bonds are down slightly, oil and gold are both flat after very large down moves yesterday.

The economic data continues to deteriorate – I can’t recall a truly positive piece of news over the past month or so and that certainly did not change while I was away. The ECRI has now fallen more than 10% and is a good indication that another recession will be recognized.

This morning the (worthless) MBA Purchase Index rose 2% over the prior week. The Refinancing index fell 5.9%, pushing the composite index down 4.4%. Housing remains in the gutter and will remain so for quite some time. I think it’s interesting to note that the media is reporting home ownership has fallen to 11 year lows (duh), and in unrelated pieces that renting is a growing trend (duh). This trend will reverse, but we are not close to that point yet as renting is still financially favorable to owning in most areas and circumstances.

Durable Goods Orders fell another 1.0% for the month of June, this follows a 1.1% drop in May. The Consensus was expecting a rise to a positive 1%, so they missed completely in the wrong direction. The year over year numbers are higher, but keep in mind that comparisons to that time frame are very easy and that there was much stimulus between then and now – much of which is no longer with us. Here’s Econoday:

Highlights
The manufacturing sector sputtered in June, according to new durables orders. New factory orders for durable goods in June fell 1.0 percent, following a 0.8 percent drop the month before. The June numbers fell well short of market expectations for a 1.0 percent boost.

The June decline was led by the transportation component. Excluding transportation, new durables orders slipped 0.6 percent, following a 1.2 percent gain in June. Outside of transportation, major components were mixed, albeit net negative. Other than the fact that markets were disappointed that Boeing orders did not turn overall durables positive, the monthly trend is still upward, although volatile.

For the second month in a row, the big negative was the transportation component which fell 2.4 percent in June, following a 6.6 percent drop in May. Nondefense aircraft decreased 25.6 percent after falling 30.2 percent in May. Defense aircraft rebounded 6.5 percent. Motor vehicles continued a recent string of gains, rising 2.5 percent in June.

Other components were mixed. Declines were seen in primary metals, machinery, computers & electronics, and in "all other." Components gaining were fabricated metals and electrical equipment.

Nondefense capital goods orders excluding aircraft in June rose 0.6 percent, following a 4.6 percent spike the month before. Shipments for this category edged up 0.2 percent in June, following a 1.5 percent rise in May.

Year-on-year, overall new orders for durable goods in June were up 15.9 percent, compared to 15.2 percent in May. Excluding transportation, new durables orders came in at up 15.0 percent, compared to 17.8 percent the prior month.

On the news, equity futures slipped and Treasury yields edged down.

Turning to the charts, on the 3 month SPX chart below you can clearly see the a,b,c nature of the rally off the July 1 low. Wave c is now proportional to wave a time wise, but it is weaker distance wise. This tells me that the ultra bullish count some EW people are looking at is incorrect. If they were correct, then this would be a wave 3 higher which should be getting stronger on the next level of 3 – it’s not, it’s getting weaker with price and it’s on lower volume. As I predicted, the SPX 1115 area has acted as resistance for now – it is a 50% retrace level of the decline since April and has significant resistance in this area. Again, it could be that we are simply basing for another push higher:



The daily RSI bullish divergence that was in place is almost washed out at this point and there is now a fairly significant short term bearish divergence in place on the shorter timeframes.

What is bullish is that both the Transports and Industrials made new closing highs above their June highs. This is a secondary DOW Theory buy signal. A primary signal would only come by exceeding a primary high, that would be exceeding the April mark. Still, this should not be ignored as it gives the bulls fuel and fodder to believe that the trend has changed. That’s what wave 2s do, they are meant to fool.

Long term bonds have clearly broken their uptrend, but both TLT and the TNX look like they are running into support/ resistance.

The VIX broke support beneath the 200dma, but I note is back above it this morning:



Both the Transports and the RUT produced closes above the upper Bollinger Band and then yesterday closed beneath them. Those are sell indications, but prices need to be watched to ensure that they don’t close back above them – in other words, follow-through is required. Below is a daily of chart of the Transports showing this:



Overall I’m still not believing the bullish case and I’m certainly not buying the supposed massively higher earnings either. What I see are financial companies marking their garbage to model and that is producing fluff across the spectrum. Start marking assets to market and then we’ll see what is truly real in the market – until then it’s all simply games and illusion.

Market Thread 7/27

I'm out of town through Today... please use the comments to update and inform one another on the current market action, thank you!

Market Thread 7/26

I'm out of town through Tuesday... please use the comments to update and inform one another on the current market action, thank you!

Weekend Funnies...

Morning Update/ Market Thread 7/23

Good Morning,

Equity futures are moving back and forth across the even line this morning with the dollar up, bonds flat, oil down, and gold slightly higher.

Regarding oil, it is currently at $79 a barrel and did almost make it to the $80 mark again yesterday. Last night I read an article showing a very high correlation between oil at or above $80 and the pressure that it created on equity markets and the economy. Going back to mid ’07, if we look at the times that oil exceeded that $80 mark we will see that indeed the markets and economy have struggled greatly. The year spent over $80 from October of ’07 to October ’08 correlates almost exactly with wave A down that bottomed five months after oil fell back below $80. Again at the end of last year and early this year oil began to push $80, and the markets and economy have stalled again. I’m not saying that it’s instant or that the cause and effect are directly related to that mark, but there is a strong correlation and we are pushing that point again so it’s worth acknowledging and watching this demarcation line.



There is no economic news today, however, Standard & Poor’s is threatening to downgrade Hungary’s debt to junk (duh, but notice how they will only downgrade the less powerful nations even though many of the more powerful nations are as bad or worse debt wise), and today is the European “Stress Test” results, Ooooo, I can’t wait. This is the one and only mention you will hear from me regarding these stress tests – it can easily be summarized in one word, JOKE. They are not fooling anyone but themselves… well maybe a CNBC “analyst” or two along with every Nobel Prize winning economist, but other than them no one else is that gullible.

Significant earnings movers overnight were AMZN which is down dramatically after recognizing that profits are pressured by price cuts for the Kindle along with higher expenses and opposing that weakness is Ford who posted strong gains, Microsoft, Verizon, and McDonalds.

Yesterday’s 200 point romp indeed turned out to be yet another 90%+ day, this time coming in at a “weak” 90.5%. It pushed prices right into resistance at the SPX 1090 level. That was the 9th 90% up day since the April peak, the score is now 11 down and 9 up for a total of twenty – nuts.

We did not exceed the high of July 13th, but we did come close. That action is very close to eliminating a smaller wave 2 of 3 and probably indicates that a larger degree wave 2 is in progress. If that’s the case, then July 1 was the bottom of wave 1 and the July 13th high was five waves into a wave ‘a’ top. That means that we may be working our way higher in wave ‘c’ which would need a sideways to down movement followed by another push higher to more fully draw in the bulls. A daily chart of the SPX shows that we are now progressing outside of the wave 1 down channel. Keep in mind that H&S target of 860, it is a large pattern and obviously just needs time to play out:



There is a rather large bearish divergence on the short term RSI that developed yesterday and is still in place. That contrasts with a significant bullish divergence on the daily RSI which this wave higher should work off. So I would expect some sideways action followed, of course, by a 90% chance of a Monday HFT ramp job.

Guns & Roses – Patience:

Morning Update/ Market Thread 7/22

Good Morning,

Equity futures are up substantially this morning with the dollar down, bonds down, oil and gold up. The media, who must always find a reason, are touting CAT and Ebay earnings, but neither stock is actually higher by any significant degree, in fact CAT was substantially lower on the report.

New Jobless Claims jumped from 429,000 all the way back to 464,000. The consensus, which has been very much behind the latest downturn, was estimating 450k. Here’s Econoday:

Highlights
The Labor Department confesses: it was holiday distortions tied to July 4 that held down initial claims in the prior week. Claims for the July 10 week jumped 37,000 to 464,000 (prior week revised 2,000 lower to 427,000). Despite the jump, the four-week average, at 456,000, is slightly lower than this time last month which does hold out hope for improvement in monthly payroll data.

Continuing claims fell 223,000 in data for the July 10 week. The four-week average for this reading shows only marginal improvement from a month ago: at 4.567 million vs 4.573 million in the June 19 week. The unemployment rate for insured workers fell two tenths in the week to 3.5 percent.

Weekly initial claims data will be distorted through the month of July, beginning with the opening holiday and in following weeks on calendar shifts for retooling in the manufacturing sector. Nevertheless, today's report isn't very good.

The four week average is down due to their seasonal manipulations. Continuing claims are down as people fall off the rolls and due to the end of emergency benefits which are in process of being restored.

Existing Home Sales and Leading Indicators come out at 10 Eastern this morning.

Want to get angry? General Motors, who we all just bailed out and who completely sunk GMAC, is now buying subprime lender AmeriCredit (ACF) for $3.5 billion so that they can recreate their terrific financing activity! On your nickel, I might add. This bailout was the worst of the worst. The media and meatheads blaming the unions, but the truth is that GM could have paid NO wages, no benefits, and no retirements and they would have still lost Billions due to their incomprehensible finance arm. They financed subprime mortgage loans, and they were responsible for blowing a price bubble in automobiles! Cars became so expensive due to their financing anyone with a heartbeat, that they went from three year financing with 10% down, to seven year financing with zero down. This is what created a bubble in car prices, a bubble that still exists. And just look at the industry now. Zero down, zero interest. Where is the financing cost? It’s in the price of every car! Way overvalued, and we can thank our government’s meddling for that. GM and Chrysler continue to block out real and meaningful competition, it’s the de-evolution of our entire manufacturing base.

Looking at the wave count, it appears that the down move on Bernanke’s concerns yesterday was a wave (b) of wave c of wave 2. By that favored count, this should be the final wave higher and it may take us into the weekend to be proportional with wave (a), as that wave lasted approximately two days. That said, the final wave can easily truncate at any point, so we’ll see what kind of data we get this morning. Patience, it will soon be time:

Chambers Brothers - Time Has Come Today