Friday, May 29, 2009

Market Update/ Daily Thread 5/29

Good Morning,

I’m back! Thanks to everyone who kept the daily thread going, there were a lot of good comments on there, I appreciate it, thanks! It was nice to get away for a couple of days, the weather was terrific, the golf course was beautiful (very tough greens) and it was nice to just walk it and watch. My son had a lot of fun, played well but finished about in the middle of the pack. A little disappointing, but it puts him in the top 30 or so High School golfers in the state, not bad!

Futures are up this morning, here’s a chart of the overnight action, showing the /ES was stopped by the 912 pivot:

And I see that equities are the LAST to get it, again! I think that’s because there’s a retail side to equities that’s smaller with bonds and currencies. I have read so many opine that the historic blow-out of the yield curve is signaling recovery that it’s not even funny. This yield curve spread is NOT healthy, it is artificial. Rates on the short end are being bought down with your tax dollars and printed money, i.e. MANIPULATED. Rates on the long end are shooting higher BECAUSE OF THE MANIPULATION!!! And because of the massive, out-of-control spending that’s coupled with CRASHING TAX REVENUE and a BIZZARO WORLD where our government (YOU) is becoming the owner of what seems to be the MAJORITY of large corporations in America. THAT IS A FAILURE OF AMERICA – WAKE THE HECK UP PEOPLE!

The principles upon which we were founded are dying. What we thought was wrong is now sponsored and executed by our own government. The pain that would have been experienced will BE DOUBLED because of these actions. Now, instead of just a failed economy and financial system, we face a failed government. It was suicide via central banker.

Hey, Doug Kass can buy all the stock he wants into that, I remain bearish until the debts clear and we return to our Republic form of government. We are transitioning to fascism, plain and simple, and I’m just sorry for those who cannot face the truth. What’s happening to our economy is far beyond bullish or bearish, it is about the American system of governance and American way of life.

Now, let’s talk about Kass’s comments… He basically stated that “perma-bears” are LOSERS! That only converted ex-bears will make money in the markets! What BULL! Look, we are in a raging BEAR market, a very, very dangerous one. One where bears can make money, bulls can make money, and like always the hogs get slaughtered. What matters is how you read the fundamentals and how you play the market.

Some people play the daily swings while others swing trade, and still others “invest” over longer time periods. In THIS environment I personally try to swing trade. That means trades that last a few days to possibly a few weeks at most. And, I only do it with a very small percentage of my total investable money. To do more is nuts, in my opinion, in this environment. And unlike Kass, I don’t like to swing long in a bear market as they are simply too unpredictable in terms of duration. Yes, I play long on occasion when the setup is good, but those are very short term plays and I know that holding them for any length of time is just plain old risky.

And speaking of risk, first quarter GDP was revised up, but not as much as expected. Here’s what Econoday had to say:
First quarter GDP was revised up moderately as the Commerce Department's first revision bumped up the quarter's growth rate to a 5.7 percent annualized decline from the initial estimate of a 6.2 percent contraction. The revised estimate was worse than the consensus forecast for a 5.5 percent decrease. The upward revision was primarily due to less negative inventories and a smaller decline in exports.. The first quarter drop in GDP followed a 6.3 percent decrease the previous quarter.

On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase which was incrementally lower than the initial estimate of 2.9 percent. The markets had expected an unrevised 2.9 percent increase. The headline PCE index was unrevised with a 1.0 percent decline while core PCE inflation also was unrevised with an annualized 1.5 percent increase.

Year-on-year growth for real GDP dropped by 2.5 percent, after falling 0.8 percent in the fourth quarter.

Although GDP growth was not quite as good as markets expected, the shortfall was not that significant. Markets likely have put these numbers behind and are focusing on post-open numbers for the Chicago PMI and consumer sentiment index. The sentiment number may be what markets really care about today, given the importance of improved consumer sentiment for recovery to take hold any time soon.

Market Consensus Before Announcement
GDP for the first quarter initial estimate came in with a sharp 6.1 percent annualized drop and followed a 6.3 percent contraction the prior quarter. A key fact from the report was that the first quarter decrease was led by a $103.7 billion cutback in inventories. Real final sales of domestic product fell only 3.4 percent while real final sales to domestic purchasers declined 5.1 percent annualized (purchases by U.S. residents of goods and services wherever produced). Markets likely will be watching to see whether weakness remains in reduced inventory investment. The cutback in inventories is seen as helping set up stronger growth in coming quarters.

Meanwhile, according to government statistics, corporate profits for the first quarter did increase from a year over year change of -36% in the 4th quarter, to “ONLY” -22% in the first quarter, YoY. LOL, here’s the chart showing the turn up… it’s a greenshoot alright, too bad is so far underground that it likely will never see the light of day! Note that there have been several turns in this chart before:

Current price to earnings are at extreme readings again. Certainly NOT bear market bottom types of readings, and those trying to look into the future and see significantly higher earnings are very likely to be dissapointed, again. Much of the increase in earnings you see here came from the TARP and other money that was passed through (money laundering) to the financials as well as mark to fantasy in the financial space - FALSE PROFITS!

And the dollar is plummeting yet again this morning – gold & oil shooting higher. This is their intention remember… that is to rob you of your purchasing power in an attempt to make the debts appear less ominous. That is a path to destroying the middle class, however, as wages will not keep up with this loss, and their debts must be repaid from somewhere. The worst possible combination for the PEOPLE is to have raging inflation in commodities coupled with wage stagflation which is exactly what the central bankers are trying to produce. Again, who’s that good for? Who is it good for to pump billions and to guarantee the PRIVATE debts of GM with public money? Again, it’s good for the bankers who are simply stealing us all blind and laundering their money through failed institutions. Real innovation and future competition will certainly not spring up from the ashes of GM. They would only spring up if GM was allowed to really fail, as they have.

Meanwhile the bond auctions are just huge and getting out of hand. The TNX and TLT took a breather yesterday but did not pull back significantly. Again, the pressure is there, the debts are mounting and as interest rates rise will eventually squick the holders of debt, the largest of course is our own government.

There are a few things I’m noticing in the techicals. Let’s first take a look at a 20 day chart of the SPX. I drew in the triangle that’s been forming… it should technically break up, but a wrong way and lower break would not surprise me and, as you can see, the H&S pattern I pointed out a few days ago is still in play but would require a break beneath the 880 area to confirm it. Also note that the 30 minute stochastic is overbought, the 60 minute has room for higher before turning lower which may happen later today:

The VIX is a very interesting chart. Here’s 3 months worth of it, you can see the descending wedge and how we have broken the upper boundary twice now. Yesterday attempted to but fell back inside again. When this breaks above, and closes above, it will be time to get more bearish:

Next chart is the daily NDX. It produced the infamous dueling hammers. The second hammer usually wins and sends prices in the direction of the second hammer’s handle – in this instance down (this is not a perfect indicator, but that’s the read):

A lot of balls in the air still, we now have new buy signals on the daily stochastics but fresh sells on the weekly. So, watch the bond market, watch the VIX, watch the triangle, and watch the dollar!

Sorry Kass, still bearish on our economy and think this bear market rally, while it may go on longer, is a low odds proposition to last substantially longer. In this case ramping yields on the long end will pressure the holders of debt and will eventually lead to more deleveraging. It’s coming, get ready... bulls, I think you're dreaming - it's more than a feeling...

Boston- More Than A Feeling: