Tuesday, June 23, 2009

Morning Update/ Market Thread 6/23

Good Morning,

Futures are up slightly this morning with not much overnight action in the Dow or S&P futures:

The overnight action was in the dollar which rolled over and plummeted giving up almost all of yesterday’s gains:

This is an interesting relationship as I’ve been saying, the next round of deleveraging will look different than the last. I believe that we are more likely to see both the dollar and bond market not strengthen as they did last fall. One of the Fed officials was out trying to make it sound as if the Fed had raised nearly enough money (80%) to finance our debts for the rest of the year – but of course they would continue to “gradually increase the size of their offerings…” uh, huh ( Treasury has raised 80% of funds needed for '09). Here’s a daily chart of the dollar…

Watch that little trendline… it will be interesting to see if it breaks and goes lower or if it finds its footing and rises.

The ICSC store sales came in with no change week to week, but was down .9% yoy. Here’s the world according to Econoday:
Retail sales continue to be weak in June, according to ICSC-Goldman's same-store sales tally that is unchanged in the June 20 week for a very weak year-on-year decline of 0.9 percent. The report cites recessionary conditions and wet weather for the trouble. It does note that the approach of warm weather could give the month a late lift. Excluding Wal-Mart which no longer issues monthly data, the report sees a very steep May-to-June decline of 5.0 percent. Redbook, up at 8:55 ET, has also been warning of a very steep month-to-month decline.

And decline the Redbook did, falling 4.2% yoy:
June retail sales are very weak, according to early reports including Redbook's tally that shows a 4.2 percent year-on-year decline in the June 20 week vs. the year-ago week. Redbook estimates the May-to-June drop at a massive 4.4 percent. But both Redbook and ICSC-Goldman do offer a note of optimism, saying sales at month-end could pick up significantly if warm weather forecasts prove true.

Got to throw the optimistic line in there for those participating in Economic Mass Psychosis.

Existing Home Sales rose 2.9% in April month over month but was down 3.6% yoy which is an increase from down 3.5% the month prior. Inventory of existing homes rose as well, showing no evidence that a rebound is imminent, of course.
Existing home sales rebounded 2.9 percent in April, after slipping 3.4 percent the month before. The April sales pace of 4.680 million units annualized was nearly flat at minus 3.5 percent. Supply on the market was a negative in the report, rising to 10.2 months at the current sales rate compared to 9.6 months in March. Looking ahead, pending home sales have risen three consecutive months, including a 6.7 percent boost in April. Pending home sales tend to lead existing home sales by one or two months. The first-time home buyer tax credit may be providing some lift to sales.

Also keep in mind that tomorrow is FOMC announcement day. That’s a huge wildcard… who knows what GAMES the Fed will play.

What I do know is that it appears that we made wave 1 down of 3 down yesterday. At some point in here we should see a wave 2 bounce and then we should get 3 of 3. That leg should at least equal wave 1. Of course we throw the Fed wild card in there and anything can happen, so it’s a bet I’m personally not going to make. My only comment regarding them is “talk is cheap.”

And to those going around saying that it’s not wise to fight the Fed, my comment to them is that it is the Fed who is responsible for creating and worsening the mess we are in. Their ACTIONS are making the problems worse, and thus the more “actions” they take, the worse the outcome will be.

For example, here’s a Point & Figure chart showing the bullish target for 10 year Treasuries:

Note that the bullish price objective says 71.0… as in 7.1%!!! Yes, this is what fixed rate mortgages are tied to and remember that mortgage rates are usually up to 2% higher than this rate. Can you image what will happen to housing if that target is achieved in this environment? Ben better hope not. But the odds of that happening go UP the more he tries to buy rates down – Bernanke, the student of the Great Depression, is causing the second one.

And yesterday’s action in equities produced new bearish targets on the P&F figures for both the Dow and the S&P:

S&P Bearish target = 850:

DOW Bearish target = 7,800

Of course the P&F targets are just computer generated pattern targets, but I would not bet against them being achieved – at a minimum, but remember that nothing moves in a straight line, there are no “direct” clearances in the markets.

The short term stochastics are now oversold, of course, as is the daily fast. We are also already close to the bottom Bollinger bands which are now beginning to turn downward.

So far this morning we have failed to rise back above the 50 and 200dma’s which are now collocated at the 900 SPX level and about to produce a bullish "holy" cross. It won’t be bullish, however, if prices remain beneath the 900 level, instead it will produce a throw-over.

Bottom line – look for a wave 2 bounce that should be followed by 3 of 3 unless the Fed does something even more stupid tomorrow which can result in almost anything. Of course they must “do something” when all the markets really ever wanted was for our government to just let it be…

The Beatles – Let it Be: