Wednesday, August 26, 2009

Morning Update/ Market Thread 8/26

Good Morning,

Equity futures are down to flat this morning after being both below and above yesterday’s closing price overnight:

The Dollar is higher, bonds are slightly higher, oil tried to go higher overnight but is now lower, and gold is up.

As reported previously by Chris Martenson, the MBA mortgage loan index dropped telling us what the index is!! Instead they simply report a plus or minus percentage for the week, thus obscuring the data. Charts become meaningless and so does the entire report. Yet the markets are going to react to the perception it creates. This is yet another statistic gone bad… I’ll report on it today, but I may not in the future, and frankly, you have to wonder what they are hiding.

Here’s econoday’s short report, what else can you say when you can’t see anything behind their “report?” Note that it rose simply on “increased demand for government loans:”
MBA's purchase index rose 1.0 percent in the Aug. 21 week boosted solely by the what the report said is increased demand for government loans. The gain marks the fourth straight for the longest streak since March. MBA is not providing index levels. The refinance index rose 12.7 percent for a third straight gain. Mortgage rates moved higher in the week with 30-year loans up 9 basis points to an average 5.24 percent.

The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.

The durable goods orders for July rose 4.9% on a month over month basis, following a -2.5% number in June. Everyone and their brother was expecting this number to be positive on the cash for clunkers billions, and they were right:
Aircraft orders and auto orders made for a surge in the manufacturing sector during July, another key factor suggesting that the recession has already come to an end. New orders for durable goods shot up 4.9 percent. Excluding an 18.4 percent surge in transportation, orders still rose a strong 0.8 percent. Civilian aircraft orders rose more than six fold while motor vehicle orders, likely boosted by cash for clunkers, rose 0.9 percent. Capital goods orders were extremely strong, up 9.5 percent following a 5.7 percent drop in June. The report even includes an upward revision to the prior month's orders, to minus 1.3 percent from minus 2.2 percent. Details include big gains for primary metals, fabricated metals, computers & electronics, communication equipment, and even electrical equipment in a gain that hints at improving construction demand. Machinery orders did fall substantially but couldn't make a dent into the capital goods reading.

Note, once again, that they simply fail to mention the much more important (and horrific) year over year number that is still well below 20% beneath last year’s readings.

Also, when you go from NO aircraft orders in a month to a handful, that’s what produces a “six fold” increase in orders. I track that industry and do not see a structural turn around there at all.

So, was the billions spent on cash for clunkers worth it? What happens when the government money runs out? What if it never runs out, comrade?

New home sales come out at 10 Eastern today.

There was a small movement in the McClelland Oscillator yesterday meaning that a large price move is coming either today or tomorrow, direction unknown.

The short term oscillators are all in the middle of the range, but the percent of stocks above their short term moving averages is very high. The breadth of the market is stunningly BAD. Yesterday, as Karl Denninger pointed out, the 4 top volume stocks comprised more than 37% of all the volume on the NYSE. And those four companies were C, BAC, FNM, FRE. Two lying sacks of zombie bank excretions and two government infested bankrupt mortgage cookers. Now that’s what you base a market rise on… IF YOU WANT TO GENERATE A CRASH. And that’s where this market is headed and quick if they don’t start letting the air out in a nice and controlled manner – and soon.

Did you catch the action in oil yesterday? Spike to $75 resistance and then collapse down to $71.25. Not a sign of health. Speaking of oil, don’t think that just because demand has fallen and taken the speculative bubble out, that the concept of peak oil has gone away. The world’s fourth largest oil field, for example, is the Cantarell oil field in Mexico. Below is its latest output chart. If that rate of decline continues, Cantarell will be pumped dry in just a couple more years, taking away the largest source of revenue for the Mexican government. So in the long run there are going to be supply issues to contend with, but in the meantime stockpiles are running way high and we get an update on that this morning (10:30 eastern) so watch the oil markets, they can pull around the entire equity markets for sure.

Two things caught my eye in the charts yesterday. The first is the VIX which created a long tail candle. Those types of candles can sometimes represent a bottom, like the one I highlighted that represented a top, so I think that’s worth watching.

Also, the dollar (futures presented below) is scratching out an interesting pattern that looks like a descending wedge (so does the VIX). If that’s what’s happening, it could break higher and that would mean lower for equities. Again, worth keeping an eye on that formation to see what direction it breaks. Also, yesterday’s candle is interesting and is potentially bullish for the dollar as well – let’s see what today brings, right now the dollar is up pretty strongly.

The formation in the SPX over the past couple of days looks bearish to me. It can also be read as consolidation following a breakout though, and with the way the markets are being run, I would not (and did not) bet the farm on that. But you know... when it comes to playing in the Goldman Casino you just have to go your own way!