Wednesday, October 28, 2009

Morning Update/ Market Thread 10/28

Good Morning,

Equity futures are substantially lower this morning with the S&P 500 futures touching 1,052 overnight, the exact location of the rising wedge bottom trend line that it is currently skipping from:

The dollar and bonds are higher, oil and gold are lower.

Very interesting that the day after my report on the bond market breaking below support, that the bond market and the dollar reverse direction. This is the same time that we have to auction off $123 billion THIS WEEK alone in new DEBT. When the math doesn’t work, you can pretend for awhile, but eventually something has to give, and that’s what we’re seeing now. Oh, yeah, there are still choices to make – namely, how do you take your medicine? Through the destruction of the dollar, or through destruction of the debt? Or both? I’ll vote for the later, as I think they are both happening.

The worthless MBA Purchase Application “report” came out this morning, and for the past week the index fell 5.2 huge percent… this follows a 7.6% drop the week prior, and a 5+% drop the week before that. Hmmm… while I’m not a major in math, I do know how to do compounding interest and I’d say that the past month has seen a HUGE drop in the number of mortgage applications and refinancings. If only they would report a real number, gee, I wonder why they don’t? Is everyone tired of being lied to and manipulated yet?
The purchase index fell 5.2 percent in the Oct. 23 week while the refinance index dropped 16.2 percent. The Mortgage Bankers Association offered no commentary to explain the steep drops. Mortgage rates were mixed in the week with 30-year fixed loans down 3 basis points to an anverage 5.04 percent. New home sales will be posted at 10:00 a.m. ET.

Durable goods orders came in less than expectations with a year over year drop of only 19.6%!! Wait, wait, that’s an improvement! Last month was -20.2%! Month over month it gained 1%, the consensus was expecting 1.5%. Note where the improvements came from in this report…
According to the latest durable goods report for September, manufacturing is still on track for a moderate recovery. Durable goods orders in rebounded 1.0 percent, after a 2.6 percent drop in August and a 4.8 percent surge in July. However, September's boost was below the market forecast for a 1.5 percent increase. Excluding the transportation component, new durables orders posted a 0.9 percent boost, following a downwardly revised 0.4 percent dip in August and 0.9 percent advance in July. Overall, the gains in September indicate forward momentum for manufacturing-especially in the context of earlier strong increases mixed with occasional dips.

The rebound in new orders was led by machinery which surged a monthly 7.9 percent, followed by a 1.1 percent rebound in transportation equipment. Transportation was boosted by a rebound in defense aircraft, up 12.5 percent, as motor vehicles and nondefense aircraft slipped 0.1 percent and 2.1 percent, respectively. Primary metals advanced 0.3 percent while fabricated metals were flat. Weakness was seen in electrical equipment, down 0.9 percent; computers & electronics, down 0.2 percent; and "all other durables," down 1.4 percent.

Businesses may be investing in equipment more in coming months as orders for nondefense capital goods rebounded 2.5 percent in September, following a drop of 7.7 percent the month before and a 7.0 percent boost in July.

Year-on-year, overall new orders for durable goods improved to minus 19.6 percent in September from down 20.4 percent the previous month. Excluding transportation, new durables orders rose to minus 16.9 percent from down 19.2 percent in August.

While today's report shows durables manufacturing on a moderate uptrend, equities may not like the numbers as the headline figure fell short of expectations. Nonetheless, manufacturing appears to be doing its part to keep the recovery going-even with less of a contribution from autos going forward.

Nice try in making a historic collapse sound good. The increase largely due to government spending on military aircraft... sure, that's going to last forever. Wave C is coming if not here already, it will soon be reflected in this data as well.

New Home Sales figures are released at 10 Eastern, the weekly petroleum report at 10:30.

And the bailouts continue… yesterday evening we learn that GMAC is asking for, and likely to get, ANOTHER $2.8 to $5.6 billion in this P.O.S. company that they have already injected $12.5 billion in and spent countless billions in other forms of bailouts for them including cash for clunkers… and that is on top of the tens of billions funneled through GM prior to their bankruptcy. And the media and company spin is to blame the unions! What SPIN, what gall! GM could have paid their employees, their health care plan, and their retirement plan ZERO, NOTHING, and the company would have still lost BILLIONS because of MANAGEMENT’S insane venture into toxic derivative debt products. They did not know or weigh the risks and they got burned. In America, when you screw up, you fail – at least in the America I remember. Now we have lumbering zombies that block true innovation and advancement.

And the politicians and bankers are hell bent on keeping home prices unaffordable. Now they want to extend the $8,000 first time homebuyer credit to everyone – details to be worked out still. Let me translate… homes will artificially be raised in price to help keep the banks afloat, and it will be done, once again, with your tax dollars. This does not help the people, it hurts them, and ultimately it’s going to hurt the housing industry as well. Again, insane policies from people whose goal is to take the money and run.

Technically, the market is on the edge. The Transports have cleanly broken down from the rising wedge, the NDX is below it this morning, and the SPX is right on it. If the SPX breaks below 1,050, then I become instantly bearish. If it manages to hold and bounce, then be careful, we could still get that final wave higher… but that is looking less and less likely. Here’s a one month chart of the SPX, note that the fast daily stochastic just entered oversold, but the slow has a way to go. Of course it can remain oversold for quite some time, but we are on pretty heavy uptrend resistance. If the Transports, XLF and NDX continue to sink, then eventually their weight will pull the entire market beneath that support:

The Transports have opened higher… we need to be watching all the relationships in here, any earnings report or data can tip the scales at this juncture. Get your little white houses while they're hot! Hey, you better get straight...

Eric Burdon and the Animals – White Houses: