Wednesday, November 4, 2009

Morning Update/ Market Thread 11/4

Good Morning,

Equity futures are higher overnight, breaking what was probably wave 1’s channel to the upside. I left the /ES panel, on the right, in the 30 minute timeframe so that you can see the downchannel and the break upwards:

The dollar was sucked right back down to the 76 level, and bonds went down too. Gold jumped to a new record just under $1,100 an ounce, touching $1,096. Interesting that gold has made a substantial move yet the dollar remains at 76, the same place it was back in September. Today oil is higher too, just over $80 a barrel and inline with the moves in the dollar.

MBA Purchase Applications, the report that no longer provides anything but worthless weekly percentage moves, FELL yet again (4th week in a row) although this week by 1.8%, not as much as last week’s 5.2% drop. Refi’s did jump upward, so read how Econoday spins it:
Rock bottom rates continue to drive a rush for refinancing. MBA's refinance index jumped 14.5 percent as the average 30-year mortgage fell 7 basis points in the Oct. 30 week to 4.97 percent. The average 15-year mortgage fell 20 basis points to 4.33 percent. Refinancings are making up 66 percent of all mortgage applications. An increase in refinancing, and relief for debt strapped homeowners, is a major objective for policy makers. The purchase index, which measures applications for home purchases, slipped 1.8 percent, unfortunately pointing to weakness for sales of new and existing homes.

I’d show you a chart, but it would be meaningless without the underlying data which is no longer reported.

The Challenger Layoff Announcemnts fell in October:
Challenger's count of layoff announcements is a positive for Friday's employment report. The October count fell to 55,679 vs. 66,404 in September for the lowest total since March last year. A look at October 2008, when 112,884 layoffs were announced, offers a handle on how much improvement there has been.

That is nearly a return to its previous levels of announced layoffs. While I don’t compile the data, anecdotally I have noticed in the past couple weeks that the number of announced mass layoffs seems to have increased… we’ll see next month, this report is better than previous reports.

The ADP Payroll Count is showing improvement too. The Jobless Report comes out on Friday and the consensus is for a loss of only 175,000. I think that may be low, and I know its low compared to reality.

ADP's payroll count fell a less severe 203,000 in October compared to the 227,000 drop in September (September revised upward from a 254,000 drop). The results point to expected improvement in Friday's employment report.

The Non-Manufacturing ISM is released at 10 Eastern, the Petroleum report at 10:30 Eastern, and, of course, the FOMC announcement at 2:15 Eastern, 11:15 Pacific.

What do I expect from the FOMC? I expect that they will keep interest rates at zero in an attempt to create more of the same – never ending growth. Everyone will hang on Bernanke’s words and the market will zoom in response – at least initially. He is, however, still between the old rock and hard place in that with “better” economic reports at some point he’s going to have to let rates come back up, right? And he’s going to have pull the trillions in support, right? That will be a lot like pulling life support from a dying man. There is simply no way that our debt saturated economy can handle significantly higher rates although that’s exactly the appropriate thing to do. Higher rates would force those who cannot service their debts into default so that the debts could be cleared – that same process WILL HAPPEN to the U.S. government, the printing press cannot save us from their delusions.

Just remember that the first move is usually a head fake following the FOMC announcement.

The action in the markets yesterday was bizarre. There was something happening besides India buying a bunch of gold, there was also trouble somewhere in Europe or there was a forced deleveraging of some kind to produce the disconnected action in the dollar, Euro, equities, and gold. Usually when something like that happens, it is a precursor to some future event – we’ll see on that too.

I just read a snippet I thought was interesting, evidently Mexico is now less expensive for manufacturing than China according to a new study that includes shipping and all costs to point of arrival in the U.S., “Manufacturing in Mexico costs around 68%; in India around 73%; in China, near 86% and in Brazil close to 91%, compared to costs in the United States.”

Meanwhile, if you remember, in 2005 the banking industry managed to change the personal bankruptcy laws to make it nearly impossible for ordinary citizens to discharge their unsecured debts as they saw the coming defaults in credit cards and bankruptcies were rising precipitously. Of course the unintended consequence of their doing so is that people realized that walking away from their secured debt, their home, was one of their only options, thus the banks shot themselves in the foot, yet fail to acknowledge their mistake. Personally, I thought that one of Obama’s first moves would be to reverse those laws, that would have allowed debt to be defaulted and cleared from the system. No, can’t have that, that would be a “moral hazard.” Those laws cut the number of personal bankruptcies by more than half.

Now, even with the constricting laws, we have exceeded the prior highs in personal bankruptcies (ht Point):
Nov. 3 (Bloomberg) -- More Americans filed bankruptcy in October than in any month since changes to U.S. bankruptcy laws in 2005 as unemployment and falling home prices prevented consumers from paying their debts.

The number of individuals filing bankruptcy rose 25 percent to about 131,200 from a year earlier, according to data compiled from court records by Oklahoma City-based Jupiter ESources LLC. The 1.2 million bankruptcies filed through October have already surpassed last year’s total of 1.1 million.

Defaults are also setting records in the Commercial space and bankruptcies are, of course, soaring.

Technically, my best guess is that wave 2 up has begun, I base that on the broken down channel. McHugh now thinks there’s one more down wave in wave 1 based on the sideways action yesterday. Either way, wave 2 should be under way soon. Wave 2’s are meant to sucker people into believing that a new downtrend has not really begun and they usually retrace more deeply than wave 4’s that tend to be sideways formations. A 61.8% retrace is typical for wave 2’s, although they can retrace less or any amount up to 100%. If we were to make a new high, then it would mean that wave B had not really finished, but I consider that highly unlikely at this juncture with broken rising wedges in all the indices.

The P&F charts have now triggered new bearish targets for most of the indices as they see the broken uptrends as well – the exception is the S&P which has yet triggered a new target.





The 38.2% retrace is at 1,053, and the 50% retrace is right on the 1,061 pivot… a very likely spot to land, but the 61.8% is up at 1,070.

I would expect relative calm before the announcement and then we will find out this afternoon if there’s another leg down or if we have begun wave 2 up. Don’t forget that there’s a Fibonacci turn AND a Bradley turn date on the 9th of November, next Monday (always plus or minus). It should be an important turn, so it will be interesting to see the action in the next couple of weeks.

No matter what happens, if you’re prepared, you won’t fear the reaper, LOL!

Blue Oyster Cult - Don't Fear The Reaper: