Monday, January 4, 2010

Morning Update/ Market Thread 1/4/2010

Welcome to 2010! May we all be able to affect some positive influence on the world!

Futures have been moving up ever since trading resumed yesterday afternoon. It’s the Chinese growth miracle, don’t you know? Yes, even though ships are sitting idle, factories are sitting idle, new buildings are empty, fleets of new cars are parked, it seems that they still know how to produce massive amounts of paper fluff! They may be even more proficient at it than we are and I’m beginning to think they are even more proficient at generating false statistics too. We’re all going to get to witness how that works out, it will be exciting, but it’s not a place I’ll be “investing” my money. The DOW and S&P futures are pictured below with their overnight action:

The dollar initially rose overnight but is now down sharply, the Euro is up sharply, and bonds are up as well. Oil is absolutely taking off on a comedic tour of outer space, launching $2 higher and getting above $81 a barrel. The target on the breakout of oil is all the way up at $96 to $100 a barrel, look out middle-class. Gold has also made another move higher.

The ISM Manufacturing Index and Construction Spending figures come out at 10 Eastern. Of course the big data (if you can call it that) is the employment report for December that will come out on Friday. Of course we have bonds galore coming up this week, and every week, the tally for sale or roll has not yet been posted, but we’ll keep an eye on that.

I think the most important news over the weekend can be found in two Zero Hedge articles, the first dealing with money market accounts. In a nutshell, the Administration and SEC are proposing new rules that will allow “money market fund managers the option to 'suspend redemptions to allow for the orderly liquidation of fund assets.'" In other words, they can freeze your money market account and not give you back your money when you ask for it! In this way, I guess their intention is that there can never be another market crash of any kind and once your money is in you may not get it out unless they feel like it. Personally, money markets, like all our paper markets, are way overinflated and this would be a complete show stopper for me. I REFUSE to put my money any place where someone else dictates when I can withdraw it. Since this rule is being proposed, if I were you and had a significant amount of money in a money market fund, I would take it out NOW, before the rule change. Umm, gee, could that be one of the reasons why gold and oil are shooting up? Nah, our government doesn’t make mistakes, they know what they are doing. Here’s the Zero Hedge link: This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied.

Their second important article deals with a huge divergence in the amount of money paid out by the Treasury for Unemployment benefits versus the number of people claimed to be drawing payments. The difference suddenly grew into a whopping 32% gap. This is a money trail I have followed and written a couple of articles on as well, but I approached it from the angle that the fund is bankrupt, which it is, but this uncovers potential FRAUD in the reporting of unemployment data. Here’s the link, it’ll be interesting to get the Treasury’s reaction. Yet another reason to support Freedom’s Vision, as it would strip out all the reporting of government statistics and place it into an Independent Data Panel. Here’s the ZH article: Is The Government Misrepresenting Unemployment By 32%?

I covered a lot of the technicals this weekend, but to recap, the DOW finished Friday back inside the sideways pattern and the S&P finished right on the top of its range. That is a dangerous location as it can serve as a launching pad. Below is a 3 month chart, for some reason it is producing a false black bar… ignore that, and look at where the last red candle finished:

So, the markets finished last week by generating new sell signals on the daily stochastics, but are oversold on all the short term oscillators, and thus we expect a bounce in the short term. The move up in the overnight action has already produced 5 clear and distinct waves, so that, when the markets used to be somewhat free, would indicate that some type of pause is needed pretty soon on the ramp job.

I do expect volumes to be coming up sharply this week. If the move is higher, the target remains 1,200 on the S&P.

But note that the dollar, when going up, has not been hurting equities lately, but when falling allows equities and commodities the opportunity to advance. The relationships are changing and need to be watched. I still think the real action is in the debt markets, that will be producing unbelievable pressure throughout the year ahead.

Billy Joel – Pressure: