Wednesday, January 6, 2010

Morning Update/ Market Thread 1/6

Good Morning,

Equity futures are pretty close to level this morning after falling in the evening and rising this morning. Below is the action in the DOW and S&P:

The dollar, of course, did the opposite and is up just a little, with bonds on the long end down a little. Both oil and gold are higher, oil now closing in on $82 a barrel.

The MBA Purchase Index rose by a supposed 3.6% in the prior week. Completely worthless index, give me transparency or don’t give me any bull. Here’s Econoday’s take, gee they are actually worried about rising rates?
MBA's purchase index rose 3.6 percent in the Jan. 4 week after falling 4.0 percent in the Dec. 25 period (data for the latter period had been delayed due to the holiday). The refinance index fell 1.6 percent in the Jan. 1 week after plunging 30.5 percent in the Dec. 25 week. The average 30-year mortgage rose to 5.18 percent in the latest week, up from 5.08 percent in the prior week. Concern is building that interest rates may begin to rise if economic growth picks up and as the Federal Reserve winds down its purchases of mortgage-backed securities.

On the Job front, Challenger’s layoff announcements fell in the month of December. No surprise there, December is not a month associated with mass layoffs unless management is doing serious battle with labor:
Challenger's count of layoff announcements fell to 45,094 from 50,349 in November and compared against 166,348 in December 2008. The results are consistent with expectations for incremental improvement in Friday's jobs report.

The ADP job report estimates that 84,000 lost their jobs in December, an improvement, but more than estimates. Here’s what Bloomberg is reporting:
Jan. 6 (Bloomberg) -- Companies in the U.S. cut an estimated 84,000 jobs in December, according to a private report based on payroll data.

The drop, the smallest since March 2008, was larger than forecast and compares with a revised 145,000 decline the prior month, data from ADP Employer Services showed today. ADP figures overstated the Labor Department’s estimate of private payroll losses by 85,000 per month on average in the six months to November after today’s revisions.

Last month ADP reported 169,000, so the 145,000 is a favorable revision. The trend in both these reports is better, but we’re still adding to the scores of unemployed, certainly not keeping pace with what’s required just to break even. Of course the DOL’s jobs report comes out on Friday, the Bloomberg consensus is that the number will reach ZERO, and that the rate will remain 10%. I’m not sure about this one, that consensus may be a little too wishful, but the release in February is the one that usually contains adjustments and can be kind of wild.

The non-manufacturing ISM comes out at 10 Eastern, the petroleum status report at 10:30, and the FOMC minutes at 2 Eastern.

The McClelland oscillator had a small movement yesterday with the down, up, down, up action and thus we can expect a large directional move in the near future, likely today or tomorrow.

Yesterday’s move in the XLF was ridiculous, sending prices way above the upper Bollinger band. Sorry, but I have to remain very cynical on action like this. GS rose greatly even after a downgrade from Meredith Whitney. What I see are a bunch of children running our banks and our government and they have this neat little toy where they snicker and manufacture bizarre derivatives and debt backed money and force interest rates to zero while they whisper about one another’s stock and buy or sell at will with no adult supervision anywhere. Truly, it’s like watching an unsupervised daycare. Below is the XLF, it still looks like it’s gunning for a gap fill up at $15.40?

Here’s a 3 month daily chart of the DOW. Yesterday’s action produced a small red hammer. It is a potential reversal indicator, of course it needs confirmation by today’s action, volumes still have not gotten above Christmas week’s, the daily stochastics are overbought and the RSI is still diverging, literally it’s been diverging for months now, I’ve never seen anything like it, and believe that the divergences in place at this time are historic in size and scope, at least in modern history:

Below is a 60 minute chart of the DOW, it has formed a rising wedge with prices climbing the bottom of the larger rising wedge when in the non log chart mode. The slow stochastic on this time frame is just coming down out of overbought and the RSI is divergent from the last high:

The SPX’s hammer yesterday was not as well defined as the DOW’s. It, too, is forming a rising wedge, but again, it’s not as well formed as the DOW’s. The rest of my Stochastic indicators are in the middle, so not a lot of help with direction for today. If a directional move does transpire, the small move in the McClelland is a good indication to stick with it longer than you might otherwise for those who are day trading.

There were 369 new highs yesterday, this is squarely in the range of prior major tops. For some reason all I see are a bunch of children running around singing, “Come and play, everything’s A-okay, can you tell me how to get, how to get to Sesame Street?”