Monday, February 1, 2010

Morning Update/ Market Thread 2/1

Good Morning,

Today’s Money Monday, is there any question which direction the equity futures went overnight? Up, of course:

If you’re betting on the Monday effect to continue, beware, it’s looking a lot like a bearish flag. The dollar is taking a little breather, bonds are about level, oil is hanging on just above $73, and gold is holding just above $1,080 support for now. Funny, but the SPX, as someone pointed out, is also at the 1,080 level:

Remember when the Euro broke its rising wedge and I said it would likely fall to the base of the wedge? Well, it’s well on its way, the 1.35 target of the bear flag looks to be coming up pretty soon:

Personal Income and Outlays report came in at a supposed .3% growth gain in December, but the wages and salaries portion only showed a .1% rise. Here’s Econoday:
This morning's personal income report definitely requires some digging beyond the headline numbers. Income was not as good as the headline but spending might be a little better. Personal income in December advanced 0.4 percent, following a gain of 0.5 percent in November. The latest number beat the median forecast for an increase of 0.3 percent. But where it really counts, income barely rose. The important wages and salaries component edged up 0.1 percent after improving 0.4 percent increase in November. Strength in December income was in proprietors' income (notably, the farm component) and in rental income.

Spending shifted around a bit last quarter as personal consumption posted only a 0.2 percent gain in December, following a 0.7 percent boost the month before. The December gain came in below expectations for a 0.3 percent rise in PCEs. However, November was revised up from the original estimate of 0.5 percent. Apparently, most of the holiday shopping was front loaded in post-Thanksgiving surge as December sales slowed.

Inflation was quite soft in December. Headline PCE price inflation slowed further in December, rising only 0.1 percent, following a 0.3 percent rise the month before. Meanwhile, core PCE inflation in December firmed incrementally to a 0.1 percent increase, following no change in November. The consensus had projected a 0.1 percent uptick in the core rate.

Today's income report does not bode well for spending in coming months by the average consumer as wages & salaries are being constrained by lack of income growth. Equities should focus on the softness in wages & salaries – and not like it.

Soft inflation in December? Note how the various inflation measurements are all saying something else. That’s what happens when the data is massaged by a bunch of different groups and there is little transparency.

Manufacturing ISM and Construction spending come out at 10 Eastern. Friday is the Employment Situation Report for January, the consensus is for a Zero number…

Obama’s Budget for 2011 is set at $3.8 Trillion! Right now we are taking in $2.2 Trillion in total income, so that leaves him only $1.6T short at first whack! No biggie, just tack on yet another $11,428 per worker in America just in federal level debt.

Oh, but it was built under the principles of “Paygo!” Wow, I am so impressed with that word, aren’t you?

According to the Administration, “If Congress passed the budget, the deficit in 2011 would reach 8.3% of the U.S. gross domestic product -- down from a high this year of 10.6%. By 2014, it would drop to 3.9%.”

Ahh, okay. Evidently they are thinking people still believe in the Tooth Fairy. By the way, the actual percentage of REAL GDP is actually MUCH higher, again due to the over statement of GDP by a large margin. The game is to overstate growth and to understate DEBT. This is the same game subprime mortgage companies helped people play with mortgages they couldn’t afford.

Technically we are oversold but still inside of the downtrend channel. Again, watch for a break of the upper channel to know that wave 2 up has begun. There was a fake out on Friday, but we’re not too far from it again.

January was a negative month for stocks, and the past two weeks have been very negative. The character of the market has changed. This is very similar to the change of character near the ’07 top. Takes a while to set in.

On the SPX 1,080 is still the key level. SPX 1,090 should be fairly strong overhead, then 1,100. 1,107 is the next higher pivot, 1,061, then 1,041 are the next support levels. The character of the wave 2, when it comes, is going to be important to watch. It is Monday after all…

The Allman Brothers Band - Stormy Monday: