Thursday, February 11, 2010

Morning Update/ Market Thread 2/11

Good Morning,

Equity futures are slightly lower just prior to the open as they continue to see-saw just above the 10,000 level on the DOW and just below the 1,070/ 1,080 resistance on the S&P. Below is a 60 minute DOW chart on the left and 5 minute overnight snapshot of the S&P futures on the right:

The dollar is up slightly, bonds are down, oil is up, and gold is up.

I’ve been watching gold and it does appear that it has found support and is now back above $1,080 per ounce. It has created a large pennant that looks bullish to me. McHugh is counting this next up move as wave 5, and wave 5s in commodities are often the longest waves as they often extend. It might be a reasonable trade to buy gold on a break of the flag, however, I should point out that this goes against the primary count in equities. I think it highly unlikely that wave 3 down occurs in equities and wave 5 up occurs in gold at the same time, but you never know! Personally, I’m not going to chase gold here, but I just want to point that formation out as you can see in the chart below. It’s also possible that it spills down and out of that formation in which case, you obviously wouldn’t want to be buying. This is why I don’t try to front run turns and I wait for trendlines to be clearly broken – this one could go either way:

The weekly unemployment figure came in better than expected with a total of 440,000 new claims, a drop from the prior week’s 480,000 figure. Here’s Econoday:

The administrative backlog from the New Year holidays was supposed to have already cleared up. But not so fast! The Labor Department attributes a stunning 43,000 drop in initial claims to 440,000 for the Feb. 6 week -- not to economic improvement -- but to the final end of the backlog, a backlog that inflated levels in prior weeks. In only a very partial offset, the prior week was revised 3,000 higher to 483,000. Given the haze of the backlog effect, the four-week average offers the best handle on the data, falling for the first time in four weeks, though only by 1,000 to 468,500 and little changed from mid-December before the backlogs started to build.

The number filing continuing claims continues to come down, falling 79,000 in data for the Jan. 30 week to 4.538 million. The improvement here masks, to a degree, those falling out of the insured workforce where the unemployment rate remains steady at 3.5 percent. In unadjusted data for the Jan. 23 week, those filing emergency claims fell nearly 185,000 to a total of 5.45 million. Those filing for extended benefits rose more than 13,000 to about 236,000.

Financial markets showed very little reaction and no clear direction from today's report with the dollar easing slightly, in what could be a sign of demand for risk, though equities and commodities fell slightly, in what could be a sign of risk aversion. Snow-storms will begin clouding the claims report this time next week, likely producing fewer claims but pointing to another backlog as the unemployed, once the streets are clear, make their way to the claims office.

According to the DOL’s report, the non seasonally adjusted number of people filing Emergency claims, get this, have risen from 1.8 million to 5.4 million from the same week one year ago:
States reported 5,447,592 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Jan. 23, a decrease of 184,627 from the prior week. There were 1,805,007 claimants in the comparable week in 2009.

Obviously those unemployed are having great difficulty finding work, and there are many who are simply dropping off the rolls. It looks like Emergency benefits are going to be extended for another 3 months.

Turning back to equities, there was another small movement in the McClelland Oscillator yesterday, meaning a large move is coming today or tomorrow.

We are obviously still tracking in wave 2, a sideways affair that has either completed and is about to usher in the beginning of wave 3 down today, or is morphing into a more complex correction. The rising wedge that was being formed has turned into a pattern that is not so clear, so when this occurs, we just need to pay attention to support and resistance levels and wait for a clear break one way or the other. The primary count has not changed, wave 3 of 3 of 1 down should be next at bat. Should it fail to materialize then another count is in progress.

Below is a 30 minute chart of the SPX, you can see that we have been working our way across the channel but there is a clear support line forming. That line is rising which is bearish. This looks to me like we are simply moving sideways preparing for the next fall to the bottom of the channel. This read will be wrong if we break out of the channel to the upside. 1,061 remains the support pivot, a break beneath may mean wave 3 is underway:

The XLF is still moving sideways in its channel. It needs to break down for the market to break substantially lower:

Hey, get on the wrong side of the next move, and you’ll likely be crying 96 tears!

Question Mark & The Mysterians - 96 Tears: