Tuesday, February 2, 2010

Morning Update/ Market Thread 2/2

Good Morning,

Equity futures are up a little overnight after barely breaking out of the down trend channel yesterday. Below is an hourly chart of the DOW on the left showing the channel and the Fibonacci retrace levels. On the right is a 5 minute version of the S&P showing the overnight action:

The dollar is down slightly, bonds are up a little, oil is up a little, and gold is adding onto its large gain yesterday, now at $1,114 and ounce, $34 more than I reported this time yesterday.

The Redbook same store sales along with the worthless Goldman ICSC showed their usual small weekly and YOY sales gains, again not real and not worth discussing. Pending home sales is released at 10 Eastern and vehicle sales will be reported throughout the day.

Yesterday Construction Spending came in less than expected again with a -1.2% reading month over month, and -9.9% year over year. As in minus 10% from the same time last year, at the height of the crisis? Wow. Oh yeah, GDP plus 5.7%... because of re-inventory buying stuff that’s made in China to sit on shelves waiting for debt saturated consumers to come buy it. Please.

The ISM Manufacturing Index did rise to 58.4 which was higher than expectations. Remember, anything above 50 is supposed to show expansion… it will take years at that rate to get us back to the level of prior activity. I really don’t like indexes like this because they do not show anything but relativity. But the ISM is a strange one based on surveys anyway. But get this… yesterday the Institute for Supply Management (ISM) moved to change the definition of growth from a reading of 50 to any reading above 42, LOL! Yep, it seems that history shows to them, that the economy is expanding when the Manufacturing ISM is above 42 and therefore anything over 42 shows expansion. Sound reasonable? Based on what? Trumped up GDP data! Based on what? Trumped up inflation data and mark to fantasy financial assets!

See how the whole system gets corrupted? It starts out slowly and one point of bad data compiles upon itself, amazing to watch, the world of investing is now completely disconnected from reality. No good measurements means investors and economists are worse than blind, they are being fooled and that leads to misallocating capital and it leads to mispriced risk.

Below is a 3 month chart of the SPX. Note that yesterday’s action brought it right back to the 1,091 pivot, the base of the old sideways zone. 1,100 will be the next resistance, you can see that the oscillators are oversold on the daily and will likely produce buy signals fairly soon. You can’t see the volume here, but volume on the advance yesterday was much lower than during the previous decline, showing the corrective nature of the advance which was not that strong – volume confirms price:

Below is a 10 minute version of the SPX that I put Fibonacci retracement levels on. At the 23.6% already, should run higher in waves, reaching the 50% to 61.8% level with in the next week or two. That would be typical wave 2 action, but wave 2 can run anywhere from here to the height of the prior wave, the old highs:

All the short term stochastics up to the hourly are now overbought, therefore I would expect a pullback at some point soon. I would expect that wave 2 would unfold as an a,b,c movement with each leg itself broken into an a,b,c… We may be close to completing the first (a) move of (a) by my reckoning.

The President’s $3.8 Trillion budget announced yesterday is $1.6 Trillion above current year receipts. And we learned that the budget is based upon gaining massive new revenue from cap & trade which hasn’t even been passed yet. That’s called betting on the come. Of course a “budget” is just a plan, and none of our government’s plans in regards to budgets have been working out as envisioned. I am sure 2011’s budget will only be different in terms of scale. Yep, American citizens ultimately pay the price for such debt backed folly, they are the ones who have been tied to the whipping post….

Allman Brothers Band - Whipping Post: