Wednesday, February 3, 2010

Morning Update/ Market Thread 2/3

Good Morning,

Equity futures are down this morning, below is an hourly of the DOW on the left and S&P overnight action on the right:

The dollar is higher, bonds are lower, both oil and gold are lower before the open.

Yesterday’s vehicle sales report showed a decline in vehicle sales from 8.5 million to 7.9 million, which was much less than forecast. Amazing that things you can actually count say one thing while statistics with all kinds of adjustments and are Indexes or percentages without a base show something else.

Speaking of something else and percentages without a base, the totally worthless MBA purchase applications “report” came in with some more wild & crazy gyrations, with the headline number swinging from -3.3% one week to +10.3% the next:
MBA's purchase index jumped 10.3 percent in the Jan. 29 week with the refinance index jumping 26.3 percent, both returning to levels from mid-December. Though very volatile from week to week, the purchase index's gain may get some notice given the big market reaction to yesterday's marginal improvement in pending home sales. For the refinance index, despite its jump, MBA continues to warn that refinancing volumes are not substantial: "We expect that rates will rise over the next few months as the Federal Reserve winds down its mortgage-backed securities program, and this will likely lead to a decline in refinance volume." Mortgage rates remain very low but are still up slightly from last year's lows. Thirty-year fixed loans averaged 5.01 percent in the latest week.

That’s just embarrassing to even call an economic report. 26.3% weekly swing in refinancing? Please. Stuff like this simply needs to go away, kept only as a lesson in how to destroy confidence and undermine an economy.

If that report tells you nothing you can believe in, the next two reports won’t make you feel any better whatsoever…

The Challenger Job cut Report jumped from 45,094 announced layoffs in December to 71,482 in January. Hmmm, Econoday seems confused by raw data:
Challenger's count of layoff announcements jumped to 71,482 in January, the worst result since August and well above December's 45,094. Cuts in the retail sector, both in seasonal and regular jobs, were the central factor behind January's increase. In an offset, overall hiring intentions held solid, at 31,381 vs. December's 35,592. Challenger's data are difficult to use as an indication for monthly payrolls. The data are unadjusted and company announcements don't immediately equate to actual job actions. ADP's payroll count, based on payroll processing for its large customer base, offers a direct, if not always accurate, indication on monthly payrolls. ADP will be posted at 8:15 a.m. ET.

The ADP report came in with a loss of 22,000 in January, an improvement over the 84,000 loss in December:
ADP private payroll count for January fell 22,000, a result that will likely edge expectations lower for Friday's employment report where expectations are centered at no change for non-farm employment

Are both these reports accurate, with one suggesting a jump in layoffs and another saying employment is improving? Or, are they both just simply worthless data that also belong in the dustbin of history? I say the latter. I’m sure you have friends who are reliable and always there for you over time? You trust them, right? Well, these reports are not like that, both these reports are simply worthless and have been for the last couple of years.

Below is a 30 minute chart of the SPX. You can see the entire decline over the past couple of weeks and how it ended in an expanding formation at the bottom which has now obviously broken upwards. Sure looks like a clean wave 1 down and now 2 up. Expanding formations like that usually usher in relatively strong moves. I fully expect that we’ll likely see a 61.8% retrace, or more, by the time this rally is over. So far it has hit the 38.2% retrace of the decline. The short term indicators up to the one hour level are way overbought, thus I would expect some decline or sideways action. It appears to me that what you see off the bottom here is wave (a) up of what is likely to be an a,b,c type of move. Wave b should be next:

This move still looks very corrective in nature, coming on much lower volume than the previous fall. Of the indices, the DOW is holding up the best.

Here’s a daily chart of the XLF. Note the volume pattern – again, as prices rise, volume falls off. That is simply not what you see when a market is genuinely headed higher. Note the fresh buy signal on the daily stochastic. Again, I think we pause and then head higher before the next serious wave down begins:

Hey, crossroads seem to come and go – and that’s about the only way I can think of to introduce Melissa, LOL…

The Allman Brothers Band - Melissa