Thursday, March 18, 2010

Morning Update/ Market Thread 3/18

Good Morning,

Equity futures are slightly lower overnight, tomorrow being quadruple witching. Below is a 60 minute chart of the DOW on the left and 5 minute chart of S&P futures on the right:

The dollar is higher, retesting the breakdown of the upchannel that it broke. The Euro is lower. Bonds are higher once again, it is very unusual to have money flowing both into equities and into bonds, a condition that when it occurs, usually doesn’t last long. Oil is about flat after running higher even against building crude oil inventories which were reported up again yesterday. Gold is higher at $1,125 an ounce.

CPI came in at 0.0% for the month of February, reflecting the same type of pullback in the year over year number as PPI - here’s Econoday:
Temporarily soft energy costs pulled down the headline CPI for February while weak shelter costs kept core inflation very sluggish. Overall CPI inflation for February eased to no change from 0.2 percent the month before. The latest came in just below the market forecast for a 0.1 percent uptick. Core CPI inflation rebounded a modest 0.1 percent, following a 0.1 percent dip in January and matching consensus expectations. A number of weak components point to the fact that inflation pressures, indeed, are subdued. Shelter costs were flat in the latest month while declines also were seen in apparel and recreation.

Looking at detail, the energy component of the CPI declined 0.5 percent in February after jumping 2.8 percent the month before. Gasoline temporarily eased 1.4 percent, following a 4.4 percent jump in January. Food inflation slowed in February to 0.1 percent from 0.2 percent in January.

There were other notable component declines, including apparel, down 0.7 percent; household furnishings & operations, down 0.4 percent; recreation, down 0.1 percent; and public transportation, down 0.1 percent (largely airline fares). The notable increases included medical care, up 0.5 percent, and used cars & trucks, up 0.7 percent.

Year-on-year, overall CPI inflation fell to to 2.2 percent (seasonally adjusted) from 2.7 percent in January. The core rate was slipped/rose in February to 1.3 percent from 1.5 percent the month before. On an unadjusted year-ago basis, the headline number was up 2.1 percent in February while the core was up 1.3 percent.

Weekly jobless claims fell by 5,000 to 457,000 for the prior week. The consensus was calling for 455,000. This number is extremely elevated still, being now almost two and a half years since this markets peaked in late ’07.
Weekly jobless claim are indicating only the slightest improvement in the labor market. Initial claims fell 5,000 in the March 13 week to 457,000, following a 6,000 dip in the prior week. The four-week average fell 4,250 to 471,250, showing no significant change from February and well above readings in January.

Continuing claims, up 12,000 to 4.579 million in data for the March 6 week, are likewise indicating no improvement in the labor market. The four-week average for continuing claims, at 4.575 million, is only slightly lower than February levels. The unemployment rate for insured workers is unchanged at 3.5 percent.

The economic recovery may be emerging but it looks to be a jobless recovery, at least so far. Markets were little changed in reaction to today's report which was accompanied by benign consumer-price headlines.

The large bubble of people who filed last year are still unemployed as new jobs simply are not being created. From the weekly DOL report:
States reported 5,888,048 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Feb. 27, an increase of 360,123 from the prior week. There were 2,086,682 claimants in the comparable week in 2009.

That’s 3.8 million more people on EUC this year than last year! This says that once a person is unemployed, they are staying unemployed, in fact the length of time spent unemployed is at historic highs still.

Yet the market powers into a ballistic parabolic move based not upon a productive economy, but on hot money that ultimately is robbing Americans of their purchasing ability.

The DOW managed to barely make a new closing high and thus produced a new DOW Theory buy signal. This move looks parabolic, no corrections, this is not healthy, it is a buying panic. The internal indications are at insane readings. The number of new 52 week highs on the NYSE hit 601 yesterday a number that is unfathomable, readings in the mid 300’s usually produce significant tops.

The VIX reached the lower Bollinger band after breaking below support. This too shows extreme complacency. When people believe that they can’t be out of the market or else they will miss it, then you know all is not well. Yes, the breakouts, as contrived as they appear, happened and thus they indicate that higher prices are on the horizon. Should they continue higher without correction, that would not be a good thing.

During the FOMC, Bernanke and the boys indicated that they were going to let the GSE money wind down. It will certainly be interesting to see if they actually allow that and what the reaction will be. Is the public sector really healthy enough to pick it back up? Not by my reckoning, and not with the coming wave of option-ARM mortgage resets. What I see is a government liquidity pump, not a healthy economy and not a healthy market.

I now have conflicting opinions on the market. Fundamentally I see hot government money, a bond market bubble, parabolic government spending, but a consumer who still wears the weight of too much debt and is faced with higher taxes as a result of the government giving their money to the bankers. Technically I see what clearly looks like a 5 wave structure in the markets, normally a sign of a new bull market. Tony Caldero sees this structure as a bull market, McHugh still sees this as a bear market rally and even with the breakout believes it is simply a continuation of wave B up and that it is likely making a complex wave structure and that it’s not as simple as it looks on the surface. My personal motto is that when the experts don’t agree and when what I see fundamentally doesn’t jive with the markets, I’ll leave it to the people who like to play games have at it, it’s not what I would term investing.

When the government is underpinning the bond market and the mortgage markets, that money then affects ALL markets as it’s impossible to target one asset class without affecting all the others. DEBT is an asset to the person who holds it as a receivable.

I have to keep this one short this morning, I have the Gerald Celente interview first thing, then I have to spend the day prepping for a presentation this weekend in Florida. I probably won't be able to get an update out tomorrow, I’ll be gone until most likely Tuesday and do not plan on making any significant posts from the road. Just because I won’t likely be able to bring you the Sunday Funnies, here’s Jon Stewart with one of the best explanations yet of what’s occurring:

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