Monday, March 29, 2010

Morning Update/ Market Thread 3/29

Good Morning,

It’s a Monday, equity futures are higher… for now. How long has this Monday phenomena been going on? Seems like forever. And the rush to get in is moving from starting late on Fridays just prior to the close, to earlier in the day, then to Thursday to beat the rush. Now Pavlovian traders believe that markets only move in one direction – we shall see. Below is a 30 minute chart of DOW futures on the left and a 5 minute chart of S&P futures on the right:

The dollar is lower, bonds are slightly lower, oil and gold are both a little higher. Below is a 30 minute chart of long bond futures, you can see a very clear flag formation. That is bearish for bonds and if it breaks in the expected direction for that formation, down, then prices will land convincingly below the large H&S neckline validating that 2 year head and shoulders pattern, thus signaling higher rates:

This is an import formation to watch, prices need to break wrong way out of that formation or the Fed has a problem.

The trend away from debt is not, I believe, any kind of positive trend, it is not saying that the economy is rip-roaring healthy, instead it is saying that there is too much supply of debt and that people are beginning to revulse. Keep in mind that the last bubble was in debt and that money flows/ flees from one asset class to another. Of course money can just be destroyed as assets classes deflate, so there is likely some of both occurring while at the same time governments around the world attempt to issue more and more debt because they are trapped inside of the central banker debt box. The bankers have developed ways to trap fees from the constant roll-over and the movement of money from one asset class to the next. This is benefiting no one but them.

Personal Income and Outlays was reported this morning for February. Personal Income did not change month over month, but consumer spending supposedly did. Let’s see, no income but spending up = debt. Is consumer debt growing again? Possibly some, but I highly doubt the consumer is in a position to take on a bunch of debt to create a sustainable trend. Here’s Econoday’s spin:
February was tepid for the consumer as personal income was held down by weakness in wages and salaries while personal spending was softened by a dip in auto sales. But this sluggishness may be temporary. Personal income was flat in February, following a 0.3 percent rise the month before. The important wages & salaries component also was unchanged in February after jumping 0.4 percent in January.

Spending was mixed by component. Overall, personal consumption advanced 0.3 percent, following a 0.4 percent boost in January. By components for the latest month, durables fell 0.4 percent, nondurables gained 0.7 percent, and services increased 0.3 percent. Durables were pulled down by a drop in motor vehicle sales while nondurables appear to have been propped up by higher gasoline prices.

Inflation numbers were subdued in February as the headline PCE price index was flat as was also the core PCE price index. Analysts had expected a 0.1 percent uptick in the core. For January, the headline price index rose 0.2 percent while the core rate was unchanged.

Year on year, personal income growth for February came in at up 2.0 percent, rising from up 1.2 percent in January. Year-ago headline PCE inflation eased to plus 1.8 percent from 2.1 percent in January. Year-ago core PCE inflation came in at up 1.3 percent, compared to up 1.3 percent in January.

But we may see a turnaround in income and spending. First, spending in February likely was held down by severe snow storms during the month and likely will bounce back in March. Also, if economists and analysts are correct that March will see a sizeable gain in payroll employment in Friday's employment situation, then personal income also will likely get a lift for the month.

LOL, how long are these guys going to talk about the weather? What a joke. Expectations of a sizeable growth in employment could be a set up for disappointment, the report is released on Friday morning.

Volvo, the Swedish, no U.S. auto manufacturer owned by Ford, no wait it was announced over the weekend that Ford reached a definitive agreement to sell its Volvo car unit and related assets to China's privately held Zhejiang Geely Holding Corp for about $1.8 billion. Notice how real assets follow the holders of debt? Assets do not stay in debtor hands for long. Power and control, you lose it when you live life in debt.

Friday produced yet another small movement in the McClelland Oscillator, meaning that we can expect a large directional move today or tomorrow. The markets are now on daily sell signals and the divergences in breadth are becoming more apparent. There are signs of distribution occuring so cautious is the only way to be.

Below is a 60 minute chart of the SPX with the current upchannel shown. We poked beneath the channel slightly on Friday but are Monday ramping back inside so far this morning.

Watch the debt and currency markets, that’s where the action is, the equity markets are moving as if up is the only direction from now on. Hey, that’s the way it’s got to be, living in a fantasy.

Supertramp – From Now On: