Tuesday, April 27, 2010

Morning Update/ Market Thread 4/27

Good Morning,

Equity futures are lower this morning with the SPX approaching a support area right around the 1,200 level. The dollar is higher, bonds are up significantly, both oil and gold are down a little.

Case-Schiller reported that home prices gained .6% yoy in the month of February compared to a consensus rise of 1.3%. It was the first year over year price gain in two and a half years.
April 27 (Bloomberg) -- Home prices in 20 U.S. cities rose less than forecast in February from a year earlier, a sign a housing recovery will take time to develop.

The S&P/Case-Shiller home-price index of property values in 20 cities increased 0.6 percent from February 2009, the first gain since December 2006, the group said today in New York. The median forecast of economists surveyed by Bloomberg News projected a 1.3 percent advance.

Home prices in February were 30 percent below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures that are restraining further gains in property values.

“The sharp drop in home prices has ended,” Michelle Meyer, a senior economist at Barclays Capital Inc. in New York, said before the report. “We believe that prices are bouncing around the bottom and see little upside potential over the next few years. There is an alarmingly large foreclosure pipeline.”

Stock-index futures held earlier losses following the report on growing concern over Greece’s debt crisis. The contract on the Standard & Poor’s 500 index fell 0.5 percent to 1,202.2 at 9:03 a.m. in New York.

I think the buyers incentives directly added to the price of homes, artificially of course. As the wave of option-ARM loans hits in the next year we should see some resumption of home price declines, especially in the upper end.

Citizen Confidence numbers are released at 10 Eastern this morning.

I was reading the Puget Sound Business Journal yesterday when a blatant example of stock manipulation jumped off the page at me:
Frontier Financial shares skyrocket 97% Monday

Shares of Frontier Financial Corp., of Everett, soared nearly 96 percent in trading Monday, pushing the stock to more than $7 a share at one time before closing at $5.84 and perplexing bank executives and analysts.

On an online trading message board for the bank, rumors circulated that Frontier will be seized by government regulators this Friday, fueling the theory that short sellers are betting against Frontier’s survival. Banks are typically taken over by the government on Friday.

More than 23 million shares of stock traded on Monday. There are less than 5 million outstanding Frontier (NASDAQ: FTBK) shares and on a typical day, only about 200,000 shares trade. Frontier Financial is the holding company for Frontier Bank.

Sara Hasan, an analyst with Seattle-based brokerage McAdams Wright Ragen, said it’s possible short sellers are betting against the bank’s stock. Another possibility is that the surge is caused by what’s known as a “program trade,” when a fund purchases a chunk of the stock without much research, Hasan said.

“I have no idea what’s driving it,” Hasan said.

Frontier Financial chief executive Pat Fahey said he was perplexed Monday. He said the company has not announced any news — and has no plans to do so. The NASDAQ stock exchange also called the bank asking about the stock movement, he said.

He said that any trading based on a takeover by government regulators would be “pure speculation.”

“That’s been going on for a year — what’s new about that?” he said regarding rumors about the bank’s health.

Great example of a lawless market, no police, no worry about being jailed for manipulating stock price, something that’s pretty easy to do with a small company. It would probably take the SEC all of 5 minutes to find out who was behind something like this, but nothing will happen, no enforcement of the rule of law.

Meanwhile Lord Blankfein is being grilled in the theatre of the absurd. “We did not bet against our clients.” Riiight, Lloyd, tell us another. While Hank Paulson was their CEO they were most certainly betting against their own clients, they were even throwing parties after successfully offloading their crap onto unsuspecting clients.

And the theatre is also occurring over “financial reform.” I am definitely skeptical that anything meaningful will come of that. Even if meaningful financial reform comes now, it is too late to stop the progression of impossible math, a function of our monetary system and the reason that monetary reform is what’s needed to actually heal our economy permanently.

There were 674 new highs on the NYSE yesterday, an all time record. That’s the type of extreme that will likely precede a pull-back of some kind, watch the number of new highs, once they begin to fall, a pull-back is likely.

Below is a six month chart of the SPX, note the large megaphone that was drawn in quite awhile ago:

The upper trendline has held prices and stopped the advance right on the 1,220 level. That level is also coincident with the 200 week moving average. If that megaphone is in play, we could be very near a pullback that would take prices down to the 1,000 area, that’s a pretty large correction should it occur. It may not be what’s in play, there is only one touch on the lower trendline, but it is the same angle as the upper trendline so it’s a possibility. Megaphones usually have 5 waves, obviously this one has had 3. If it’s in play, 4 would take it down to the bottom, then what’s typical is for a 5th wave to only make it half way back up and then fail. Megaphones are typically price reversal formations although not always. This is just conjecture at this point.

Velvet Revolver – Patience: