Thursday, April 29, 2010

Morning Update/ Market Thread 4/29

Good Morning,

Equity futures are higher this morning, now retracing roughly half of the losses incurred early this week. Below is a 5 minute chart of DOW futures on the left showing the overnight action, and a 15 minute chart of the S&P on the right. Both appear to be making a rising wedge which is normally bearish, however, the pattern is still young and has not been created on the cash charts as of yet:

The dollar is lower, bonds are higher, oil is significantly higher, and gold is down slightly while it digests recent gains.

Goldman’s bounce continues off the $150 level for now, I think what happens there will impact the XLF and the entire market.

Financial reform is now progressing, there’s really no point in commenting until we hear what it contains. That said, there is a lot of talk about including a no bail out provision. Of course that’s the right thing to do, however it is the type of constraint that shows how the mood will be different on the next leg lower when it occurs. Remember, the banks are still insolvent, their “assets” as underwater as the city of Atlantis.

Weekly jobless claims fell by 8,000 to 448,000, a level which is still extremely elevated. Here’s Econoday:
Initial jobless claims fell in the April 24 week to 448,000 vs. 459,000 in the prior week, which is revised 3,000 higher. The four-week average is up 1,500 to 462,500 and compares negatively with 448,000 at the end of March.

Continuing claims are down 18,000 to 4.645 million in data for the April 17 week. The four-week average here compares favorably with month-end March but only slightly, at 4.639 million vs. 4.651 million. But a month-end to month-end comparison of the unemployment rate for insured workers shows a 1 tenth uptick, at 3.6 percent vs. 3.5 percent.

Today's report is not overwhelmingly positive but does show improvement in what counts most -- the latest weeks. Early expectations are calling for a solid gain in April payrolls but roughly the same size gain as in March which came in at 162,000. The stock market slipped very slightly following today's report.

From the Department of Labor’s release, “States reported 5,200,473 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending April 10, a decrease of 146,641 from the prior week. There were 2,286,186 claimants in the comparable week in 2009.”

That’s roughly 3 million more people on emergency unemployment this year over the same timeframe last year.

The first manipulated stab at quarter 1 GDP will be released tomorrow, can’t wait! The crowd is guessing 3.4%, I believe that true GDP is still negative, remove false accounting practices, calculate true inflation, and mark financial “assets” to market and GDP would fall tremendously. Enron times a million, and just because the whole world’s in on it doesn’t mean the ending is going to be any different.

On the opening bell the VIX fell beneath the upper Bollinger band. Should it close beneath it will have produced a market buy signal. Again, these signals are usually very reliable. For this signal to be triggered, it must be on a closing basis. Below is a 3 month chart of the VIX, note the broadening Bollingers:

Below is a daily chart of the dollar. Note how the 82 level neatly closes off the gap area I highlighted months ago in red. The 82.20 level is key here, a rise above is bullish for the dollar and bad for equities. A drop below probably means we have more to come on the upside with equities and that would correspond with a buy signal on the VIX should it occur.

Hey, the bank’s toxic paper is still so far underwater I’m surprised John Paulson didn’t moniker his CDO fund “Atlantis.”

Donovan – Atlantis: