Thursday, June 10, 2010

Morning Update/ Market Thread 6/10

Good Morning,

Equity futures are higher this morning as they have overall moved sideways for the past week remaining above 1,040 on the SPX but below 1,100. Both the dollar and bonds are down, oil is up, gold is down. The Euro is higher, but still beneath its primary down channel line, it is probably getting close to resistance and relatively speaking the dollar is holding up strongly, just beneath that overhead resistance.

Yesterday’s session was quite volatile as the DOW fell more than 200 points from its high. The internals were more evenly split with 51% of the NYSE volume on the downside. There were 45 new NYSE lows, and 35 new highs.

Jobless claims rose to 456,000 from 453,000 the week prior. Consensus was expecting a drop to 448k. Here’s Econoday:
Initial jobless claims continue to disappoint but only mildly, at 456,000 vs. expectations for 448,000 and vs. 459,000 in the prior week which was revised 6,000 higher. The four-week average rose for the fourth straight week to its highest level in three months, up 2,500 to 463,000.

But there is improvement on the continuing claims side, hinting at new hiring. Continuing claims fell a very steep 255,000 in the May 29 week to 4.462 million and the lowest level since late 2008.

Disappointment over initial claims is offset in part by the improvement on the continuing side. But until initial claims begin to improve, the outlook for payroll growth remains uncertain.

The DOL reports, “States reported 4,995,133 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending May 22, a decrease of 10,588 from the prior week. There were 2,256,591 claimants in the comparable week in 2009.”

That’s still 2.74 million people on Emergency Unemployment Compensation.

The Trade Balance for April came in at -$40.3 Billion, this is down from March’s -$40.4 Billion. Exports slipped $.7 B, while Imports also fell but not as much, down $.4 B. Overall lower activity with exports falling more than imports could be partially the response of the rising dollar. Below is Econoday’s summary:
Weaker exports led to a widening of the trade deficit in April. The overall trade gap widened to $40.3 billion from $40.0 billion in March. The April shortfall came in a little smaller than the market forecast for a $41.0 billion deficit. For the latest month, exports slipped 0.7 percent while imports decreased 0.4 percent.

The petroleum goods gap, however, narrowed to $24.0 billion from $24.5 billion in March. The nonpetroleum deficit widened to $27.9 billion in April from $26.7 billion the month before.

By end-use categories, goods exports' weakness was led by a $0.7 billion decline in consumer goods. Foods, feeds & beverages fell $0.6 billion. Industrial supplies and autos were up $0.6 billion and $0.1 billion, respectively.

Softness in goods imports was led by a $1.7 billion fall in consumer goods-indicating that businesses are more cautious about consumer demand in coming months. Auto imports dipped $0.2 billion. However, the bright spot in imports is a $1.4 billion jump in capital goods excluding autos. Businesses appear to see demand strong enough to expand or upgrade capacity.

Today's report raises the issue of whether sovereign debt problems in Europe are damping overall demand. Due to the drop in exports, equities should not like today's numbers despite the deficit being smaller than expected.

$40 billion a month is still down a third from 2007 levels, and almost seems quaint now that weekly debt issuance is 3 times that amount.

What was that big jump in exports from China I was reading about? Where were they exporting to? There needs to be a better way to track trade – measuring in currency is flawed. Tracking the shipping indices has been a better way to keep an eye on it, below is the current Baltic Dry Index, you can see that it collapsed 90% and has rebounded in a manner similar to most parabolic collapses. The latest trend is another turn down:

Here’s a chart showing the BDI over the past year, it has yet to break its most recent uptrend:

Stocks may have finished wave 2 of 3 down yesterday, or we may have one more c leg up as yesterday’s down stroke appeared to be a middle movement for wave b. We’ll know if we get over yesterday’s high or not, either way we are likely getting very close to wave 3 of 3 down. The movements are shortly spaced, so don’t be surprised by more intraday reversals. Support and resistance remain the same. Below is a 30 day, 30 minute chart of the SPX just for some perspective:

A few days ago a longer term sell signal was given when the 20 day moving average crossed under the 200 day moving average. This last produced a sell signal in late 2007. You can see that we received a buy signal in June of 2009. This signal has very few false alarms, especially if you give it until the averages are separated by 1%, which they are right now.

Hey, if you’re being smart and conservative you will have the majority of your assets well protected so that you can take advantage of what’s coming. While you may not like the dollar, for right now a majority cash position is giving me the opportunity to think clearly and to have some peace of mind…

Boston – Peace of Mind: