Tuesday, June 15, 2010

Morning Update/ Market Thread 6/15

Good Morning,

Equity futures are up this morning, the dollar is down, the euro is up, oil is up, and gold is up just slightly. After reviewing the count and potential waves, I moved the lower boundary of what appears to be a rising wedge to contain yesterday’s action. Below is an hourly chart of the DOW and S&P futures:

Yesterday Moody’s downgraded Greece’s debt further, this time 3 notches lower all the way to Ba1 – JUNK. Nope, sorry to all the debt watchers, we are NOT in better shape than Greece when adding in all the debt we are carrying off balance sheet. And when you add in future liabilities and an insolvent still overleveraged financial sector, we’re worse.

Crank of the day goes to the CFTC who approved, with a 3-2 vote, the creation of futures contracts based upon movie box-office receipts! Hollywood is furious, as they now see speculators shorting their films, LOL. It’s so funny I’d cry if it weren’t so disgusting. What it shows so clearly is how our current version of a “marketplace” is nothing but a gambling parlor – a joke. Oh wait, now movie studios can “hedge” their productions! Or better, an actor can take a lucrative contract, short the movie, and then produce a stinker, “throwing” the film for profit! LOL, what fun there is in a casino.

Hey, I’m thinking of creating a new family of ETFs… first I’ll create one for “Red,” and another for “Black.” Each morning I’ll spin the wheel to determine which one rises or falls, and in about three month’s time I plan on rolling out my 3X versions of my new ETF’s. Anyone want to “invest” in my new enterprise? It’s going to be big, I’ll follow the red and black ETFs with “heads” and “tails.”

The Empire State Manufacturing Report came in below expectations at 19.57. This was above the prior reading of 19.1, while the consensus was 21. Here’s Econospin making their case that the positives in this report outweigh the negatives:
Solid describes June's Empire State report that shows steady and firm month-to-month acceleration in orders and shipments. New orders rose more than three points to 17.53 to indicate significant month-to-month growth in this most important of all readings. Shipments, which follow orders, rose nearly 8-1/2 points to 19.67 with the workweek rising to 8.64 vs. no change in May. Delivery times slowed significantly in the month, to 9.88 vs. May's minus 6.58 to indicate stress on the supply chain. Manufacturers in the region are adding employees but at an index of 12.35 they are adding fewer employees than in May or April when the index came in just over 20. The headline business conditions index, steady at 19.57, reflects the overall strength underway.

Price acceleration eased reflecting lower energy prices as prices paid fell back more than 17 points to 27.16. Pass-through of costs is minimal with the prices received index steady at 4.94. Inventories remain a key negative in the report, at minus 1.23 to indicate a marginal draw this month as businesses continue to keep a tight grip on costs. Like inventories, unfilled orders are also a negative at the same minus 1.23 reading to indicate a slight month-to-month draw. Employment and inventories really won't get going until backlogs begin to build.

Despite the negatives, today's report is a plus for the manufacturing outlook pointing to strength for Thursday's report from the Philadelphia Fed and for the monthly ISM purchasing report to be posted at the beginning of next month.

Import prices for May fell from 1.9% to negative .6% reflecting both a large drop in oil prices as well as a large general decline. Export prices fell from 1.2% in April to a rise of .7% in May:
Import prices fell 0.6 percent in May reflecting a steep 5.0 percent monthly decline in import petroleum prices. Excluding petroleum, import prices rose 0.5 percent following the same 0.5 percent rise in April. While prices for inputs fell, the result of the fall in energy prices, prices for finished goods remain little changed, at plus 0.2 percent for capital goods and at plus 0.1 percent for consumer goods. The rising value of the dollar points to easing pressure for import prices in the months ahead.

For exports, the rising dollar points to greater gains as foreigners have to pay more for less. Export prices rose 0.7 percent to extend solid gains for a third month. Here the wildcard is agricultural prices which rose 1.4 percent. Excluding agriculture, export prices rose 0.6 percent for a third solid month of gains. Prices of finished capital and consumer goods edged fractionally lower in the month.

The inflation outlook right now is benign and shouldn't stand in the way of policy makers. The rising dollar is a big plus that will keep import prices down and help keep inflation in check.

Got to keep that “inflation in check” so that the Fed can keep rates low for longer, LOL. We’ll get PPI and CPI this week to see how much steam deflation is picking up.

April monthly TIC flows (Treasury International Capital) came in barely positive once again overall. In March they were an anemic $26 billion and for April they were reported at only $15 billion. A balanced situation would see this amount covering our monthly trade deficit which is running above $40 billion. Here’s the report:


I’m seeing that because we are tapping up against the SPX 1,106 area more people are turning bullish – many see a run up into the 1,140 to 1,150 area in order to form that right shoulder that everyone and their brother sees. That alone makes me suspect.

McHugh, however, is pointing out what he sees as a positive divergence with the advance/decline line rising against falling prices. His favored count shows only one last leg higher in this sequence and that would fit into the rising wedge shown above. I’m doubtful that we would make it very far on the upside, and think a good overthrow to draw people in before turning would be likely. The options IV skew is still bearish, and the IRX is an enigma, dropping severely over the past couple of weeks (although already at extreme low levels).

This says to me that money is sneaking to safety – not mom and pop money either.

Boston - Cool the Engines: