Friday, July 9, 2010

Morning Update/ Market Thread 7/9

Good Morning,

Equity futures are roughly flat this morning, the dollar is higher, gold is higher, and bonds are flat.

The only economic report today is wholesale trade which is released at 10 Eastern.

Yesterday chain store sales came in weak and Consumer Credit came in much lower than expectations for May with a very large revision lower for April. Here’s Econoday:
Consumer credit contracted a sharp $9.1 billion in May with April revised to show an even more severe $14.9 billion contraction. The April revision is very surprising given the initial reading of a $1.0 billion gain!

Revolving credit contracted $7.4 billion in May and contracted $8.3 billion in April. Non-revolving credit shows a $1.8 billion contraction in May on top of a $6.5 billion contraction in April. Neither category is likely to show much improvement in June given indications from today's soft store sales report and last week's soft unit vehicle sales.

Consumer credit had been leveling earlier this year but now appears to be on a double dip. This report could set stocks in reverse during the last hour of trading.

Everyone keeps talking about that “double dip,” but where is it? Take a look at that chart, there was no rebound in Consumer Credit. Nice revision by the way.

Interestingly in Canada their latest jobs report showed that 93,000 jobs were created last month, five times more than was expected. This is bringing about speculation that Canada may have to raise rates. That would set up an interesting dynamic that would likely strengthen the Canadian dollar. It’s also an enigma as Canada is sitting on a housing bubble that appears to just now be beginning to burst (Vancouver’s home sales just plummeted 30%), but their federal government is in a much better position debt wise than most of the other western countries. If they can refrain from bailing out the banks and mortgages, they will fare far better.

Yesterday’s move higher seems to confirm Wednesday’s 90% romp, that continues to give the Bulls confidence. But the wave count seems to suggest that yesterday’s sideways move during the day was a wave 4 movement with the late day rally being all or part of wave 5. If that’s the case, then it’s likely that wave 3 of 3 will begin early next week and we should see this wave 2 movement wrap up soon as we have now retraced roughly 50% of the prior wave. It is possible that we retrace up to the 61.8% mark, and it’s also possible that this wave is just wave a of and a,b,c for wave 2. We won’t know for sure until we break below the bottom wedge boundary you can see on this 20 minute chart of the SPX below:

Also note that the gaps have not filled entirely yet, so there may be a little bit more to go on the upside before the next pullback begins. Gaps are like a vacuum, and nature works diligently to fill voids – think of them like low pressure areas, and like all things in nature that flow, prices also seek the path of least resistance flowing from high pressure to low.

As I looked around the charts last night I noticed that there were many hammers around. The one on the XLF is very prominent and prices this morning are having difficulty getting over it. If prices fail to close over that hammer today, it may be a valid reversal indicator. Below is a 3 month daily chart of the XLF:

Thank you to everyone who kept the daily thread going yesterday, I appreciate it!