Friday, July 16, 2010

Morning Update/ Market Thread 7/16

Good Morning,

First a big thank you to everyone who participated on the market threads while I was gone and kept them professional yet fun. I think that sharing market information is vital to fully understanding market moves.

Here are a couple of pictures from my trip – a lot of beautiful off road riding, and I am able to stop and take more pictures when riding away from the group like these pictures of Mt. Rainier taken from Chinook Pass on the ride home…

This is a view of Summer Lake in eastern Oregon:

Equity futures are down this Options Expiration morning, the 1100 SPX area was the spot with the greatest amount of option activity, an obvious resistance level, and the index options will open fairly near that level, amazingly levitated against an obviously deteriorating economic backdrop. Bonds prices have risen against the equity backdrop, that is a sign that the big money is getting into safety. The dollar is slipping fast now that its previous uptrend is broken, that’s dangerous if it goes too far too fast. Oil is down slightly this morning, while gold is plunging from what appears to be a bearish flag, now well below $1,200 an ounce – this break looks like it will bring gold substantially lower than the current lows.

While earnings reported to date have been largely “better than forecast” and an improvement over the horrid state of affairs a year earlier, so far the “beats” have come largely from the financial firms who are shuffling paper, marking to fantasy, manipulating markets and largely robbing Americans blind while our politicians do nothing real because they are bought and paid for with their dirty profits. Usury, shell games, accounting fraud – all endorsed and approved by the “Fed” who is now being put in charge of “Consumer Protection!” What a joke! Financial Reform? While I don’t have all the details yet, I can assure you that it does nothing to clear the debt much less keep it from happening again. Are there provisions that will limit the amount of growth? That has yet to be seen and from what I can tell grants many discretionary powers to the very criminals who are already robbing us blind.

Goldman settled their mortgage fraud for only a pittance of their quarterly profit - a joke and a mockery of the rule of law, showing just who is once again really in charge. A truly insolvent company who is leveraged to the moon yet earning billions and dictating policy - sickening.

But BP did cap the well… this is a good thing and may show that the well is more in tact than many believed – of course we are not privy to all the data yet, but at least that is a positive for now.

The economic data out this week continues to show rapid deterioration and deflationary forces at work. Manufacturing and housing data continue to be particularly weak. This morning the CPI was released at -.1% month to month, this follows yesterday’s .5% drop in the PPI. Here’s Econoday:
Lower energy costs tugged down on the consumer price index in June, resulting in a third consecutive decline in the headline number. In June overall CPI inflation dipped 0.1 percent, following a 0.2 percent decline in May. The latest month matched the market projection for a 0.1. Excluding food and energy, the CPI edged up to 0.2 percent after a 0.1 percent uptick in May. This was higher than analysts' forecast for a 0.1 percent rise.

By components, energy component dropped 2.9 percent, equaling the May decrease. Gasoline fell 4.5 percent after a 5.2 percent decrease the previous month. Food prices overall were flat for the last two months.

Bumping up the core rate was a number of components. Apparel jumped 0.8 percent after a string of weak months. Medical care gained 0.3 percent. Used cars and tobacco both were up significantly for June.

Year-on-year, overall CPI inflation eased to 1.1 percent (seasonally adjusted) from 2.0 percent in May. The core rate in June remained at 1.0 percent. On an unadjusted year-ago basis, the headline number was up 1.1 percent in June while the core was up 0.9 percent.

The PPI tends to lead and the CPI follows.

Speaking of leading indicators, the ECRI is a more modern and much more accurate leading indicator than the LEI. Last week the ECRI fell to -8.3, a reading that almost assuredly means that we have entered a technical recession once more. Below is a chart from Claus Vogt of Weiss Research showing areas of recognized recessions since 1968 and how this indicator has performed. Note that every reading of the current -8.3 reading has been during an officially recognized recession:

Another leading indicator is the Baltic Dry Shipping Index. Low prices here mean that bulk shipping of commodities is weak... Bulk commodities are turned into finished goods. So, the BDI tends to lead the cycle – and it is still PLUMMETING, now down 60% from it’s most recent high and challenging crisis lows at a reading now of only 1,700:

Monthly TIC flows (Treasury International Capital) were anemic once again in May, coming in at a plus $17.5 billion net. This is another weak report showing that foreigners are no longer willing or able to continually finance our deficit shopping ways:


Consumer Sentiment just released for July and indicated a plunge from the previous 76.0 reading all the way to 66.5! This is a 12.5% drop and well below expectations of 75.

The market has been bouncing in what appears to be a wave 2 bounce. Again, wave 2s are meant to fool and to draw in as much money as possible. The psychology at this point is that it could still be a bullish count and we could be on our way to new highs… too bad the data and fundamentals simply do not support that. Underlying all the bad data is DEBT that is still there and still festers, the entire system fully saturated and infected.

The daily oscillators are now overbought and I believe we are about to experience the next down wave. There are many danger signs in place, negative moving average crosses, lower lows and lower highs. Yesterday produced some hammers like on the RUT, lower prices today would validate a potential reversal. Rising bond prices and VIX the past 3 days is counter to rising equity prices which have risen once again on falling volume.

Stevie Nicks – Landslide: