Thursday, July 29, 2010

Morning Update/ Market Thread 7/29

Good Morning,

Equity futures began rising after the close yesterday and have not looked back. The dollar is down, and bonds are down as well which is supportive of higher equities this morning. Both oil and gold are down slightly, with oil in the $76 range, having failed to break above $80 resistance.

Slipping below most people’s radar, wheat has been one commodity that has been on a wild ride. Below is a chart showing the daily price movement, and on the right is the weekly. On the daily, you can see that price of wheat has risen from $425 to $659 in about a month and a half. That’s a 55% rise! And that move is absolutely straight up, the type of parabolic move that you know is going to reverse hard at some point, and that point may be approaching. If you look at the weekly chart you will see that price collapsed and then began a volatile trading range, wheat is now at the upper end of that range. I would not attempt to play it here, but a breakout may be talking to us, as would a reversal, so it’s worth watching. Corn has also been moving up, but not as dramatically:

This morning the jobless claims came in at 457,000, slightly lower than the prior week’s 464k (revised to 468k), and slightly less than consensus of 460k. Yet another very elevated report, it is troubling that this number is not coming down. It’s my thesis that debt saturation is the underlying cause, and that employment will not return to health until that condition is truly cured. Here’s Econoday:
Initial jobless claims for the July 24 week were down by 11,000 to 457,000, slightly lower than expected by analysts. However, the number of initial claims was revised up to 468,000 from 464,000 in the prior week. The four week average dropped by 4,500 to 452,500 in the July 24 week and the lowest since the May 8 week when the average was 450,500.

Continuing claims in the July 17 week were up by 81,000 to 4.565 million. The four week moving average here was down by 18,000 to 4,548,250, the lowest level since the December 27, 2008 week. The seasonally adjusted insured unemployment rate rebounded to 3.6 percent in the July 17 week after edging down to 3.5 percent in the previous week.

Tomorrow will be data intensive with the first crack at Q2 GDP. The consensus is looking for 2.5% growth. The Chicago PMI and Consumer Sentiment are also released tomorrow.

The rising wedge that everyone thought was occurring is now pretty much excluded as being in play. Our first clue is that prices normally drop hard out of a rising wedge, and instead we got sideways with a little bit of down. That movement created the lower boundary of what now looks like an up channel. Inside of that channel you can clearly see that it looks like we have made 4 waves and thus it looks probable that we will see a final wave higher. Just remember that 5th waves are wild cards, they can truncate or extend, so picking a target is difficult and requires paying attention to fib levels and prior resistance. Below is a 30 minute chart showing those waves within the brown up channel, that channel comprises wave c of an a,b,c that is inside of a larger up channel:

The good thing about having a well defined channel is that it gives us a clear indication of the next trend change and that boundary line will make a good entry/ stop point.

I find the move lower in the dollar interesting, it has come quite a long way. The Euro, however, is coming up on resistance soon and bonds are still close to their recent highs. The VIX is another item to watch, yesterday it produced a hammer just over the 200dma. Should it fall and stay beneath the 200, it would be bullish, but it is stubbornly remaining above it for now. Support is at 1090 and 1100. Resistance will be found at the 1107 pivot, the 50% fib at 1115, the June high of 1131, as well as a pivot at 1136. The 61.8% of the entire move since the April peak is at 1140, so there is quite a bit of resistance to chew on.

The market moves in waves, as manipulated as it is, it is still a part of nature and contains a rhythm. It’s our job to get in synch with that rhythm…

Carlos Santana - Oye Como Va

*The first sentence is actually “Oye como va mi ritmo,” meaning “Listen to how my rhythm goes.”