Thursday, July 8, 2010

Morning Update/ Market Thread 7/8

Good Morning,

Equity futures are higher this morning, ramping on a better than expected weekly jobless report. Bonds had already broken down from the flag they were forming which is supportive of higher equity prices, although equities are overextended in the very short term due to yesterday’s rise. Oil is up and gold is down. The dollar is down slightly, now resting on the bottom of its up channel.

The weekly jobless claims came in better than expected at 454,000 which is a decrease of 18,000 from last week’s 472k report. The consensus was looking for a drop to 465k. Here’s Econospin:
Finally, jobless claims show solid improvement. Initial claims fell 21,000 in the July 3 week to 454,000 for the lowest level since early May. (prior week revised 3,000 higher to 475,000). The four-week average fell 1,250 to 466,000, the best weekly improvement since early May though the level is still slightly higher than a month ago.

Declines are also seen for continuing claims, down 224,000 in the June 26 week to 4.413 million for the lowest level since November. Declines here reflect a mix of new hiring but also the expiration of benefits as the unemployed move out of the insured pool. The unemployment rate for insured workers fell 2 tenths to 3.4 percent.

Stocks are rising and money is moving out of Treasuries following these results which offer early encouragement for the July employment report. Yet conclusions are difficult to draw given possible calendar and seasonal effects tied to the July 4 holiday and annual shutdowns in manufacturing, shutdowns centered in the auto sector. Note that GM has pushed back its annual retooling layoffs, a factor that could be holding down claims. Five states had to be estimated in today's report including California, but the Labor Department didn't cite any issues which may give the green light to the stock market.

Hmmm… “Five states had to be estimated… including California?” That’s nice and convenient, no surprise that the lack of data magically produced a better report… or was it? Let’s look at the unadjusted numbers from the Labor Department:
The advance number of actual initial claims under state programs, unadjusted, totaled 463,560 in the week ending July 3, an increase of 22,560 from the previous week. There were 581,145 initial claims in the comparable week in 2009.

That’s interesting how a real number increase of 22,560 turns into a seasonally adjusted decrease. The week ending July 3 was a full week. It will be interesting to see how they manipulate, err, I mean seasonally adjust the claims for next week’s report that will include the holiday. Regardless, any number above 400k is simply horrid, a disaster and it’s amazing that these numbers have been as elevated for as long as they have.

By the way, the drop in continuing claims is due to the failure of Congress to pass another benefit extension, but we'll ignore those lost souls and cheer the "data!"

Yesterday’s 275 point romp was yet another 90%+ move with 95.2% of the NYSE volume on the upside. That was number 17 since late April, the score is now 10 to 7, down. That is one out of every 3 trading days with a 90%+ move – unprecedented to say the least. Sick and broken with no adult leadership is what I’d call it. An HFT computer would call it Paradise, and you know what the Eagles say about calling some place Paradise, right?

The Baltic Dry Index fell more than 5% yesterday, the 30th day in a row of falling shipping prices. Weak demand from China for steel is taking a large portion of the blame, but regardless, the index has now fallen 53% in just the past month! Remember, it had fallen 93% before bouncing. Many analysts are ignoring this indicator, heck, the IMF just raised their global growth estimates, lol.

That’s right, collapsing shipping rates but here’s what the IMF (central bankers) had to say about global growth for this year:
(Bloomberg) …the IMF said the world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent. The Washington-based fund said central banks in emerging-market nations have tightened monetary policy “appropriately” and must remain responsive to potential threats to growth.

“The IMF report shows there is strong demand in the economy, it’s a big positive for the equity markets,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi, India.

Sweet! The Emerging Markets Index jumped 1.2% on that release! It’s so nice to be able to ignore reality and have markets jump at your moronic pronouncements, HFTs for everyone! (Exclusions and exemptions do apply please contact your nearest central banker for details. Be sure to ignore the recent EEM "Death Cross," and remember, this HFT offer is for a limited time only, quantities are limited. Offer is not applicable to you, for you there will be austerity only).

There is a large gap in the charts up at SPX 1074, it’s looking more likely that we’ll fill that. SPX 1071 is the 50% retrace of the last wave down. The 61.8% is at 1085, that is also a possibility for this wave 2 bounce. Below is a daily chart of the SPY:

The gap on the NDX is just below the 200 day moving average. Again, I would expect it to be filled:

Filling those gaps is not likely to happen in a straight line, there needs to be some sort of middle movement pull back. If we get above 1085, then there is a possibility something other than wave 2 of 3 is occurring, but it would take a rise above 1131 to actually change my view of the count. Remember, wave 2s are meant to fool… people are still thinking in wave 2 that it’s possible to make new highs and to live happily ever after. Of course the millions who have now exhausted their unemployment benefits know better, but the central bankers with their HFTs and billions are still clueless. Manipulating the markets is their last Resort…

The Eagles – The Last Resort: