Thursday, August 19, 2010

Morning Update/ Market Thread 8/19

Good Morning,

Equity futures ramped higher overnight, but fell sharply following the weekly jobless claims report which reached the 500,000 mark once again, well above the 480k consensus. The dollar fell, bonds are higher, oil is flat, and gold is up.

The previous week’s Jobless Claims came in at 484,000, but were revised higher to 488,000. That was bad enough, but the jump to the 500k mark takes us back up into the negative psychological levels not seen since October of last year. Here’s Econoday:
Initial claims are piling up, indicating that businesses are continuing to cut costs. Initial claims came in at 500,000 in the August 14 week for the largest total since November. The four-week average of 482,500 is the largest since December. A month-to-month look shows significant deterioration of 25,000 for a percentage change of nearly six percent. The Labor Department said special factors are playing no part in the data.

But not all the news is negative. Continuing claims continue to come down, down 13,000 in data for the August 7 week. The four-week average of 4.527 million is the lowest of the recovery.

Today's report points to trouble but not catastrophic trouble for the monthly employment report. Note the rise in initial claims betrays a lack of business confidence in the economic outlook. Stock futures are moving lower following the report while money is moving into the safety of Treasuries.

There is nothing good in the report, the initial claims average is rising, and the number of people on EUC (Emergency Unemployment Compensation) benefits jumped to 4,753,456, an increase of 260,105 from the prior week. There were 2,961,457 claimants in the comparable week in 2009, a year over year increase of 1.8 million people (not including those who fell off the rolls). Unlike the continuing claims, the four-week average of initial claims rose 482,500, an increase of 8,000 from the previous week's revised average of 474,500. Overall this report is the opposite of “recovery.”

Leading Indicators and the Philly Fed are released at 10 Eastern this morning.

Yesterday’s action produced a “spinner” for a candlestick after failing to break above the 200dma and double topping at 1100:

On the 10 minute chart you can see the double top. It looks like, despite the horrific Jobless Claims, that we will open about even. Note the lower RSI peak on the second equity peak, a short term negative divergence:

Until the lower trendline breaks (it may on the open), we are still in what appears to be a wave 2 bounce. We are in a position where a significant decline will likely trigger a second Hindenburg Omen observation – that decline may not come before options expiration which is tomorrow. Of course that all depends on what positions GS and JPM are holding, doesn’t it?

Looking on the 30 minute SPX chart, there is a potential smaller H&S pattern that may be developing (blue double line is the neckline) – in fact the double top yesterday may be the high for the right shoulder. Should we fall below 1070, the target would be approximately 1010:

Supposedly the last of our “combat” brigades have left Iraq, leaving behind about 56,000 troops still there. While I think they are playing a game of semantics, I am certainly happy to some troops leave…

Styx – Suite Madame Blue (America Patriotic):