Thursday, August 26, 2010

Morning Update/ Market Thread 8/26

Good Morning,

Equity futures are higher this morning as what appears to be a subwave 2 bounce continues. The dollar is slightly lower, bonds are slightly higher after yesterday’s potential topping candle, oil is higher after finally finding support yesterday, and gold is lower so far today.

Although nothing to write home about, the weekly Jobless number came in less than the psychological 500k mark at 473,000 which is still horrific. The prior week was revised higher to 504,000 and the consensus was looking for 495k. Here’s Econoday:
Jobless claims swung lower in the August 21 week in what should slow the deepening pessimism. Initial claims fell 31,000 for the second biggest decline of the year. Yet the 473,000 level is still on the high side when compared to levels in July, evident in the four-week average of 486,750 which is the worst since November. The prior week was revised 4,000 higher to 504,000, also the highest level since November.

On the continuing side, continuing claims fell 62,000 in data for the August 14 week. The 4.456 million level is the best of the recovery as is the four-week average of 4.509 million. The unemployment rate for insured workers fell one tenth to 3.5 percent. The continuing news is probably good news for the jobs outlook, suggesting that those who have been out of work are increasingly finding jobs. But some of the decline also reflects the expiration of benefits as job seekers simply fall out of the insured labor pool.

Stock futures are getting a lift from this report though the outlook for the July employment report still isn't very bright. The jobs market is certain to turn up in tomorrow's comments from Ben Bernanke.

They'll mention a falling moving average, but fail to report on the primary average that is rising. According to the Department of Labor, “The 4-week moving average was 486,750, an increase of 3,250 from the previous week's revised average of 483,500.”

Also according to the DOL, “States reported 4,899,646 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Aug. 7, an increase of 199,493 from the prior week. There were 2,993,925 claimants in the comparable week in 2009.”

Of course the EUC number jumping 200,000 in one week doesn’t even get mentioned, nor does the fact that there are nearly 2 million more people drawing EUC this year (during the supposed “recovery”) than there was last year. Corn syrup for everybody, rounds are on the house!

Tomorrow is the Q2 GDP revision, the consensus is looking for it to be revised down from 2.4% to 1.3%. That’s a large adjustment they are expecting, it may be difficult for their Enron accounting to come up lower than that. Consumer Sentiment is also released tomorrow.

Yesterday produced yet another Hindenburg Omen, the 4th clean one to go along with one other that was on the line, and yet another that was extremely close. Again, this extends the four month window that the market is vulnerable to significant declines, and is an internal indicator of continued poor market health.

Below is a 3 month daily chart of the SPX, you can see that prices fell yesterday morning to support at 1040 and bounced. The favored count has this bounce as a small degree wave 2, and if that’s true, it may only make it up to fill the gap just under 1070ish, maybe a little higher. There are always other ways to count the action, however, so let’s remain aware of those. One more bullish way to count it is that instead of being in 3 of 3 down, we simply did a wave b of a larger wave 2 and now we’re beginning wave c of 2. But that’s much lower odds from my perspective, especially with confirmed H&S patterns in play - I’m just pointing out one alternative.

So far the DOW and S&P futures have been confined to the down channel I’ve been tracking, below is a 30 minute chart. You can see that this morning’s reaction to the sub 500k number still has not pushed beyond it. Keep in mind that this market is very vulnerable and could roll hard at any time:

The talk of the town is that all the bad data of late means that more wild central banker schemes are going to come roaring in to “save” us. Honestly, I don’t know who can think that way, especially now that it’s perfectly clear to anyone with more than two neurons that the fact is they are not just powerless, but they are the problem. So, if bad news is good because we’re going to be saved, then good news must also be good because we don’t need to be saved? This is the same convoluted and neurotic thinking that has gotten us and the markets where we are – we’ve seen that low brow mentality before, it’s time for the Fed and for the markets to get back to where they once belonged!