Tuesday, August 3, 2010

Morning Update/ Market Thread 8/3

Good Morning,

Equity futures are slightly lower following Monday’s HFT driven romp. Bonds are higher, oil is now above $82 a barrel, gold is higher, and the dollar is making a beeline towards the 80ish support level:

Factory Orders and Pending Home Sales will be released at 10 Eastern this morning.

Personal Income and Outlays came in mostly less than expected for the month of June. Income was flat for the month, as was Consumer Spending which is down from the .2% rise in May. Consensus was looking for a .1% rise. Year over year Consumer Spending decelerated from 4.6% to 3.1% as the super easy year prior comparables begin to get a little more difficult. Here’s Econoday:
According to Fed Chairman Ben Bernanke, the Fed is hoping that a bump up in consumer spending will help strengthen the recovery. Apparently, that will have to wait until at least next month. Personal income in June was unchanged, following a 0.3 percent boost the month before. The median market forecast was for an incremental 0.1 percent gain. The wages & salaries component slipped 0.1 percent after posting a healthy 0.4 percent advance in May.

Consumer spending has softened over the last three months due to varying reasons. For the latest month, weakness partially was price related-notably for gasoline. Overall personal consumption was flat, following a 0.1 percent rise in May. The June number just fell short of the consensus projection for a 0.1 percent increase. By components, durables was stronger than many expected, rising 0.1 percent despite an earlier released report of a drop in motor vehicle sales in June. Weakness was in nondurables which fell 0.4 percent. But services sluggish, gaining only 0.1 percent. In chain dollars, overall spending was slightly positive for June, gaining 0.1 percent, following a 0.2 percent rebound in May.

Inflation was not an issue in June. The headline PCE price index dipped 0.1 percent, matching May's decrease. The core rate was flat after a 0.1 percent gain in May.

Year on year, personal income growth for June came in at up 2.6 percent, improving from up 1.5 percent in May. PCEs growth stood at 3.1 percent in June, compared to 3.7 percent in May. Year-ago headline PCE inflation eased to 1.4 percent from 2.1 percent in May. Year-ago core PCE inflation softened to 1.4 percent in June from 1.5 percent the month before.

Consumer spending softened in the latest month. For consumers to start opening their wallets again, we need to see improvement in employment. On the release, equity futures eased.

While year over year personal income was higher, the month of May was revised lower. Overall not a strong report, it fails to show acceleration for still debt saturated consumers whose spending comprises 70% of all economic activity.

Yesterday’s move was yet another 90%+ HFT powered move with 92.4% of the NYSE volume on the upside. That is the 10th 90%+ up day since the April peak, the score card is now 11 down, 10 up in an absurd sign of ill-health and a compromised/ corrupted marketplace. Obviously Monday’s move satisfied Friday’s small movement in the McClelland Oscillator.

The rising wedge patterns are nearly complete with the SPX approaching the 1130 – 1135 region that is the top of the wedge and also where the upper Bollinger and Fibonacci resistance is located:

A move as high as 1140 or 1150 would not surprise me and could be considered an overthrow. It would also not surprise if those patterns are complete and we turn lower now. Time wise we are getting closer to fitting the relationships of waves 1 and 3, but we still may need some time, so again patience while watching the lower boundaries of the wedges are the clue that the move is over.

Bonds are saying that the move up in stocks is not going to last. They are stubbornly basing just below overhead support and look close to making a move higher.

The VIX’s descending wedge looks close to being complete and may be signaling that a sharp move higher is close. Here we need to watch the upper descending trendline that I believe will break as the equity rising wedges break:

A break above the upper descending trendline would target roughly 58 on the VIX, as the staff of the flag is 33 points in length and the break would occur at about 25ish.

Many of the indices closed above the 200dma yesterday, and now the 50dma’s are slopping upwards. These are bullish technical indicators that I believe are a part of drawing in as much money as possible. The up move yesterday come on very low volume once again, and I note that when we have 90% up days the volume is light, but when we have 90% down days the volume is relatively heavy. Volume confirms price and it is still talking loud and clear about the primary direction of the market.

Tom Petty – Breakdown: