Friday, September 17, 2010

Morning Update/ Market Thread 9/17

Good Morning,

Trillions of HFT micromanipulations later, and nearly an equal number of POMOs to fuel them, prices are finally challenging SPX 1130 overhead. Of course this is occurring on no volume overnight, as if there is any volume to speak of during the day… there’s not. That's because there are no REAL buyers, real people know that NOTHING has been solved. The banks are still insolvent, the sovereign default risk has not gone away, accounting FRAUD is rampant world wide, data manipulations are rampant world wide, and despite Elizabeth Warren heading out into the Wild West to “protect consumers,” they are already laying there with the life blood sucked out of them – zombies at best, just like the banks that made them that way.

Futures ramped overnight, using games with RIMM and Oracle’s earnings to shoot tech stocks even higher, as if 11 days of straight up isn’t enough. That push ran well over 1130, but has fallen back since, leaving bonds higher, the dollar higher, oil lower, and gold higher. By the way, the Yen has gone exactly nowhere since the massive intervention Tuesday evening. When reading about earnings that “beat,” just keep reading and consider things like all the “one time” write offs that are always there yet in today’s world are not included in “operating earnings” which are the numbers touted. Also look long and hard at margins and what direction they’re headed, if you do, you may not be so impressed.

Of course today is quadruple witching day, and as such I do not take the price action today seriously. I guess I need to add the Friday evening pump for the Monday morning ramp to the list of things that I don’t take seriously. Oh wait, I guess the truth is that I don’t take our markets seriously at all, they are nothing but an illusion designed to suck your productive capacity into the hands of the few who play with their HFT machines, have access to dark pools, and “make” markets. Still, what I know is that unreal markets don’t last, this one won’t either. I certainly make no apology for their actions, people gambling in THEIR markets need to practice extreme patience or they will be stripped bare.

The Philly Fed report yesterday was just plain awful when you look at the details. The headline was -.7%, but if that negative report weren’t enough, inside the report were these not so little points:
“New orders, at minus 8.1, contracted for a third month and contracted at a deepening rate. Unfilled orders, at minus 8.5, extended their long run of contraction. Shipments, at minus 7.1, contracted for a second month as did the workweek. Delivery times, at minus 4.1, continue to shorten. Inventories, at minus 16.7, show a second month of significant destocking in a telling reading that suggests businesses are growing more defensive.”

Not to worry, the people on TV, and the people who have lots of things to sell you, say there is almost no chance of a “double dip.” People like Warren Buffet, who owns banks like Wells Fargo that was proven guilty of laundering drug money, who owns Gillette which produces razor blades that you MUST HAVE because they have 5 blades, as if two weren’t enough. They won’t even keep making only two, because they’re almost finally affordable at a buck each - no, no, we must spend $4 each for 5 blades or otherwise their bottom line will suffer, and I’m sure I just look so much better with a 5 bladed shave. Poor, but man do I look better. Thanks Warren. Sure, I’ll buy some of your stock from you, never been a better time. What’s that, you want me to take out a loan and work the rest of my life to pay you back? Sure Warren, no problem, I’d gladly trade my soul that’s making my one trip on this planet to you for a shiny new overpriced oil sucking car made by a company I bailed out with the tax portion of my productive efforts. It’s a dream come true! Sure am glad to see Elizabeth come to my rescue, I’m feeling richer already, think I better go buy a house because there’s never been a better time to buy.

The CPI came in on expectations, which is up .3% month to month overall, but FLAT when removing the food and energy that the hot money POMO rotation created. Year over year consumer inflation is supposedly up only 1.2% - sure, and Santa will come down your “shelter’s” depreciating chimney in only a few months. Here’s Econospin:
Consumer price inflation remained somewhat on the warm side, thanks to higher energy costs. However, core inflation eased further to nonexistent. The overall CPI in August posted a 0.3 percent rise, equaling the boost in July. Excluding food and energy, CPI inflation slowed to no change, coming in below analysts' expectations for a 0.1 percent rise. Playing a key role in softening the core rate was an unchanged shelter index.

By components, energy jumped 2.3 percent, following a 2.6 percent boost in July. Gasoline rose another 3.9 percent after a 4.6 percent gain the previous month. Food prices rebounded 0.2 percent after dipping 0.1 percent.

In the core, shelter costs continued to stand out-as weak. Just when you thought they could not get softer, they do. Shelter costs were flat in August after rising only 0.1 percent in each of the prior fourth months. Again, this reflects the weak housing market and also a sluggish travel market for lodging while away from home. Overall housing was flat after a 0.1 percent gain in July. Declines were actually seen in apparel and in recreation, down 0.1 percent and 0.2 percent, respectively for August. Medical care rebounded 0.2 percent after slipping 0.1 percent in July.

Year-on-year, overall CPI inflation slipped to 1.2 percent (seasonally adjusted) from 1.3 percent in July. The core rate in August was steady at 1.0 percent. On an unadjusted year-ago basis, the headline number was up 1.1 percent in August while the core was up 0.9 percent.

Overall, price pressures are nearly nonexistent outside of energy. If you believe the recent gains in energy costs are temporary, then the inflation picture currently is quite good. On the news Treasury yields nudged down while equity futures were little changed.

Hey, it’s all good. Just ask the “consumers” who will tell us how warm, well shaven, and fuzzy they are this morning at 9:55 Eastern when their sentiment is released.

Yesterday’s action did produce hammer candlesticks just underneath support. It’s time to either do or die:

Again, if it does break out above 1131 today, it is suspect due to options expiration. If, however, it continues above that level next week then everyone and their brother will be talking about the inverted H&S pattern and how the market is going to 1220. Personally, I won’t be betting on it, but I won’t be betting against it either until the uptrend lines are convincingly broken. I still think the odds are high that this ramp fails anywhere in here, as we are overbought and the divergences are growing. For example, we have negative RSI divergence, we have contracting new highs, we have a VIX that is flat to higher following the VIX market sell signal, and I could go on. The count is important here, if this is wave c of 2, as I suspect, then there is very little chance that the market makes it anywhere near 1220. We are at the top of the range now, it’s a time to be a seller unless it breaks out convincingly on volume. I’m not at all convinced or impressed, and at times like these it’s best to sit back and play some old Guns & Roses: