Tuesday, September 21, 2010

Morning Update/ Market Thread 9/21

Good Morning,

Equity futures are roughly flat following yesterday’s POMO fueled HFT Presidential Super Coordination Monday ramp job. The dollar is down, the Yen is up, bonds are higher, and oil and gold are roughly flat. It’s nice to see so many real problems go unresolved, people suffering, and yet money wasted down the drain to get a 140 point rise out of the DOW. That only cost $5 billion, real nice. Nice appearance on the Obama channel, CNBS, and nice timing on the “recession is over” (in June of last year) nonsense. Disgusting all the way around, nothing but a prop man working on a façade. Only those who spent their childhood in the “resource room” actually buy it.

This morning Housing Starts came in at 598,000 in August, up from 546k, and higher than consensus of 550k. If you remember, last month was the worst report on record. Since this one is off the bottom is being touted as some sort of recovery – what a joke. It’s not even half of the level seen in 2007, and most of Augusts’ increase comes from the building of apartments (to house those losing their homes). Here’s Econoday:
Housing starts showed unexpected strength in August with even the single-family component increasing. Housing starts in jumped 10.5 percent after rising a modest 0.4 percent in July. The August annualized pace of 0.0.598 million units clearly topped analysts' expectations for 0.550 million units and is actually up 2.2 percent on a year-ago basis. The gain in August was led by a 32.2 percent surge in multifamily starts, following a 36.0 percent increase in July. The single-family component rebounded 4.3 percent after dipping 6.7 percent in July.

Permits improved in the latest month, rising 1.8 percent after declining 4.1 percent in July. Overall permits came in at an annualized rate of 0.569 million units and are down 6.7 percent on a year-ago basis.

Today's report is probably better news for construction workers than for real estate brokers. The single-family component is up but still at a low pace but hard hats will be glad to get work at the improving apartment market. At a minimum, it appears that housing has stabilized and this is good news for equities which showed modest gains in futures on the release. Meanwhile, rates nudged up.

Sorry, this is nothing but another depression era print. A trend? Certainly not. There’s more housing data to come this week on Thursday and Friday as we’ll get new and existing home sales for August. Remember, August represents the last decent selling month of the year, sales normally trend lower from here until the spring.

Of course the FOMC announcement will be released at 2:15 Eastern today. Many speculate that the Fed will announce up to a $1 trillion “QE2.” If any of that is priced into the market, I think they will likely be disappointed as it would take a special breed of chutzpa to simultaneously declare an end to the recession while announcing a money printing campaign. Of course we can’t put anything past the criminals who are hell bent on sucking the life blood from the middle-class.

And if they do announce a significant Quantitative Easing program, then watch the dollar index. It’s been descending and is not far from fulfilling its smaller H&S target which is coincident with the neckline of its larger H&S neckline in the 80ish area:

I think this is interesting because we also have H&S patterns in play in the equities and also in oil as I showed yesterday. A break of 80 on the dollar would produce a target of roughly 71, which is very near the all time low seen in March of ’08. It seems improbable that both oil and the dollar would fulfill downside targets (but not impossible), so it’s going to be interesting to watch if not painful one way or the other.

Note that bonds and the action in the Yen do not support increases in equities today. Keep in mind that prices tend to be flat prior to an FOMC announcement and that a large percentage of the time the first move after the announcement is not the real direction.

The NDX has now entered a parabolic rise that is very unhealthy. It’s now been up 9 straight trading sessions and is up 12 of the past 13. This is sickness, not health… this type of action with gaps all the way up will not last, but that doesn’t mean it can’t continue even higher for awhile, it can. Many are touting the “breakout” above SPX 1131 as being strong and significant. In fact, it came on lower volume than Friday’s opex, and even lower than Thursday’s volume. That is most certainly not confirmation of a breakout, although the lopsided 92% up volume is yet another indication of HFT induced volatility (fueled by the largest POMO to date - $5 Billion).

Will the bums in office who are perpetrating and profiting from this type of destructive market activity be tossed out in November? You bet they will. Will it change anything? Not a chance. Not as long as we are living inside of the debt backed money and democrat/ republican boxes.

This latest rally is generating a lot of emotion… bullish euphoria by the bulls and panic/ frustration on the part of those who really understand the economy and market at this juncture, otherwise labeled “the bears.” Sorry bulls it’s all an illusion, a façade. The count remains the same, an a,b,c for wave 2 which has now retraced 61.8% of wave 1 down. Should wave c equal the length of wave a, then the target for the SPX would equal 1160ish. Will we continue the parabolic rise into that level? We’ll have to see what follows the FOMC meeting, but the action looks and smells like distribution to me. A concerted and coordinated effort to suck in whatever money the market can. That money will be destroyed, it is a waste and a crying shame. That our own elected politicians stump for it is outright disgusting – I could almost see the strings attached to Obama’s suit yesterday.

A quick story about a house I looked at this weekend – it is listed as a short sale. World-class view, okay 3,000 square foot house. An airline pilot paid $910,000 for it in 2005, full on bubble price over $300 per square foot. He has a wife and two very pretty girls. A pay cut was forced upon him (and most in the industry) and he has destroyed his retirement and investments trying to maintain the enormous payments on that house. He now cannot afford the basic upkeep on the place and stopped making payments on it at the beginning of the year. While I don’t know him, I know others who do, and know that he and his family are suffering greatly under very heavy stress. The house is going to enter foreclosure next month unless a short sale buyer is found soon.

Yes, he made a mistake. However, the grand illusion was in full swing. The illusion was created not by him, but by the bankers who absolutely know better and provided the fuel for the bubble. It breaks my heart to see this family suffer, and they will suffer for years and years. Yet we toss aside $5 billion to create a 100 point illusion on the DOW. It is sick, perverted, and it is twisted. Oh, and it won’t last.