Thursday, September 9, 2010

Morning Update/ Market Thread 9/9

Good Morning,

Equity futures ran higher overnight and then spiked upwards on the release of the weekly Jobless Claims number which improved slightly for the third week in a row. The dollar is slightly lower, bonds are lower, oil is higher, and gold is stuck just below the level of its prior high.

The weekly Jobless Claims number came in at 451,000, down from the prior week’s 472,000 and less than the expected 470k. Of course the prior month was revised upwards to 478k. Today’s number, while trending down, is still awful and may be influenced by the Labor Day holiday. Next week’s data will be based on a 4 day week and will definitely be influenced by it. Looking at the unadjusted data, claims fell only 6,474, much less than the DOL’s claim of a 27,000 drop where they compare the revised higher data against today’s as of yet unrevised data – apples and oranges, and why is it that revisions are only in one direction? NEVER is there a revision that lowers this number, what does that tell you? Here’s Econospin:
In a sign of improvement for the labor market, initial jobless claims fell substantially in the September 4 week. Claims came in at 451,000 vs. 478,000 in the prior week (revised from 472,000). The 451,000 level is the lowest since July and the second lowest since May. The Labor Department told Market News International that nine states had to be estimated due to delays tied to the holiday shortened week, but the government stressed that data since received confirm the improvement. The four-week average fell nearly 10,000 to 477,750 and is only slightly higher than a month-ago.

Continuing claims show only fractional change for a second week, at 4.478 million in data for the August 28 week with the four-week average at 4.488 million, the latter down mildly from the month-ago reading. The unemployment rate for insured workers is unchanged at 3.5 percent.

The impact of today's report on the market will be limited by uncertainty over the impact of the holiday shortened week, yet the improvement, if confirmed or even extended in next week's report, would begin to raise expectations for payroll expansion. Stock futures are moving slightly higher.

Get this, according to the DOL, Continuing Claims only fell by 2,000, and the 4 week average fell by only 3,250, a paltry sum considering there are 4.488 million people filing continuing claims. However, their Continuing Claims were revised higher by 28,000 which means that compared to last week's report Continuing Claims actually ROSE by 22,000! There’s another 4.5 million people drawing Emergency Unemployment, that number is 1.4 million higher than this time last year – no mention of that in the media. Next week’s numbers will be contrived as well due to the shortened week this week.

The International Trade numbers also were released this morning with the Trade Deficit narrowing from -$49.9 Billion to “only” -$42.8 Billion. This is indeed good for our country, but it is not good for the debt pushers who seek never ending debt growth, and never ending consumption (from America). A contracting deficit with our current system means that overall demand is down and you can see that in this report, especially in petroleum which accounted for over $6 billion of the $7 billion shrinkage! All the rest came due to shrinking demand for Consumer Goods. Simply put, the contraction was mostly due to lower demand, that does not spell economic growth, but it is a plus towards fiscal balance.
The trade gap shrank sharply in July on both a rebound in exports and dip in imports. The overall U.S. trade deficit narrowed to $42.8 billion from $49.8 billion in June. The latest shortfall was much smaller the consensus forecast for a $46.8 billion deficit. Exports rebounded 1.8 percent, following a 1.3 percent decline in June. Overall imports declined 2.1 percent after increasing 3.1 percent the prior month. Nonoil imports fell 3.0 percent, following a 4.6 percent jump in June.

The improvement in the trade gap was largely seen in the nonpetroleum deficit which shrank to $33.2 billion in July from $39.7 billion the prior month. The petroleum goods gap also improved, narrowing to $20.9 billion from $21.3 billion in June.

By end-use categories, the boost in goods exports was led by a $2.3 billion jump in capital goods excluding autos. A large part of this--$1.4 billion-was civilian aircraft. This still left a moderate $0.9 billion outside of aircraft. Also gaining were industrial supplies, up $0.5 billion. Automotive exports were down $0.4 billion. The feeds & beverages and consumer goods ex autos components were essentially unchanged though down negligibly.

The drop in imports was broad based though following a large overall increase in June. Consumer goods fell $1.9 billion; autos were down $0.7 billion; capital goods ex autos declined $0.6 billion; and industrial supplies-which include oil-slipped $0.4 billion. Foods, feeds & beverages edged down $0.1 billion.

Today's report is good news for adding a little lift to third quarter GDP growth. And manufacturers certainly will be happy about the resumption of export growth. But it appears that businesses may be tapping down their expectations for consumer spending with imports of consumer goods down. But that dip did follow a strong gain in consumer goods imports in June.

On the news, equity futures rose. Also, initial jobless claims fell sharply and more than expected, further adding to lift in equities.

It may help temporarily in the GDP calculation, but lower demand forecasts a lower real GDP moving forward. This report was not a plus for equities, the jump in equities is solely due to the Jobless Claims.

It would appear that Tuesday’s down stroke was wave b of 2. That means that we are now in wave c of 2, and by my count the move higher this morning is the 3rd movement of c. That means that wave c could top by the end of this week, just in time for the confluence of turn dates this weekend.

With equities breaking out above the 1105 level, this will break the primary downtrend channels’ upper boundary and will draw in more money on the long side, that is wave 2’s job. The 200 day moving average is up at approximately 1115 on the SPX, but the upper Bollinger, which is pointing sharply lower and will act as resistance, is at only 1111. This tells me that we are unlikely to push too much beyond that point in the short term.

We are also now working under both a confirmed Hindenburg Omen, and a VIX market sell signal. Additionally, we have confirmed H&S targets that are still active targeting the 860 range. I personally do not believe that we will be range bound for the entire fall as some are suggesting. I think we are on the precipice at this time and that a triggering event will occur soon. It does not have to be some catastrophic event, it will just be some type of data or news that gets pinned for the decline that’s going to happen regardless.

Note that my tone does not change with the daily direction of the market! There are certain trigger points that would make me less bearish, but we are not even close to any of those points yet. We are overbought and running into strong resistance. The prevailing thoughts I hear from most people regarding all of the Administration’s announcements are similar to mine – too little, too late. Even if the Administration were to do something significant in scope, it would take many months for anything to take effect, and they can’t do it because they risk shooting themselves in the foot, which is exactly what they would be doing. They are backed into a corner by their own fruition. Instead of helping the PEOPLE clean up their balance sheets, they helped the criminals run off with the loot. The market knows this, at this point it, and the criminals, are simply trying to draw in more. But most people aren’t buying it, they are taking their money and they are wisely refusing to play as the outflows out of the market confirm big time (Stock Outflows Surge By Over $7.5 Billion In 18th Consecutive Week):

This is very typical of TOPS, not bottoms. At major tops stocks consolidate into a few hands. At the same time that money is flowing OUT of the market, mutual fund managers have a larger percentage of their available cash invested than at any time in recent history! That is a contrarian indicator, again it is a sign of a top, not a bottom:

The signs are all in place. The election cycle is NOT positive, years ending in zero are not positive, the September through November time frame are not positive, and no, overall sentiment is not bearish enough. It is time.

By the way, for those keeping track of the residential real estate market or are wondering if now is a good time to be a buyer, here’s a link to a good and fair article published on ZH yesterday: Guest Post: Should You Buy a House Now?