Tuesday, January 25, 2011

Morning Update/ Market Thread 1/25

Good Morning,

Stocks are lower this morning as the markets continue to display warning signs despite higher highs in the Industrials. The dollar is higher, bonds are higher, oil has descended below its uptrend line, and gold is lower along with most food commodities this morning.

The Case-Shiller 20 city Home Price Index fell in the month of November by 1.0% month over month, and is down 1.6% compared to a year prior. These numbers represent an acceleration of falling prices, however, the more narrow 10 city Index did not show the same price deceleration, at -.4%, and thus gives those looking for rainbows and Skittles something to dream about. Below is the entire S&P Case-Shiller Report, I think you will find it interesting:

Case-Shiller November

Below is the wishful spin from Econoday:
Home-price contraction eased in November according to Case-Shiller data that show a 0.4 percent adjusted dip for the composite 10 index in November compared to a 1.0 percent drop in October (revised one tenth lower) and declines of 0.8 percent and 0.5 in the two prior months. Note that Case-Shiller data are based on a three-month average which suggests that November may have actually showed a gain. Unadjusted data, which are also watched for this report, show a steeper decline of 0.8 percent which however is still improved from October's 1.3 percent drop.

But the results aren't that encouraging, showing declines across most cities led by Detroit, Atlanta, and Chicago. Year-on-year comparisons show an adjusted 0.4 percent decline for the composite 10 index and an adjusted 1.6 percent decline for the composite 20. Further data on home prices will be released at 10:00 a.m. ET today with the FHFA house price index.

Looking at four different news sources, I see headlines that make this report seem both like an improvement and as worsening. How should it be read? In my opinion, the wider the spread of data the more accurate the picture, and thus the 20 city Index is what should be given the most credence. Regardless, home prices are still falling and those are sizable moves not to be ignored or wished away.

Home prices are going to continue to be under pressure throughout 2011 as the number of Option-ARM resets crescendos in the middle of this year.

Consumer Confidence and the FHFA Home Price Index are released at 10 Eastern this morning and will be reported within the Daily Thread. The FOMC meeting begins today, we will be duly impressed with their confidence inspiring print to infinity verbiage tomorrow at 2:15 Eastern.

Yesterday’s rally came, of course, on the back of more billions in POMO money. Can’t wait to see what the market does when that stops… and it will at some point. Volume on the advance was weak, and looked corrective in the Transports and NDX. The Transports are well off their highs, they are going to have to have use some serious POMO dollars to pump the Trannies if they wish to avoid a DOW Theory non-confirmation. Of course commodities are often a tell, and oil is now established in a down trend after breaking its uptrend line overnight, and putting in a lower low:

Despite yesterday’s rally the McClellan Oscillator remains negative. This means that the majority of stocks are in a downtrend, it is one of the key ingredients to fulfilling the Hindenburg Omen. Conditions now have a very similar feel to the top that was made in ’07, with people calling for $250 a barrel oil, $5 gasoline, and a dollar that is worthless while food riots break out around the globe. Again I am left to wonder what happens when the “Fed” has bought the entire market? Hmmm, I still don’t think this is going to end well…