Thursday, February 24, 2011

Morning Update/ Market Thread 2/24

Good Morning,

Equity futures fell sharply overnight, but are almost back to even just prior to the open. The dollar is down and is nearing major support, bonds are higher, oil shot considerably higher but has pulled back as reports come in that the people are taking control of several key areas in Libya. Gold and silver are flat to down slightly, as are most food commodities.

Of course starvation and revolution are crowns to be worn for the elite who now sing the praises of little lying Timmy Geithner:
Geithner Butt of Jokes No More as Obama’s Money Man Now on Top

Feb. 24 (Bloomberg) -- Treasury Secretary Timothy Geithner says the U.S. economy is in a “much stronger position” than it was two years ago.

The same could be said of him.

Once the focal point for criticism of the administration’s struggle to resolve the financial crisis, opposed by almost all Senate Republicans for confirmation, and the butt of jokes by late-night comedians, Geithner has emerged as President Barack Obama’s most powerful economic policy maker. His influence on everything from overhauling housing finance to remaking the corporate tax code is reminiscent of the clout that Robert Rubin and James Baker enjoyed when they ran Treasury.

“Many would have faltered during those tough days at the beginning, but he didn’t,” said Roger Altman, founder of the investment bank Evercore Partners Inc. and a former deputy Treasury secretary under President Bill Clinton. “And, between the success of the TARP investments, the auto rescues, and the overall recovery in the banking system, he’s now on top.”

That type of obviously planted story would be funny if it weren’t so sick, and Geithner wasn’t such a tragedy for the globe.

The Chicago “Fed” released their National Activity Index which fell in January from a very small rise in December:
The Chicago Fed national activity index fell to minus 0.16 in January from December's plus 0.18 (revised from plus 0.03). The three-month average, however, improved to minus 0.10 from minus 0.14 (revised from minus 0.22). Negative readings suggest that U.S. growth is slightly below historical trend and that inflation pressures one year out will be subdued. Details show a smaller contribution from production and employment, a larger contribution in orders, and less though still substantial drag from consumption and housing.

Oh yeah, inflation is subdued and “growth” (measured in dollars) is slightly below historical trend. Riiiggghhht. More disinformation/ mind control for the masses whose food bills are skyrocketing and gasoline price has already landed on the moon.

But Durable Goods Orders (as measured in dollars) did rise in the month of January, but only due to a large month of aircraft orders (the only thing we really make besides military hardware and hamburgers anymore) – without those, this report is very weak, falling 3.6% in the month. Here’s Econoday:
Durables orders made a nice comeback in January but there is a lot in the detail. Durables orders in January rebounded 2.7 percent, following a revised -0.4 percent dip in December (previously estimated at down 2.3 percent). Excluding transportation, new orders for durable goods fell back, declining 3.6 percent after a 3.0 percent rise in December and 4.6 percent boost in November. The headline number looks very good for January but a key question is whether ex-transportation offsets that. Basically, the ex-transportation decrease followed two strong months, meaning the decline is not so disconcerting. Durables manufacturing continues on a moderate uptrend.

Transportation led January's overall gain, spiking a monthly 27.6 percent after an 11.9 percent decrease in December. The latest increase was primarily due to a massive 4,900.0 percent (not a typo) monthly surge in nondefense aircraft orders. Yes, the base for the percentage gain was miniscule in December. Also, within transportation, motor vehicles actually advanced 0.4 percent while defense aircraft & parts increased 20.6 percent.

Outside of transportation, gains were seen in primary metals, up 1.1 percent; fabricated metals, up 0.8 percent; and "other," up 1.7 percent. Ex-transportation was led down by a 13.0 percent drop in machinery orders. Also retreating were computers & electronic parts, down 6.8 percent, and electrical equipment, down 4.9 percent.

Business investment in equipment declined after two notable gains. Nondefense capital goods orders excluding aircraft in January fell 6.9 percent, following a 4.3 percent increase in December and a 3.3 percent rise in November. Shipments for this series slipped 2.0 percent, following a 2.5 percent increase in December.

Overall, the headline number for durables orders likely overstates current strength while the ex-transportation number for January probably overstates current month weakness. Durables orders are extremely volatile and the underlying trend is moderately positive.

The reason this index is so volatile is that we don’t make anything anymore, and aircraft orders can swing the entire report by huge amounts. Imagine a strong industrial base, an airplane or two would not have such an effect. And in fact, this report did not used to be so volatile - what's that say?

Weekly Jobless Claims dipped back below 400,000, coming in at 391k. This was lower than last week’s 410k, and better than the 405k guess by the “experts.”
Jobless claims data are indicating meaningful improvement for the labor market. Initial claims for the February 19 week fell 22,000 to 391,000 (prior week revised 3,000 higher to 413,000). The four-week average confirms the improvement, falling a sizable 16,500 to 402,000 for a nearly 30,000 decline from the month-ago level. A break below 400,000 in future weeks would begin to raise expectations for sizable payroll gains and extending declines for the unemployment rate. The Labor Department isn't citing any special factors in the data though California was partially estimated in the week while three other states were fully estimated.

Continuing claims also fell substantially, down 145,000 in data for the February 12 week to 3.790 million. The four-week average is down 55,000 to 3.893 million for an 87,000 month-to-month improvement. The unemployment rate for insured workers fell one tenth to 3.0 percent. In other data, total unadjusted emergency claims, in data for the February 5 week, rose nearly 56,000 to 3.685 million. Total unadjusted unemployment claims fell nearly 90,000 to 9.159 million, also data for the February 5 week.

The jobs market, based on initial claims, looks to be finding traction, right at the time that oil prices are spiking. Markets are showing little reaction to this very positive report.

Sure, when you can’t manage the real data, just guess and make it look good. The unadjusted guess at data did fall below 400k, but the number of people claiming Emergency Benefits rose by 55K. Again, the economy is still losing jobs as this number needs to be below 350k to show evidence of that. The trend is down which is good, but after years of job shedding one has to wonder how many more can be shed.

The speculation and hot money that poured into food commodities is now obviously leaving, at least somewhat. Bloomberg is pinning the decline on speculators spooked by all the unrest around the world. But to me that just sounds contrived as heck, as unrest should lead to an even more negative spiral as production depends on stable governments. So, I’m left to feel manipulated by those who produce the money once again. Did they wreak the havoc they desired and now are going to pull back the speculation in food, or is this just a natural wave reversal? I’m mentioning this only because it doesn’t feel natural to me, nor did the run up. But then again the markets are no longer real in general, having been subverted by the constant addition of hot money that’s controlled by HFT computers.

The VIX remained above the upper Bollinger yesterday. When we get a bounce, this will close back inside the range and will produce a buy signal, but not yet:

Yesterday’s decline took the Transports below its 50dma, but the NDX and RUT bounced off it. The DOW and S&P are still well above it and thus it is looking to offer support, at least temporarily, to the selling. In the chart of the SPX below, you can see that the bottom boundary of the rising wedge I pointed out yesterday did, in fact, provide support to the market:

With the Transports making a lower low, they are now established in a downtrend along with the Emerging Markets. Note the much higher volume on the selling days of the Transports:

Note that the point & figure chart generated a new bearish target for the Transports, reflecting the broken support and lower low:

The dollar, as seen on the weekly chart below, is just barely above major long term support.

The Yen is gaining a large amount today, this is the resumption of the risk on trade in its present form. What occurs at support here for the dollar is critically important. Should it continue down, below support, then it is signaling that the hot money is going to continue to pour in and high inflation will rule. However, should it bounce off support, then it’s possible that another leg of deflation could strike. So, it will be important to watch this level, however, I don’t really put that much credence in this index as I know it is simply a relative indicator. I know that all the currencies in “the basket,” like the Yen and Euro, are also massively printing and thus we are all going down in real terms together – thus higher food, oil, gold, and silver prices (really anything measured in dollars, including GDP and most other economic reports).

Watch today’s candle on NYMEX crude oil. It spiked well over $100 a barrel but has since returned. If it closes below $100, then this candle could look toppy as it does in its present form. However, should it rise above $100, then more may be in store. Of course much will depend on the situation in the Middle East in this regard: