Your Economy (No Politics)

[Bullwinkle]

~:~Market Trend Update for the Week Ahead~:~



OVERVIEW:
Here we go again… Week to week of back and forth with no real trends being established in the majority of indices. Much like the weather here in Northern CA; one day is rainy, the next sunny, then cloudy and the next being windy. A lot of the time we have seen a combination of said conditions, but unable to settle down into one pattern for any length of time. The markets remind me a lot of the weather patterns we have experienced in the Bay Area lately; staggered and uncertain with no real trend being established. This week we had just enough economic data to keep everyone on their toes, but not enough to get the markets out of the stalled mode. The only major of note was the R2k, which once again established another new high. The U$D made a strong move, yields began to invert again and Silver set a 22-yrs high. Gold got a nice pop on Friday and Oil made a nice move off its 200DMA. When it was all said and done, the COMP, DJIA and SPX were basically flat. A couple of items that may be of interest are the reception to GOOG’s entry into the S&P500. This was not as well received as I had thought it might be. While I expected to see underlying support, which was evident, I thought we would see something like a 50+ point move for the stock and quite possibly a rally in the COMP, but neither materialized. As a matter of fact the Ameritrade Online Investors Index, which is a snapshot of market trading activity actually showed more sells in GOOG than buys. The ratio shows 9% buying while nearly 14% sold. Strange? Maybe not… If you take a look at ETF and XTF activity as of late you will see that all but a handful are negative over the last 4-wks. Considering this represents baskets of market leaders, I think that this is very noteworthy. The strength lay in the non-domestic areas such as Latin America. Other than that the ETF/XTF activity has been rather feeble and this past week’s Equity Fund flows collaborates this action. Then as I pointed out in a chart displayed last week of Insider Sell/Buy ratios, this ratio was at an extreme 38.3 reading. Since then the average has smoothed out as I figured it would, but going into the last week of trade for the month of March it is still clocking in at a somewhat extreme 23.3 reading. So what should we make out of all of this? I don’t know about you, but the market appears to be wrought with land mines. The behind the scenes activity just does not correlate with what’s taking place on the surface. “Danger Will Robinson, Danger!” is about all I have to say…

The CoT data is quite telling for the week ahead. Open interest has taken a dive from the heights reached in the week before and are now well below the centerline, but more importantly is that the Commercial Shorts on the NDX and SPX have shriveled up and seemed to climb on board the DJIA. Gold open interest has fallen off and flatlined with the same Commercial Shorts and Large Spec Longs in a stand off. Oil open interest had shot way up, but is now in a decline as Commercial Long positions have picked up. You can go here to view the CoT data graphs #msg-9171642 -- Equity Fund flows as detailed by AMG Data Services shows Equity funds reporting outflows of -$1.7B, excluding ETF activity Equity Fund inflows were $2.8B in the week ended March 22 with 61% or $1.681B going to funds investing in Domestic Equities, the largest net inflow to the sector since 2/9/05. Excluding ETF activity, International Equity funds reported net inflows of $854M to all Emerging and Developed regions. Money Market funds reported net inflows of $17.492B. The full report can be viewed at #msg-10224454 -- As for Oil, Gold and the U$D, we saw Oil bob and weave its way to $64bbl with Gold following suit and strengthening to $560 and the U$D having gained a full point to 90. The CRB more or less finished where it started the week at 326. Treasury yields started heading back up fell as the yield curve began to invert once again. The 2yrs@4.7-%, 5yrs@4.65%, 10yrs@4.66%, 20yrs@4.67% and 30yrs@4.68%. The Yield Curve can be viewed at #msg-10348517 …


ECONOMIC #’s:
The usual mixed bag-o-nuts...

Leading Indicators (LEI) – Feb = -0.2% vs 0.5% w/expectations of -0.3%
#msg-10259150

Core PPI – Feb = 0.3% vs 0.4% w/expectations of 0.1%
PPI – Feb = -1.4% vs 0.3% w/expectations of -0.2%
#msg-10283675

MBA Mortgage Applications – 3/17 declined -1.7%, Mortgages to buy fell -2.3% and Refi’s declined to -0.6%. Overall mortgage activity was 13.8% lower than in the comparable week a year ago.
#msg-10295336

Oil Inventories – 3/17 as reported by the DoE and API
Crude = DoE -1.3M bbls / API -54K bbls
Gas = DoE -2.3M bbls / API +308K bbls
Dist = DoE -800K bbls / API -970K bbls
#msg-10295805

Initial Jobless Claims – 3/18 = 302K vs 313K w/expectations of 305K
#msg-10318758

Existing Home Sales – Feb = 6.91M vs 6.57M w/expectations of 6.50M
#msg-10319374

New Home Sales – Feb = 1.080M vs 1.207M w/expectations of 1.210M
#msg-10343316

Durable Orders – Feb = 2.6% vs -8.9% w/expectations of 1.3%. Excluding transportation, durable goods orders fell -1.3%
#msg-10343422

FRB Ben Bernanke Speech Before the Economic Club of New York
http://www.federalreserve.gov/BoardDocs/speeches/2006/20060320/default.htm

ECONOMIC CALENDAR For The Week Ahead: http://biz.yahoo.com/c/ec/200613.html


Protectionism? We have been talking about protectionism for quite some time, but I do not see it taking place. How long now have we heard about raising tariffs on Chinese imports? Years??? Still it has not materialized, much like border control or illegal immigration, it is talked about and debated ad-infinitum, but no action. Considering we have a Congress that has a majority rule you would think that something might get done one way or the other, either for or against. The DP deal was a rarity, Congress actually came together for the first time since 9/11. Obviously our Congress is great at debate, but they rarely get anything done in a bipartisan way. The only thing I see getting done is creating debt, raising debt limits and spending our money like drunken fools, but I digress … back to protectionism… Of the thousands and I do mean THOUSANDS of businesses, properties and who knows what else that has been sold to foreign investors over the last decade, I cannot see how the failure of 2 high profile deals (namely Unocal and Dubai Ports) fall under the category of protectionism. What people need to understand, whether they are from the U.S. or abroad is there are some things you just don’t sell, period! This should not be too difficult to understand. I know I have some possessions that I would never part with, in this instance due to sentimentality. Still, the bottomline is anything and everything is not for sale and what’s more who cares what other nations think, we never have before. These types of issues where security is involved should not even be considered unless U.S. security personnel and supervision are predominantly part of the deal. Any deal that brings into question the transfer of sensitive and/or confidential information and security can never be undermined for money or special interest groups. We are already walking a fine line as it is by outsourcing banking and billing…

Onto another subject, earnings… It is generally thought that the S&P earnings ratio is fairly low, they have been falling but historically speaking they are not low and what’s more would be a lot higher if it were not for stock buybacks. The P/E level is not falling because companies are earning more money or creating new technology and/or jobs. There is not expansion, at least not of the healthy type, it is just the opposite of that. Our corporations have war chests of money because of tax breaks, outsourcing, moving overseas, stock option payouts as opposed to salaries, slashing expenditures and reducing the workforce due to overlap from M&A activity. This is not money made, it is money saved, BIG difference. And what’s more, this savings is being used for stock buybacks not reinvestment. Stock buybacks use to be executed based on the fact that a company felt their stock was undervalued, today this is not the case. Many high profile companies are on a buyback binge. It reduces shares outstanding, which in turn boosts EPS regardless of the company's actual performance. You are not buying a company for their prospective earning power, you may think you are, but you are not. You are supporting their addiction. So now you are saying to yourself , “who cares as long as the price goes up and they pay me a dividend?” Well that argument isn’t as strong as you may think either… You are buying a company who boosts its earnings through reduction of exposure to the markets via creative bookkeeping and then gives these shares to its executives for pay. They in turn sell them back to you at a higher price. Some gig, eh? In the 4th quarter alone companies bought back $104B of their own stock usurping the old record of $82B. Not only are you paying more for shares, but the dividend is shrinking. The 77% jump in buybacks dwarfed the 11.5% dividend increase last year where firms spent 73% more on buybacks than on dividends. How do you feel about that company’s earning potential and payout now? The lack of innovation, lack of hiring and lack of Cap-Ex spending is why a company’s stock is rising. Not because they are doing better, but because of a shell game that creates a façade of a healthy company in a healthy economy. This has a multi-pronged effect and it is not only bad for our markets, it is bad for our economy and for our country. It is all based on the trickle down theory, problem is there is no trickle.

Power corrupts; absolute power corrupts absolutely…


WHAT CAN WE EXPECT NOW?:
What can I say, my overall view of this market has not changed and I still feel the current move is forced, artificial and in the near term will ultimately fail. Some of the many divergences that exist across the indices can be seen in the charts at the bottom of this page, but some of these charts may need to be extended to show the longer-term patterns. Without getting to explicit, we see divergences in the total P/C ratio, 50/200DMA stocks, McClellan and Summation, New Highs/Lows, BP%’s and an up-trend in the volatility indexes, unsteady volume and the list goes on, but you get the picture. One would think that should be enough, I mean how many more divergences do we need to see that something does not jive? While I feel the current move is not sustainable due to the many divergences and mixed messages that exist, we are setting up for what appears to be a move in the COMP. Along with what has become the usual uncertain choppy and rotative mentality exhibited week after week, the BPCOMP is showing a convergence on price action in the shorter-term chart with the MACD exhibiting a pattern similar to that as seen in the other indices where you can draw a lower elliptical support line below the short term pattern (mid-Jan to present) which is beginning to point up. So in my mind there is a chance we see the COMP follow suit to that of the other indices and a new high may very well be in the works. The current price pattern is also exhibiting what could be interpreted as a broadening top or rising wedge, take your pick. This could be nullified by anyone of a number of events and for the market as a whole and a lot may depend on the wording used at the FOMC meeting in the week ahead. This so-called transparency that Bernanke is being praised for may also be the undoing. I am not so sure the markets can handle the truth, at the same time I am not so sure Bernanke will be the one to give it. While the R2k continues to exhibit strength in the form of new highs, the DJIA and SPX look to be weakening. What’s more the COMP is exhibiting a chart pattern slightly similar to that of Oil (WTIC). I am in no way making a connection here other then a pattern that looks poised to move higher off of what could be considered a consolidating and choppy pattern. The week ahead will be interesting to say the least, on top of the ever changing geo-political landscape and the FOMC meeting, we also have a solar eclipse on the 29th followed by a Bradley Turn on April 3rd. Whether or not these have any effect on market direction is to be seen, but if nothing else I believe they are at least worth consideration. It is the people effect that these represent; our actions that rule what happens in our markets, our world and our lives.

As for the U$D, Gold and Oil – These pretty much speak for themselves and are heavily tied to the global scene. Obviously what happens in the U.S. is of the utmost importance as we are the epicenter (in more ways than one). No longer can we disregard or discount geo-political/economic events from having profound effects upon our markets, they have become inseparable. With that said the U$D is strengthening into the FOMC meeting and looks like it may test 91 again. Other than intraday spikes we have yet to breakout of the 90 area since Nov’05. As for Gold, I am not going to split hairs over exact prices but Gold has been basing in the 540-550ish area for a better part of March. It’s hard to say if Friday’s move is the start of something bigger or if we continue to base in this area. The wildcard very well could be the much-anticipated Silver ETF with Silver possibly leading the charge and pulling Gold along for the ride. A similar scenario (different circumstances) could be said for Oil, which has made a move off of its 200DMA to the top of a channel it has formed since mid-Feb. That coupled with the declining inventories and summer driving season chatter may be setting the stage for a move. While I think we are poised for a breakout in Gold and Oil, we will just have wait and see if we get confirmation or continue to base in these semi established ranges. As stated last week at worst I expect range bound volatility, but leaning towards a breakout for Oil and Gold.

Technically Speaking AAII sentiment as of 3/22 shows Bullish 43.75%, Bearish 27.50% and Neutral 28.75% and what is interesting here is that both Bullish and Bearish sentiment has increased… The VIX and VXN are 11 & 16 respectively with VIX exhibiting a slight up-trend and VXN remaining in a more decisive up-trend off of the lower support line. The CBOE EPC Ratio ended the week at .63 and TPC ratio at .84. The RSI 5-Days are Neutral on the COMP, SPX and INDU, but Overbought on the R2k. The P/C ratios, VIX/VXN, Summation, McClellan, Highs/Lows, Advance/Decline, 200DMA stocks and Bullish %'s can all be viewed below along with the major indices…

Sentiment and Contrary Opinion Charts #msg-10127355

































NOTE:

CORE: 90% Cash, USPIX and a small position in PRGNX

SPECULATIVE:

SCALP TRADE:

SWING:

Disclaimer:
This disclosure is not a recommendation to buy, sell or do as I do. It is only to give my thoughts on current market conditions and attempt to identify trends and create a track record. I am not a day trader and invest mostly in funds or baskets of stocks, perform occasional swing trades and some scalps. Data presented may not be 100% accurate as I do make mistakes, so please perform your own due diligence.