CYCLE Update/Trend Analysis for the week of May 24th
As mentioned in my previous cycle post with which this post replies, I was looking for a cycle turn on/around the 17th to take place. I believe we can say that the turn did occur as we have moved off of the COMPQ 1865 low to where we now currently sit at 1912. While we did get some strong up days during the week, they were met with selling pressure and those days were negated by finishing flat and in some cases slightly down. While this does create some concern about the strength of this turn, we are currently in an uptrend and now all we need is a catalyst to help us along. Before I get into that, let's review the Econ #'s for the week.
While it was a relatively quiet week on the Econ #'s front, the numbers we did get were not all that good. The NY Empire Index fell sharply and Housing Starts were flat to lower, but Building Permits came in strong signaling that the housing market is not quite cooked yet. Initial Jobless Claims saw a rise of 12k, LEI came in a little lower than expected and the Philly Fed plunged. So you could say for the most part, these were not very encouraging #'s and played a part in the markets meandering range bound movements for the week.
The upcoming week will be a little busier as we have on deck Consumer Confidence, New/Existing Home Sales, Durable Orders, GDP Prelim #'s, Initial Jobless Claims, Personal Spending/Income, Michigan Sentiment and Chicago PMI. Some improvement in these numbers will go a long way towards building confidence that if even a rate hike were to occur, the economy is improving and we can handle it. So far that has not been the case.
So what can we expect for the week to come? It's a crap shoot, we need a catalyst and so far we have not gotten one. This is a news driven market these days and some good news is badly needed. While earnings reports have looked pretty good, it is just not enough to get us over the hump (as witnessed by the strong start and stops this past week). The big 3 dominating news items are keeping us from moving forward and those would be Iraq, Oil and Interest Rates. If we could get some meaningful incite from 2 of the 3 we may see a nice response as some uncertainty would be lifted. The president will be starting a campaign of weekly speeches which may help alleviate some of the unknowns about our situation in Iraq. OPEC meets this weekend and while Oil fell below 40 this past Friday, some news about ramping production would be very helpful. As far as Interest Rates go, some definitive language from the Fed would be great. I certainly do not expect it as FedSpeak is hard to decipher, but any notion at all that if rates were to go up that they would be implemented in baby steps (if at all) would give the market some confidence in knowing that they will not be heavy handed.
While we cannot depend on any of these items that I mentioned to come to the forefront, we do still have some technicals to go on. Not much has changed in the TA arena since last week except that some of these indicators are starting to show signs of life. On the COMPQ itself, RSI and MACD are beginning to turn up. The NASI Summation is also starting to turn up from the depths and the VIX/VXN are beginning to drop. The A/D line is starting to look much better, but we are definitely lacking volume and enthusiasm. The P/C ratio has been teetering between 1 to 1.3 for over a week now and money still seems to be rotating out of Energy, Oil, Oil Services, Drugs and REIT's (the so called safer havens).
I believe all we need is a little push to get this party started although an explosive move may not be in the cards. It could be much the same as we have seen; ups, downs, range like activity with an upward bias. That can all change if we do get some good news though (or should I say as perceived to be good news). Perception is everything and uncertainty is a killer, we need these to change for any kind of a substantial move to occur...
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