Your Economy (No Politics)

[Bullwinkle]

>>>CYCLE/TREND Update for the week Ahead>>>

Overview:
Time to review the past week and look ahead into the next. As mentioned in the previous update with which this post replies I had mentioned that Econ #'s would need to improve and that we appeared to be somewhat overbought on the COMPQ. I also went on to say " This is not to say that we will not move higher. The inverted H&S I was looking for is still intact and another leg up may be in store, but this move looks weak." Well the Econ #'s were mixed, but well received. The overbought status apparently was not overbought enough and the inverted H&S that I was looking at seems to have made its move although it appears to have morphed into something a little different than what I was looking for. Before going any further, let's review those Econ #'s.

Economic:
We started out the week with everyones favorite Fed Chairman, Uncle Al, who seems to be sending some mixed signals of his own. He testified before the House Budget Committee and gave a somewhat upbeat testimony, but the Fed's Beige Book was less optimistic. If I understand correctly, the Fed Beige Book is up to date and painted a different picture. Uncle Al seemed to be selling July's activity to the House Budget Committee. The August report showed modest wage increases, lackluster retail sales, moderating housing prices and slow activity in general. The Fed's economic outlook had gone from modest - solid to slow - solid. As for the other Econ #'s this week, Consumer Credit rose by nearly 25%, Export Prices fell slightly and Import Prices increased. Initial Jobless Claims came in at 319K or 26K lower than expected. Wholesale Inventories doubled, PPI, Core PPI and Trade Balances all came in a touch lower than expected.

I certainly see some troubling numbers here and while PPI fell, these numbers seem to point to inflation. Consumer credit, inventories and import prices all going up is what caught my eye, then the lack of pricing power in the Exports. Also of note is a Fed raising rates while bond rates are falling. I am not sure what to make of all of this, but it doesn't sound promising especially if there is a slowdown in spending. On top of this, we got some more warnings. Chip maker TXN citing inventory corrections needing to be made and then DOW30 stalwart AA cutting back its earnings projections to nearly half of what was expected. Whoa! When Alcoa warns in what has been a commodities friendly environment, that seems scarey. The stabilization in the price of oil is the only real good news I see here, but $42bbl oil is nothing to get too excited about.

All just food for thought.

As for next week we get the Treasury Budget, Current Account, Retail Sales, Business Inventories, NY Empire State Index, Capacity Utilization, Industrial Production, CPI & Core CPI, Initial Jobless Claims, Philly Fed and Mich Sentiment. A full week ahead for sure and it is also Options Expiry.

What To Expect Now:
Well as I mentioned, the inverted H&S on the COMPQ seems to be playing out with a nice advance to end the week although that right shoulder seems to have morphed into a rising curve, possibly a wedge. We broke the 50DMA with authority and are now poised to test the 1900 area, or are we? The chart below shows what I believe to be a double top...



Also as mentioned earlier, it's Options Expiry and with a bunch of QQQ puts at strike 31-35 and a bunch of QQQ Calls at strike 35-38, we will most likely finish the week close or near MaxPain 35. Will we go higher and then come down into Ops Exp or will we dip and go up into Ops Exp? This is the big question and with a turn scheduled for Sept 13th, I would have to say the majority of this leg up is over and a local top is very close at hand.

NOTE: As mentioned last week I have flipped my UOPIX position to USPIX (and sure enough I was a little too soon).

Disclaimer: This disclosure is not a recommendation to buy or sell or to do as I do. It is to let people know what I think about current market conditions, what it is that I am doing and for no other purpose than to create a track record.