Your Economy (No Politics)

[Bullwinkle]

~:~:~CYCLE/TREND Update for the Week Ahead~:~:~



Overview:
It’s that time once again, so let’s get to it! As mentioned in last weeks update with which this post replies; I had expected this week to provide some bounce and while Wednesday's bounce was sold, today's was not. How convenient and right before the weekend and prior to Options Expiry. When I made that statement going into the weekend for the week to follow I also forgot to mention that it was a trade shortened week coming up due to MLK Jr Day. Regardless, my intentions of that statement were that we may be setting up for some rough road ahead. A big up day on that Friday, prior to a 3-day weekend and Ops Exp to follow just smacked of a set-up for a downward move. While most of the week was down and hinged on earnings reports and outlooks, the market did not really turn sour until that EBAY report and QCOM did not help matters either. Today’s action was somewhat extraordinary where the U$D tanked after strengthening for over a week (Gold being a benefactor from such a move), Oil shot up a day after relatively benign inventories data and MaxPain actually came in as predicted. Next week we have a full moon on the 25th and a Bradley Turn on/around the 27th. Usually when we have a Moon Phase and Bradley overlap as we have here we get some kind of unpredictable activity, so I expect a similarly strange week to follow. Most likely it will be an extremely volatile week so expect the unexpected, be on your guard, etc, etc. Not to be forgotten, the Econ #’s played a major roll in this past weeks activity, so let’s move on to those…

Economic #’s:
Not an impressive week economically speaking, while the spin was positive the numbers were not. The NY Empire State Index came in at 20.08, which is down considerably from the 27.07 previously reported and the 25 that was expected. Core CPI came in at 0.2 and in line with the 0.2 expected, but a rise of 2.2% for all of 2004 and is the most since 2001. CPI came in at –0.1 and below the previously reported and expected 0.2, excluding food and energy that number would have been attained. CPI was up 3.3% for all of 2004 and the biggest jump in 4 years. Housing Starts surprised to the upside by coming in 10.9% higher than expected with 2004K units versus the previous and upwardly revised number of 1807K although Building Permits fell by 0.3%. Initial Claims came in at 319K or 48K lower than the prior weeks 367K. We then got the Fed’s Beige Book, but the comments within were overshadowed by the “Fed Minutes” comments earlier in the month. LEI while positive at 0.2 and higher for a second month in a row still came in lower than the previously reported 0.3 and during the traditionally strongest part of the year. The LEI Index is currently 115.4 and still below it’s high of 116.5 in May’04. The Philly Fed plunged to 13.2 from a previously reported 25.4 and the lowest level in 18 months. Amongst indicators within the Philly Fed; New Orders fell to 9.8 from 20.9, Shipments fell to 15.9 from 25.6 and Prices Paid rose to 66.1 from 53.8, all of which project a slowdown in Mid-Atlantic factory activity. Michigan Sentiment (prelim) was down to 95.8 from a previously reported 97.1 and well below the 97.4 expected. Indexes gauging how consumers feel about their present conditions came in at 110.4, up from the previously reported 106.7 while expectations for the future slipped to 86.4, down from the previously reported 90.9. Crude Oil inventories came in at +3.4 Mln bbls and Distillates at +800K bbls although the Heating Oil portion of Distillates came in down 500K bbls.

Next weeks activity will be somewhat quieter than the past couple of weeks. We start off with Consumer Confidence, Existing Home Sales on the 25th and then we get Durable Orders, Initial Claims on the 27th and GDP on the 28th with some off beat numbers not as closely followed such as the Help Wanted Index, Chain Deflator and Employment Cost Index sprinkled in between.


I would like to quickly put my spin on a few topics. First of all earnings and guidance are living up to what I had expected, they are just not keeping pace with what we saw at this time last year. Don’t get me wrong, some reports have been very very good, but for the most part it is hit or miss with misses taking the front seat. This is becoming a market of stocks, not a stock market. Simply put, niche plays, defensive plays and story stocks will rule while the majority is left out. The Fed, good ole Uncle Al has made it clear that he is going to keep raising rates, don’t be surprised if the next move or the one shortly after is .50 basis points. The Fed is far behind the curve and to play catch up this will most likely happen sooner than later. Oil, oil, oil… What more is there to say? This thing is not going to go away, higher prices may be here to stay. We have a growing global economy with behemoths like China and India sucking up any excess supply that we may need. It is no secret that the USA consumes the most and we exacerbated the situation with the War in Iraq. For as long as we are there (possibly beyond) there will be a terror tariff attached to the price of oil. We will just have to get use to it…

What can we expect now?:
Are you ready for a decline? I hope so because we are at the doorstep. The writing is on the wall. It may be an orderly lull you to sleep kind of decline or it could be an everyone hits the exit at the same time fire drill kind of drop, either way we are appear to be on the brink of a breakdown. Could I be mistaken? I most certainly could be, but I see no catalyst as the catalyst that leads us down. Add any other mishaps to this mix and it could get ugly quickly. There also appears to be too many just hanging around, taking a wait and see attitude. That tree may be about to get shook. The COT numbers are rather interesting where on the DJIA & SPX Commercials are short while Large and Small speculators are long, but on the NDX just the Small speculators are long and I mean heavily long. I smell a bull trap! With that said, the Bullish Advisors are at 55.9% with Bearish Advisors at 24.7%, VIX/VXN have moved up but still within their respective downtrend channels and the Equity P/C Ratio is at a modest .640 with its 21DMA at .639. The RSI 5-Days are Oversold on INDU, SPX and COMP with the RSI 5-Wks being Neutral. $NASI is in a sharp decline and the $NAMO is in a nice downward channel where the 50DMA has just crossed the 200DMA. BP%'s have moved from off of the flat line and have turned down. $NAAD continues to weaken with the 50DMA approaching the 200DMA for a crossover and $NAHL is in a downward channel with the 50DMA beginning to rollover.

This weeks chart is my outlook for all of 2005 on the COMPQ. Please visit #msg-5182309 for the chart. It just so happens that I posted this chart Thursday night which shows an H&S pattern that I superimposed (not quite there yet and a little early to be looking for this) then low and behold Art Cashin on CNBC points out the same "possible" pattern on the DOW and SPX today. I find it odd for CNBC to show that they are capable of thinking outside the box, but being as it was Art Cashin who I respect, I can live with it >8^) Although I do not know whether this is a good or bad omen. Also these charts #msg-5111931 are still active and relevant to our current market climate.

NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. LT Holds: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX and TAVIX

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 am doing and give my thoughts on current market conditions. I am not a day trader and only attempt to identify up/down trends and play the swings.