Your Economy (No Politics)

[Bullwinkle]

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



Overview:
I got to tell ya, the more things change the more they stay the same. As mentioned last week with which this post replies; For the time being we may stay range bound before the markets decide to go one way or the other in a serious fashion. In a nutshell, that has been the story. An argument can be made that we are consolidating before a move to test the highs and an argument can be made that there is no follow through as we muddle through the day-to-day action. While both of these are valid arguments my belief is that we are weakening, not strengthening. The markets seem to be manufacturing their own news while real issues exist and have been overlooked for some time. Have you noticed that Oil and U$D issues do not seem to phase the markets as they once did? A dollar move in Oil would roil the markets and so would dollar strength at one point in time. The COMP and DJTA which led us up over the last few months are no longer leading, they are more or less attempting to follow the SPX and DJIA which seem to be doing better than these. New fund inflows have not moved this market in a substantial manner, T-Note auctions have not gone very well and yields keep falling while spreads continue to tighten, so much so that the flat yield curve is beginning to invert. I have to ask, what is going on out there? Are these not warning signs to be taken seriously? It appears that anything short of an actual crisis will not garner attention. This looks like a perfect set-up where the smart money has the majority believing they are about to miss a big move up. Complacency is rabid and the majority of investors are driving with their eyes closed. Make no mistake about it, we have a lot of gamblers out there and I would not think that they need to be reminded that the casino rarely loses.


Economic #’s:
Econ activity was rather slow this week, but what numbers we did get came in mixed at best… On second thought, they came in how you choose to interpret them.

Consumer Credit came in below expectations at $3.1 Bln or a 1.8% annual rate for Dec. although it was higher than last months recently revised number of $2.0 Bln which was initially reported to be -$8.7 Bln. For all of 2004, consumer credit rose by a 4.6% annual rate.

ICSC Weekly Chain Store Sales came in at +2.2% and much higher than the -1.9% reported last week. ICSC expects same store sales to rise 2.5% to 3.0% on a YoY basis although by comparison for Feb. last year at this time sales rose 6.7% YoY.

Wholesale Inventories came in below expectations at 0.4% and was kept down by consumer spending which in the last 6 months rose at the fastest pace in nearly 5 years.

Mortgage Applications were on the rise as the Index of Mortgage Apps rose by 4.2% to 735.9, Index of Refi’s rose by 7.8% to 2430.7 and Index of Purchases rose by 1.0% to 444.6. Refis’ made up 48.9% of all mortgage applications and applications for ARM’s decreased by 31.9%. Consumer Comfort Index came in at a –10 or slightly above the last report of –11.

Initial Jobless Claims came in at 303K or 13K lower than the previous report and below expectations of 325K.

Trade Balance came in at -$56.4 Bln and while it came in below the prior months numbers and current expectations an all time record was set nonetheless of $617.7 Bln for all of 2004, a 24.4% increase over and above the previous record of $496.5 Bln set in 2003. The USA deficit with China also set a record of $162 Bln, up 30.5% from last year and the largest imbalance ever recorded with a single country.

Treasury Budget came in with an $8.7 Bln surplus which was higher than the $1.4 Bln previously reporrted, but the balance of outlays and receipts was below expectations of the CBO which anticipated a $12 Bln surplus. Cumulative budget shortfall, which started last Oct. and is 4 months into the fiscal year was –109.3 Bln.

WLI (Weekly Leading Indicator)came in at 134.4 or +1.6% higher than last weeks reading of 133.7 bolstered by lower jobless claims, a rise in mortgage applications, lower interest rates and higher stock prices.

Oil Inventories came in mixed again where the DoE (Dept of Energy) and API (American Petroleum Institute) are giving us conflicting numbers. I imagine that this will now be a regular occurrence so we will just have to learn to live with it. Crude according to DoE fell 1.0 Mln bbls, according to API fell 4.0 Mln bbls. Distillates according to DoE fell 3.0 Mln bbls, according to API fell 4.2 Mln bbls. Gasoline according to DoE rose 500K bbls, according to API fell 4.2 Mln bbls. Anyway you slice it, concerns about stocks not being adequately built up ahead of the peak consumption period during the summer is the bottom line here.




Just some random thoughts… XOM is about to surpass GE as the largest company in the USA and the oil companies have been making money hand over fist since 9/11. I mean they have always had us over a barrel, but the terrorist attack on US soil and the Iraq War have been the best things that ever happened to this industry. If I remember correctly, oil was supposed to drop in price after the Iraq invasion. So just what is going on with ALL that oil?

Here’s another thought… When was the last time we had an elevated alert? Through all of 2003 and leading up to the 2004 election we were riddled with orange alerts, some teetering on red. It has been awfully quiet on the domestic terror front lately, especially now that GWB has secured his re-election.

What about this… We’ve seen rumors move a stock or even a market, but N.Korea’s Kim Jong Il being ousted to move markets higher takes the cake. The market makers are really scraping the bottom of the barrel and I would not be surprised if this is just the beginning of such outlandish rumors to move markets.

The few instances mentioned just goes to show you what great lengths some will go to use the world’s agony as there playpen.




What can we expect now?:
We have a lot of underlying crosscurrents battling it out, therefore I would expect the same as what we have seen, range bound volatility. As mentioned earlier we have been getting a new influx of cash from the sidelines, but we also have seen an increase in new lows on the COMP. We also have had a time of it negotiating the COMP 2080 area, this is formidable resistance and sooner or later we will either move through this area toward 2100 or fall back and make a lower low, probably around 1960-1980. If we should fall back and below the support mentioned, there is a lot of air below that level. That’s what I am seeing and will be watching for. We also have a Bradley turn scheduled on/around the 16th, which also coincides with a Fib timeline. If that weren’t enough, we also have an astrological effect in play in the form of a lunar alignment. While I would consider this to be a good chance for a reversal to take place, I now have my doubts. While most do not follow these types of events and believe it all to be hogwash, we had Arch Crawford on CNBC earlier in the week alerting the viewers to this. This in itself may negate what was not widely anticipated. Now the last time we were alerted about a possible reversal was by CNBC’s Art Cashin pointing out H&S patterns forming on some of the indices. Low and behold the patterns failed although they have not yet been totally negated. I had mentioned these patterns in one of my updates just prior to Mr. Cashin’s revelation which can be found here (towards the bottom of the page) #msg-5192441 The bottom line is (and as most if not all market players would agree), once something becomes common knowledge then it is usually rendered ineffective. Either way, I will still be watching this date closely. We also have Options Expiry on the 18th, which is always good for some uncertainty with MaxPain on the Qubes targeted at 38.

On a technical note, we have Bullish Advisors at 54.6% with Bearish Advisors at 23.2%, VIX/VXN attempting to test all time lows although there appears to be a possible double bottom forming on the VIX. The Equity P/C Ratio is at .660 and with its 21DMA at .614. The RSI 5-Days are Overbought on the INDU and Neutral on the COMP and SPX although it is just shy of Overbought territory. The RSI 5-Wks are Neutral across the board. $NASI (Summation) remains up and right at the 200DMA, while the $NAMO (McClellan) is still in an uptrend and above both the 50/200DMA. $NAHL (Highs/Lows) has turned back down below the 50DMA and is sitting at the 200DMA while $NAAD (Advance/Decline) is looking kind of toppy and the 50DMA has crossed below the 200DMA for the first time since back in Sept’04. BP%'s are mixed where INDU has crossed over the 50DMA, SPX is approaching the 50DMA and the COMP is still well below the 50DMA and heading back down. The BBands on the COMP have flattened out and looks like we may finally get a hint as to what direction we will break this coming week.

One Last Note: While I have been painting a bearish picture, there are pockets of valid strength and what I refer to as defensive plays within the markets. I feel you cannot go wrong with Precious Metals, Energy, Natural Resources and Commodities. Oil and associated stocks such as drillers and services should continue to do well along with consumer non-cyclicals. Of course depending on what kind of trading you do these may or may not fit your format. If you like to day trade, then these may not give you the quick fix you desire. Longer term they should do very well…










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.