Your Economy (No Politics)

[Bullwinkle]

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



Overview:
Another week is in the books and it was nothing short of volatile -- up -- down -- round and round. As mentioned in the last update with which this post replies; I would not go as far as to rule out range bound volatility for an undetermined amount of time. I tend to believe that even with Friday’s breakout this will still be the case going forward. The breakout occurred upon the Non-farm payroll #’s, but not all indices enjoyed the run up as much as some others. A happy family of markets theory is when all indices are breaking out, but the COMP and R2K are still below their late Dec. ’04 highs. While they are going in the same direction and the R2K has broken it’s 50DMA and double top from the previous month, the COMP has not. As a matter of fact, the COMP is looking downright lethargic. Again we are seeing a lot of fund inflows, albeit not as much as we saw in the beginning of Feb., but a majority of these funds are finding there way into International funds. What I mean by majority is 92% or $2.61 Bln of a reported inflow of $2.84 Bln. This has gone on before, but most notably for the last 2-3 weeks. So who is buying domestic? Could it be foreign investors who have buying power via their currencies vs. the U$D? Could it be that the DJIA and SPX are enjoying a run from rotation at the expense of the technology laden COMP? Maybe it’s a combination of the two, who knows but it seems awfully suspicious to me. Then how about the DJTA? The Transports have rocketed to new highs and this while Oil tested all-time highs on an intra-day basis? Oil now sits on the brink of a breakout to new highs and not even a blink associated with this move, very interesting indeed and you know those high costs for fuel are either cutting into profits or being passed along to consumers. And how about the consumer? Are there really that many people in the USA flush with cash or are their debts getting more and more out of control? While I enjoy a good rally as much as the next guy or gal, there are some odd divergences and serious questions that need to be addressed. Then in the Bond market we have prices jumping and yields falling with an ever tightening spread between 2yrs, 5yrs, 10yrs and 30yrs Notes. Is it possible that the bond pits are trying to tell us something, something that continues to fall on deaf ears? While I am not one to walk out on a limb and call Friday’s move a top, it could very well be the beginning of the end of this rally which is now 29 months in the making and getting quite long in the tooth. Sooner or later all good things come to an end. With the COMP not participating in this run and chomping at resistance, I would like to point out some formidable resistance that lies ahead for the DJIA formed back in 1999-2001 between 10900 and 11250 as well as the SPX between 1225 and 1275. Also of note is the March 2000 sell off and while new highs may be in the making, I do not see this happening without the COMP. Although stranger things have happened…


Economic #’s:
It was a busy week and once again we received our usual mixed bag-o-nuts, this has been the story for quite a while and while it gives me reason to pause it was not much of a concern for the markets in general…

Personal Income fell –2.3% from the prior months +3.7%. This was more or less expected due to the prior months reading having been heavily boosted by the MSFT dividend pay out. Personal Spending was flat at 0.0% with the prior month having been +0.8%. A price index for consumer spending or (PCE) Personal Consumption Expenditure rose +0.2% with Core PCE which excludes food and energy rising +0.3%. The PCE is considered to be a preferred measure for inflation and are said to be closely monitored by the Fed.

Chicago PMI edged higher to 62.7 from the prior months reading of 62.4, forecasts had been for 61.0 and marks the 22nd month of a reading above 50. Readings over 50% indicate that more than half of respondents said business is better or the same.

ISM Mfg Index on the other hand fell to 55.3 from a months earlier reading of 56.4, although ISM Services Non-Mfg rose to 59.8 from a months earlier reading of 59.2. New Orders rose to 61.6% from 60.5% and the Prices Paid Index fell to 66.4% from 66.6% with 12 of 17 industries expanding in Feb., led by mining and communication.

Factory Orders increased 0.2% and above forecasts, but below the prior month’s upwardly revised 0.5%. Factory shipments increased 1.4% to a record $389 Bln, while inventories increased a record 1.3%. The inventory-to-shipments ratio was unchanged at 1.23. Orders for core capital goods increased 2.9%, while shipments rose 3.7%. Orders for durable goods were revised down to a 1.3% decline from 0.9%. Durables shipments rose 1.1%, revised down from 1.5% while Durables inventories grew 1.2%. Orders for non-Durable goods increased 1.8% while inventories increased 1.4%

Productivity climbed 2.1% and well above forecasts of 1.5% and the prior month’s reading of 0.8%. Unit labor costs were revised down to a 1.3% annual rate from 2.3% with real hourly compensation falling 0.2%. Productivity grew at a 5.8% annual rate in the manufacturing sector as output rose 4.6% while hours worked fell off 1.1%.

Auto/Truck Sales fell 1.9% where total sales of cars and light trucks were 1.25 Mln in Feb., compared with 1.28 Mln in the same month of 2004. So far this year 2.4 Mln vehicles have been sold, some 3.6% behind last year's pace.

ICSC-UBS Weekly Chain Store Sales rose to 1.5% from last week’s –0.1%. Compared with the same week a year ago, sales growth accelerated to 3.3% from 1.8% the previous week. Johnson Redbook Retail Sales soared 7.6% in the last week of Feb. and well above the 0.6% a week earlier. According to Johnson’s Index all but the last 2 days of Feb., purchases at chain stores were up 2% from the previous month.

New Home Sales fell 9.2% to 1.1 Mln units in Jan. from 1.22 Mln units a month earlier while the median price of a new home skidded to the lowest level in more than a year. Construction Spending on the other hand increased 0.7% to a record $1.05 trillion annual rate.

MBA Mortgage Applications fell 2.4% after having fallen 0.6% the week before with the Index of Mortgage Applications coming in at 710.1 and off from the a weeks earlier 727.9. Index of Refi Applications fell 9.9% to 2281.1, after rising 0.1% the prior week. Applications for ARM’s made up 30.7% of total applications and is unchanged from the previous week. The Purchase Index increased 5.3% to 440 erasing the 1.3% drop the previous week. Fixed 30-year mortgage rates averaged 5.74% last week, excluding fees, up 7 basis points from 5.67% the previous week. ARM 1-year adjustable-rate mortgage rates averaged 4.27%, up from 4.18% a week earlier.

Initial Jobless Claims came in at 310K or 1K lower than the previous weeks report. Nonfarm Payrolls came in at 262K and well above the 200K forecast or the prior months 132K which was revised down from 146K. Earlier in the week Challenger, Gray and Christmas reported 108K planned layoffs. For the last 6 month’s CG&C has reported approx. 624K layoffs or an average of some 104K layoffs per month. Unemployment Rate increased 0.2% back to 5.4%.

Average Workweek was virtually unchanged and came in the same as the previous reports reading of 33.7. Hourly Earnings on the other hand came in at 0.0% and below the prior months reading of 0.3%.

WLI (Weekly Leading Index) rose 2.6% to 134.9 compared with an upwardly revised 2.1% or 134.0 in the prior week. The rise was offset in part by lower stock prices and higher interest rates.

Michigan Sentiment Index was revised lower to 94.1 from the previously reported 94.2 and 95.5 reported in Jan.

Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 2.4 Mln bbls in which API saw the same. Distillates according to DoE fell 1.8 Mln bbls, but according to API fell 1.4 Mln bbls. Gasoline according to DoE rose 1.0 Mln bbls, but according to API fell 3.9 Mln bbls.

While we have a relatively slow week for Econ #'s ahead of us we can look forward to getting Consumer Credit, Fed's Beige Book, Initial Jobless Claims, Wholesale Inventories, Treasury Budget and Trade Balance...


When is the last time you saw a home coming party for a convicted felon? A party that was essentially thrown by the media? Pretty amazing stuff… Martha Stewart gets released from prison and the media treats it like an OJ Simpson freeway chase. Hours of coverage by every cable news outlet, views of the Stewart compound from chopper-1, views inside the home via high powered camera lenses and then some hot chocolate for all the paparazzi’s, how quaint. Maybe I am alone in my feelings, but who cares? I mean I have nothing against Martha although I do find her to be rather smug and arrogant, but really, with so much more important things going on in this world we are treated to who knows how many hours of this? Why are we celebrating the release of a criminal? Is this what reality TV has turned our mush-minded populace into? With so many more things going on in the world, I can't help but shake my head wondering what it is that our media finds as important and worthy of spending so much time on. If I did not know any better, I would think that this is an intentional ploy to keep from reporting relevant news. A device for dumbing down America. We would not want people to be informed or keen to the real issues in the world that effect our daily lives now would we? Let’s have some more reality TV… All I want is to be entertained, take my drug of choice and turn into a jellyfish. Funny thing about so-called reality TV is that it is scripted and not done in real-time, so where’s the reality? I guess this is where FOX, CNN, CNBC and MSNBC have the advantage. Well our news coverage, commercials and TV shows are all taking on the same form. They are all morphing into one big glob of useless entertainment. This keeps your eye off of the ball. The administration uses this tactic all the time. Follow me for a minute… Social Security. Whether or not there is a problem with Social Security does not really matter, the objective has been accomplished and that is to get everyone thinking about something other than what we should really be addressing like security, jobs, taxes, program cuts, deficits, healthcare, hunger, the war and dozens and dozens of other issues that actually mean something to an American citizen. The media is more or less an extension of that. Foreign coverage of news is not watered down. It is not about entertainment, it is about information. The good, the bad and the ugly. So why is it that our news coverage feels that they need to entertain us? Is it ratings or is it something more than that? The next time you tune into the news and they are busy dulling your brain with trivial BS, ask yourself this… “What is it that they do not want me to think about?”… It reminds of the old saying “out of site, out of mind”.

What can we expect now?:
The next couple of weeks should be very interesting and I believe we are in for more of the same range bound volatility we have been experiencing for sometime now, nothing much has changed. I tend to find the Fund flow and COT data troubling for the bullish scenario. We also have some cycles coming into play coupled with the odd divergences that were mentioned earlier and have been prevalent for a period of time now. As stated in last week’s update; Either we are seeing new leadership in the markets where rotation is the key and rate sensitive sectors are taking the hit or the gamblers are being allowed to run the gambit. With the INDU and SPX moving independently of the COMP, I think this is an important divergence worth noting. Also a Bradley date has just taken place on the 4th so we will see within the next few trading days if this date has any effect on the markets action or not. As for the U$D, Gold and Oil, I believe the U$D will continue to drop (especially on the jobs data) making Gold a good play for the next week or so. Oil is in a world of its own and with driving season upon us I think we see $60bbl oil before $50bbl in the near term.

On a technical note, Bullish Advisors are at 54.7% with Bearish Advisors at 22.1%, VIX/VXN trends have turned range bound just like the indices, they have been basing and bouncing in a 2pts range for the last month and a half. CBOE Equity P/C Ratio is at .608 with a 21DMA of .609. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. The $NASI Daily (Summation) 50DMA is diving towards the 200DMA for a possible cross under with a flat line indicator around -200 . The $NAMO Daily (McClellan) 50DMA crossed below the 200DMA back in early Jan’05 and looks to be oscillating just above the median. The $NAHL Daily (Highs/Lows) 50DMA is approaching the 200DMA for a cross under with the trend in a downward channel. The $NAAD Daily (Advance/Decline) 50DMA crossed below the 200DMA in early Feb. as the gap between the averages continues to widen with the amount of new lows taking its toll and moving the indicator toward lower highs before reversing. The BP%'s remain mixed with $BPCOMP heading lower being followed by its 50DMA, $BPSPX entwined with its 50DMA and BPNYA clearly breaking out. I have included the charts of these indicators below for your viewing pleasure. Also an annotated chart of the COMP #msg-5595539 that I posted earlier in the week on the Your Economy board.










NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. I also made some new additions to my longer term hold portfolio. The added equities are ANO and SWWC. I also took a small position in GSS for a quick turn play on Gold. 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.