Your Economy (No Politics)

[Bullwinkle]

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



Overview:
It’s that time once again to review the past week and look into the next. As mentioned in the last update with which this post replies; 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. That pretty much sums it up. We seemed to pick up right where we had left off on last Friday, but that turned out to be short lived. I also mentioned this last week as well; With the INDU and SPX moving independently of the COMP, I think this is an important divergence worth noting. Indeed! The COMP tried to follow, but just did not have the Ooomph required to get it past 2100 and before you knew it we were right back at the 2080 area (double Fib that I have mentioned on at least a couple of occasions) and then settling lower as the week wore on. 2100 has now formed a double top and the COMP has now started to pull the other indices down with it. Of course there are other factors that may have compromised the DJIA, DJTA and SPX moves, but the lack of follow through on the COMP certainly did not help their cause. Some of the other factors were the falling U$D which I believe is destined to retest 80, high Oil which retested its 52wks high and still believe we see $60 bbl before $50bbl, Gold which has been holding steady and looks ripe for surge into months end and a number of important Econ #’s which were to say the least, troubling. Speaking of Econ #’s, let’s move ahead and give those a review.

Economic #’s:
Econ activity was somewhat slow this week, but we did get a couple of biggies that just didn't sit well with the markets in general…

Consumer Credit rose sharply to $11.6 Bln and at its fastest pace in 3 months to a seasonally adjusted $2.12 Tln. That’s an increase of 6.6% compared to last months upwardly revised $8.6 Bln. Revolving credit, such as credit cards rose by a $5.4 Bln or 8.1% and non-revolving credit, such as car loans rose by $6.2 Bln or 5.6%. For all of 2004, consumer credit rose at a 4.9% compared with a 4.5% gain in 2003.

ICSC-UBS Weekly Chain Store Sales slipped to -0.4% from the previous weeks increase of 1.5%. Compared with the same week a year ago, sales increased 3.3% after a 3.3% rise the preceding week. For March ICSC expects retail sales will increase by 3.5% to 4.0%. Johnson Redbook Retail Sales were up +3.7%, but considerably lower than last weeks +7.6% increase.

Fed’s Beige Book was released and Fed Chairman Alan Greenspan expressed inflationary concerns relating to the overall environment. Some of the points covered were highly leveraged debt, a tightening labor market and consumer spending steady to up. He also found that companies were passing along price hikes via surcharges. You can read the report in its entirety at #msg-5689066 if you like.

Mortgage Applications continued to dip as the Index of Mortgage Apps fell 0.7% from 710.3 to 704.8 while the Purchasing Index increased 2.7% from 451.7 compared to last weeks 440.0. Index of Refi’s fell by 4.6% to 2176.8 from 2281.1 with Refis’ making up 42.7% of all mortgage applications and off from 44.8% the previous week. ARM’s applications made up 30.5%, off slightly from the previous weeks 30.7%. Fixed 30-year mortgage rates averaged 5.67%, down from 5.74%. Fixed 15-year mortgage rates averaged 5.25%, down from 5.27%. The 1-year ARM mortgage rates increased to 4.43% from 4.27%.

Initial Jobless Claims came in at 327K or an increase of 17K from the previous week and above expectations of 310K. The rise was unexpected as the President’s Day holiday left people with fewer days to file. The number of people continuing to collect state jobless benefits rose to 2.703 Mln from 2.672 Mln the week earlier. The 4-week average of continuing claims fell to 2.685 Mln from 2.694 Mln the previous week. The insured unemployment rate held at 2.1%.

Wholesale Inventories rose 1.1% from a months earlier 0.4% with expectations being for an increase of 0.6%. Wholesalers' sales rose 0.5% in January after increasing 1.1% the month before. Sales of durable goods fell for the first time since August 2003, led by reduced demand for computer and other professional equipment. Inventories of durables goods at wholesalers, which include cars and computers, rose 1.3% in January after rising 0.3% the previous month. Sales fell 0.1% after rising 2.4%. Inventories of non-durable goods rose 0.7% in January, led by farm products, paper, oil and chemicals, after rising 0.5% in December. Sales of non-durable goods rose 1.1% after falling 0.2%.

Treasury Budget swelled to $113.9 Bln and is a record budget deficit for any single month and it is up from $96.7 Bln in February 2004. Receipts were up 8.8% year-over-year to $100.9 Bln while outlays grew 12.2% to $214.8 Bln. Interest on the public debt totaled $15.9 Bln in February and $151.4 Bln so far this fiscal year. This is up from $143.2 Bln in the same period last year.

Trade Balance increased by 4.5% to $58.3 Bln from $55.7 Bln and was the 2nd largest ever. China accounted for more than ¼ of the shortfall. Imports increased to a record $159.1 Bln to satisfy the consumers hunger for new clothes, music players and motor vehicles. Business investment brought January imports of capital goods to the highest level in more than 4 years.

Weekly Leading Index (WLI) rose to 135.2 compared to 134.9 a week earlier while the index's annualized growth rate rose to 3.0% from 2.6% in the prior week.

Oil Inventories as reported by the DoE (Dept of Energy) and the API (American Petroleum Institute) are as follows: Crude according to DoE rose by 3.2 Mln bbls, but according to API rose 6.25 Mln bbls. Distillates according to DoE fell by 800K bbls, but according to API fell by 239K bbls. Gasoline according to DoE fell by 200K bbls, but according to API fell by 269K bbls.

On deck and for the week ahead we can look forward to a busy week starting off with the NY Empire State Index, Retail Sales, Business Inventories, Building Permits, Housing Starts, Capacity Utilization, Industrial Production, Initial Jobless Claims, LEI, Philly Fed, Import/Export Prices and Michigan Sentiment.

I heard what I consider to be some rather absurd statements this week…
The first being Commodities, Oil and Energy are in a bubble. Now while this may be true to some extent, this seems like a bit of a stretch to me. I mean really, a bubble? If so what then would Real Estate, Derivatives Markets and Consumer Credit be considered, a Hindenburg? To classify something that has a somewhat high valuation due to strong demand or lack of supply as being in a bubble is just plain ridiculous, especially in comparison to the reality bubble assets. How about this one... Oil importation is responsible for the US trade deficit. Really? Now while I can go along with oil playing a part in the trade deficit scenario, I find it hard to fathom that oil is solely responsible for our trade imbalances. China just this past month alone accounted for ¼ of the trade imbalance. That’s right China who does not import oil to the USA is ¼ of the trade imbalance, you read that right. This does not include foreign automobiles or capital goods (to be read as Japan) or electronic goodies, clothing, etc. So while I do not have the exact numbers, there is no way no how oil is solely responsible for these imbalances. As a matter of fact, this is some government goons way of saying we must drill at ANWR. With all of the great technology we could leverage towards this problem in the form of renewable cleaner burning self reliant energy, we must drill in ANWR! As if the median 7 Bln bbls that are thought to be there will solve our longer term energy woes. Is nothing sacred anymore? How about this little diddy... it was stated that a global savings glut exists and is responsible for the US current account deficit. Huh? How does the Japanese stuffing their mattresses with Yen affect the USA? It definitely affects Japan’s economics, but ours? Not by much. Sounds to me like the Fed bankers are getting a little nervous, especially after Japan’s announcement on thoughts of diversifying US reserves. We have tapped our lending friends like Japan, S.Korea and Russia who are all saying they might sell off or diversify US reserve currencies and/or Bonds and even if they don’t, you can bet that they will not be purchasing like they use to. And this does not even take into account for China who has yet to say anything of this nature, but I imagine it may be coming and the shockwaves will be intense because China will say it like it is. So you may ask what does this have to do with a global savings glut? This is to say that other emerging markets’ ecomomies that the US has been unable to tap should be lending us their money or so has been hinted to by Fed underling Bernanke. We need a new well to take the dip if we are to keep up our current ways of borrow and spend alive and if we cannot jawbone these untapped emerging sources to come across, look for some really troubling times ahead for the U$D… As the saying goes, bulls make money, bears make money and pigs get slaughtered. Guess which category the US falls into? Don’t get me wrong, I love the USA and that’s why it bothers me so to see comments made like the ones I mentioned. Obviously I do not agree with the direction our nation is moving and what I see is a bunch of yahoo’s looking to fulfill their own agendas at the cost of many. The cooler heads have left the building and the finger pointing is so flagrant and frequent that it is very unbecoming of an America that I once knew and remember…

What can we expect now?:
As mentioned in the previous update with which this post replies; 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. The markets are in a state of manic -- up, down with no real defining logic. Like the weather in some parts of the country, if you don’t like the way today looks just give it a day and it will most likely change. I continue to believe we see more of the same range bound volatility until a break occurs. That break will be to the downside and it’s just a matter of time as to when it will occur. Unless some unforeseen event like privatized accounts should come to pass, I see nothing to hang ones hat on for higher markets. Even if markets do reverse back up, just give it a day like the weather scenario I just mentioned. There is no staying power, muddled follow through and as I said before it is a dangerous time. It is quite possible that the unwinding will be very reminiscent of last year’s decline where we grind lower for a better part of the year. With that said, the smart money is on the other side of the largely long small speculators and my bet is on the smart money because once they finish lining up there pawns I have a feeling a big flush will ensue. Also with more and more funds being directed into International than Domestic equities, I am not sure investment there will be any safer considering we live in such a globally connected economic society these days. Most if not all are tied in some way, shape or form to the US markets. Last but not least we were treated to a Bradley Turn which occurred on the 4th and Bradleys generally exist within a window of +/- 3 days, so as you can see that the 9th was within its range. We also had a New Moon on the 10th and you could even say that we saw a New Moon swoon. Whether or not we are still under the confines of these geo-cosmic activities is anyone’s guess and for those who do not give any credence to these dates I say that is fine, but you should be aware of them anyway because they have coincided with many tops, bottoms and changes of trend in the past. They are not leading indicators, but are indicators nonetheless. We also have an Options Expiry week ahead with MaxPain for the Qubes @ 37.5, Diamonds @ 107 and Spiders @ 120…

On a technical note, we have Bullish Advisors at 55.7% with Bearish Advisors at 21.6% and still overwhelmingly bullish for quite some time now. The VIX/VXN as previously mentioned have broken there downward channels and appeared to have been basing, but as of late they are starting to move into an upward channel trend. While I feel this is very significant and will be watching closely it is still too early to define as absolute. The Equity P/C Ratio is at .621 and with its 21DMA at .627. I cannot remember a time when the markets have settled into the .6’s for such a lengthy period. It is also one of the reasons I foresee continued range bound volatility. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. $NASI (Summation) is about to experience a 50/200DMA crossover where the 50DMA is plunging towards to the 200DMA, also a nice looking H&S pattern is forming on the index. The $NAMO (McClellan) still remains in downward channel with the 50DMA about to head lower. The cross under the 200DMA occurred back in early Jan. and has never made a move for a cross back yet. The $NAHL (Highs/Lows) downward channel still remains intact and the 50DMA is approaching the 200DMA for an inevitable cross under like so many of these indicators have done or have eluded to. The $NAAD (Advance/Decline) is in an oscillating downward move where the advancers have been lagging decliners and the 50DMA cross under of the 200DMA has continued to widen since early Feb. The BP%'s have all turned down and are below the 50DMA.

As for charts this week I have posted charts of the above mentioned indicators for your viewing pleasure and would like to draw your attention to a couple of posts from earlier in the week on the Your Economy board #msg-5450832 in which some weekly divergences can be viewed and #msg-5674702 where some defining moments prior to the decline on the DJIA and SPX were posted.











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. I have added ANO and SWWC for the longer term.
ST Holds: GSS

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.