Saturday, April 09, 2005 5:02:32 PM
~:~:~Market Trend Update for the Week Ahead~:~:~
Overview:
It’s that time once again to review the past week and look into the next. It was a very interesting week where we saw 4 of 5 days end in the green and for all that groundwork, the 5th day (Friday) took back most of those gains. The market seems to be treading water the last couple of weeks and as of late the up days take a considerable amount of effort to stay green while the down days just flow red. As mentioned in the last update with which this post replies; The cliché’ “lead, follow or get out of the way” does not apply here as the leaders are missing in action, the followers do not know who to follow and we cannot seem to get out of our own way. Boy, isn’t that the truth (if I do say so myself) and the last couple of weeks were a classic example of this I believe. Fund flows this week improved to $1.2 Bln, only problem is that $800 Mln or 2/3rds of that money found its way into International Equity funds, much like what we saw in March. The COT’s data “open interest” is on the floor, I have never seen it so low. We also started to get some warnings from what I always thought to be high margin companies such as software developers and then there were rumblings surrounding the internets, about revisions, etc. On top of this we have known about the financials such as AIG, FNM, FRE, MBIA, GM, DRL, which most likely is just the tip of the iceberg. Also we have over $100 Bln in debt coming due over the next 3 months. With financials making up a larger percentage of US industry these days, we are beginning to witness troublesome times ahead in the face of rising rates and slowing growth. Can you imagine what will float to the surface if/when we have a swift and deep decline? I highly doubt that the US Government is in any position to bail out any of these as they did in 1989 for $153 Bln, which was considered to be an extraordinary amount of money at the time. In hindsight that seems like nothing being as today we may be talking trillions of dollars…
Economic #’s:
A very slow week, probably one of the slowest I can recall and it I believe it helped the market indices this week being as there was not much for Mr. Market to think about…
Initial Jobless Claims fell to 334K or a decrease of 19K from last weeks 353K which was upwardly revised from an initially reported 350K, forecasts had called for a decline of 23K to 330K. The 4-week moving average for jobless claims now stands at 336.5K.
Wholesale Inventories came in at 0.6% after a previously reported 1.0% which was downwardly revised from an initially reported 1.1%, forecasts were for 0.7%. Durable goods rose 1.2% and automotive fell 0.2%, wholesale inventories are up 11.1% in the past 12 months with wholesale sales rising 10.6%. In February, sales fell 0.4%, marking the biggest drop since April 2003. The inventory-to-sales ratio rose to 1.18 from 1.17, indicating inventories remain tight. Wholesale sales of durable goods fell 0.5% including a 4.7% decline in electrical equipment sales, which was the biggest decline in nearly 4 years. Automotive sales increased 2.6% while metals sales fell 1.4% after growing 31.6% in the past year.
Consumer Credit came in at $5.6 Bln or 3.1% after a previously reported $11.6 Bln and below forecasts of $7.5 Bln. Credit card debt increased 6.1% in February, while non-revolving credit, such as auto loans, increased 1.3%.
ICSC-UBS Weekly Chain Store Sales were up 0.3% after falling 1.0% in the previous week. Johnson Redbook Retail Sales rose 4.1% after falling 0.7% in the prior week.
MBA Mortgage Applications decreased 4.4% to 644.5 after and increase of 2.4% to 674.3 a week earlier. The Index of Refi Applications fell 3.1% to 1798.8 after falling 2.0% to 1857.2 in the prior week. The Purchase Index fell 5.3% to 446.0 after rising 5.5% to 470.9 in the previous week. Applications for ARMs fell to 35.2% after rising to 36.6% of total applications a week earlier. Refi’s increased to 38.3% of total applications and up from 37.8% in the prior week. The fixed 30-year mortgage average rates fell 17 basis points to 5.91% after rising to 6.08% in the previous week. Fixed 15-year mortgage average rates decreased to 5.48% from 5.61% in the prior week while ARM 1-year mortgage average rates decreased to 4.29% from 4.39% a week earlier.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 2.4 Mln bbls, but according to API rose 4.0 Mln bbls. Gasoline according to DoE fell 2.1 Mln bbls, but according to API rose 250K bbls. Distillates according to DoE rose 700K bbls, but according to API fell 245K bbls.
WLI (Weekly Leading Index) was down to 134.7 in the week ended April 1 from a downwardly revised 134.9 in the prior week. The index's annualized growth rate slipped to 3.5% from 3.7% in the prior week.
Next week will pick up considerably. On deck we have Trade Balance, Treasury Budget, an FOMC Minutes release, Retail Sales, Business Inventories, Initial Jobless Claims, Import & Export Prices, NY Empire State Index, Capacity Utilization, Industrial Production and Michigan Sentiment…
Let’s talk earnings… Warnings are coming in as mentioned earlier with some of the higher margin industries being the ones to warn. This in itself is a troubling message. The earnings landscape will most likely get rougher throughout the year and besides the obvious rising rates, the Sarbanes-Oxley Act otherwise known as SO or SOX is beginning to show up on some radars again as companies scramble to file financial statements. Compliance is costly and hundreds of companies are still trying to figure out what all needs to be done in order to comply, so much so that its original July 2004 deadline had been extended to November 2004. It is also said to have thrown a monkey wrench into travel agendas and M&A activity in which some companies have submitted for extensions upon extensions. VRTS for example had to submit for a 2nd deadline in order to file their 2004 report, which they are said to file by April 11th. VRTS will trade under the ticker VRTSE until it gets its house in order. SOX even has some companies contemplating their publicly traded status with them possibly reverting to the private sector. The costs of compliance will most likely show up on the bottom line although it may more adversely affect small cap companies than large caps. Speaking of large caps, they may have a real catch 22 on their hands as the year unfolds. While they have been afforded a huge tax break where they can bring overseas earnings back into the USA at a meager 5.25%, it is estimated that somewhere between $100-$500 Bln will make its way home to roost and tt has been said that repatriated foreign profits will most likely be used to pump domestic markets which in turn may continue to strengthen the U$D. A stronger U$D would most certainly reduce the bottom line of US companies here at home in the form of earnings numbers. This may also create some tension between Import/Export pricing, which the powers that be claims to offset trading imbalances and supports their argument of a strong economy. While current strength in the U$D may be nothing more than an anomaly with other forces at play taking it back down, unknowingly these large cap companies may be undermining themselves all in the name of corporate profits while selling out the USA and Americans. I for one believe that sooner or later these fat cats will overdose like a drug addict who cannot control his/her dependency. The earnings outlook going forward this year will be of most importance and something to watch as I suspect that while earnings may be met for the most part in Q1, the weak will show their cards early and forward guidance may be coming in short of expectations for a better part of reporting companies. Over time the slow growth effect from a rising rates environment coupled with the aforementioned items and the continually high price of crude are bound to have an effect sooner rather than later. Is it really any different this time? I think not… New paradigm? Get real, it’s a lot of hocus pocus... A sympathetic government to big business, fund shuffling and creative accounting is what has gotten them this far, how much further they can go is yet to be seen. Stay tuned...
What can we expect now?:
As mentioned in the last update with which this post replies; Volatility is the name of the game. Sooner or later the underlying support areas will give way to the weight of what is occurring day after day by way of the deteriorating internals and waning market breadth. I still believe this is the formula we will follow. This past week we were afforded a pause and alleviated some of the oversold conditions. Econ #’s were light and the passing of the Pope occupied the minds of many and the airwaves continually. This coming week it’s back to business and I believe the key support levels of COMP 1970, DJIA 10350 and SPX 1160 will be tested and most likely breached this week. Unless perception changes or Greenspan can talk up the markets, the catalyst for this move may very well come from the Trade Balance, Treasury Budget and FOMC Minutes which all come up on the 12th… Gold is still hanging in the $425 area and is forming a base, but if the U$D should get through the 85 area (which has been a difficult task so far) Gold still has the 200DMA followed by strong support at the $408-$410 area. As mentioned, the U$D is contending with 85 and should it get through this area, a shelf of resistance at the 87-90 area lies in wait. The U$D may still pull a double top in the 85 area, but we will have to wait and see. Speaking of double tops, Oil appears to have performed such a move at $57-$58. That coupled with Greenspan talking down oil and the over the top call by Goldman Sachs of a spike to $105 which is more or less like putting oil rigs on the cover of Newsweek with the caption “Oil Bull”, pretty much has cooked this run. Still I would not count oil out as many have in the past, oil has a way of surprising to the upside although we were overdue for a pull back. If we should go there, $50 is strong support and I do not believe we fall below the $45-$47bbl mark. This area is a 61.8% fib that has been tested time and time again. It also intersects the 200DMA, which for the most part has been support since the run began. Couple that with an OPEC target of $32-$38bbl and when you take the lower part of the range and add a $15 terror tax we end up with $47bbl… Anything below this would have to be on the news of an oil glut or something of that nature.
On a technical note, Bullish Advisors are at 47.9% with Bearish Advisors at 29.2% and getting a bit bearish. The VIX/VXN trends are somewhat mixed where VIX has fallen back to the 12's and the VXN on the other hand is oscillating across the 16’s and still within its basing pattern. CBOE Equity P/C Ratio is at .550 with a 21DMA of .647. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. The $NASI Daily (Summation) 50DMA clear cross under of the 200DMA with an H&S pattern and indicator reaching -687. The $NAMO Daily (McClellan) 50DMA clear cross under of the 200DMA and in a downward channel with the indicator heading below the median, although lower lows have materialized and the 50DMA is moving back up towards the 200DMA (possible divergence in the works). The $NAHL Daily (Highs/Lows) 50DMA cross under the 200DMA and in a downward channel with the indicator reaching -29. The $NAAD Daily (Advance/Decline) 50DMA clear cross under of the 200DMA with the indicator reaching -1101. The BP%'s remain in a downtrend with $BPCOMP & NDX heading below the 200DMA, $BPSPX attempting the 200DMA cross under and BPNYA clearly breaking below the 200DMA.
Charts for all of these indicators are posted below for your viewing pleasure plus an annotated chart of the COMP.
NOTE:
I continue to hold a USPIX position which I will flip long when the time is right.
CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX. Individual Stocks; ANO, BHP, SWWC
SWING: GSS, CDIC
Disclaimer:
This disclosure is not a recommendation to buy or sell or to do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding for tracking purposes only. I am not a day trader and only attempt to identify up/down trends and play the swings.
Overview:
It’s that time once again to review the past week and look into the next. It was a very interesting week where we saw 4 of 5 days end in the green and for all that groundwork, the 5th day (Friday) took back most of those gains. The market seems to be treading water the last couple of weeks and as of late the up days take a considerable amount of effort to stay green while the down days just flow red. As mentioned in the last update with which this post replies; The cliché’ “lead, follow or get out of the way” does not apply here as the leaders are missing in action, the followers do not know who to follow and we cannot seem to get out of our own way. Boy, isn’t that the truth (if I do say so myself) and the last couple of weeks were a classic example of this I believe. Fund flows this week improved to $1.2 Bln, only problem is that $800 Mln or 2/3rds of that money found its way into International Equity funds, much like what we saw in March. The COT’s data “open interest” is on the floor, I have never seen it so low. We also started to get some warnings from what I always thought to be high margin companies such as software developers and then there were rumblings surrounding the internets, about revisions, etc. On top of this we have known about the financials such as AIG, FNM, FRE, MBIA, GM, DRL, which most likely is just the tip of the iceberg. Also we have over $100 Bln in debt coming due over the next 3 months. With financials making up a larger percentage of US industry these days, we are beginning to witness troublesome times ahead in the face of rising rates and slowing growth. Can you imagine what will float to the surface if/when we have a swift and deep decline? I highly doubt that the US Government is in any position to bail out any of these as they did in 1989 for $153 Bln, which was considered to be an extraordinary amount of money at the time. In hindsight that seems like nothing being as today we may be talking trillions of dollars…
Economic #’s:
A very slow week, probably one of the slowest I can recall and it I believe it helped the market indices this week being as there was not much for Mr. Market to think about…
Initial Jobless Claims fell to 334K or a decrease of 19K from last weeks 353K which was upwardly revised from an initially reported 350K, forecasts had called for a decline of 23K to 330K. The 4-week moving average for jobless claims now stands at 336.5K.
Wholesale Inventories came in at 0.6% after a previously reported 1.0% which was downwardly revised from an initially reported 1.1%, forecasts were for 0.7%. Durable goods rose 1.2% and automotive fell 0.2%, wholesale inventories are up 11.1% in the past 12 months with wholesale sales rising 10.6%. In February, sales fell 0.4%, marking the biggest drop since April 2003. The inventory-to-sales ratio rose to 1.18 from 1.17, indicating inventories remain tight. Wholesale sales of durable goods fell 0.5% including a 4.7% decline in electrical equipment sales, which was the biggest decline in nearly 4 years. Automotive sales increased 2.6% while metals sales fell 1.4% after growing 31.6% in the past year.
Consumer Credit came in at $5.6 Bln or 3.1% after a previously reported $11.6 Bln and below forecasts of $7.5 Bln. Credit card debt increased 6.1% in February, while non-revolving credit, such as auto loans, increased 1.3%.
ICSC-UBS Weekly Chain Store Sales were up 0.3% after falling 1.0% in the previous week. Johnson Redbook Retail Sales rose 4.1% after falling 0.7% in the prior week.
MBA Mortgage Applications decreased 4.4% to 644.5 after and increase of 2.4% to 674.3 a week earlier. The Index of Refi Applications fell 3.1% to 1798.8 after falling 2.0% to 1857.2 in the prior week. The Purchase Index fell 5.3% to 446.0 after rising 5.5% to 470.9 in the previous week. Applications for ARMs fell to 35.2% after rising to 36.6% of total applications a week earlier. Refi’s increased to 38.3% of total applications and up from 37.8% in the prior week. The fixed 30-year mortgage average rates fell 17 basis points to 5.91% after rising to 6.08% in the previous week. Fixed 15-year mortgage average rates decreased to 5.48% from 5.61% in the prior week while ARM 1-year mortgage average rates decreased to 4.29% from 4.39% a week earlier.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 2.4 Mln bbls, but according to API rose 4.0 Mln bbls. Gasoline according to DoE fell 2.1 Mln bbls, but according to API rose 250K bbls. Distillates according to DoE rose 700K bbls, but according to API fell 245K bbls.
WLI (Weekly Leading Index) was down to 134.7 in the week ended April 1 from a downwardly revised 134.9 in the prior week. The index's annualized growth rate slipped to 3.5% from 3.7% in the prior week.
Next week will pick up considerably. On deck we have Trade Balance, Treasury Budget, an FOMC Minutes release, Retail Sales, Business Inventories, Initial Jobless Claims, Import & Export Prices, NY Empire State Index, Capacity Utilization, Industrial Production and Michigan Sentiment…
Let’s talk earnings… Warnings are coming in as mentioned earlier with some of the higher margin industries being the ones to warn. This in itself is a troubling message. The earnings landscape will most likely get rougher throughout the year and besides the obvious rising rates, the Sarbanes-Oxley Act otherwise known as SO or SOX is beginning to show up on some radars again as companies scramble to file financial statements. Compliance is costly and hundreds of companies are still trying to figure out what all needs to be done in order to comply, so much so that its original July 2004 deadline had been extended to November 2004. It is also said to have thrown a monkey wrench into travel agendas and M&A activity in which some companies have submitted for extensions upon extensions. VRTS for example had to submit for a 2nd deadline in order to file their 2004 report, which they are said to file by April 11th. VRTS will trade under the ticker VRTSE until it gets its house in order. SOX even has some companies contemplating their publicly traded status with them possibly reverting to the private sector. The costs of compliance will most likely show up on the bottom line although it may more adversely affect small cap companies than large caps. Speaking of large caps, they may have a real catch 22 on their hands as the year unfolds. While they have been afforded a huge tax break where they can bring overseas earnings back into the USA at a meager 5.25%, it is estimated that somewhere between $100-$500 Bln will make its way home to roost and tt has been said that repatriated foreign profits will most likely be used to pump domestic markets which in turn may continue to strengthen the U$D. A stronger U$D would most certainly reduce the bottom line of US companies here at home in the form of earnings numbers. This may also create some tension between Import/Export pricing, which the powers that be claims to offset trading imbalances and supports their argument of a strong economy. While current strength in the U$D may be nothing more than an anomaly with other forces at play taking it back down, unknowingly these large cap companies may be undermining themselves all in the name of corporate profits while selling out the USA and Americans. I for one believe that sooner or later these fat cats will overdose like a drug addict who cannot control his/her dependency. The earnings outlook going forward this year will be of most importance and something to watch as I suspect that while earnings may be met for the most part in Q1, the weak will show their cards early and forward guidance may be coming in short of expectations for a better part of reporting companies. Over time the slow growth effect from a rising rates environment coupled with the aforementioned items and the continually high price of crude are bound to have an effect sooner rather than later. Is it really any different this time? I think not… New paradigm? Get real, it’s a lot of hocus pocus... A sympathetic government to big business, fund shuffling and creative accounting is what has gotten them this far, how much further they can go is yet to be seen. Stay tuned...
What can we expect now?:
As mentioned in the last update with which this post replies; Volatility is the name of the game. Sooner or later the underlying support areas will give way to the weight of what is occurring day after day by way of the deteriorating internals and waning market breadth. I still believe this is the formula we will follow. This past week we were afforded a pause and alleviated some of the oversold conditions. Econ #’s were light and the passing of the Pope occupied the minds of many and the airwaves continually. This coming week it’s back to business and I believe the key support levels of COMP 1970, DJIA 10350 and SPX 1160 will be tested and most likely breached this week. Unless perception changes or Greenspan can talk up the markets, the catalyst for this move may very well come from the Trade Balance, Treasury Budget and FOMC Minutes which all come up on the 12th… Gold is still hanging in the $425 area and is forming a base, but if the U$D should get through the 85 area (which has been a difficult task so far) Gold still has the 200DMA followed by strong support at the $408-$410 area. As mentioned, the U$D is contending with 85 and should it get through this area, a shelf of resistance at the 87-90 area lies in wait. The U$D may still pull a double top in the 85 area, but we will have to wait and see. Speaking of double tops, Oil appears to have performed such a move at $57-$58. That coupled with Greenspan talking down oil and the over the top call by Goldman Sachs of a spike to $105 which is more or less like putting oil rigs on the cover of Newsweek with the caption “Oil Bull”, pretty much has cooked this run. Still I would not count oil out as many have in the past, oil has a way of surprising to the upside although we were overdue for a pull back. If we should go there, $50 is strong support and I do not believe we fall below the $45-$47bbl mark. This area is a 61.8% fib that has been tested time and time again. It also intersects the 200DMA, which for the most part has been support since the run began. Couple that with an OPEC target of $32-$38bbl and when you take the lower part of the range and add a $15 terror tax we end up with $47bbl… Anything below this would have to be on the news of an oil glut or something of that nature.
On a technical note, Bullish Advisors are at 47.9% with Bearish Advisors at 29.2% and getting a bit bearish. The VIX/VXN trends are somewhat mixed where VIX has fallen back to the 12's and the VXN on the other hand is oscillating across the 16’s and still within its basing pattern. CBOE Equity P/C Ratio is at .550 with a 21DMA of .647. The RSI 5-Days and the RSI 5-Wks are Neutral across the board. The $NASI Daily (Summation) 50DMA clear cross under of the 200DMA with an H&S pattern and indicator reaching -687. The $NAMO Daily (McClellan) 50DMA clear cross under of the 200DMA and in a downward channel with the indicator heading below the median, although lower lows have materialized and the 50DMA is moving back up towards the 200DMA (possible divergence in the works). The $NAHL Daily (Highs/Lows) 50DMA cross under the 200DMA and in a downward channel with the indicator reaching -29. The $NAAD Daily (Advance/Decline) 50DMA clear cross under of the 200DMA with the indicator reaching -1101. The BP%'s remain in a downtrend with $BPCOMP & NDX heading below the 200DMA, $BPSPX attempting the 200DMA cross under and BPNYA clearly breaking below the 200DMA.
Charts for all of these indicators are posted below for your viewing pleasure plus an annotated chart of the COMP.
NOTE:
I continue to hold a USPIX position which I will flip long when the time is right.
CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX. Individual Stocks; ANO, BHP, SWWC
SWING: GSS, CDIC
Disclaimer:
This disclosure is not a recommendation to buy or sell or to do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding for tracking purposes only. I am not a day trader and only attempt to identify up/down trends and play the swings.
**Happy Trading**
Your Economy #board- 1948
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