Your Economy (No Politics)

[Bullwinkle]

~:~:~Market 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 previous update with which this post replies; we sit today at DJIA 10545, SPX 1198 and COMP 2075. Basically we are retesting the area from which we broke down and out of back in April. This past week we attempted to move higher which was based solely on speculation about interest rate hikes, but it did not last and we find ourselves at the top of ranges that I had outlined a few weeks back (DJIA 10460, COMP 2071 and SPX 1198 with SPX being the exception whereas I had 1080 at that time.The SPX is holding up the best at this point, but the numbers just mentioned are support so to speak. A break of these numbers will put us right back where we were prior to the most recent move. As I also mentioned last week; We are overbought and testing major resistance and all on pathetic volume. The DJIA and SPX may go a little further, but I do not believe the COMP gets passed 2080-2100. To get to new highs we will need much more than 1.3 Bln shares traded. COMP did not get past 2100 and while volume improved over the past week, it did not improve by much. Where we were averaging about 1.4 Mln shares the week before, we averaged roughly 1.6 Mln this week. What we may be witnessing is a respite before another attempt at what has been some formidable resistance, but an awful lot of ammo was spent to get us this far and it appears as though the market may be weakening. Fund inflows backed off a little to an inflow of $1.4 Bln with ETF’s accounting for 75%. More notably, the Bond inflows increased from a -$81 Mln the previous week to $1.5 Bln this week. CoT data open interest is still very low and to give you an idea just how low, the DJIA and the Naz are just above the lows seen in March’05 and trending down. These current lows in open interest are lower than that of anytime last year. Oil has broken above $53bbl, Gold has moved back to $423 oz. led by gold shares and all while the U$D attempted to hold onto 88. Very interesting indeed…

Economic #’s:
Econ #’s were not so good this week and as usual the spin was on for damage control as the consensus blows in the wind from a strong economy to a weak one... When will they learn that no consistency = weakness.

Chicago PMI took a dive by falling to 54.1, the lowest reading since June’03 after a previously reported 65.6 and well below expectations of 62.0. The production index fell to 56.0% from 68.9%, while new orders dropped to 57.9% from 71.0%. Prices paid dropped to 54.3% from 66.1%.
Consumer Confidence rose to 102.2, handily beating expectations of 96.0 and the previously reported 97.7. Those claiming business conditions are "bad" edged down to 16.8% from 17.6%. Those claiming conditions are "good" was virtually unchanged at 26.5%. The employment picture was mixed. Consumers saying jobs are "hard to get" increased to 24.2% from 22.9%, but those claiming jobs are "plentiful" rose to 22.6% from 20.4%. Those expecting more jobs to become available in the coming months edged up to 14.9% from 14.0%, while those expecting fewer jobs declined to 15.9% from 18.4%. The proportion of consumers anticipating their incomes to improve in the months ahead rose to 17.2% from 16.8%. Those anticipating business conditions to improve increased to 18.6% from 17.7%, while consumers expecting business conditions to worsen slid to 9.5% from 9.9%. The survey was based on a representative sample of 5,000 U.S. households.
Auto/Truck Sales fell 8.8% at GM, 11.0% at Ford and 2.5% at Daimler Chrysler. GM sales are off 5.2% for the year with Ford sales being off by 4.0% for the year. GM, based in Detroit, and Ford will reduce 3rd-quarter production to trim dealer inventories of slower-selling sport- utility vehicles. U.S. demand for truck-based SUVs, such as the Tahoe and Explorer, accounted for just 12% of new vehicle sales in April, the lowest level since May 1996.
MBA Mortgage Applications fell 2.8% on a seasonally adjusted basis in the week ended May 27 compared to the prior week. Applications to purchase homes decreased 4.1% on a week-to-week basis, while Refi’s were 1.2% lower. Refi applications accounted for 41.2% of mortgage activity last week, up from 40.3% a week earlier, while adjustable-rate mortgages slipped to 33.3% from 34.8%. Average contract rates on 30- and 15-year fixed-rate mortgages dropped to 5.61% and 5.13%, respectively, from the prior week's 5.63% and 5.24%. The rate on one-year ARMs averaged 4.09% last week, compared to 4.21% a week earlier.
Construction Spending rose 0.5% to a seasonally adjusted annual rate of $1.067 Tln from a revised $1.061 Tln in March. The previous report saw a 0.6% increase and expectations were for a 0.7% increase. Private nonresidential construction climbed 1.3% to a $233.26 Bln pace, the highest rate since May 2002.
ISM Index & Services came in at 51.4 and 58.5 respectively, both falling from previously reported 53.3 and 61.7 with expectations for 52.0 and 60.0 respectively. The new orders index rose to 59.7% from 58.8%. Employment edged higher to 53.4% from 53.3%. Prices paid fell to 57.9% from 61.9%. The backlog of orders index rose to 56.5% from 54%, while inventories fell to 51.5% from 53%.
Productivity & Factory Orders increased 2.9% in the 1st quarter, just shy of expectations for a 3.0% increase, but ahead of the 2.6% previously reported. Orders for factory goods rose 0.9% in April, but unit labor costs rose at a swift 3.3% annual rate and well ahead of expectations of 2.0% marked down from an initially reported 2.2%. Unit labor costs have jumped 4.3% over the 12 months ended in the first quarter, the largest increase since the period ended in the 3rd quarter of 2000.
Average Workweek & Hourly Earnings remained virtually unchanged with the average workweek remaining at 33.8 hours as expected and previously reported while hourly earnings came in at 0.2%, which was the same as expected, but lower than the 0.3% previously reported.
Initial Jobless Claims rose 25K to 30K with expectations having been for no change at 325K. Jobless claims so far this year have averaged 328K, as compared to the 2004 average of 343K. The 4-week moving average of claims increased to 334.5K from 331K. The number of people continuing to collect state jobless benefits increased to 2.602 Mln in the week ended May 21, from 2.57 Mln in the prior week. The advance seasonally adjusted insured unemployment rate was 2% for the week ending May 21, unchanged from the prior week.
Nonfarm Payrolls & Unemployment Rate came in at 78K, much lower than the anticipated 180K and substantially lower than the previously reported 274K. Factory jobs dropped by 7K, while service-sector jobs increased by 64K. The Unemployment Rate fell to 5.1% from a previously reported 5.2%. It's the lowest unemployment rate since September 2001. I would like to advise going to the following BLS link (look under U-6 for May 2005) to get a more representative percent unemployment rate http://www.bls.gov/news.release/empsit.t12.htm
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose by 1.4 Mln bbls, but according to API rose by 1.32 Mln bbls. Gasoline according to DoE rose by 1.3 Mln bbls, but according to API rose by 1.45 Mln bbls Distillates according to DoE rose by 700K bbls, but according to API rose by 770K bbls.

Next week’s Econ activity will slowdown a bit as we will get Consumer Credit, Wholesale Inventories, Import/Export Prices, Trade Balance and Treasury Budget…


Speculation, anticipation and hope… That’s what I see in the markets today. While common sense has always been difficult to find in a market, fundamentals are out the window. The story of the economy changes every time a new Econ # is released, basically moving with whichever way the wind is blowing that day…

Speculation: When you can get a rookie Fed official claim that Sir Alan is in the last inning of rate hikes, you certainly can have just about anything said and accepted as a reason to take markets higher. As I mentioned in my previous update The only thing this market has going for it is the anticipation and the Fed who should never be under estimated in their ability to coerce the market. The bull case benefits from bogus remarks and data, while the bear case based on fact is ignored..

Anticipation: Many are dieing day after day in Iraq. We have been seeing double-digit numbers of deaths every other day lately, yet it has no effect on the markets. Then on the rumor that Abu Musab al-Zarqawi may be mortally injured, the market rallies. So we have a fact where people are dieing in numbers, no market reaction. Rumor about an Al Qaeda leader’s death, we get a market rally. Again, the bull case benefits from bogus remarks and data, while the bear case based on fact is ignored.

Hope: As they say, “be careful what you wish for”, but let’s replace the word “wish” with “hope”. Hope the Fed will stop raising rates? Then what, more imbalances that postpone the inevitable day when reality bites? The rate hikes we have seen are hardly the harsh medicine required to correct the massive imbalances. The Fed and present admin are not so much looking to fix anything as much as they are looking to survive. Keep it going for as long as possible and hope it does not cave on their watch. Hope for al-Zarqawi’s death? I would love to see this scumbag get snuffed as well as all those that bring terror and death to innocent people and our fighting forces. On the flip side, we have opened a can of worms by invading Iraq, so if he goes down who would replace him? You are aware that there are many in line behind this guy, quite possibly nastier and more dangerous than he.

Those are the facts and if/when speculation and anticipation are removed, hope will be all that is left…

What can we expect now?:
Last week I mentioned the following; While we have traveled a little further than anticipated on the indices, nothing has changed including my outlook. We are overbought and testing major resistance and all on pathetic volume. I expect next week to be range bound and somewhat volatile, similar to what we experienced this past week with a bias towards the downside. I find the combination of low volume and low open interest a concern going forward. We may very well test that upper resistance again, but after another failure in this area and the dismal jobs report we most likely will see some profit taking in the week to come. If the Budget and Treasury numbers bomb, bank on it. Bond yields fell below 4% this past week and quite frankly the bond market is not buying this recovery theme that many a talking head espouse. As I said last week; I will go out on a limb here and state that this is nothing more than the exhaustion phase of a sucker rally like we saw in April’04 and then again in July’04. I still believe a lower low lies ahead. When it materializes is still undetermined, but we are now backing away and finished the week lower than where we had started. Also of note is a flurry of Bradley Turn dates (one of which just passed on the 2nd) on the 10th, 17th, 23rd and 28th. Most of which are considered medium strength, but an emphasis may lie on the 10th as we also have a Fib timeline coming into play on the 10th and we have a full moon on the 22nd, which also coincides with a Bradley date. These could be days to watch closely… Oil has reasserted itself by breaking above $53bbl and may get some wind under it if $55bbl is taken out. Gold has reacted positively in the face of a rising U$D and I expect this trend to continue in the week to come although the run in gold shares may be getting a little long in the tooth. Still, with the U$D banging up against resistance, Gold could get a nice move off of a U$D pullback. I would watch for $426, then $430 as possible tops with $435 being the extent of any move higher. I would be somewhat surprised if we get further than that before a consolidation phase begins. The U$D went past my 87.5, but that was mostly due to a knee jerk reaction on the EU vote. I am not sure what it will take to get the U$D into the 90’s, but so much resistance resides between here and there it is difficult to see this going much further. Without getting too far ahead of ourselves, let’s just see how the week ahead plays out because as you know so much can happen between now and then…

On a technical note, Bullish Advisors are at 47.8% with Bearish Advisors at 25.0% and beginning to look a little frothy again as well as the VIX/VXN trends which have made a move to their lower ends of their ranges. CBOE Equity P/C Ratio is at .611 with a 21DMA of .615 and the tight ranges that have moved from ~.800 to ~.500 on a closing basis to a ~.700 to ~.400 range with a downward bias. This can be read in 1 of 2 ways; Either that the .400’s are a bearish signal because of low Puts to Calls or could be read as being bullish because reversals occur in the .400 area. Based solely on past patterns, I find this to be leading to a bearish trend similar to that before the top in Dec’04. The RSI 5-Days and RSI 5-Wks are Neutral across the board on the COMP, SPX and DJIA. The $NASI Daily (Summation), The $NAMO Daily (McClellan), The $NAHL Daily (Highs/Lows), The $NAAD Daily (Advance/Decline) and BP%'s are all still in overall downward trends (with the intermediate trends being up) where the 50DMA has clearly crossed under the 200DMA with the exception of the $NAMO in which the 50DMA has crossed back over the 200DMA, but appears to be in a topping pattern. On another note, I am seeing a lot of possible H&S patterns developing; INDU, SPX, NASI and all of the BP%’s…

Charts for all of the indicators mentioned are posted below for your viewing pleasure…


























NOTE:
I continue to hold a USPIX position, which I will flip to UOPIX when appropriate.

CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX. Individual Stocks; ANO, BHP, SWWC

SWING: Sold BGO, GSS, NXG on Friday, was time to book some profits…

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.