Your Economy (No Politics)

[Bullwinkle]

~:~:~Market Trend Update for the Week Ahead~:~:~



OVERVIEW:
First things first, I would like to wish everyone a happy 4th of July… Here’s to a fun, safe and sane holiday weekend. Now without further ado, 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; While we did get a decisive move (and everyone’s attention), it is a little early to pass judgment on this move and what exactly is in store from here. We have a holiday weekend coming up with earnings reports beginning to pick up shortly thereafter. I just don’t believe too many will be willing to do too much prior to the 4th of July. That pretty much sums it up as the major indices ended the week where we started. We started out with a bang and ended with a sputter as volume was rather weak and market breadth was mixed. We did experience some notable occurrences this past week where the FOMC meeting was met with pessimism, the CoT’s data still shows very low open interest, program trading accounted for 76.3% of NYSE volume and Equity Funds & Bond Funds experienced outflows of –$74 Mln and –$182 Mln respectively. Money Market funds reported net outflows of -$15 Bln, but what’s more is that fewer Equity share classes reported net inflows (3302) and more reported net outflows (4253) than any week since 3/12/03. We also experienced a moderate strength Bradley Turn on/around the 28th which may or may not have played a part in all of this. While the indices were reduced to the range bound volatility we have become so accustom, we saw some pre-holiday fireworks most likely spurred on by the Fed rate hike. The U$D surged to 90, Gold took a nasty spill to $427 oz. as well did Oil to $56bbl, although it recovered smartly and presently sits just under $59bbl. The CRB also took a nasty tumble back to 300, bonds were weak and the 10-year Bond is hovering just above 4.0%.


ECONOMIC #’s:
Much like the markets, Econ data was mixed.

Consumer Confidence increased to 105.8, the highest reading in 3-years. The previous report was revised from 102.2 to 103.1 for May and beat market expectations of 104.0. The present situations index increased to 120.7, the highest since September 2001, from 117.8. The expectations index rose to 95.8 from 93.4. The share of consumers who expected their incomes to increase in the next 6-months increased to 19.4%, the highest this year, from 17.8% in May. The proportion who expected more jobs to become available in coming months held at 15.2%, the highest since January. The proportion of consumers who currently saw jobs as plentiful slipped to 22.6% from 22.9% in May. The Conference Board research group questions 5,000 households on general economic conditions, their employment prospects and spending plans.
GDP, PCE & Chain Deflator grew at a 3.8% annual rate from January through March, higher than the previously reported 3.5% and beating expectations of 3.7%. GDP rose to $11.1 Tln when annualized and adjusted for inflation. Without adjustment, the economy grew at a 6.7% annual pace, the strongest in a year, to $12.2 Tln for the Qtr compared with 6.2% in the previous 3-months. The U.S. trade deficit subtracted 0.58% from 1st-Qtr growth, compared with 0.67% estimated in the government's preliminary report. The personal consumption expenditures price index (PCE), a measure tied to consumer spending, rose 1.9%, compared with 2.1% estimated last month and 2.7% in the 4th-Qtr. Stripping out food and energy, the gauge rose at a 2.0% annual rate last Qtr. The core measure, which Fed policy makers watch, increased 1.7% in the final 3-months of last year. The GDP price index or Chain Deflator, a measure of inflation tied to the report, rose at a 2.9% annual rate, revised from the previous reports 3.2% and market expectations for the same.
MBA Mortgage Applications dipped 1.1% in the week ended June 24 compared to the prior week. On a seasonally adjusted basis, applications for mortgages to buy homes eased 0.4%, while refinancing applications fell 1.8%. Over the past 4-weeks the moving average of mortgage volumes are off 0.2%, with purchase applications down 0.4% and refinancings up 0.1%. Refinancings accounted last week for 45.4% of total applications, off from 45.6% a week earlier, while adjustable-rate mortgages made up 30.0% of total applications vs. 30.7% on a week-to-week basis. Average contract interest rates for 30- and 15-year fixed-rate mortgages fell to 5.47% and 5.06% last week, respectively, compared to 5.63% and 5.24% a week earlier. The rate on 1-year ARMs averaged 4.42% last week, down from 4.46% in the prior week.
Construction Spending fell –0.9% in May to a seasonally adjusted annual total of $1.1 Tln and was the 3rd straight month of declines in the building of homes, offices and shopping malls. The previous 2-months were revised downward and to a –1.1% decrease in April and –0.2% decrease in March. Expectations had been for 0.5% increase in May.
Personal Income & Spending fell to 0.0% and 0.2% with expectations being for 0.3% and 0.1% respectively. The previous reports showed a 0.6% increase in both of these categories. Incomes were up 6.7% last month from May 2004, paced by a 7.0% gain in wages and salaries. Disposable income, or the money left over after taxes, increased 0.2% in May following a 0.5% rise the previous month and were up 3.2% in the last 12 months. Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 2.0% after rising 0.6%. Purchases of non-durable goods were unchanged after rising 0.6%. Spending on services, which account for almost 60% of all outlays, increased 0.4% after no change.
Chicago PMI dropped to 53.6 this month, the 3rd straight decline, from 54.1 in May and below forecasts of 54.0. The new orders index fell to 56.5 from 57.9. The production index rose to 57.8 from 56, for the 2nd reading of less than 60 in the past 12-months. The measure of prices paid by manufacturers for materials rose to 59.7 from 54.3. The employment index dropped to 48.9, the 1st contraction since July 2004, from 54.7.
Initial Jobless Claims fell by 6K to 310K from an upwardly revised 316K in the prior week with expectations having been for 325K. The number of people continuing to collect state jobless benefits rose to 2.6 Mln in the week that ended June 18 from 2.596 Mln the prior week. The 4-week moving average of continuing claims rose to 2.604 Mln from 2.602 Mln.
Help Wanted Index dipped 2-pts in May to 37 from a previously reported 39 and below expectations of a 40 reading. In the last 3-months, help-wanted advertising declined in all 9 U.S. regions. Steepest declines occurred in the Mountain (-15.4%), South Atlantic (-13.9%), and East South Central (-11.7%) regions.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose by 1.1 Mln bbls, but according to API rose by 2.9 Mln bbls. Gasoline according to DoE rose by 300K bbls, but according to API rose by 464K bbls. Distillates according to DoE rose by 1.7 Mln bbls, but according to API rose by 2.0 Mln bbls.
Auto/Truck Sales GM sales for the first 6-months of the year rose 2.7%. Its truck sales rose 6.3%; car sales fell 2.3%. Ford domestic sales fell 2.5% in June from a year ago and dropped 4.3% for the first 6-months of the year despite hits like the sporty Mustang and growing sales of its crossover vehicles. Chrysler's sales were up 1.1% in June. The company saw an 11% drop in demand for its popular Chrysler 300C sedan, and a 1.5% decline in car sales overall. Chrysler's total sales were up 5.2% for the first 6-months of the year.
Michigan Sentiment rose to 96.0 from a previously reported 94.8 with expectations having been for a 94.6 reading. June’s reading was a 6-month high. The average since the University of Michigan began compiling a monthly index in 1978 is 88.2. The final report is based on a phone survey of about 500 households.
ISM Index rose to 53.8 from a previously reported 51.4 with market expectations having been for 51.5. The pace of U.S. manufacturing growth accelerated in June for the 1st time in 7-months.

Next week’s Econ activity consists of Factory Orders, ISM Services, Initial Claims, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories and Consumer Credit…


Some things that I would like to put into perspective, at least the way I see them through my eyes…

This week we saw another .25% rate hike by the FOMC, any surprise? Just a month ago talking heads were coming out of the woodwork telling us how the Fed was near an end to its series of rate hikes, but now silence. It was not so much the rate hike itself as much as how it is that nothing has changed. The Fed language remains the same, the Econ environment remains the same and just as it was a month ago and subsequent months before that, all is the same… Until the Fed telegraphs a change via its monetary language, the course is set for Big Al to ride off into the sunset. And with the imbalances that exist into the unforeseeable future, sooner or later the piper will have to be paid. That will be a task left for some other poor soul to deal with…

Speaking of those doctors of spin, here’s another subject for which you can put on ignore; Buffet and Soros and their short position concerning the U$D… If people think that just because there has been some strength in the U$D that these gentleman have sold out, then you obviously do not understand why it is that Buffet and Soros have taken on such a bold position. Without getting into all the nuances of our current economy and the shaky basis with which it is built upon, they did not become billionaires by luck. It is through their intimate knowledge of the world, business and economics that they built their empires. As a matter of fact, if you know of any billionaire analysts or economists, please enlighten me. These guys rarely make a bad bet and are in it for the long haul, this alone is a frightening thought…

How about CNOOC, a government owned entity attempting to buy Unocal… Not only is it a government owned entity, but of a government for which we are in direct competition with for the worlds energy resources. Just the fact that our government has not come forward in any way, shape or form with respect to this takeover bid is troubling to say the least. I cannot think of a more flagrant way to show the American public where it is that our nations priorities rest if this deal should be allowed to materialize. The selling out of America all in the name of the mighty buck seems to be a recurring theme we are getting all too familiar with. Yet our so-called leaders complain and point a finger of blame at China for unfair trade practices? So far this bid is still on the table and been allowed to be volleyed back and forth by Unocal’s board members. Where’s a cop when you need one?

I cannot begin to tell you how misleading the term “Goldilocks Economy” is. Just like the porridge in the fairy tale “Goldilocks and the Three Bears” -- it’s not too hot -- it’s not too cold -- it is just right. The market may believe that, but you don’t have to buy into it. Let’s take a closer look at the basic premise of the fairy tale; Goldilocks enters the Bears home and meddles with their belongings while they are away and as the story goes, Goldilocks is found sleeping in the baby bears bed. While this may be a bit of a stretch, I cannot help but think of Goldilocks as Government, taking what is supposedly our belongings (read as Ownership Society and paper gains) and the Three Bears as the COMP, SPX and DJIA. Is it just my imagination or a tragic irony? Sooner or later we shall see just how this tale ends…


WHAT NOW?:
After a relatively slow choppy week, we have a trade-shortened week ahead of us. Will investors be in a buying mood? So far we seem to have a lot of positioning going on, but no real buyers or sellers as far as the major indices go. I get the feeling that market participants are still in limbo waiting for a decisive break to one side or the other before committing. As of this moment, the market cannot put a trend together (other than sideways) and with this comes the testing of support and resistance levels. The S/R lines are as follows: COMP 2050/2100, SPX 1190/1220 and DJIA 10250/10550. These are relatively tight ranges and I tend to be leaning towards a test of the support levels with a breach to lower support (possibly after an upward head fake move). Technical indicators look weak -- MACD, RSI, ADX, ROC & CMF are all pointing lower. Couple this with an exceeding amount of complacency and a tightly wound P/C ratio, fund outflows and low open interest and this seems more like a recipe for weakness than for strength. Also, I see a lot of uncertainty starting to take hold, especially that concerning the Iraq War. For the first time (that I can recall) since pre-war preparations has what’s been happening in that part of the world actually weighed on the mind of the market. Also the Fed’s movements seemed to be a cause for concern (last week anyway) and the rising U$D will not be beneficial for earnings numbers. We should start seeing reports roll in as early as this week with AA kicking things off, but we may be in a wait and see mode until more meaningful reports come in such as YHOO which seems to be the first biggie that all eyes look towards for the kick off of earnings season. With all said, I do not like the looks of things going forward. I wish I could be more descriptive, but we are in a strange mode where the market leaves little wiggle room for error. All I can say is be prepared because we are in no mans land where most anything can take place… As for the U$D, Gold and Oil, I made mention of this outlook in my previous update; As for the U$D, a small double top may be forming at 89, I do not see the U$D breaking through the shelf of resistance between here and 92.5 anytime soon (if at all). Gold has gotten through the $440 barrier with $445 oz. set in its sights. I tend to believe that a top is close at hand, but if Gold should breakthrough $445, then the highs of $456 will most likely be tested. Oil has touched $60bbl on an intraday level, but has yet to make a print. Next week we most likely get that print… Well, 2 out of 3 ain’t bad. The double top on the U$D did not play out, but we did possibly see our top in Gold and Oil did print $60bbl. As for these going forward, I expect more of the same. U$D has not reached its threshold, Gold appears to be in a downturn and Oil has bounced off of support in the $56bbl area. Higher oil most likely plays a bigger role towards market weakness in the weeks to come.

On a technical note, Bullish Advisors are at 55.1% with Bearish Advisors at 19.1%. That is brutally bullish. VIX/VXN are within pretty tight ranges of 11-13 on the VIX and 14-16 on the VXN. CBOE Equity P/C Ratio is at .554 with a 21DMA of .567 as these ranges continue to run very tight. The RSI 5-Days are Neutral across the board. The $NASI Daily (Summation) has flat lined very close to the centerline while the 50DMA remains below the 200DMA. The $NAMO Daily (McClellan) has moved up to its centerline with the 50DMA having crossed back over the 200DMA in the beginning of June. The $NAHL Daily (Highs/Lows) has turned down and very close to the centerline while the 50DMA remains below the 200DMA. The $NAAD Daily (Advance/Decline) is back above the centerline although the 50DMA has crossed back over the 200DMA for the first time since Feb. and BP%'s (going back to Jan’04) are making lower highs and higher lows, essentially working their way towards a wedge like pennant formation. This will be interesting to watch develop as it winds into a coil…

Charts for the indices and 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: XLE

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.