Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
Another wild week… Yuan revaluation, another bombing in the UK and then in Egypt. While the UK remained relatively unscathed in this 2nd attempt, Egypt wasn’t as lucky. That’s twice in the UK within a 2-week timeframe, a bit scary. China has given the USA what they wished for, now let’s see how this plays out. If the USA wants to inflate then this is a step in the right direction, although most likely it is a bad move where consumers and the general public are concerned. Lots of Fed-Speak this past week and as if it weren’t already clear, rate hikes will continue and so will the manipulation (see Spin of the Day). What can be made of all of this? Maybe it’s just me, but the markets look to be getting a little nervous under that cover of calm. Earnings so far have mostly been a non-event, even a quadruple in YOY earnings could not lift GOOG higher, instead it was met with a sell off. Then again, this thing is a pig with wings, but the strength in this equity is still remarkable nonetheless. Where bad news is viewed as good news, does this mean good news will be viewed as bad? HANS announces a 2:1 split and sells off, MSFT reports 38% profit rise and falls. You be the judge… All in all, the indices have been treading sideways and as mentioned in the previous update with which this post replies; While it is almost certain that the highs will be tested on the COMP, the current internals do not really support market strength (in other words conviction is absent). Don’t get me wrong, some days are very impressive, but others not so impressive and in a bull move with the brass ring in plain sight, I would like to see strength across the board amongst the indices and internally as well price movement. While I continue to hold some reservations about just how much more gas is left in the tank, the COMP tested old highs but could not make the print. This would be following suit of the SPX and R2K where new highs were accomplished, but no follow through and the DJIA is still lagging behind and can be viewed as a divergence. Maybe this coming week we will see the market react in a happy family kind of way, but I would not count on it. The CoT data pretty much remains the same as last week, low open interest with a build in Commercial shorts on the SPX #msg-7080947 Equity Fund flows saw a net inflow of $3.4 Bln with net cash inflows of $1.566 Bln and ETF’s receiving $582 Mln. Excluding ETF activity, $512 Mln of Equity Fund inflows went to Domestic securities and $472 Mln of the inflows went to Non-Domestic securities with International Equity funds reporting net inflows of $1.129 Bln. Money Market funds reported net inflows of $13.637 Bln. As for Oil, the U$D and Gold, we continue to see some volatility in Oil with the WTIC closing out at $58bbl. The U$D continues to teeter on news of the Yuan revaluation is still setting in and with it came strength in Gold. The U$D closed out at 89.50 and Gold at $424 oz. The CRB is bobbing and weaving and once again closes the week at 309 with Bond prices falling and 10-yrs and 30-yrs Notes showing considerable strength yielding at 4.223% and 4.442% respectively…


ECONOMIC #’s:
A light week in the form of Econ #’s, but sure felt like a full week…

Building Permits rose 2.4% in June to an annual rate of 2.111 Mln units from a previously reported 2.050 Mln and beating expectations of 2.100 Mln. Backlogs, or construction that was authorized but not yet begun, rose 7.8%to 241K units at an annual rate, up 19% from June 2004. The June backlog number was the highest since 251K in May 1979.
Housing Starts were unchanged for June at 2.004 Mln which was below forecasts of 2.050 Mln and the 2.090 Mln recorded in May. Backlogs have rose to a 26-year high. New construction of single-family homes fell 2.5% in June to a 1.667 Mln-unit pace. Starts of townhouses, apartments and other multi-family dwellings rose 14.2% to a 337K annual rate. Starts fell in 3 of 4 regions, declining 12.1% in the Midwest to a 335K-unit annual rate, 10.4% in the West to 481K and 0.5% in the Northeast to 185K. They rose 11.4% in the South to 1.003 Mln. The number of houses already under construction last month rose 0.2% to 1.329 Mln. Housing completions fell 6.6% to 1.953 Mln. Single-family completions fell 5.1% to 1.647 Mln.
MBA Mortgage Applications rose 1.2% in the week ended July 15 compared to the prior week. On a seasonally adjusted basis, refi applications rose 2.5%, while applications for mortgages to purchase homes eased 0.1%. Refi’s accounted for 45.7% of total applications last week, up from the prior week's 45.1%, while adjustable-rate mortgages rose to 28.5% from 27.9%. Average contract interest rates for 30- and 15-year fixed-rate mortgages rose last week to 5.72% and 5.28%, respectively, from 5.62% and 5.21% a week earlier. The rate on one-year ARM’s averaged 4.63% last week, up from 4.56% in the prior week. Overall, the 5-week moving average for mortgage application volumes was up 0.4%.
Initial Jobless Claims fell by 34K to 303K from an upwardly revised 337K in the prior week with expectations having been for 330K. The 4-week moving average of claims fell to 318K from 321K. The number of people continuing to collect state jobless benefits decreased to 2.577 Mln the week ended July 9 from 2.618 Mln a week earlier. The insured employment rate fell to 2.0% the week ended July 9 from 2.1%.
LEI (Leading Economic Indicators increased 0.9% in June to 137.7 after showing no change the month before and a 0.2% rise in April. The June increase was the largest since a 0.9% rise in December 2003. The leading index figures were based on revised calculations. Without the revisions, the index of leading indicators would have shown an increase of 0.5%.

NOTE: The Conference Board announced last month that it was revising its index, and the latest figures incorporate a statistical trend adjustment as well as a new way of accounting for interest rate spreads. Details of the changes are posted on its Web site, http://www.conference-board.org

Philly Fed rose to 9.6 from a previously reported –2.2, but below expectations of 10.0. The employment index fell to 3.4 from 7.1 in June, its lowest since November 2003. The 6-month outlook for business conditions fell to 15.3 from 30.6. A measure of new orders rose to 5.0 from 2.5. The shipments index rose to 12.4 from 6.6.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE fell by 900K bbls, but according to API fell by 4.96 Mln bbls. Gasoline according to DoE fell by 1.3 Mln bbls, but according to API fell by 4.14 Mln bbls. Distillates according to DoE rose by 2.3 Mln bbls, but according to API rose by 1.25 Mln bbls.

On tap for next week, Econ activity will pickup considerably with New & Existing Home Sales, Consumer Confidence, Durable Orders, Fed’s Beige Book, Initial Claims, Help Wanted Index, Employment Cost Index, GDP & Chain Deflator, Michigan Sentiment and Chicago PMI …


Some things never cease to amaze me, one of those things being at what lengths the powers that be will go to control the markets and minds of participants. This week we heard from everyone’s favorite uncle, Fed Chairman Alan Greenspan. Before the Banking Committee, Uncle Al claimed that a slowing in the housing market would not affect the US economy. The housing market IS the economy, that and the consumer who has taken on incredible amounts of debt -- even urged to do so by the Fed, the US Gov’t and the banking community. Any slowing in the housing market would most likely be very bad for everyone setting off a domino effect that will last for many many years to come. And if it snowballs out of control it WILL effect every corner of the economy and quite possibly the world. Many people won’t even go there in their thought processes and the outcome could be worse than most are willing to imagine. A recession may be the best we can hope for when such an event occurs. Notice that I said when, not if... This is why the housing bubble cannot be allowed to deflate and I think it is quite evident that the powers will do everything in theirs to keep it from happening for as long as humanly possible. A prime example of that as we have now learned is the LEI or Leading Economic Indicators have been reformulated. This has not been revised since 1996 when there was an actual growing economy. What convenient timing, just before the release of the June LEI and voila! What would have been a 0.5% rise has now nearly doubled to that of 0.9%. What’s more is that the index has been re-calibrated to give less weight to the slope of the yield curve and according to Uncle Al is no longer considered an accurate indicator for the economy. Inverted yield curve? No problem, just ignore it like everything else. Is it any wonder that many have lost faith in this indicator or any of a number of other indicators, which have been altered or tweaked to accommodate an agenda? The same way that food and energy are excluded from the PPI and CPI or the same way that people who are still out of work are not counted as part of the Unemployment Rate, the LEI has now been added to an ever growing list of worthless economic indicators. Sooner or later most indicators that economists, analysts and investors use to gauge the economy will have been changed, tweaked or reformulated in order to hide the true story behind the big picture. What’s more is that the majority of sheople will accept these hedonic readings as an accurate picture of the economy. With that said, there are some issues that Uncle Al has mentioned with which I do agree such as the revaluation of the Yuan doing little to narrow the huge trade deficit with China or that anymore moves by companies to dump troubled pension plans on the PBGC’s doorstep is a big negative and burden to the already strapped agency or that the housing market is frothy in specific areas of the nation and that certain types of increasingly popular, risky home mortgages could prove disastrous for borrowers betting on ever-rising house prices or that the danger of a volatility trap exists in the markets where a relatively stable appearing environment encourages market players to take on ever riskier stakes. These things I can agree with, but changing the formulations or leaving out the most important components of said indicators to further an agenda is unacceptable to me. The one thing we have going for us (if you accept the same premise as I do) is that we know the real story and that sooner later reality will take hold, it is historically documented over and over and over again. Have we learned nothing from our past mistakes and why is it that history seems destined to repeat itself when there is so much prior documentation to fall back on? I will leave you with one last thought and it is spurred from the book/movie (if you have seen or read it) Jurassic Park where the wacky proprietor of the island who is responsible for the reproduction of the dinosaurs goes on to tell a scientist that he is in total control of the island and his dinosaurs are unable to reproduce. The scientist goes on to reply “you cannot control nature, nature will always find a way”. While the book/movie are based on science fiction, one thing remains true and that is nature “always find a way”. Right about now you may be asking yourself, “what does this have to do with the markets or the economy?” A lot… While the markets and economy may be indiscernibly manipulated, they cannot be controlled and sooner or later the force of nature takes its course. This time is no different and it is only a matter of time before nature finds its way and the dinosaurs take over the island…

Knowledge Is Power…


WHAT CAN WE EXPECT NOW?:
While the markets remained mostly unchanged for the week, this week was nothing short of dull. As mentioned earlier, earnings have been non-events for the most part. Sure there have been the usual rewards in select stocks, but it has been hit or miss with no real trend to speak of. With the Q2 earns beginning to wind down and August just around the corner, there are no real events to look forward to as Wall Street begins vacationing. I feel Aug may be used as a time to reflect and with reflection comes the processing of thoughts. The month of July has given us a lot to think about and as mentioned a little earlier, I sense nervousness. Some may lean toward profit taking while others are ready to endure risky adventures, but bye and large this run is getting long in the tooth. I feel the markets will begin the process of finding a top. While I am not calling a top, I tend to believe one is close at hand. The window of opportunity is beginning to close and Wall Street will be vacationing. Not only that, but I am beginning to see a lot of similar patterns in various indicators that coincide with the previous tops of Jan and Mar 2005. We have the VIX/VXN hitting intra-day all-time lows, bullishness is still quite high, the P/C ratio continues lower in a tightly wound coil, insider selling is at highs not seen since Mar’05 and divergences exist between the McClellan’s and indices of the COMP and NYA. As a side note, we have had a couple of Abby J Cohen sightings with an appearance on Bloomberg TV a week ago and CNBC this past week. If history is any guide, she is pushing the markets luck. Put a $400 price tag on GOOG and I feel like it is 1999 all over again. Add it all up and it spells F-R-O-T-H-Y. Couple all of this with some nagging questions, myths if you will that have been myth busted (namely the Yuan revaluation and continued rate hikes) and the landscape is ripe for change… As for Oil, the U$D and Gold, we will have to see how the U$D reacts to Yuan revaluation going forward. Gold will most likely follow its lead although there may be some speculation about Chinese accumulation of Gold which could in turn lead to a spike. Oil will continue in its volatile fashion, with Hurricane Franklin (should it become a hurricane) keeping people guessing...

Technically speaking, Bullish Advisors are at 52.7% with Bearish Advisors at 23.1%. The VIX/VXN are at all-time lows, the CBOE Equity P/C Ratio is at .561 with a 21DMA of .531 as the range continues its downtrend in a very tight range. The RSI 5-Days are Neutral across the board, but teetering on Overbought. The $NASI Daily (Summation) continues its up-trend with a 50DMA cross above the 200DMA in the works. The $NAMO Daily (McClellan) has been trending lower and trapped between the 50DMA and 200DMA. The $NAHL Daily (Highs/Lows) is still in an upward channel, but has put in a lower high and may be on the verge of reversing, but still too early to call. The $NAAD Daily (Advance/Decline) is beginning to move within a tightened range and the BP%'s all continue to move higher.

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.