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; 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. Most major corporations have already reported and few reports from here appear to be able to move the markets substantially. I believe this will become more evident in the coming week. This past week we saw the SPX go as high as 1245 before retreating to 1234 and the COMP went to 2201 before falling back to 2184. As for the DJIA, new highs have yet to be attained and to date 10717 is the best it has done in its trek towards new highs, which is still nearly 300 points away. This is an aching divergence that seems to have kept the other indices from breaking out further than they have, a weight around the ankles if you will. If/When the DJIA can get along maybe we’ll see more conviction. While many arguments can be made for the bull or bear side of things, the fact remains that the markets continue to shine, albeit in a choppy sideways sort of fashion. As for the CoT data not much has changed, low open interest with a build in Commercial shorts on the SPX and a slight increase on the DJIA. Equity Fund flows saw a net outflow of -$405 Mln while $379 Mln went into ETF’s. Excluding ETF activity 82% of Equity Fund inflows went to funds investing in Non-domestic securities with International Equity funds reporting net inflows of $288 Mln. As for Oil, the U$D and Gold, we saw Oil go to $60bbl, the U$D continues to teeter around 89 and Gold went to $429 oz. The CRB finally broke out to 318 with 30-yrs Bonds finding some support at around 115. The 10-yrs and 30-yrs T-Note yields continue to increase to 4.286% and 4.474% respectively…


ECONOMIC #’s:
A fairly busy week and as usual, more mixed economic results (so what else is new?)…

Existing & New Home Sales beat expectations. Existing Home Sales rose to 7.33 Mln whereas 7.15 Mln had been forecast and 7.15 Mln were previously reported. The inventory of unsold homes rose 3.8% to 2.653 Mln, a 4.3-month supply at the current sales rate. The median sales price rose 14.7% year-over-year to a record $219K, marking the fastest price appreciation since November 1980. New Home Sales rose to 1.374 Mln whereas 1.3 Mln had been forecast and 1.321 Mln were previously reported. The supply of new houses on the market slipped to an estimated 4-months, the tightest supply since last October.The median new home price declined 5.5% from May to $215K. The median price is roughly unchanged from year-earlier levels, but it's down almost 10% from the record of $237K reached in March. The average price also fell 7% from May and almost 8% from February's high.
MBA Mortgage Applications fell 5.8% to 754.3 in the week ending July 22, more than offsetting the previous week's 1.2% gain. On a 4-wks moving average, the applications index is down 1.3%. The index of refinancing applications dropped 11.4% to 2,320.3 after rising 2.5% the prior week. On a 4-wks moving average, the Refi index is down 2.3%. The purchase index, a gauge of loan requests for home purchases, declined 0.7% to 485.1, its 3rd straight weekly drop. It fell 0.1% in the week ending July 15, following a 6.1% drop in the first week of the month. The ARM share of loan activity increased to 29.4% of total applications, up from 28.5% in the previous week. Average contract interest rates for 30- and 15-year fixed-rate mortgages rose last week to 5.78% and 5.32%, respectively, from 5.72% and 5.28% a week earlier. The rate on one-year ARM’s averaged 4.70% last week, up from 4.63% in the prior week.
Consumer Confidence fell to 103.2 from a previously reported 105.8 which was revised to 106.2 and below expectations for the same. The “present situation” index fell from 120.8 to 118.5, while the “expectations” index slid from 96.4 to 93 and the "jobs-hard-to-get" index rose to 23.8 from a revised 22.5.
Durable Orders rose 1.4%, but was considerably lower than the previously reported 5.5% which was revised to 6.4%, expectations had been for –1.0%. The Commerce Department said orders excluding volatile transportation equipment rose 2.6%, beating analysts' forecasts for a 1.0% gain. May's ex-transportation number was also revised up, to a 0.9% gain from a previously reported 0.3% dip. Non-defense capital goods orders excluding aircraft, seen as a proxy for business spending, jumped 3.8% from a 0.6% decline in May, revised from a 2.5% fall.
Initial Jobless Claims rose by 5K to 310K from an upwardly revised 303K in the prior week with expectations having been for 320K. The 4-week moving average of claims dropped by 250 to 318,250 during the week. The number of people who remained on the benefit rolls after drawing an initial week of aid rose 32K to 2.6 Mln in the week ended July 16.
Help Wanted rose to 38 from a previously reported 37 and in line with expectations. In the last 3-months, help-wanted advertising declined in 7 of the 9 U.S. regions. Steepest declines occurred in the Mountain (-13.1%) and East South Central (-7.5%) regions.
Employment Cost Index rose 0.7% matching the previous months report and just under expectations of 0.8%. Benefit costs rose 0.8% in the Qtr, while wages and salaries rose 0.6%. Over the past year, employment costs have increased 3.2%, down from a 3.5% rise in the 4th-Qtr. Wage and salary costs have thus increased by 2.4% in the past year, while benefit costs grew 5.9% since the 2nd-Qtr of 2004. For private-sector workers, the index increased 0.6% in the 2nd-Qtr as wage costs also moved 0.6% higher and benefit costs rose 0.8%. Health-insurance costs moderated in the 2nd-Qtr to 6.3% from 7.5% in the 1st-Qtr.
GDP & Chain Deflator saw GDP rise to 3.4% although it was weaker than the previously reported 3.8% and below expectations of 3.5%. The chain deflator index, the GDP report's inflation component, rose a smaller-than-expected 2.4%, expectations had been for 2.6%, but the full-year 2004 and 1st-Qtr 2005 readings were revised upward.
Michigan Sentiment came in at 96.5, basically no change from the previous months report and in line with expectations. The current conditions index rose to 113.5 from 113.2 in June, while the expectations index improved to 88.5 in late July from 85 in June.
Chicago PMI rose to 63.5 after reporting a 53.6 in the previous report and beating expectations of 55.0.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE fell by 2.3 Mln bbls, but according to API rose by 4.4 Mln bbls. Gasoline according to DoE fell by 2.1 Mln bbls, but according to API fell by 3.2 Mln bbls. Distillates according to DoE rose by 3.1 Mln bbls, but according to API rose by 2.1 Mln bbls.

In the week ahead we will get Construction Spending, ISM Index & Services, Auto & Truck Sales, Personal Income & Spending, Factory Orders, Average Workweek, Initial Claims, Nonfarm Payrolls, Unemployment Rate and Consumer Credit…


A few things I want to discuss this week; CAFTA, the new Energy Bill and the environment…

CAFTA – It’s business as usual on the Senate floor, pass this bill at all costs. The voting went into the wee hours of the night, not because of a tie, but because it had to pass before anyone could go home. The voting lasted one-hour past the deadline with two “No” votes not being counted and backdoor deals being forged (i.e. arm twisting and bribes). Another “No” vote suddenly becomes a “Yes” vote and CAFTA passes. Congressman Robin Hayes of N. Carolina who just weeks before pledged to vote “No” due to the decimated textile industry in his district was the flipper. He coincidentally was the lynchpin vote on "Trade Promotion Authority" a few years ago as well, coincidence? This is your Government at work. Whatever happened to an “up” or “down” vote that the other side of the aisle always squawks about when the voting does not go their way? I guess the shoe is now on the other foot when they do not get the outcome they want. Instead it’s my way or the highway and they are the ones setting the rules. The same way they changed districting to get votes the way they want, they changed the rules (yet again) to get the their outcome. Why do we have laws or rules? Because without them there would be chaos, I give you our Congress…

Energy Bill – They should have called this the "Tax Incentive Screw The Environment" bill, which is full of kickbacks, tax breaks and exemptions for the Oil & Energy industry. An estimated $85 billion worth of subsidies and tax breaks for most forms of energy in which a measly $100 million will go towards alternative clean burning fuels. If that does not make you sick, then this might, literally – The bill relieves the petroleum industry of liability for the gasoline additive known as MBTE exempting communities from clean-air standards and helps the hydropower industry appeal environmental restrictions. Basically the bill exempts oil and gas industries from clean-water laws allowing permits for oil wells and power lines on public lands while giving little to no regard for the environment. Money and kickbacks is one thing, but when it restricts the arms of the law and puts our health at risk, that is another thing altogether.

Environment – In case you have not noticed, our environment is turning into a cesspool no thanks to our government whom are now firmly planted in the back pockets of big industry. I always thought the government was supposed to do what was suppose to protect us from harm and do what is right for its citizens. I am not only talking about the ozone layer or climate change here, something much worse is happening… Did you know that in 2003 over 18,000 beaches were closed to the public due to raw sewage in which bacteria and waste chemical levels were so high that we could not safely swim in these waters? How about that this number increased to over 20,000 in 2004? How much you want to bet that the number of beach closures for 2005 will increase again?... Do you think Mad Cow, Bird Flu or this new form of Pig Disease are just coincidences? How about the fact that our pets are now dying from cancer? Think about it, they drink the same water and breathe the same air as we do. I see a trend here and it is not a pretty one. If you think terrorism is a frightening issue, think again. There is a much worse enemy in our midst…

Knowledge is power, enlighten yourself…


WHAT CAN WE EXPECT NOW?:
I basically expect more of the same, which means lack of conviction in pushing higher. While we may continue to grind out some new gains, it is my belief that it will be met with some profit taking in the week ahead. July has been a very good month for the markets, a catalyst of sorts will be needed for a repeat performance. That catalyst may come in the form of Nonfarm payrolls, then again they could just as easily disappoint and take us in the opposite direction (a double edged sword so to speak). It really is up to Mr. Market to decide while us retail investors are only along for the ride. We did witness a little end of month selling and whether or not this continues for a better part of August is yet to be seen, although a lot of indications are aligned for such an event to take place. We got a weaker than expected GDP, Yields are increasing where even 2-yrs Treasuries rose above 4.0% for the first time in 4-years and Oil is back above $60bbl possibly threatening to set new highs. Also weighing in is the fact that 30-yrs mortgage rates have now increased for the 4th consecutive week and insider sales are at highest levels since March of this year. While the markets have put their best face forward, I tend to believe underlying tensions exist and as mentioned in my previous update; I feel Aug may be used as a time to reflect and with reflection comes the processing of thoughts. The month of July has given us a lot to think about and as mentioned a little earlier, I sense nervousness. Some may lean toward profit taking while others are ready to endure risky adventures, but bye and large this run is getting long in the tooth. We will just have to wait and see… As for Oil, the U$D and Gold I expect the current trends to continue. Oil looks poised for new highs, the U$D will most likely drift sideways and with it Gold most likely does the same, leaning towards a test of the $435 oz. area.

Technically speaking, Bullish Advisors are at 55.9% with Bearish Advisors at 22.6%. The VIX/VXN are at all-time lows, the CBOE Equity P/C Ratio is at .560 with a 21DMA of .535 as the range continues to remain tight. The RSI 5-Days are Neutral across the board. The $NASI Daily (Summation), $NAMO Daily (McClellan), NAHL Daily (Highs/Lows), $NAAD Daily (Advance/Decline) and Bullish %'s and major indices can all be viewed in the charts provided below.































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, added EYET this past week

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.