Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
Another week comes to a close and what has been a tremendous run since the beginning of May seems to be coming to a close. The jury is still out on that, but I believe the writing is on the wall. We got an IPO (BIDU), which appreciated 350% in its debut, yet the markets in general were looking for some stability. Maybe it is just me and the current pull back is nothing more than some profit taking or possibly a consolidation phase, but when I see action like this past week it is all too familiar to what I would classify as a last gasp. As mentioned in the previous update with which this post replies; 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, but a catalyst of sorts will be needed for a repeat performance. I tend to believe that over the next couple of weeks it will become clearly evident that fundamentals will mean something again. What we do know is that we barely made new highs and have now fallen back, that a divergence exists between indices and indicators alike and that we have had 5 consecutive weeks of increasing interest rates and 6 consecutive weeks of falling T-Notes. The U$D has been weakening, Gold has been gaining strength and the scent of inflation is in the air. Not much has changed as far as CoT data is concerned, the same low open interest with a build of Commercial Shorts on the SPX... Equity Fund flows reported inflows of $3.5 Bln including ETF activity, and inflows totaling $885 million excluding ETF activity in the week ended 8/3/05. The largest ETF activity reported: $1.41 Bln to the iShares Russell 2000 Index fund; $526 Mln to the iShares DJ US Real Estate Index fund; $263 Mln to the iShares C&S Realty Majors Index fund; $238 Mln to the iShares MSCI Emerging Markets Index fund. Excluding ETF activity 80% or $705 Mln of Equity fund inflows went to funds investing in Non-domestic securities with International Equity funds reporting net inflows of $1.23 Bln. Real Estate funds reported inflows of $924 Mln. As for Oil, the U$D and Gold, we saw Oil go to $62bbl and temporarily set new highs, the U$D falling below 88 and Gold to nearly $440 oz before settling in at $437. The CRB ran to 323 and is on the verge of setting all-time highs with 30-yrs Bonds falling to 114 and testing the 200DMA support line. The 10-yrs and 30-yrs T-Note yields continue to increase to 4.392% and 4.582% respectively…


ECONOMIC #’s:
ISM Index & Services saw the Index rise to 56.6 from a previously reported 53.8 while beating expectations of 54.5 with Services coming in at 60.5 after previously reporting a 62.2, which was below expectations of 61.0. The institute, based in Tempe, Arizona, surveys more than 400 companies in 20 industries including clothing, printing, transportation, furniture and plastics to compile its index which also includes utilities, mining and construction. As a result, it covers about 87% of the economy.
Auto & Truck Sales saw General Motors Corp., Ford Motor Co. and DaimlerChrysler AG, being bolstered by employee discounts for all customers, led auto sales in July. GM said U.S. sales of cars and trucks rose 15%, while Ford posted a gain of 29%. DaimlerChrysler's sales of Chrysler and Mercedes-Benz vehicles increased 25%. Coach Inc., the largest U.S. seller of luxury leather goods, said profit in the 3-months ended July 2 rose 24%.
Personal Spending & Income with Spending increasing 0.8% and income rising 0.5% after previously reporting 0.0% and 0.2% respectively. Forecasts had been for 0.8% and 0.4%, basically in line with expectations. The report's price gauge tied to spending patterns and excluding food and energy costs was unchanged last month and was up 1.9% from June 2004. The personal savings rate, which weighs current income from wages, salaries, dividends, businesses and government payments against spending, fell to zero, the lowest since October 2001, which was a record low -0.2%.
Factory Orders rose 1.0%, considerably lower than the 3.6% previously reported, but in line with expectations. Excluding transportation, orders increased 1.3% after a 0.7% rise. Factory inventories were unchanged in June after falling 0.2%, but 6.4% higher than a year ago. The inventory-to-shipments ratio, a measure of how long goods remain unsold, held at 1.23 months in June.
Construction Spending fell –0.3% to a $1.1 Tln annual rate after falling –0.6% in the previous report and was well below expectations of an increase for 0.7%. This marks the 4th consecutive decline in construction outlays.
MBA Mortgage Applications was little changed in the week ended July 29, slipping 0.3% from the previous week, according to the Mortgage Bankers Association. Also on a seasonally adjusted basis, applications for mortgages to buy homes rose 1.9%, while refinancings fell 3.0% on a week-to-week basis. Refi’s accounted for 41.7% of last week's mortgage applications, down from 42.9% a year earlier, while the proportion of adjustable-rate mortgages slipped to 28.5% from 29.4%. The MBA's 4-week moving average measuring overall mortgage activity retreated by 3.2%. Average contract interest rates on 30- and 15-year fixed-rate mortgages rose last week to 5.83% and 5.41%, respectively, from 5.72% and 5.32% a week earlier. One-year ARMs averaged 4.78%, up from 4.70%.
Average Workweek remained unchanged at 33.7 hours worked, same as previously reported and expected.
Hourly Earnings rose 0.4% or 6 cents, after a previously reported 0.2% increase and expectations for the same. Average weekly earnings rose to $543.58 last month from $541.56 in June. The earnings data are for non-supervisory production workers, which account for 80% of payroll employment.
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.
Nonfarm Payrolls came in at 207K after a previously reported and upwardly revised 166K with expectations having been for 180K. May employment was revised higher as well and the forecast for the Unemployment Rate held at 5%. The majority of job creation came from retailers, banks and government agencies. Construction employment rose by 7K jobs last month after increasing 15K in the previous month while manufacturing payrolls declined by 4K jobs last month after falling by 21K in June.
On another note: U.S. corporations announced 102,971 job reductions in July with layoff plans being up 18% year-to-date to 641,245 according to outplacement firm Challenger Gray & Christmas. At the current rate, job reductions will exceed 1 Mln for the 5th straight year. Layoffs in July were up 48% from July 2004 and over the past 3-months, announcements of job cuts have totaled 296,250, "unusually high for warm weather months," said John Challenger, CEO of the firm.
Consumer Credit exploded to$14.5 Bln from a previously reported -$1.2 Bln and more than double the $6.0 Bln that had been forecast. Total consumer debt outstanding grew to a seasonally adjusted $2.146 Tln.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose by 200K bbls, but according to API rose by 55K bbls. Gasoline according to DoE fell by 4.0 Mln bbls, but according to API fell by 4.9 Mln bbls. Distillates according to DoE rose by 1.5 Mln bbls, but according to API rose by 1.7 Mln bbls.

On tap for the week ahead we get numbers for Productivity, Wholesale Inventories, FOMC Policy Meeting, Treasury Budget, Initial Claims, Retail Sales, Business Inventories, Import/Export Prices, Trade Balance and Michigan Sentiment…


For some time now, we have all been talking about the housing market. Whether it is a bubble or has topped, what effect it will have on the economy and so on and so forth. It is at this time I would like to emphatically state that this dirigible has sprung a leak. It is still in the very early stages and you can bet that the powers that be will do everything in their power to keep its effects to a minimum, but the housing market is slowing and we are just in the early stages of what has been discussed ad-infinitum. The first hint of this phenomenon having taken place was on the earnings warnings and forward guidance provided by the companies that supply this industry; namely ELK, ITW, TWP and AOS. This was the first shot over the bow and I made mention of this in my Market Trend Update at #msg-6792225 under the “Spin Of The Day” on June 26th. Now while home building continues at a steady pace, construction spending has declined for the 4th consecutive month in a row. MBA mortgage data also reveals that the financing industry is weakening and that sales are dropping, inventories are rising and median prices are declining. The next part of this equation that we may want to keep our eye on is which areas are hit first with increasing foreclosures and bankruptcies. Once this begins to take place (if it has not already), we will start to see the full effects of a slowing housing market and worse yet, a slowing economy. SO much of our economy is based on the real estate industry that when this becomes common knowledge it will already be too late and could spiral out of control. I fully expect this to happen and not only will it affect the USA, but it will be a global event. I have stated before that the changing of the bankruptcy laws was not just by happenstance, I believe it was part of a much grander scheme. Call me a conspiracy theorist or whatever, but all things happen for a reason and the change in the laws that govern our money will be coming home to roost. I believe we are just beginning to witness the tipping point…

Knowledge Is Power


WHAT CAN WE EXPECT NOW?:
As far as direction and as mentioned in the previous update with which this post replies; It is really 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. This run has more or less taken its course and it is only a matter of time before a turn to the downside accelerates. I am not just saying this because of a couple of down days in the markets, over the last week or two I have been cautioning about nervousness percolating below the surface and that the markets appear to be running out of gas and looking for a top. I have mentioned the divergences that exist between indices and indicators alike, the high insider sales, low CoT open interest and SPX Commercial Shorts. I have also been adamant about the low P/C ratio, which has been oscillating in a very tight range for months and the continuing trends of irrational complacency and overly bullish sentiment. Now I would like to mention what I consider to be a couple of noteworthy canaries; GE and PG. Just look at a chart of GE, nuff said… PG reported earnings that were below expectations. That is not as big of a deal as is why they reported less profit than expected. It was because of lower margins due to higher costs (i.e. inflation). Large corporations for the most part have been absorbing these costs, get ready for that to change as rhetoric is about to become reality, the same goes for the housing market (see “Spin Of The Day”). Most if not all of the pieces of the puzzle are in place for fear to take hold and with fear comes a sell off, but these things take time to materialize. We are close to that time… As for Oil, the U$D and Gold, Oil looks poised for another new high, but keep an open eye after the FOMC meeting, this may give support to the U$D and sink Gold.

Technically speaking, Bullish Advisors are at 57.3% with Bearish Advisors at 22.5%. The VIX at 12.5 and VXN at 15.5 and still remain amazingly low, but saw a spike towards the end of the week. The CBOE Equity P/C Ratio is at .551 with a 21DMA of .555 and like a broken record, this range continues to remain low and tight. The RSI 5-Days are Neutral across the board again, that is the 3rd week in a row that the indices closed out the week in Neutral territory. 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…

Some annotated charts worth a look posted last Thursday on the Your Economy board:
COMP- DJIA- SPX- Long Term View #msg-7240664
COMP- DJIA- SPX- Short Term View #msg-7240679































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

CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX (Added GCH this week)
Individual Stocks; ANO, BHP, SWWC

SWING: XLE, EYET

Disclaimer:
This disclosure is not a recommendation to buy, sell or do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding. I am not a day trader and invest mostly in funds or baskets of stocks and attempt to identify up/down trends and occasionally perform swing trades.