Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
As you may remember, back towards the end of July in a past update (or two) I had been cautioning about August being a down time for action and a time when participants may reflect on the year up to this point and what may be ahead. I also mentioned on numerous occasions that nervousness was percolating below the surface even though the markets were putting its best face forward. Well, reflection is taking place and that nervousness is no longer below the surface, it is now quite evident and for good reason. Last weeks Econ data was less than impressive. Mortgage rates hit highs not seen since lending rate hikes had begun. Bond yields had increased as price rates fell and are now leveling off. Lenders and sellers (BKX & RTH) are under the gun. The lending game is not as accommodative and retailers are feeling the high cost of oil. If this is any indication of what is to come, it would be that the spenders (i.e. consumers) are tightening the purse strings and are feeling the pinch of inflation. Be it higher rates, tapped credit, oil and energy costs, etc, we seem to be getting a big red flag here…

Besides the already known and for some time repeated factors, they appear to be actually finding there way into the system and peoples pocket books now. Add to all of this that housing appears to have topped out and the only place to go from here is down. Whether it is reflected in market action or not is still too early to tell, but the economy should start to show signs of the slowing growth effect, especially now that the housing ATM and credit lines appear to be on the verge of being tapped out. Housing inventories are beginning to rise, just check any listings for a city, state or zip code of your choice and you can see that availability is increasing. A good site for this is the Re/Max website http://remax.realtor.com/FindHome/defaultREMAX.asp?gate=remax&poe=realtor and with an increase in inventory comes price reductions. One thing I am fairly confident in is that the Fed will overshoot as AG continues to raise rates right into retirement. We could very well be looking at a 4.5% lending rate in early 2006. Also not to be forgotten is that AG’s retirement may play havoc with the markets' psyche, so we may see a rather turbulent start to 2006. With that said, the indices have been in a weakening trend since the beginning of August and the markets may begin to price in all that I have mentioned. After all, if the markets look 6 months in advance then this would be the beginning of that phase and while it still may be too early to call this the end, the top, etc. we are in the early stages of a much overdue correction. Most indices are currently testing the 50DMA support with the INDU being at its 50/200DMA and the R2K having already fallen below its 50DMA. Equity Fund flows reported net cash inflows totaling $936 Mln, including ETF activity, otherwise inflows totaled $580 Mln excluding ETF’s. Non-domestic Equity funds reported net cash inflows totaling $1.123 Bln, including ETF activity, otherwise inflows totaled $701 Mln excluding ETF’s. International Equity funds reported net inflows of $1.063 Bln including ETF activity, otherwise inflows totaled $641 Mln excluding ETF’s to all Emerging and Developed regions. CoT data is mostly the same for the majors (COMP, DJIA, NDX) with the exception that Gold Commercial Shorts have increased significantly and Oil open interest is through the roof. You can view CoT graphs here #msg-7253670 The U$D did an about face at 87 and is currently testing 50DMA resistance at 88.5 and Gold is weakening upon the U$D’s new found strength having fallen 10pts from $447 to its current level of $437. Oil continues to defy and has regained its footing and sits just short of $66bbl after a brief dip to $63bbl. The CRB had run to 323, but has now fallen back to 316 area. The 10-yrs and 30-yrs T-Note yields are taking a breather but holding at 4.211% and 4.421% respectively…


ECONOMIC #’s:
A lot of inflation type of data this past week, which were not quite what Mr. Market had been looking for. Even though these numbers for the most part are manipulated, they are still showing signs of the real picture at hand if one bothers to read past the headline. Just imagine what these numbers might look like if they were not altered, extrapolated, averaged, reformulated or missing key components…

NY Empire State Index came in at 23.0 vs 23.9 previously reported with forecasts having been for 20.0. The New Orders Index rose to 33.8 from 19.2 in July. The index of expected orders 6-months from now rose to 58.4 from 54.8. The Index of Expected Prices paid 6-months from now jumped to 47.0 from 28.4. The Index of Hiring Expectations over the next 6-months fell to 15 from 23.9 in July.
CPI/Core came in 0.5% vs 0.0% and 0.1% vs 0.1% previously reported and respectively. Forecasts had been for 0.4% CPI and 0.2% Core. Consumer prices were up 3.2% for the 12-months ended in July compared with a 2.5% year-over-year gain the previous month. Core prices were 2.1% higher compared with a 2% year-over-year increase in June. So far this year, consumer prices are rising at a 3.5% annual rate compared with a 3.9% increase at the same time last year. Core prices are rising at a 2.2% annual pace, down from a 2.3% rate in the first 7-months of 2004.
PPI/Core came in 0.4% vs -0.1% and 1.0% vs 0.0% previously reported and respectively. Forecasts had been for 0.5% PPI and 0.1% Core. Producer prices were up 4.6% for the 12-months ended in July compared with a 3.6% year-over-year gain the previous month. Core prices were 2.8% higher compared with a 2.2% year-over-year increase in June. The year-over-year rise in July was the biggest since November 1995. So far this year, producer prices are rising at a 3.9% annual rate compared with a 3.6% increase at the same time last year. Core prices are rising at a 2.6% annual pace, up from a 1.7% rate in the first 7-months of 2004.
LEI (Leading Economic Index) came in at 0.1% vs 1.2% previously reported with forecasts having been for 0.2%. Economic growth is forecast to slow to a 3.5% annual pace in this year's final 3-months from an estimated 4.1% this Qtr, based on median forecasts. The money supply measure tracked by the Conference Board is adjusted for inflation and averaged $5.85 Tln in July, compared with $5.87 Tln the prior month. It includes checking accounts, time deposits, mutual funds and other accounts from which funds can be easily accessed. Under changes the Conference Board put in place beginning with the June report, the yield curve now subtracts from the leading index only when it's inverted, meaning 10-year Treasury yields are lower than the Federal Reserve's target interest rate. The index of leading indicators reached a level of 138.3 in July, compared with 138.1 in June and 135 a year ago. The index has a base value of 100 established in 1996. The Conference Board's index of coincident indicators, a gauge of current economic activity, rose 0.1% in July after a 0.3% gain the previous month. The index tracks payrolls, incomes, sales and production. The index of lagging indicators rose 0.3% for a 3rd month. The gauge tracks business lending, length of unemployment, services prices and ratios of labor costs, inventories and consumer credit.
Building Permits came in at 2.167 Mln vs 2.132 Mln previously reported with forecasts having been for 2.104 Mln. Backlogs, or construction that was authorized but not yet begun, fell 1.6% to 230K units, and were up 13% from July 2004. June's original backlog of 241K, which was the highest since 251K in May 1979, was revised to 234K. New construction of single-family homes rose 0.5% last month to a 1.711 Mln-unit pace. Starts of townhouses, apartments and other multifamily dwellings fell 5.6% to a 289K annual rate. Regionally, starts rose in the Midwest by 9.1% to a 371K-unit rate. They also rose in the Northeast and the West. They fell 5.4% in the South to a 980K-unit rate.
MBA Mortgage Applications rose 2.2% to 761.3 in the week ended August 12, following 3 straight weeks of declines. The climb in mortgage activity was led by refinancing. The group’s seasonally adjusted index of refinancing applications rose for the 1st time in a month, climbing 5% to 2285.5 after falling 3.3% the prior week. The MBA’s purchase index, a gauge of loan requests for home purchases, increased 0.1% to 499.3, adding to the previous week’s 0.9% gain. After steadily climbing since late June, fixed 30-year mortgage rates fell last week, averaging 5.8%, excluding fees, down 12 basis points from 5.9% the previous week. The fixed 15-year mortgage rates last week averaged 5.4%, down from 5.5% the previous week. Rates on 1-year adjustable-rate mortgages basically remained unchanged at 4.9% last week from 4.88% one week earlier.
Capacity Utilization came in at 79.7% vs 79.8% previously reported with forecasts having been for 80.3%. Industrial Production came in at 0.1% vs 0.8% previously reported with forecasts having been for 0.5%. The central bank's report showed that consumer goods production fell 0.5%, dragged lower by a sharp drop in output for the automobile sector.
Initial Jobless Claims came in at 316K vs 310K previously reported with forecasts having been for 310K. Claims averaged 325K a week this year, 18K fewer than in the same period of 2004. The number of people continuing to collect state jobless benefits increased to 2.593 Mln the week ended Aug. 6 from 2.565 Mln the week before. The insured employment rate was unchanged at 2%. The Labor Department said 37 states and territories reported more claims, while 16 had fewer.
Philly Fed Index came in at 17.5 vs 9.6 previously reported with forecasts having been for 14.0. The new orders index jumped to 19.8 from 5.0, while the shipments index rose to 17.8 from 12.4. Prices received fell to 3 from 12, indicating little pricing power. In a special question, 76% of firms expect energy prices to rise by an average of 5.4% for the remainder of 2005.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose by 300K bbls, but according to API fell by 1.43 Mln Mln bbls. Gasoline according to DoE fell by 5.0 Mln bbls and according to API fell by 5.1 Mln bbls. Distillates according to DoE rose by 1.2 Mln bbls, but according to API rose by 2.81 Mln bbls.

A relatively quiet week on the Econ #’s front, on tap: New & Existing Home Sales, Durable Orders, Initial Claims, Help Wanted Index and Mich Sentiment…


The US Congress is considering whether or not to take a vote on making English the official language of the United States. All I can say is you must be kidding me. What is going on in this country? There has been an uprising as of late with the broken borders, etc. and the way I see it, our current leaders are the enablers for allowing such a thing to even become an issue. English has always been considered to be the official language even though it has never been written into law. So what’s the big deal about making English the official language? The only ones I see having a problem with this are the illegals and those who do not want to assimilate to the land for which they now live and call their home. If our leaders need to vote on such a consideration, then something is seriously wrong in America today. While they are at it, why not change the flag too! Is nothing sacred anymore? Sheeez…

“Language is a unifying instrument which binds people together. When people speak one language they become as one, they become a society.”
S.I. Hayakawa

“We have room for but one language here, and that is the English language, for we intend to see that the crucible turns our people out as Americans, and not as dwellers in a polyglot boarding house.”
President Theodore Roosevelt

"We should be color-blind but not linguistically deaf," he said. "We should be a rainbow but not a cacophony. We should welcome different people but not adopt different languages."
Gov. Richard Lamm

“The United States is enriched by many cultures, and united by a single common language.”
S.I. Hayakawa

“And while you bring all countries with you, you come with a purpose of leaving all other countries behind you – bringing what is best of their spirit, but not looking over your shoulders and seeking to perpetuate what you intended to leave behind in them.”
President Woodrow Wilson, comments to new citizens, 1915

“The mission of the United States is one of benevolent assimilation.”
President William McKinley

“Our citizenship in the United States is our national character. Our citizenship in any particular state is only our local distinction. By the latter we are known at home, by the former to the world. Our great title is AMERICANS.”
Thomas Paine

“One flag, one land, one heart, one hand, one nation, evermore!”
Oliver Wendell Holmes


Knowledge is power, enlighten yourself…


WHAT CAN WE EXPECT NOW?:
As mentioned in last week’s update with which this post replies; Fib’s are interesting, the SPX & DJIA bounced off of their 38.2% retrace levels with the COMP at its 38.2% tine and the R2K at its 50% tine. Current support areas are as follows: DJIA 10600, SPX 1225, COMP 2100 and R2K 640. A break of these may see DJIA 10400, SPX 1210, COMP 2050 and R2K 625 (within a reasonable fudge factor range). Well these levels are under attack. The COMP is working at it’s 50DMA with next support at the 50% Fib or 2130 followed by 61.8% at 2100. The SPX is also chipping away at its 50DMA with next support at the 50% Fib or 1214 followed by 61.8% at 1207. The DJIA is in a situation where it bounced off of its 50/200 DMA’s, which are currently entwined. The bounce occurred off of the 38.2% Fib at 10512, but if the DJIA should turn back down below this current support level then next support comes into play at the 50% Fib or 10448. The R2K is leading all of the indices to the down side, it has broken its 50DMA and is currently sitting at the 61.8% Fib or 640, this would be the place for a bounce to occur, if not then next support is at the full retrace of the June dip or 625… The bottom line here is that all of the indices closed out at or near the lows for the week, we are at 50DMA’s and at the bottom of bollinger bands. If we are going to get a move up, this is where it needs to occur. Then again if we do get a bounce, I tend to believe it will be short lived. Another important ingredient is market breadth, which has been deteriorating. The A/D has seen decliners ahead of advancers for the most part and new highs lagging while new lows are increasing. Volume has fallen off since peaking in mid-July and the McClellan is looking rather bearish. Insider sales were huge in July and August is shaping up to be the same. Bullish advisors are still extremely high and complacency is still thick, no real fear. Couple all of this with the fundamental issues mentioned earlier (high Oil, rising rates, Retail warnings, banks being pinched, etc) which are now being focused upon and we have a recipe in place for a decent decline in the making. As for Oil, the U$D and Gold -- the trends are suspect in the short term and each of these are one news event away from a major move in one direction or another. The U$D looked poised to test 85, but has rebounded and most likely remains in a choppy range bound area for the rest of the year. Gold looked ready to take on $456 and has fallen off, but no surprise with the U$D’s current move. Oil is in a world all its own and over the long run there is no doubt in my mind that it will continue higher, how much higher is hard to say. I suspect we will also see a small correction in the metals before an end of year run ensues into the holidays. Basically if you are playing Gold or Oil, do not sweat the small stuff. Pick your spot and enjoy the ride…

Technically speaking, Bullish Advisors are at 57.3% with Bearish Advisors at 22.5%. The VIX and VXN are oscillating at 12-14 and 14-16 respectively. The CBOE Equity P/C Ratio is at .576 with a 21DMA of .602. The RSI 5-Days are Neutral across the board again, this is the 5th week in a row that the indices closed out the week in Neutral territory. All of this type of action has and could go on for a while as we grind out some lower lows on the indices. The Highs/Lows, A/D, McClellan and stocks above 200DMA are all in down trends. 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 posted earlier in the week: #msg-7415843






























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

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

SWING:
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.