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. The markets continue to show strength in the face of disaster and at some point one has to ask them self if this market is for real. As mentioned in the past couple of updates with which this post replies On/around the 29th we have a Bradley Turn date and on Sept 3rd we are looking at a New Moon. Shortly thereafter is Labor Day and the so-called end of Wall St vacation season. What effect any of these may have is yet to be seen, but I sense somewhere in here between now and the week following Labor Day a relief rally may materialize. Since that time we saw all of the majors move up to and decisively above their 50DMA’s which are now within striking distance of the year’s highs, remarkable but not unexpected. We have seen a fairly broad based move throughout the week although the majority of the strength seems to be commodity driven where oil, oil services, natural gas, utilities, gold and the like have been the biggest winners. The NYA and SPX are looking the strongest followed closely by the R2k with Transports understandably being the biggest loser. Some canaries that continue to lag are RTH, BKX and HGX sectors and big caps such as VZ, GE, IBM, INTC and MSFT. CoT data for the most part is a mixed bag although open interest is climbing slightly on the majors with the DJIA lagging behind. Commercials are net long the NDX for the first time since June, but Large Speculators are increasing short positions. The SPX has increasing Small Speculators to the long side and the DJIA remains relatively unchanged with little activity taking place on its playground. Gold Commercial short positions still relatively heavy with Oil remaining mostly unchanged. The CoT data can be reviewed here #msg-7253670 Equity funds reported net cash outflows totaling -$54 Mln (-$249 Mln xETF activity) with Domestic Equity funds reporting net cash outflows totaling -$962 Mln as Non-domestic Equity funds reported net cash inflows totaling $908 Mln. Small Cap Growth/Value funds reported net cash outflows of -$388 Mln (-$128 Mln xETFs) as 440 funds reported inflows, the smallest number of funds reporting inflows to the sector since 3/12/03. More funds reported net outflows from the sector (717) than any week since 7/24/0. Growth and Income funds reported net outflows of -$426 Mln, the largest outflow since 1/5/05. The U$D continues to look weak and is barely hanging near 87 with Gold continuing to look strong and nearly testing the old highs, but currently residing at $449-oz. Oil started to slip, but regained its footing around $63bbl and is sitting at $64bbl. The CRB took a nosedive after setting all-time highs and is currently setting at 323. The 10-yrs and 30-yrs T-Note yields woke up this past week and are now at 4.123% and 4.402% respectively…


ECONOMIC #’s:
A rather slow week on the Economic front, although the tab for Katrina has gone from an estimated of $26 Bln, up to $100 Bln and now the latest estimate being in the neighborhood of $200 Bln?…

ISM Services for Aug was 65.0 vs 60.5 previously reported with expectations having been for 60.0… Demand in industries such as housing construction bolstered services even as auto sales slowed and gas prices pinched sales of retailers. The outlook for consumer spending worsened after fuel prices surged to records in the aftermath of Hurricane Katrina, prompting some economists to cut their forecasts for third-quarter growth.
Productivity for Q2 was 1.8% vs 2.2% previously reported with expectations having been for 2.1%… Labor costs increased 2.5% and were up 4.2% from a year earlier, the biggest rise since the 3rd quarter of 2000. In the 12 months that ended in March, productivity rose 2.2%, compared with a previously estimated 2.3% gain. Year-over-year unit labor costs were revised from the 4.3% increase previously reported.
Initial Jobless Claims rose to 319K vs 320K previously reported with expectations having been for 315K. The 4-week average rose to 318,500 from 316,500, for the period ended Aug. 27, compared with 338,750 for the same period last year, when the economy added the most jobs since 1999.
Wholesale Inventories for July were -0.1% vs 0.4% previously reported with expectations having been for 0.6%… Inventories of durable goods at wholesalers rose 0.3% in July after rising 0.7% the month before. The increase was restrained by a 2.2% decline in inventories at computer companies and a 1.7% drop at steel makers. Inventories of non-durable goods fell 0.7% in July after no change the month before. Sales of such goods rose 1.2%. Drug stockpiles dropped 4.9%, a record decline.
Consumer Credit for July was $4.4 Bln vs 14.5 Bln previously reported with expectations having been for $10.0 Bln. Revolving credit, like credit card debt, fell by $1 Bln, or 1.5%, and non-revolving credit like auto loans gained $5.4 Bln, or 4.8%.
Import Prices for Aug were 1.3% vs 0.8% with expectations having been for 1.2%, excluding oil was 0.0% vs -0.2%. Over the last 12 months, import prices have risen 7.6%, reflecting a 42.5% rise in the cost of petroleum. Export Prices for Aug were -0.1% vs 0.1% previously reported with expectations having been for 0.2%, excluding agriculture the numbers remained -0.1% vs 0.1%.
MBA Mortgage Applications seasonally adjusted index of mortgage applications -- which measures the volume of requests for both home purchase and refinancing loans -- rose 6.8% to 771.6 in the week ended Sept 2. The index fell 4.5% in the previous week. The MBA's purchase index rose 6.1 percent to 499.1, erasing the previous week's 3.6% loss. The seasonally adjusted refinancing index climbed 7.7% to 2,357.1, retracing the previous week's decline of 5.4%. Refinancing accounted for 44.8% of all mortgage applications last week. Fixed 30-year mortgage rates fell 9 basis points, or 0.09%, to an average of 5.64%, excluding fees, compared with 5.73% a week earlier. That is its lowest level since the week ended July 8, when it hit 5.62%.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE fell by -6.4 Mln bbls, but according to API rose by -14.3 Mln bbls. Gasoline according to DoE fell by -4.3 Mlm bbls and according to API fell by -4.2 Mln bbls. Distillates according to DoE fell by -800K bbls, but according to API rose by -1.7 Mln bbls.

Econ activity picks up as we have a full week ahead: PPI, CPI, Treasury Budget, Trade Balance, Current Account Deficit, Retail Sales, Industrial Production, Capacity Utilization, Business Inventories, NY State Empire Index, Philly Fed and Michigan Sentiment…


A lot of talk about the Fed pausing its measured pace of rate hikes. How many times will people fall for this spin? Wash, rinse and repeat. I can count 3 times and the 4th is on its way. First time was because of rising oil and energy costs. Second time was because we were near 3% or a supposed neutral rate (which is somewhere between 3% and 5%). The third was when we were supposedly in the 9th inning. Now we have the fourth, which will be because of Katrina. I guess sooner or later the spin-doctors will get it right, but I don’t think this is it and here’s why: The Fed is on a mission, plain and simple. It starts with the wealth effect and works its way down from there. First of all, there is irrational behavior in the form of real estate and this will not be allowed to continue. Then there is the fact that mortgage rates still remain at historically low levels. Economic growth is another hot button issue, this ties into real estate which has been the life support of the economy, that and consumer spending. So higher consumption is another one for the radar along with increasing unit labor costs and any supposed employment gains. I cannot stress enough how hedonistic the reported Econ #’s are, but they are what are being advertised and the Fed chooses those as opposed to reality (or at least we are led to believe that these are the numbers the Fed is using). Next, the Fed is zealously looking to stave off inflation, which will most likely rise due to Katrina, not fall. We also see commodities going through the roof, not a good sign for those who want to portray a non-inflationary environment. I think its pretty safe to say that inflation is underreported, just take a look around you. Everything that people must have such as food, energy, health, housing and the like have gotten more expensive, not cheaper. And what about the claims that rising oil prices are deflationary? Sorry, but I don’t buy it. Those costs are being passed along to the consumer, how could this be deflationary? Then there is the yield curve, which we have been told to ignore for the most part, but I think I will keep my eye on it anyway even if the indicators have been altered to not reflect the current situation. How about the U$D? Any stoppage in rate hikes and the dollar crumbles. Personally I do not think sub-80 will sit too well with Mr. Market. Last but not least, if history is any guide the Fed always overshoots. So while the Fed funds rates are now just beginning to come in line with inflation and growth that would effectively put us close to a neutral rate, I would not expect a pause or stoppage to be seriously considered. That’s me, I may be wrong, but until the Fed language changes I am just ignoring the talking heads.

Knowledge is Power…


WHAT CAN WE EXPECT NOW?:
As mentioned in last week’s update with which this post replies; As we continue to defy gravity, fundamentally speaking the surroundings are crumbling and I only see things getting worse from here. The surroundings are mostly news driven events and the aftermath of Katrina will be in the headlines for days and weeks to come. We have a long way to go on this one and while there may be a rally of sorts off of the Labor Day Holiday, I do not expect it to be genuine. I still feel this is pretty much the case going forward. I think some of the realities of our fundamental picture may be realized this coming week in the form of Econ inflation data along with the upcoming treasury budget, trade balance and account deficit numbers. Sentiment and complacency still abound along with a P/C ratio in decline. All of the major indices are bumping the upper Bband and could not be any more neutral without being in oversold territory. I expect them to reach this condition early on and then possibly begin to sell off as the week progresses. I have been looking for a time frame of around mid-Sept for this to occur and if a sell off should take place, I will be watching for that right shoulder to form on some of the indices I had pointed out in my previous updates. Of course on the other side of the coin is that we see new highs established, but I am not so sure that all indices will follow this pattern and may create a divergence of sorts. While we still await some concrete Katrina damage number reports, we may get them this week or possibly the next. If the Econ #’s disappoint this would only fan the flames. If in the week that follows where we have an FOMC meeting and Options Expiry we may see the same result. As stated I am leaning towards a decline, but since bad news seems to be viewed optimistically as of late, anything is possible. Either way, the next couple of weeks will be very interesting to say the least. As for the U$D, Gold and Oil, the U$D still looks weak and is putting in a nice bear flag and as mentioned before a test 85 looks to be all but certain. Gold looks very strong to me and a test of the old highs at $456 looks almost certain. A break of this area and we are most likely off to the races. Oil is still a wildcard, while it looks poised for a breather, $60-63bbl will be the first support area. This was tested last week and bounced to $65bbl before settling in at $64bbl.

Technically speaking, Bullish Advisors are at 52.1% with Bearish Advisors at 28.1%. The VIX is in a range between 12-14 and VXN between 14-16, both leaning towards the former. The CBOE Equity P/C Ratio is at .612 with a 21DMA of .609. The RSI 5-Days are Neutral across the board but as mentioned earlier, they could not be any more neutral without getting into oversold territory. In other words, they right on the cusp of oversold. While the Highs/Lows, A/D, McClellan and stocks above 200DMA are all in overall down trends, most have made decisive moves toward the upside. 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, XLE, GCH
Individual Stocks; BHP, SWWC
Speculative Stocks; ANO

SWING:
On Tuesday took a position in WPTE

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.