Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
It’s time once again to review the past week and look into the next. This week was nothing short of remarkable. We saw Gold take out an 18-year high and the COMP and SPX take out 4-year highs with the USD testing 92 and Oil briefly touching $56bbl. All of this during wartime in Iraq, post-natural disasters of epic proportion and a Fed tightening cycle no less. We also have a new Fed coming to town and I do not believe the market is as comfortable with this as is being led on, a façade of sorts. We see that mortgage rates, deficits and debts continue to climb, the housing market has peaked, inflation is present and overall growth is slowing per pre-announcement warnings from a number of high profile large cap companies. Forget economic indicators for a moment (the markets have for some time now) and just look at what these companies had to say in their forward guidance. Not only that, but it has become commonplace for a company du jour to go bankrupt or be put under an eye of scrutiny for questionable accounting practices, more so than at any other time I can recall since the bursting of the Tech bubble. If that is not enough, mergers and acquisitions coupled with an enormous amount of stock buy back programs and foreign investment has become the lifeblood of the markets. With all that having been said, weakening oil prices (although $57bbl is hardly a reason to celebrate) and seasonality are no doubt playing a large part in the action we are witnessing as the happiest of holidays are upon us and for the time being we have a resilient and tradable market, so enjoy! BUT proceed with caution as there are many tell tale signs of pain associated with this “wall of worry” Christmas rally portrait. The CoT’s data shows us that open interest on the majors remain relatively low historically speaking. I am not sure what to make of this, but it seems rather odd if nothing else. This may be another of the many warning signs as Commercial short positions are slowly being accumulated on the two indices that just set new highs, namely the NDX and SPX. Oil appears to be under heavy accumulation by Commercial longs while Large speculators seem to be winning the war on the long side of Gold which seems to be bucking the Commercials trend. All data can be viewed at #msg-7253670 -- Equity Fund flows as detailed by AMG Data Services reported net cash inflows totaling $4.550B ($289 Mil xETF Activity) in the week ended November 16 with 55% ($2.514B) going to Domestic funds. International Equity funds reported net inflows of $1.931B ($711M xETF’s) to all Emerging and Developed markets except Europe. Largest ETF Outflows were -$915M from the iShares Russell 2000 Index fund and -$208M from the DIAMONDS fund. Money Market funds reported net inflows of $14.260B. As for the U$D, Gold and Oil -- the U$D oscillates between 91-92, Gold bucking the trend and touching to $489 while Oil briefly dipped below $57bbl. The CRB is in the process of testing its 200DMA at 312 with the 10-yrs and 30-yrs T-Note yields continue to weaken slightly to 4.502% and 4.692% respectively…

ECONOMIC #’s:
More data, which is of no real consequence as to what is taking place in the market place.

 
 Philadelphia Fed – Nov       11.5 vs 17.3   expected 15.0 
 Industrial Production – Oct  0.9% vs -1.3%  expected 1.0% 
 Capacity Utilization – Oct  79.5% vs 78.9%  expected 79.6 
 Housing Starts – Oct       2.014M vs 2.134M expected 2.060M 
 Building Permits – Oct     2.071M vs 2.189M expected 2.170M 
 Initial Claims - 11/12       303K vs 328K   expected 322K 
 Foreign Flows – Sep        101.9B vs 91.3B  expected N/A 
 CPI – Oct                    0.2% vs 1.2%   expected 0.0% 
 Core CPI – Oct               0.2% vs 0.1%   expected 0.2% 
 Business Inventories – Sep   0.5% vs 0.4%   expected 0.3% 
 PPI – Oct                    0.7% vs 1.9%   expected 0.0% 
 Core PPI – Oct              -0.3% vs 0.3%   expected 0.2% 
 Retail Sales – Oct          -0.1% vs 0.3%   expected –0.7 
 Retail Sales ex auto – Oct   0.9% vs 1.4%   expected 0.3% 
 NY Empire State Index – Nov  22.8 vs 12.1   expected 15.5

MBA Mortgage Applications slipped 0.6% in the week ended Nov. 11 compared to the prior week, data compiled by the Mortgage Bankers Association show. Also on a seasonally adjusted basis, applications for mortgages to purchase homes rose 2.6%, but refinancing applications dropped 5.4%. Refinancings accounted for 40.4% of total applications, down from the prior week's 41.7%, while the proportion of adjustable-rate mortgages climbed to 32.9% from 31.6%. Average contract interest rates for 30- and 15-year mortgages rose on a week-to-week basis to 6.33% and 5.87%, respectively, from 6.31% and 5.85%, the MBA reported. Rates on 1-year ARMs averaged 5.46% last week, up from 5.45%. Overall, the 4-week moving average tracking mortgage applications dropped 2.9%, again reflecting weakness in refinancings.

Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute).
Crude DoE fell –2.2 M bbls; API rose –3.9M bbls.
Gasoline DoE fell 900K bbls; API rose –1.7M bbls.
Distillates DoE rose 2.6M bbls; API rose 2.6M bbls.

Econ activity for the week ahead and the following expectations are as follows: FOMC Minutes (N/A), LEI (0.8%), Initial Claims (310K), Mich Sentiment (80.5), Help Wanted Index (39)…


I believe 2006 could be the year that the wheels come off the cart. My update speaks to the technical and fundamental challenges we have endured and what is yet to be dealt with. While a massive influx of liquidity and rising rates was the undoing of the Tech bubble, we face those same issues again plus a slew of other very deep seeded issues that have been completely ignored and may rise to the surface sooner rather than later. Without beating a dead horse I would like post some charts that may support my theory. Will history repeat?





while the time compression differs, the patterns are very similar. If the speculative scenario I have presented does play out, I do not believe we see a run anything like what we experienced leading up to Y2K, the technical picture coupled with the fundamental issues most likely will not support it.





How Soon People Forget…


WHAT CAN WE EXPECT NOW?:
We just came off of an inflation data -- options expiry week. The data was not as tame as talking heads portray and the market liked it. As mentioned in the previous update with which this post replies: Next week is what I like to call an “inflation data week”. This could work to the markets advantage or slow the current trend considerably. Considering we are very overbought one would think that this data will need to be very bad to keep this move going because bad news is greeted with glee What can I say, the housing and retail numbers were weak, inventories are up, production is down and inflation is present with or without confirmation of the CPI and PPI. The market goes onto set new highs on the COMP and SPX. What we have in the coming week will be very quiet on the economic front coupled with a trade-shortened week around the Thanksgiving holiday. In light of this I tend to believe we do not see too much action this week although the market is very overbought and Equity P/C ratio is in the 4’s. This may be as good a time as any for the markets to alleviate some of the very overbought condition as many scenarios could play out over the next month or two. As mentioned in the previous update with which this post replies: We have been on the move up since early October and are now a month into a move that historically would not have started until Nov or Dec. What may make perfect sense is that many expect a Christmas rally so to bring it sooner keeps many off their guard for what is generally expected. The flipside of the coin is it could all end earlier than expected, say mid-Dec? It would not surprise me to see us find a new high directly off of this move and continue higher only to sell off prior to what people expect. So far and as mentioned earlier we got the new highs on some but not all of the indices. I am not saying we will definitely sell off by mid-Dec, but I would not rule it out either. The upper trend line of the COMP rising wedge seen at #msg-8486307 will most likely be broken to the upside before any correction takes place. This rising wedge pattern is similar on most if not all of the majors as well. I will not speculate on how high we may go, but it looks to me as if a blow off top could be in the works (see “Spin of the Day”). As mentioned in the previous update with which this post replies: This all looks like one of two things are in the offing; we get a pull back now, consolidate and resume the run or we push the extremes and get a major dump later. So far the latter appears to be playing out, but it is still too early to say. One way or the other my feeling is that the markets will be forced to deal with the issues that have long been ignored. As for Oil, U$D and Gold -- Oil continues its move lower and I believe a bottom is close at hand for oil namely because a very common 61.8% retrace is close to having played out. Still looking for a bottom in the $55-57bbl area. The U$D most likely continues to oscillate in the 91-92 range, but Treasuries have been weakening and the U$D may follow. Gold has decoupled from the U$D and is poised for a run to $500. The breakout I have been looking for seems to be materializing and any U$D weakness will only be a bonus for Gold…

Technically speaking, Bullish Advisors have climbed to 53.1% with Bearish Advisors falling to 22.9%. The VIX/VXN have resumed residence in their old ranges and slightly below where VIX is in the 11’s and the VXN in the 14’s. The CBOE Equity P/C Ratio ended the week at .458 with a 21DMA of .592 and Total P/C ratio at .624. The RSI 5-Days remain Very Overbought across the board. The PC ratios, VIX/VXN, $NASI Daily (Summation), $NAMO Daily (McClellan), NAHL Daily (Highs/Lows), $NAAD Daily (Advance/Decline), stocks above 200DMA and Bullish %'s all can be viewed below along with the major indices…
































NOTE:

CORE Funds: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX, SRPIX

Speculative Stocks; ANO

SWING: USPIX, PMPIX, GSX, AGIX

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 while performing occasional swing trades.