Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
So have you been good boys and girls this year? I trust you all had a nice Christmas and I would like to wish you all a wonderful holiday season. With that it is time to get down to business. Next week will be a trade-shortened week and the markets will be closed on Monday in observance of Christmas. In the week just passed we saw the U$D regain some ground against the foreign currencies although unlike what it was prior to the dip to 89 while Gold continued to look weak, but hanging around the $500 area with Oil falling to $57bbl on demand concerns, but finding its footing yet again. The indices started out weak, but finished out stronger than where they had started. What can be said that has yet to be said about today’s market? A wait and see mentality seems to have engulfed the markets as volume has been lagging, but yet to register as a real positive or negative. A sideways wait and see attitude gives the appearance as though markets are laboring a little although it has failed to halt the Transports as they made new highs. This brings me back to the DJIA and its inability to follow up and make new highs on the year (a divergence of sorts). This week is it for the DOW if new highs are to be established in 2005. What that means going forward if they are not established may have a psychological impact, but possibly little else. We are currently sitting at DJIA 10883 and within approximately 100pts of that new high. Then we have the NYSE @ 7841, SPX @ 1268, COMP @ 2249 and R2K @ 686. The NYSE is in uncharted territory, no resistance above to contend with and the same could be said about the R2K, but the SPX needs to contend with the 1285-1300 area and the COMP with 2280-2340. The key here could very well be the COMP -- how goes the COMP, so goes the market. While the TRAN and BKX are looking strong, the RTH and HGX are not. The Transports and Banking will have a tough time surviving without Retail and Housing (the perennial ATM’s for the former). Then we have some seasonal weakness in Energy, Oil and Oil Services, which make up a large part of the SPX. So what is to lead if the COMP and SPX do not? Surprisingly enough, value stocks may come back into vogue. While this will bode well for the DJIA, it will be a deathblow to the Tech’s. And what is to be said about the January effect? Small caps could come into play in a large way as the New Year unfolds, but I get the feeling that participants will look to safety first, i.e. value investing. Will have to wait and see like everyone else, but this coming week will be interesting as many scenarios take place with a heavy liquidity push by the Fed, tax loss selling and repositioning/window dressing as month & year end approaches.

The CoT data had made quite a turn with open interest shooting up in all of the majors, this week we see that it has fallen just as quickly and I mean right through the floorboards and with it some massive Commercial Short positions being established. The only Commercial Longs are that on the NYMEX and those have been slowly weaned since Nov. I won’t get into all of the particulars, but you can go here to view the CoT data graphs #msg-7253670 -- Equity Fund flows as detailed by AMG Data Services reported net cash inflows totaling $1.286B in the week ended December 21 with ETF outflows of -$5.017B from the SPDR Trust Series I fund and -$1.639B from the iShares Russell 2000 Index fund. International funds reported net inflows of $1.339B to all Developed and Emerging Regions and Money Market funds reported net inflows of $18.228B. The AMG report can viewed in full at #msg-9008931 As for the U$D, Gold and Oil and as mentioned a little earlier, the U$D regained its composure after taking a tumble the week before and settled in at 90.9 with Oil taking a bit of a tumble itself to $57bbl before regaining its footing just above $58bbl. Gold OTOH took a trip to $492 before moving back up to $502. All 3 of these took a hit and recovered, albeit still looking a bit shaky. The CRB remained flat and continues to sit around $326 with the 10-yrs and 30-yrs T-Note yields taking a noser to 4.380% and 4.551% respectively for the week… As a side note: 2-yrs T-Note at 4.370% and 5-yrs T-Note at 4.320


ECONOMIC #’s:
Another week of numbers that sooner or later makes Mr. Market go Hmmmmm…

Building Permits – Nov = 2.155M vs 2.103M expected 2.092M
Housing Starts – Nov = 2.123M vs 2.017M expected 2.020M
#msg-8956364

PPI - Nov = -0.7% vs 0.7% expected -0.5%
Core PPI - Nov = 0.1% vs -0.3% expected 0.2%
#msg-8956243

GDP (final) – Q3 = 4.1% vs 4.3% expected 4.3%
(Report includes Chain Deflator & PCE) #msg-8988913

Personal Income – Nov = 0.3% vs 0.5% expected 0.3%
PersonalSpending – Nov = 0.3% vs 0.2% expected 0.4%
#msg-8989069

Initial Claims – week of 12/17 = 318K vs 331K expected 325K
#msg-8989023

NAHB Index (Nat’l Assoc of Home Builders) – 12/19 = falls to 57 vs 61
#msg-8898190

MBA Mortgage Applications – 12/22 = Down -5.2%, Refi’s down –1.6%
#msg-8989314

New Home Sales – Nov = 1.245M vs 1.404M expected 1.300M
#msg-8999241

Yield Curve Update – 12/22 = Yield curve on the cusp of inversion
#msg-8989460

Oil Inventories – 12/22 as reported by the DoE / API:
(Crude bbls= +1.3M / +2.6M) (Gas bbls = -300K / -2.8M) (Distillates bbls = -2.8M / -2.8M)
#msg-8989288

LEI (Leading Economic Indicators) – Nov = 0.5% vs 1.0% expected 0.4%
#msg-8989148

Durable Orders – Nov = 4.4% vs 3.0% expected 1.1%
#msg-8999176

Michigan Sentiment – Dec = 91.5 vs 88.7 expected 89.0
#msg-8999431

ECONOMIC Calendar For The Week Ahead: http://biz.yahoo.com/c/ec/200552.html


There a couple of notions about Oil that I would like to attempt to clear up, at least as I see it 8^)

The 1st being that the recent run up in Gold was due to money rotating out of Oil and into Gold. Over the last few years we have witnessed Gold rallies around the holiday season and understandably so (jewelry, gifts, etc). While I imagine that rotation between these may take place from time to time, by and large this is not the case. The bottom line is that it would be counterintuitive. High Oil prices create inflationary pressures, which in turn drives the price of Gold which is a hedge against those very same inflationary pressures. As you can see by the charts below the two actually run a very similar parallel:



The 2nd is that I see a lot of talking heads taking up the notion that Oil prices will weaken to $50bbl or less thru 2006 due to domestic inventory build up and a moderation in international demand. I for one do not believe it, at least not for those reasons. This is the same hyperbole we have heard this time of year for the last few years. The idea that more Oil equates to more Gasoline is a recycled myth. The bottom line is that refining capacity will remain an issue for the unforeseeable future and excessive Oil inventories mean nothing in the larger scheme of things. As you can see from the charts below the Oil cycle is following its course (natural or unnatural) where there is a build up of Oil inventory and a decline in Gasoline inventory for this time of year (just as there has been for the last few years):




Got Oil?…


WHAT CAN WE EXPECT NOW?:
Not a whole lot has changed as the warning signs are still lingering, but some pressure has been relieved within a weeks worth of low volume trade, pretty amazing! As mentioned in the previous update: I would be on guard in here, these are some serious signals and if the last 2-yrs around this time are any indication, hint or clue .. wink wink .. well, let’s just say history has a funny way of repeating itself. While I tend to believe gravity will set in, all I can say is not yet… What a difference a week makes, compliments per the heavy hand of the not so invisible Fed. I would not be surprised to see more of the same in the coming week and who knows we may still see some higher highs in the making. While the danger signs are preeminent, the power of the Fed has kept the market from taking a natural course. We see that program Trade hit 65% in the week before, the PC ratio took a rocket ride off of the extreme lows and the McClellan Oscillator righted itself to above the centerline. So where does this leave us? That same EPC is already back down into the 5’s, Sentiment is high as is complacency. The MACD is still rolling over on many indicators and indices alike, but that is beginning to reverse a bit in some. What we are witnessing is a massive game of tug-o-war as we see a huge outflow from ETF’s, the last time we saw that I cannot recall. With that being said, money continues to find its way into the hands of those with the power to move markets. As for program trade activity, most times I can recall when that level exceeds 60% they are not selling. It usually signals support from the big houses (i.e. institutions) courtesy of the Fed. This is becoming more and more a market of stocks than a stock market. This is no time to be snoozing, look alive or take 5... I for one used last week as an opportunity to take 5 and lighten up on some holdings. I am not suggesting that you do the same, but I just felt it was a good time to lock in some gains.

Technically Speaking, Bullish Advisors are at 55.0% with Bearish Advisors at 21.0%. The VIX/VXN are still in the 10’s & 13’s respectively. The CBOE EPC Ratio ended the week at .514 with a 21DMA of .589 and TPC ratio at .693 with a 21DMA of .826. The RSI 5-Days are Neutral 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: SRPIX
*Sold QRAAX, RSNRX , TAVIX, GSX

SPECULATIVE:
*Sold ANO

SWING: USPIX, DNDN, ENPIX, €uro & ¥en Currency
*Sold 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 attempt to identify trends and create a track record through the positions that I hold. I am not a day trader and invest mostly in funds or baskets of stocks and perform occasional swing trades. Data presented may not be 100% accurate as I do make mistakes from time to time so please perform your own due diligence.