Your Economy (No Politics)

[Bullwinkle]

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



OVERVIEW:
First off I want to wish everyone a very happy & successful New Year! While the market climate may be full of mixed messages, one thing remains true to form and that is the helpful and insightful people who populate the Your Economy board. You know who you are and I want to thank each and everyone of you for the personal messages, board marks and/or participation. In return one thing you can count on is that I will always do my best to be helpful in some way, shape or form. I call it like I see it, whether right or wrong and if nothing else it is my intention to at least make you think and be as informative as possible. If I can do that, then I feel I have accomplished something. While my analysis may not always hit the mark, I only want to see us ALL beat da boyz at their own game and make BIG $$$$!!! After all, it is us against them is it not? So let’s get started by reviewing the past week and looking into the next…

We did not go out with a bang, more like a whimper. The DJIA did not make new highs on the year and the other majors managed to hang onto what gains they made for the year. Being as we were looking at month/year end, a lot of posturing coupled with wait and see stances were evident via low volume. The week before last we saw Oil, Gold and the U$D blink and then weaken while the majors held up, this past week we saw just the opposite. Gold found life after the big run up and tested $520, Oil regained its footing to $60bbl and the U$D is still hanging tough around 91. All of the majors on the other hand are faltering and have been weak since the Bradley Turn on 12/16, even the Transports have turned down. Treasury yields have been the headliner as of late and I do not think I need to tell you that when you can get a better yield on a 2-year note than a 10-year, something is askew. We also see that interest rates remain relatively low and M3 has exploded. Economic indicators as well as technicals have been pretty worthless as of late as they have been discounted and manipulated beyond the norm. It is times like these that good ole fashioned fundamental analysis may be a better guide. The CoT data open interest remains relatively low, but lower than others depending on which index you review. The Commercial Short positions on the other hand are building up across the board, only Oil is Commercial Long. You can go here to view the CoT data graphs #msg-7253670 -- Equity Fund flows as detailed by AMG Data Services reported that outflows this week are reflective of large cash payouts from Domestic equity funds. Excluding ETF activity, Equity funds reported net cash outflows totaling -$1.396B in the week ended December 28 as International funds reported net outflows of -$707M. The Largest ETF Inflows were $536M to the iShares Russell 2000 Index fund; $438M to the Nasdaq-100 Index Tracking Fund; $356M to the Select Sector SPDRs Materials; $340M to the DIAMOND Fund; $151M to the iShares Russell 1000 Value Index fund. Largest ETF Outflows were -$603M from the SPDR Trust Series I fund and -$463M from the iShares MSCI EAFE Index fund. Money Market funds reported net inflows of $16.045B. The AMG report can viewed in full at #msg-9008931

The final tally reads as follows: COMP 2205, SPX 1248, DJIA 10717 and R2K 673. The U$D 91, Gold 517, Oil 60 and CRB 331. The Treasury Yields for the 2yrs = 4.41%, 5yrs = 4.35%, 10yrs = 4.39%, 20yrs = 4.61% and 30yrs = 4.55%.


ECONOMIC #’s:
Not a busy week economically speaking, but I find (or so it appears to me) that the less data that is reported the worse the market does and vice versa…

Consumer Confidence – Dec = 103.6 vs 98.3 expected 102.5
#msg-9035941

Existing Home Sales – Nov = 6.79M vs 7.09M expected 7.00M
#msg-9068580

MBA Mortgage Applications – 12/24 = Down –6.8%, Refi’s down –11.2%
#msg-9036002

Oil Inventories – 12/24 as reported by the DoE / API (could not find API #’s this week):
(Crude bbls= +118K / N/A) (Gas bbls = -1.2M / N/A) (Distillates bbls = -890K / N/A)
#msg-9068461

Initial Claims – week of 12/24 = 322K vs 318K expected 322K
#msg-9068440

Help Wanted Index – Nov = 39 vs 38 expected 39
#msg-9068516

Chicago PMI – Dec = 61.5 vs 61.7 expected 60.0
#msg-9068531

ECONOMIC CALENDAR For The Week Ahead: http://biz.yahoo.com/c/ec/200601.html


Last year around this time I gave a 2005 forecast for what the year ahead may hold for us and thought it would be fun to see how I did and then give a 2006 forecast.

So here we go:

Time to spin a 2005 outlook. While I am not really comfortable giving price targets, I will make an attempt by calling for a top in INDU at 10,900-11,100 -- SPX at 1215-1235 -- COMP at 2180-2240... As for the things that make our world go round: Social Security will not get privatized, Gold will go to $490-510 an ounce, the U$D continues to fall to the 76-78 area and the Fed will continue to raise rates throughout the year. China will not revalue the Yuan, it will remain pegged to the U$D. Oil and energy will remain in high demand as well as commodities and natural resources. I do not expect to see Oil go below $35 bbl and possibly goes as high as $65 bbl. Too many wildcards that will not play to our advantage; Iraq, Iran, Russia and China. I am sure we have not heard the last from N.Korea...

Not bad, I also laid out a synopsis under that “Spin Of The Day” which was not as impressive, but may be worth reviewing if interested #msg-4984760

For 2006 my spin looks a lot like 2005, but a little more bearish. While I am not expecting a crash, I do feel the peaks and valleys will be a little more pronounced. As stated I am not really comfortable giving price targets, but I will once again make an attempt by calling for a top in DJIA ~10,000 -- SPX ~1200 -- COMP ~2000... I believe we will see some of the more bearish attributes this year and as expected by myself in 2005 here for 2006. Housing will continue to slow, BK’s and foreclosures will begin to rise. I am not saying housing will collapse, but it will not be a good year for this sector. If this sector suffers as I believe it might then so will all that is tied to it. The only saving grace for this industry may be the hurricane damage (an oxymoron for sure) to be repaired and/or replaced. Also of note is that Tropical Storm #27 (Zeta) has been announced with next year supposedly shaping up for a repeat performance. As sick as it sounds, destruction may be the only thing that prolongs an overdue correction in the housing market. I am still bullish on commodities and natural resources though. I think Oil has a good shot of $80bbl this year, Gold could be the biggest surprise with a run to $650 by year end and the U$D weakens with a retest of the mid to low 80’s. I know I was a little TOO bearish on the dollar in ’05, but I may have only been a year early. Watch that yield curve, while it may be being discounted, it will have its say although the real impact may not be felt until the following year. The Fed will continue to raise rates and B-52 Ben will follow the lead of his predecessor. I believe there is also a good chance he continues to raise rates upward of the 5.5% to 6.0% range. At the same time he will be printing $$$ like a bat out of hell. Now this is the impression I get, I could be very wrong as these guys have many tricks up their sleeves to prop markets and/or get markets to move in the direction they want. Time will tell…

Synopsis The big events this year other than an inverting yield curve and a new FOMC chairman will be Iraq and Nov’06 elections. Without the admin ever really telling us, we may have some type of withdrawal take place. If they need to prop the markets, they will make it evident or leak it themselves. This is one of the many tricks I hinted about in a way to prop the markets. I am not saying they will withdraw troops just to prop the market, I think a withdrawal has already been planned, to what extent is unknown. BUT if the markets are sagging, it would not surprise me to see a leak. Another way to prop would be to stop raising rates. Another would be to start another war. I really do not know what will pan out this year, we may see much ado about nothing or some real events take place, but one thing is for sure and that is it will be anything but boring. We also have elections in November and that outcome will steer the market moves. If the same old same old stay in place, then so will the same market action (sideways – flat). If there is a shake up, I believe there will be in the markets as well. This coming election may be more important as far as the markets go than any other in recent times. A change in Congressional leadership will most likely be perceived as bad for the markets, at least for those who have had a free lunch. Why? If nothing gets done, then nothing will change. If nothing changes, then uncertainty is replaced with certainty. The unfortunate part of this equation is that the debts, deficits and imbalances will not go away and therefore we may see a more adverse market climate than we have as of late. If a new Congress comes into play, then if nothing else the hemorrhaging will be stopped. BUT do not forget about what kind of an impact an inverted yield curve, change in Congress and aggressive Fed could have on the markets. If these stars align some tough medicine most likely comes into play either by choice or thru natural forces…

Feeling a bit like Carnack 8^)


WHAT CAN WE EXPECT NOW?:
All in all it was a pretty good year considering the accumulation of the storm clouds we see on the horizon. I think most will agree that there is a storm brewing, it’s just a matter of difference in opinion on the severity of that storm and when landfall will be made. This year much like the last we saw peaks and valleys only to finish out relatively flat on the year. This is not to say that there were not pockets of strength and if you were fairly vigilant, picked your spots and industries then I have to assume you faired well. While I have noted divergence and troubling indicators, which lead me to believe a substantial decline will take hold (just look at the indicator charts at the bottom of this update, not pretty) I want to point out something I find rather interesting. Unlike the past sharp drop offs we experienced in the beginning of 2004 and 2005, we are witnessing what appears to be a slow rollover. In this example on the 3-year COMP chart we see that when the past declines have hit the 50DMA at this time of year, they begin to accelerate into it with a test of the 200DMA not being too far behind.



We are currently kissing the 50DMA, so the big question is will history repeat itself? I am getting the feeling that it would be too easy to assume that we will start off the year with a big decline. As mentioned a little earlier, technicals have been unreliable for the most part (I used the word “worthless” earler, maybe a little harsh) and a fundamental approach may be more apropos. So I am going to step back and think out of the box for a moment. Being as we started the Christmas rally earlier than expected and did not finish out with a bang of sorts, I am cautiously looking for some strength to be exerted in January. I cannot say one-way or the other if that strength will be in the 1st half or latter half of January, but I am only being open to anything. We are in extraordinary times and while the majors did not go out with a bang, I suspect Sir Alan Greenspan will. I do not believe his majesty will let this market fall on the last minutes of his watch. He may very well pump the presses like never before, might even fry ‘em in the process. Once the reins are turned over to B-52 Ben, that will be another story.

Also keep in mind the Equity Fund #’s in the “Overview” and the fact that we just came off the strongest part of the year with a bunch of Econ #’s due out in the coming week. Then we most likely hear all about retail sales for the holiday season, which I assume were not bad. Last but not least we are in Oversold territory and if that’s not enough, we start the kick off to earnings season (which could go either way, for or against the tide). Put them all together and I see an impetus for strength. I am not counting out a run to that 2280 area on the COMP or even a higher high. So to be clear, I am still looking for a decline, I am just not so sure about the severity or timing of that event. Of course I could be way off base and we go into the tank as soon as trade commences, a self-fulfilling prophecy if you will. But a little voice keeps nagging at me that it would be just too darn easy and even more so, it is w-i-d-e-l-y expected. We shall know soon enough… As for the U$D, Gold and Oil, we most likely continue to follow the path we are on with an exception being that Gold is now in the wildcard seat. The U$D most likely continues to lollygag around the 90-92 range, Oil should start to head back up (remember holiday shopping is done and the market may start looking ahead to spring storage which is lagging) and Gold as stated is the wildcard. With gold having 520 in the crosshairs, it will be interesting to see if we take it and retest that 540 area. It would be sight to see if it breaks through 540, but at this time I do not believe it will (i.e. beware of a double top should we get there)…

Technically Speaking, Bullish Advisors are at 60.4% with Bearish Advisors at 20.8%. The VIX/VXN edged up to the 12’s & 14’s respectively. The CBOE EPC Ratio ended the week at .503 with a 21DMA of .590 and TPC ratio at .801 with a 21DMA of .811. The RSI 5-Days are Oversold 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

SPECULATIVE: I picked up some AAPL, LSI and SILCF

SWING: USPIX, DNDN, ENPIX, €uro & ¥en Currency


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.