OVERVIEW: Switcheroo… Over the last couple of months I have commented on occasion about the markets moving up in unison; the majors (COMP, SPX, INDU, R2K), Oil, Gold and the U$D… This week most everything (except the U$D) showed weakness in unison. We saw an attempt by the majors to finish to the upside around mid-week, but by the end of the session everything went flat. Friday we saw the markets hold their gains and finish out positive, but on the week we finished lower than where we had started. Economic data was poor to say the least with each week’s data peeling back another layer exposing the delicate underbelly of a slowing economy. The most intriguing issue of the week was the relative strength of the U$D, the rise in Treasury yields and the tightening of the spread between said yields which has moved the yield curve to a flattened state or at least, not so quite inverted. The majority of this action seemed to occur on the heels of the BoJ announcement to end its extremely loose monetary policy where interest rates have remained at 0% for quite some time (more than a decade). I was a little surprised by the profound impact on the bond markets and commodities in particular. This news coupled with another .25% tightening by the ECB in the week before sends a signal that the loose money days on a global scale may be coming to an end. As you know, I have been very bullish on Oil and PM’s in particular. What a difference a week makes. While I am still bullish on this area of the market over the long term, my short-term view will need to be reconsidered. So to round out the week, COMP finished at 2262 and after testing sub 2250 a few times, SPX finished out at 1281 after testing 1270 most of the week, INDU closed out at 11076 after testing 10900 on a few occasions and R2K at 726 after testing sub 720’s a better part of the week. Transport also remained weak even in the face of Oil prices being under pressure.
The CoT data shows much the same as last week with open interest continuing to trend higher on the majors as is the Commercial Short positions, most notably on the SPX and NDX. Short positions look to be falling off slightly on the INDU. Gold open interest remains above the centerline and trending back up with Commercial Shorts continuing to line up against Large Spec Longs. Oil open interest has shot way up with Commercial Long positions falling off a touch. You can go here to view the CoT data graphs #msg-9171642 -- Equity Fund flows as detailed by AMG Data Services reported Equity funds reported inflows of $951M, excluding ETF activity net cash inflows totaled $2.892B in the week ended March 8 with 58% ($1.680B) going to funds investing in Non-domestic securities. Excluding ETF activity, International funds reported net cash inflows totaling $1.400B as net inflows were reported by all Emerging and Developed regions. Largest ETF inflows were $258M to the iShares MSCI EAFE Index fund and $224M to the iShares S&P 500 Index. Largest ETF Outflows were -$1.292 B from the iShares Russell 2000 Index fund and -$749M from the Nasdaq-100 Index Tracking Stock fund. Money Market funds reported net inflows totaling $6.127B as General MM funds reported net inflows of $10.366B and Government MM funds reported net outflows of -$4.618B. The full report can be viewed at #msg-10110680 -- As for Oil, Gold and the U$D, we saw Oil dip below $60bbl, but managed to finish out at just above $61bbl. Gold took the biggest fall touching $534 but recovering to just above $541. The U$D having had turned down off of 90 regrouped and gained a full point to finish just under 91. The CRB, like Gold, got hit for a 12pts loss finishing out at 319 and piercing its 200DMA. Treasury yields continued to rise as the spread tightened and the yield curve flattened with 2yrs@4.72%, 5yrs@4.76%, 10yrs@4.75%, 20yrs@4.75% and 30yrs@4.74%. The Yield Curve can be viewed at #msg-10110864 …
ECONOMIC #’s: Mostly terrible numbers, but hey we added 243K anticipated jobs…
Factory Orders – Jan = -4.5% vs -0.1% w/expectations of -5.4% #msg-10030933
Productivity (rev) – Q4 = -0.5% vs 6.75M w/expectations of -0.6% #msg-10049229
Consumer Credit – Jan = $3.9B vs $5.0 w/expectations of $3.4B #msg-10049251
MBA Mortgage Applications – 3/3 declined -0.4%, but Refi’s boosted overall index to 0.7% #msg-10103747
Oil Inventories – 3/3 per DoE and API Crude = DoE +6.8M bbls / API +5.9M bbls Gas = DoE -1.1M bbls / API -1.4M bbls Dist = DoE -2.7M bbls / API -5.1M bbls #msg-10073305
Trade Balance – Jan = -$68.5B vs -$65.1B w/expectations of -$66.5B #msg-10089211
Treasury Budget – Feb = -$119.2B vs -$113.9B w/expectations of -$118.0B #msg-10103833
Initial Jobless Claims – 3/4 = 303K vs 295K w/expectations of 295K #msg-10089042
Nonfarm Payrolls – Feb = 243K vs 170K w/expectations of 210K Unemployment Rate – Feb = 4.8% vs 4.7% w/expectations of 4.7% Hourly Earnings – Feb = 0.3% vs 0.4% w/expectations of 0.3% Average Workweek – Feb = 33.7 vs 33.8 w/expectations of 33.8 #msg-10103645
Wholesale Inventories – Jan = 0.1% vs 0.9% w/expectations of 0.5% #msg-10103878
Consuner Confidence Poll – preliminary report shows drop in early March #msg-10111469
I want to make a quick comment on the Dubai Port deal and GWB… If this deal had been presented under the light of day we would not have had such a ruckus and outcry of discontent. It’s a funny thing, but people like to be aware of the things that affect their lives, go figure. For so many years this is the way this administration has carried out its business, in a shroud of secrecy under the guise of security and we the people let it go on for far too long. I found it rather ironic to see Congress threaten to tie an up/down vote of the DP deal to that of Katrina aid and further Defense spending. Not that it makes it right, but just funny to see them tie something of such importance in the same way they tie pork laden bills to such important legislation. And for the president to be on the opposite side, was well how could I say this, “priceless”. While it looks as if this Jellyfish of a Congress has finally found a backbone and actually listened to what the people had to say, just remember this; it is an election year. Had it not been an election year, the peoples voices would most likely have been ignored and business as usual (or at least the way this administration and Congress see fit) would have taken place. When you vote later this year, remember that your voice will not be heard unless we shake things up. I find it refreshing though that people are finally getting to see the side of GWB that I, and many others have seen all along; an incompetent leader who is a chronic liar and abuses the system to the betterment of his inner circle at the cost of many. Congress is no better, they are suppose to be the checks and balances in place to keep power from corrupting a nation, they rolled over on nearly every issue brought before them. You would think that with a majority in Congress some really great things could have been accomplished under this administrations helm. If you think GWB has problems now, can you imagine what things will be like if control of Congress is relinquished to Democrats? I am sorry to say and truly wish that GWB had taken any of the many wonderful opportunities bestowed upon him to make a real difference in our society and the world. Instead of going down as one of the great presidents of our time, he will be remembered as the leader of the greatest country in the world who squandered the most opportunities, divided a nation and created the largest debts and deficits on record. He will be remembered for many things, but most of all he will be remembered for making the worst ex-presidents in our history look pretty good.
Ready For A Shakeup? …
WHAT CAN WE EXPECT NOW?: Times are a changing… With geo-politicos and geo-economic forces playing a larger part in our everyday lives and markets, the times ahead could get a little a rocky. It is quite evident that a US economic slowdown is in the works, but if a global slowdown takes hold, a recession may not be far behind. Here is a little chart I put together that shows past Recessions & Fed Funds rates vs. Stocks, Bonds & Commodities #msg-10118527 It pretty much speaks for itself. We have been put on notice although it will be interesting to see this current news will fall under the “short term memory” category and brushed aside in the week ahead or if the effect will continue to linger. As mentioned in last weeks update with which this post replies: It is not often that we hang in a range and then decline. If memory serves me, we generally make a move up off of trendless ranges. As stated before, formations are somewhat bullish, but a diverging backdrop exists. Sooner or later those negative divergences will play out. Are these divergences beginning to have an impact? I think we will get our answer in the days and weeks ahead. This has been a difficult period to decipher. While the fundamentals have stunk for quite some time, it took a geo-economic news driven event to get the markets attention. News will most likely be the driver going forward and from what I can see I doubt it will be of the market rallying variety. The market as of late has twisted in the wind on every data point that comes across the wires. We may see a widening net with more and more of the fundamental issues that have been ignored for so long get put under a microscope. Technically speaking, not much has changed. All of the divergences and then some still exist, but the DJIA and R2K look to have some strength. The COMP and SPX look vulnerable and will probably continue along the path of least resistance. This is very unusual as these indexes are paired oddly. Generally the COMP and R2K follow similar paths and likewise for the DJIA and SPX, with the SPX being the strongest of all the indices. I imagine that more volatility lies ahead, but I am not going to speculate too much on what the following week brings. The blow off scenario I mentioned in the prior week may still be a possibility. I am not going to tell you that I have a good feeling for what is taking place, because I don’t. There are too many inconsistencies in play. I will tell you that I do not like what I am seeing. So much so that I went mostly cash in my trading account and retirement accounts #msg-10035368 My basic feeling is that the risk/reward ratio is so heavily tilted towards risk that I really have no desire to be in the market at this time. If I should miss a move, then so be it. I like to remain flexible, besides that opportunities in this market are like buses; if you miss one another will be coming along shortly.
As for the U$D, Gold and Oil – My longer-term outlook continues to be bullish on Oil, Gold and Commodities in general. But I have had a change of heart for these in the short term. While these carry a risk premium, it will take some more geo-political events to get them moving back up in earnest. I still feel as though oil will not drift much lower and technically speaking looks ready to catch a bid, but Gold on the other hand looks weak technically. If Gold continues to fall, we will see if it can hold $525 where support seems to lie. I still believe Gold can take $600, but it may take a little longer than anticipated and as stated some kind of news driven event may be required to get some wind under its wings. For now the U$D looks poised to strengthen, although if 90 is broken then a test of that heavy resistance area near 92 could be in the cards. We have an FOMC meeting at the end of March, if we are moving up into this date or find continuing support thereafter is to be determined.
Technically Speaking AAII sentiment as of 3/8 is coming in at Bullish 41.21%, Bearish 30.77% and Neutral 28.02%… The VIX and VXN are 12 & 18 respectively with an uptrend remaining intact. The CBOE EPC Ratio ended the week at .53 and TPC ratio at .87. The RSI 5-Days are Oversold on the COMP, Neutral on the R2K and SPX and nearly Overbought on the DJIA. The P/C ratios, VIX/VXN, Summation, McClellan, Highs/Lows, Advance/Decline, 200DMA stocks and Bullish %'s can all be viewed below along with the major indices…
CORE: Sold NXG, ENPIX, €uro & ¥en Still holding USPIX and a small position in PRGNX
SPECULATIVE: Sold DNDN, AGIX (I hated to do it, but I hope to reposition later) I feel these will get the good news I anticipate…
SCALP TRADE:
SWING: Sold GSX, GEOI, CUP
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. I am not a day trader and invest mostly in funds or baskets of stocks, perform occasional swing trades and some scalps. Data presented may not be 100% accurate as I do make mistakes, so please perform your own due diligence.
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