OVERVIEW: What a week, you could feel the intensity as the commodities markets came unhinged and shot up with the equities markets doing their best to follow suit on some earnings surprises, namely GOOG. Then we heard from the “one and done” crowd again and the cheerleaders were out in force, that is until the CPI data came in. Don’t get caught twisting in the wind, these bozos are basing their opinions on lagging data and/or a single data point. This charade will undoubtedly go on until the Fed finally does stop raising rates (i.e. sometime in the unforeseeable future). When it was all said and done, albeit brief in some cases, we saw new highs across the board; Oil, Gold, Silver, CRB, Trans, COMP, SPX R2K and DJIA. The biggest movers being in the Commodities space as all things tied to natural resources launched higher, it was a beautiful thing! I don’t know about you, but it gave me a rush (a tingle similar to that when QCOM went to $700). What’s more, I have a feeling there is more to come… The U$D on the other hand got spanked and was a contributing factor along with Iran concerns as the saber rattling is reaching new heights. As much as I hate to say it, Iran is as good as bombed. This is a simple equation; they are too stubborn to stand down and have a newfound flagrancy in the form of support from Russia. We on the other hand are too gung ho for control of their oil. Politics plays into this big time (i.e. midterm elections, sagging polls #’s, etc, etc) and while I always prefer dialogue as opposed to bombs, Ahmadinejad is talking a lot of smack and saying things that nobody in good conscience can ignore. It’s a done deal, just a matter of when -- my guess is within a window of 3 months… While we saw most new highs occur on an intraday basis, we also saw some heavy whipsaws play out. For instance, precious metals sold off hard on Thursday only to nearly recover the move in its entirety the following day. If you like volatility, then this is paradise. As mentioned in the last update with which this post replies: Support off of the lower trend line in all of the majors seems to have been established. The McClellan appears to have bottomed and 200MA stocks are turning back up although I am still looking for the Summation and BP%’s to confirm. Basically I believe the week begins mixed, but then the floodgates open on many key earnings reports from a bunch of heavy hitters. If earnings are disappointing the markets could implode, but for the most part earnings will probably be good enough for participants to get behind and we see the week ahead finish out higher than where we started. So for now I am leaning towards a move higher, I think this assessment pretty much speaks for itself… So to round out the week; Oil 75, Gold 633, Silver 13, CRB 358, U$D 87.7, COMP 2342, R2K 772, SPX 1311, DJIA 11347 and TRAN 4706. Treasury yields appear to be taking a breather and the yield curve remains relatively flat. The 2yrs@4.88%, 5yrs@4.90%, 10yrs@5.00% and 30yrs@5.09%. The Yield Curve can be viewed at #msg-10778311 …
The CoT data continues on a similar path as the week before with some slight changes. Open interest has flat-lined on the NDX with a slight up-trend on the SPX and DJIA. We also see a similar build in Commercial Shorts on the NDX, but much heavier on the DJIA and the SPX with Small Specs taking up the long side. Gold open interest continues to climb with Commercial shorts and Large Spec longs remaining in a stand off. Oil open interest is in a moon shot (way up) with humongous Commercial short positions squaring off against an equally impressive Large Specs long positions. You can go here to view the CoT data graphs #msg-9171642 -- As detailed by AMG Data Services, excluding ETF activity Equity funds reported net cash inflows totaling $3.335B in the week ended 4/19/06 with 54% going to funds investing in Non-domestic securities (64% xETF’s). Excluding ETF activity, International Equity funds reported net cash inflows of $1.140B to all Developed and Emerging markets. The largest ETF Equity Inflows were $1.079B to the iShares Russell 2000 Index fund and $384M to the Select Sector SPDRs Energy fund. The largest ETF Equity Outflows were -$1.177B from the SPDR Trust Series 1 fund and -$517M from the NASDAQ-100 Index Tracking Stock fund. Money Market funds reported net outflows of -$8.712B. The full report can be viewed at #msg-10778189
ECONOMIC #’s:
NY Empire State Index – Apr = 15.8 vs 29.0 w/expectations of 24.0 #msg-10708607
Net Foreign Purchases – Feb = $86.9B vs $69.1B w/expectations of N/A #msg-10708622
Building Permits – Mar = 2.059M vs 2.179M w/expectations of 2.100M Housing Starts – Mar = 1.960M vs 2.126M w/expectations of 2.025M #msg-10717558
MBA Mortgage Applications – 4/14 = slipped -1.7% with apps for mortgages to purchase homes falling -2.7% and refi apps easing -0.4% week to week #msg-10737530
Oil Inventories – 4/14 and as reported by the DoE and API: Crude = DoE –800K bbls / API -4.0M bbls Gas = DoE -5.4M bbls / API -3.3M bbls Dist = DoE -2.8M bbls / API -2.8M bbls #msg-10737331
Core PPI – Mar = 0.1% vs 0.3% w/expectations of 0.2% PPI – Mar = 0.5% vs -1.4% w/expectations of 0.4% #msg-10717627
Core CPI – Mar = 0.3% vs 0.1% w/expectations of 0.2% CPI b] – Mar = 0.4% vs -0.4% w/expectations of 0.5% #msg-10737154
Initial Jobless Claims – 4/15 = 303K vs 313K w/expectations of 308K #msg-10761591
Leading Indicators (LEI) – Mar = -0.1% vs -0.5% w/expectations of 0.0% #msg-10761599
Philly Fed – Apr = 13.2 vs 12.3 w/expectations of 14.3 #msg-10761611
OTHER Indicators Of Interest
ICSC/UBS Weekly Retail Sales Chain store sales rise on the week #msg-10726604
Home Builders Index Falls to 4-1/2 year low #msg-10709860
U$D News Dollar Has Biggest Slide in Two Weeks on Asset-Demand Concerns #msg-10693584
FOMC Minutes (parsed) with a link to the Minutes in full #msg-10726281
ABC News: Oil: Exxon Chairman's $400 Million Parachute Won’t build a new refinery, but a half billion retirement package is feasible… http://abcnews.go.com/GMA/story?id=1841989
WHAT CAN WE EXPECT NOW?: There is a good chance that inflationary fears weigh on the markets psyche in the week ahead as AAII Sentiment has turned quite bearish. We have another full slate of earnings reports (mostly mega-caps), I believe we will need to see some very good forward guidance to keep things going. It is also month end, so we most likely see the window dressing shuffle play out. Economically speaking, housing data may get a closer look than usual, but the biggie will be GDP at the end of the week. I expect volatility and a lot of indecisiveness, especially early on in the week ahead. While we may be able to grind higher on the indices, I do not believe we see a uniform across the board move. As of this moment the DJIA and SPX look more promising than that of the COMP and R2K, but this could change as the week unfolds. The McClellan, New H/L’s and 200MA stocks appear to have topped with BP%’s and Summation being mixed. Technicals are giving mixed signals and we appear to be setting up for a softening phase possibly followed by another big push. So keep in mind the indices are not in sync and the majority of technicals are (for the lack of a better term) just hanging out there, oscillating and not giving any clear indication of what may be in store. So I am leaning towards a move down with a mid to late week recovery, similar to that as we saw in the week before where a Friday sell off continued until approximately midweek before finding support at the lower trend line. We are in no mans land here, exhausted markets being pushed on a string by the invisible hand so expect the unexpected as we can break in either direction on a moments notice. As for the U$D, Gold and Oil, these are highly news driven sects. The U$D may continue to soften, but could find some temporary support in the 87-88 area. If nothing else, the U$D is in a decisive downward channel. Oil and PM’s are doing just the opposite (parabolic) and will most likely feed off of any U$D weakness. One would think that some weakness will be seen in Commodities after the significant run in the prior week, but I cannot say either way. I was originally looking for Gold to fall back about 20pts before the next leg up, mainly due to the fact that various indicators were beginning to roll over, but as we can see a big move up materialized. Another thing to keep in mind is that the Security Council will render a decision on Iran this week (April 28th), how this plays out leading into the decision and thereafter will most likely have a large effect on what takes place in the week ahead. We may see a softening going into this decision, but if the markets are really a forward looking mechanism, then the decision is already being built into the prices we see today. Whatever the decision is, it will not be to the benefit of Iran and may create further saber rattling that could in turn rattle markets. Any moves will most likely be accompanied with significant volatility.
Technically Speaking AAII sentiment as of 4/19 shows 33.73% Bullish, 40.83% Bearish and 25.44% Neutral… The VIX and VXN are 11.5 & 16 respectively with both indicators still exhibiting an up-trend. The CBOE EPC Ratio ended the week at .60 and TPC ratio at .93. The RSI 5-Days are Overbought on SPX and DJIA while Neutral on R2k and COMP. The P/C ratios, VIX/VXN, Summation, McClellan, Highs/Lows, Advance/Decline, 200DMA stocks and Bullish %'s can all be viewed below along with the major indices…
Took up a position in the €uro – Hedge against the falling U$D
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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