Replies to post #2408 on Your Economy (No Politics) (YE1)

[Bullwinkle]

UPDATE: >>>CYCLE/TREND for the Week Ahead>>>

Sorry about my non-inclusion of this data into my report. I try to be thorough and fair about what I post, but sometimes (like this last week) there is so much ground to cover that I forget some things.

While my outlook on the Econ #'s was rather downtrodden with the exception of ISM and Factory Orders #'s which I still feel were a little weak for the Holiday Season, I had overlooked mentioning Consumer Credit and upcoming Econ activity...

Consumer Credit came in at -$8.7 Billion and for consumers to reel in spending and bring this number down from the $9.5 Billion reported in the prior month is quite a feat adding to why ISM and Factory Order #'s were not stronger, nor Holiday Sales. It also shows that consumer spending is on the decline and it came during the biggest holiday of the year. This is an ominous sign and cannot be good going forward. The consumer has carried this economy, but recent tightening of the purse strings should raise some eyebrows. I think we all knew that at some point in time the consumer may get tapped out and that time may be upon us.

As for the upcoming week's Econ activity we have Wholesale Inventories, Trade Balance, Treasury Budget, Import & Export Prices, Initial Claims, Retail Sales, Business Inventories, PPI and Core PPI, Capacity Utilization and Industrial Production.

Should be a busy week...

[Bullwinkle]

>>>CYCLE/TREND Update for the Week Ahead>>>



Overview:

Another week comes to a close and an interesting week it was, plenty of volatility with Decliners outpacing Advancers for the most part and new Low's becoming more prevalent as new High's have dwindled away. I had expected this week to provide some bounce and while Wednesday's bounce was sold, today's was not. How convenient and right before the weekend and prior to Options Expiry. As mentioned in last weeks update with which this post replies; This window may provide a good opportunity to make some quick trades or just to get clear altogether. I still feel this is/was the case going into next week as well, but the set up sure looks ripe for a vast decline. While we may base a little more and see some continued volatility, it could take a little time before a vast decline (if we get it) takes hold. In last weeks update I also mentioned; Probably just enough to sucker in those that believe in a "new" Bull Market before the take down occurs. Then again we may just go on to new highs or the floor could fall out, but being that forthright is highly unlikely. All I can say is time will tell...

Economic #’s:
Wholesale Inventories rose to 1.1%, the same as last months reading of 1.1% and higher than the expected 0.7% rise. Increasing inventories can be looked upon in one of two ways, either as a stocking up for anticipated sales or a slowdown has occurred and product is lingering. Trade Balance came in at an ever widening $60.3 Bln, a new all time record and $4.3 Bln higher than the previously revised $56 Bln from the prior month. The Treasury Budget however came in at -$3.44 Bln, much lower than the prior months $17.6 Bln gap although –$4.5 Bln had been expected. Import Prices fell sharply by 1.3%, much lower than the anticipated 0.4% and lower still than the 0.2% recorded in the prior month. This was the largest monthly decline since April’03 although non-petroleum Import Prices rose by 0.5%. Export Prices rose 0.2% and was a touch lower than the 0.3% reported a month earlier.

Speaking of Oil, Crude Inventories fell by 3.0 Mln bbls leaving supplies at the lowest level since Oct’04 while Distillate Fuel rose by 1.9 Mln bbls although HSD or High Sulfur Distillates fell by 500K bbls, both of which are 8% lower than this month a year ago. Retail Sales came in at 1.2% although when excluding Autos was up only a meager 0.3%, which was lower than the 0.4% expected. By comparison, same month sales from a year ago excluding Autos grew 8.6%. Retail Sales for all of 2004 rose by 8%, the biggest gain since the 8.5% gain recorded back in 1999 although I would imagine that a good portion of 2004 sales were driven by Autos (no pun intended), but I have been unable to clarify those numbers. Initial Jobless Claims jumped 10K to 367K, which is a 3-month high and continues to grow while the Unemployment Rate sits at a stagnate 5.4%. Business Inventories rose to 1.0% after the prior months reading of 0.4% and higher than the 0.4% expected. Again the inventory thing while manufacturing sales rose a meager 0.4% or 1.0% less than the prior months 1.4%.

Core PPI came in a touch lower at 0.1% from the prior months reported 0.2% and the 0.2% that was expected. This number excludes food and energy and the Core is up 2.2% for all of 2004 and the largest yearly advance since 1998. PPI fell –0.7% and came in much lower than the prior months reading of 0.5% or the –0.2% expected, but PPI rose a steep 4.1% for all of 2004. Capacity Utilization rose to 79.2% or 0.5% higher than the prior months reading of 78.7% and higher than the 78.9% expected. It was the biggest increase since Jan’01, but capacity utilization only rose 0.7% for all of 2004 and is still 1.9% below its long-term average. Industrial Production rose to 0.8% or 0.6% higher than the prior months reading of 0.2% and higher than the 0.5% expected. Manufacturing industries which account for nearly 90% of industrial production increased only 0.7%, while Mining rose 0.4% after the prior months surge of 2.2% and power utility production rose 2.7% compared to a 0.1% decline in the previous month.

With the holiday season out of the way I believe it will become more evident as we move forward into 2005 that the economy never fully recovered and is beginning to once again weaken. While these numbers look good in the headline, the holiday season and last months dip in oil prices contributed immensely to the numbers. It will be very interesting to see where these numbers come in next month and the months ahead.


This week’s spin has to do with earnings. So far this Qtr, much like the last, has exhibited more earnings warnings, misses and lack of good forward guidance than those who are pre-announcing, exceeding earnings or giving good forward looking statements. The former trend has been more prevalent than the latter over the last two Qtr’s. LEI have been on the decline since April’04 and while some talking heads would have you believe that the 1st half of 2005 will be strong with the 2nd half lagging, I beg to differ. At this point in time there have really only been two high profile companies that have reported strong earnings accompanied by good forward guidance and that would be INTC and AAPL. While I am sure there are others that I am leaving out, I can think of a plethora of others off the top of my head that have either warned, missed numbers or have given poor forward guidance. Some of those would be AA, GM, DNA, SUNW, UPS, XLNX, STM, NT, AMD and you get my drift. You may have also noticed that the breadth of those companies mentioned come from various sectors and indices. So what does this all mean? We are not only entering a slowdown, but quite possibly the “R” word is not far behind. While it may be a little early to consider such a thing, keep this in mind; the US dollar has been in decline and is suppose to improve profit margins, oil has not fallen below $40 bbl and companies can only make so many cuts, outsource so many jobs and relocate so many times before they start to scrape the bottom of the barrel looking for other new and innovative ways to keep profit margins up. Without steady job creation, increasing trade and deficit gaps sapping the economies strength, stealth inflation is starting to become not so radar resistant. The Fed can continue to print money and raise rates, but sooner or later these will feed upon themselves and exacerbate the situation. The feast has begun…

What can we expect now?:
As mentioned earlier, I believe we are setting up for a vast decline and while this market tends to surprise and leave many such as myself with egg on the face, I believe it is only a matter of time although it may not occur as quickly as I may seem to be implying. It will take time and there are plenty of support areas built in over the last 3 months bolstered by those areas having become support after being resistance through most of 2004. With that said, The Bullish Advisors are at 59.4% with Bearish Advisors at 22.9%, VIX/VXN have begun to move back down and the Equity P/C Ratio has receded to .583 with its 21DMA at .605. The RSI 5-Days are Neutral on INDU, SPX and COMP with the RSI 5-Wks being Neutral as well. NASI is in a sharp decline and just tipping the midline at Zero with BP%'s not quite as steep and flattening as of late. As mentioned earlier the A/D line is weakening (other than today's spike) and the New High/Low lines had fallen below the 200DMA and are sitting right at a potential crossover point as we speak. Also we had a Bradley Turn date on/around the 10th and it was also a new moon for all of you who may follow moon phases. While it is still early to tell what effect these may have on the markets, so far it has been a negative one.

NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. LT Holds: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX and TAVIX

Disclaimer: This disclosure is not a recommendation to buy or sell or to do as I do. It is to let people know what I am doing and give my thoughts on current market conditions. I am not a day trader and only attempt to identify up/down trends and play the swings.

As for charts this week, I would like to direct you to #msg-5111931 as I feel these are still representative of our current market trend.