Overview: As mentioned in last weeks update with which this post replies; Next week we have a full moon on the 25th and a Bradley Turn on/around the 27th. Usually when we have a Moon Phase and Bradley overlap as we have here we get some kind of unpredictable activity, so I expect a similarly strange week to follow. Most likely it will be an extremely volatile week so expect the unexpected, be on your guard, etc, etc. While this past week may or may not qualify as extremely volatile, it certainly was tradeable for all you day traders. The strange and unpredictable activity did seem to happen again on the last trading day of the week whereas on Friday the week before the U$D took a steep tumble. This last Friday it was Oil's turn and it's decline did not seem to help buoy the indices. Is it me or do these markets seem rather schizophrenic? Take oil for example; Since when did the weekly weather patterns take precedent over the seasonal patterns? The markets in general seem to be living minute by minute, day by day, teetering on the edge of an uplifting move or a downward spiral. This is not a very healthy environment where everyone has their finger positioned over the panic button while performing their daily routine. If anything significant should take place, it will be something to behold. I just hope we are on the right side of whatever event that may be.
Economic #’s: Another mixed week of Econ #'s, some good -- some bad, but depending on who you listen to is bound to sway you one way or the other. I for one don't like what I see, I think I have made that clearly evident over the last month or so and have attempted to put forth further evidence than just a headline to bolster my view.
Consumer Confidence was up slightly 0.7 to 103.4 and from the previous months reading of 102.7 and the expected 101.3 although the forward looking Index of Expectations fell from 100.7 to 98.4 and consumer's outlook Index of Business Conditions for the next 6 months fell to 21.1% from 22.4%.
Existing Home Sales were down by 3.3% or -.23 Mln to 6.69 Mln units compared to the previously reported 6.92 Mln. Sales for all of 2004 grew by 9.4% and the Median National Average Sales price rose 8.1%.
Durable Orders were up 0.6%, but down from the 1.8% previously reported and slightly lower than the 0.7% expected. Excluding a 3.0% drop in transportation goods ordered, orders rose 2.1% in December.
Initial Jobless Claims came in at 325K, up by 7K from the previously reported 318K and slightly lower than the 330K expected.
Help Wanted Index edged to 38 or higher than the previously reported 36 and the 37 expected. The last time the index reached 38 was one year ago.
Chain Deflator otherwise known as the Implicit Price Deflator which is a measure of prices tied to the Trade Deficit rose to 2.0% and up from the previously reported 1.4%, but slightly lower than the 2.1% expected.
Employment Cost Index fell to 0.7% from the previously reported 0.9% and the 0.8% expected while wages grew 0.4%, the slowest rate in 6 years.
GDP fell to 3.1% and quite a bit lower than the previously reported 4.0% or the 3.5% expected. The trade deficit subtracted 1.7% points from 4th Qtr growth although for the year of 2004, GDP grew by 4.4%.
Oil Inventories came in mixed. On the one hand the DoE (Dept of Energy) claims that Crude inventories rose 3.4 Mln bbls, Distillate inventories fell 2.3 Mln bbls and Gasoline inventories fell 2.3 Mln bbls. On the other hand, API (American Petroleum Institute) claims Crude inventories fell 3.66 Mln bbls, Distillate inventories fell 4.22 Mln bbls and Gasoline inventories fell 5.3 Mln bbls. Either way you cut it, Oil's fall Friday was a surprise.
As a side note; The White House stated this week that the Budget Deficit will reach a record $427 Bln or $15 Bln more than originally projected.
UPCOMING WEEK It will be a very busy week and on deck we have Personal Income & Spending, Chicago PMI, New Home Sales, Auto & Truck Sales, Construction Spending, Ism Index & Services, FOMC Policy Meeting, Initial Claims, Productivity, Factory Orders, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate and Michigan Sentiment.
If these numbers are weak or if the Fed steps away from their measured stance, things could get ugly rather quickly....
While the markets made an extraordinary come back from the depths to put in new highs for the 2004 calendar year, could we be now nearing a top? Just for a minute let's put the technical indicators aside. What I am seeing is much like 1999 going into 2000. Many bullish newsletters claiming "don't miss this train", e-mail solicitations for hot penny stocks by the spam loads, infomercials on trading channels, options and futures, M&A activity is on the rise and now they want to extend the trading hours. I don't know about you, but I believe the last one may be the one that breaks the camels back. This is all so reminiscent of a bubble that is about to burst. If it looks like a duck, walks like a duck and quacks like a duck, it must be a duck...
What can we expect now?: To be quite honest I do not know what to expect next week, although I do have a hunch. We may just trade within a volatile range, but some time in the very near future the bottom is going to fall out of this market. When reality bites, it will be like a 2"x4" between the eyes. With earnings season winding down, more time will be spent putting the health of the economy under a microscope. This past weeks GDP may be a precursor of what is to come and as I mentioned earlier, if this weeks Econ #'s are weak and/or the Fed changes from its measured move stance, a slide that most just don't seem to believe possible may take hold. As always I could be wrong in my interpretations, but I believe we are in a winding down period and quite frankly the writing is on the wall.
With that said, Bullish Advisors are at 56.0% with Bearish Advisors at 24.0%, VIX/VXN have moved up lower and both appear to be in a descending wedge while the Equity P/C Ratio is still at a modest .608 with its 21DMA at .641. The RSI 5-Days are Neutral on INDU, SPX and COMP with the RSI 5-Wks being Neutral as well. The $NASI (Summation Index) is in a sharp decline piercing below the 200DMA with the 50DMA beginning to rollover. The $NAMO (McClellan Oscillator) 50DMA crossed below the 200DMA earlier in the month and is in a steep downward channel. The BP%'s have turned down and are well below their 50DMA's. The $NAAD is in a downward spike to -500 and continues to weaken with the 50DMA about to cross below the 200DMA as these averages are now entwined. The $NAHL is in a steep decline and well below its 50DMA and attempting to cross back above the 200DMA.
On the chart below I used the Red Fib (shorter term) as a guide when I wrote the following post on the 27th, which can be found here #msg-5238226
If one were to use the Blue Fib (longer term) from the 1750 bottom and overall trend change to the 2193 top, not much changes except for the fact that we are currently sitting at around the 38.2% Fib retrace. We could still fill the gap and encounter resistance followed by a possible decline to the 200DMA at 1980 which is the 50% Fib retrace and test that support area.
Red Fib (shorter term) Blue Fib (longer term)
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.
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