In Search of the Proverbial Edge (Commentary) Urban legends, old saws, get hold of your rabbit's foot as we go in search of the proverbial edge. These stock market oracles are fun for market watchers of all ages.
Overview: What a week…Just when you think you have a handle on what is going on, this market will do just the opposite. As mentioned in last weeks update with which this post replies; 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. Ain’t that the truth and I also mentioned this; With earnings season winding down, more time will be spent putting the health of the economy under a microscope. So far that has not been the case, as a matter of fact bad Econ news is being treated as good news. If there were a week that I thought this would be in play, it was this last week with all of the Econ activity and the majority of which was not all that encouraging. When I see activity like that, it gives me the feeling that some euphoria is building under the surface. It seemed to stem from the Iraqi Elections, followed by the State of the Union Address. While both of these came off well, nothing has changed in either theater. The streets of Iraq are no safer than they were and the State of the Union did not reveal anything we did not already know. Yet the markets are finding a way to grind higher, but this may change at any given moment and I will go further in depth a little later. Let’s first review all that Econ data we saw this week.
Economic #’s: We have a bunch of Econ #’s to get through so let’s get right to ‘em and let the data speak for itself…
Personal Income came in at 3.7%, but this was boosted by a one-time MSFT dividend of $32 Bln. Excluding this event a 0.6% reading would have been reported which was slightly higher than the 0.4% posted last month. Personal Spending came in at 0.8% and outpaced Personal Income (excluding the one-time MSFT dividend).
Chicago PMI came in at 62.4 and higher than last months 61.9 which was revised up from the original 61.2 reading. Prices paid fell to 76.5 from 84.4 and New Orders rose to 65.8 from 64.9. While things seem to be picking up in the Midwest, these numbers do not jive with the ISM, Productivity and Factory Orders numbers also reported this week which I will get to momentarily.
New Home Sales came in at 1098K or 0.1% higher than the 1097K previously reported. The 1097K was a 13.1% decline for Nov Sales. Lower sales the past 2 months have built home inventories up to a 4.8% months supply. Construction Spending increased to 1.1% or a 0.7% increase over last months 0.4%. It appears as though homes are being built faster than they are being sold, but whether this trend continues or not is yet to be confirmed.
Auto/Truck Sales were down 5.3% from Jan’04 and fewer than 1.1 Mln vehicles were sold in the USA last month with Car Sales slipping 2.2% and Truck Sales slipping 7.7%. Auto Sales outpacing Truck Sales seems to be the new trend and understandable considering the MPG advantage over most SUV’s and the cost of filling a tank.
FOMC meeting was held where the Fed raised lending rates .25% as expected and there was little if any change in the forward looking language espoused by Fed Chairman Sir Alan.
ISM Index (mfg) fell to 56.4 from last months 57.3 reading as factory activity decelerated to the lowest level since Sept’03. ISM Services (non-mfg) slid to 59.2 from lasts months 63.9 reading as the ISM Employment Index fell to 52.2 from 55.0, New Orders fell to 60.5 from 61.3 and Prices Paid fell to 66.6 from 73.6.
Productivity fell to 0.8% or 1.0% lower than the 1.8% reported last month and showing the slowest growth in nearly 4 years while Unit Labor costs rose 0.1%, the first increase in 3 years.
Factory Orders came in at 0.3% for the 3rd consecutive month of increases, but considerably lower than last months 1.4% and the weakest reading since Sept’04.
Hourly Earnings came in at 0.2% or a slight increase over last months 0.1% reading. Average Workweek declined slightly to 33.7 from last months 33.8.
Nonfarm Payrolls came in at 146K, considerably lower than the 200K expected but higher than the same day revision of last months number which was originally reported as 157K and revised down to 133K. Unemployment Rate came in 5.2% and lower than the longstanding 5.4%. For those who might like to get a better idea of what the “real” Unemployment Rate is, go to this link http://www.njfac.org/ and click on “unemployment rate”…
Oil Inventories came in mixed again for a 2nd week in a row. So depending on which numbers you are willing to accept, here are the DoE’s (Dept of Energy) numbers and API’s (American Petroleum Institute) numbers. Crude according to DoE fell 394K bbls, according to API rose 783K bbls. Distillates according to DoE fell 2.9 Mln bbls, according to API fell 1.1Mln bbls. Gasoline according to DoE rose 1.6 Mln bbls, according to API rose 3.9 Mln bbls.
Mixed Data, conflicting data and revised data has become the norm. I cannot recall a time when it was so hard to get data without so much headache. It is my feeling that this is by design so that nobody ever really knows what the heck is actually going on. Is this what our country has relinquished itself to, secrecy and utter confusion in most if not all of our Government dealings? Transparency is a thing of the past. Apparently a line will not be drawn between regular everyday activity and our countries security. Everything is a secret. I feel like a mushroom, kept in the dark and constantly fed BS…
I would like to dedicate this week’s spin to my head, yes that’s right, my head… My head is what is spinning so what better place to start? Bad is good, fiction is fact, wrong is right and it is being gobbled up like there is no tomorrow. This change of thinking seems to have taken effect shortly after 9/11 when President George Bush wrapped himself in the American flag and took us to war against a nation that was not responsible for the attacks on the WTC nor a threat to our way of life. Then there is another George, George Costanza. Those of you who may not be familiar with this man, he is a character from the “Seinfeld” sitcom. In one of the shows George adopts an alter ego that does just the opposite of all good judgment and common sense he has ever had or known. This is how George scored the dream job of his life with the NY Yankees, by doing just the opposite of what he would normally do. This kind of attitude seems to be what it will take to remain sane in an insane society, but instead of calling it insane let’s just call it the Ostrich Society. With that said, I think it is time for me to adopt a Georginian way of thought. Did you know that a slowing economy bludgeoned by debt and deficits is not a long-term problem and will be halved in 5 years? Did you know that declining year over year earnings growth and disappointing jobs growth does not matter? Did you know that $50 bbl Oil and importing inflation is not a hindrance to economic growth? Did you know that privatizing Social Security will fix a program that IRA’s and 401k’s were specifically devised to supplement? Did you know that it is OK to go deep into debt and live way beyond your means in order to partake in the ownership society? Did you know that Fed Chairman Alan Greenspan is the most powerful man in the world? Did you know that the predicament the USA finds itself in is everybody else’s fault and no fault of our own? Well the markets seem to think so and so do the Georges… The markets are going to lead us out of all of these issues and then some, didn’t you know that? Two Georges and a Greenspan must make it right, right? How could you even think about second-guessing such a theory? I guess my problem is that I need to stop thinking with the left side of my brain (the logical side) and start thinking with the right side of my brain (the radical side), problem is my new alter ego disagrees…
What can we expect now?: See spin of the day… Seriously though, what can one expect? I still feel the same as I have about where we are today and where we are going in the near future, which is into a decline. January has more or less set the stage although it may not occur in the timeframe that I had envisioned. We are overvalued based on YoY earnings growth with forward looking forecasts being somewhat undesirable and the general health of the economy going forward as a whole is questionable at best. These sentiments will be reflected in due time. For the time being we may stay range bound before the markets decide to go one way or the other in a serious fashion. While upside rewards may come, I believe they will be short lived with the risk-reward ratio being too lopsided. If you are a day trader, you can do well in this environment provided you are skilled at extricating ones self from positions should the market turn sour. While fundamental analysis has proven to be a moot point lately, we do still have technical analysis to help paint a picture of what may be in the offing…
Bullish Advisors are at 54.5% with Bearish Advisors at 25.3%, VIX/VXN are heading back down and testing all time lows with the Equity P/C Ratio at .486 and well below its 21DMA at .628. The RSI 5-Days are Very Oversold on INDU, Overbought on the SPX and nearing Overbought on COMP although it is still in Neutral territory. The RSI 5-Wks are Neutral across the board, but all with the exception of the COMP are nearing Overbought territory. $NASI (Summation) has turned up and nearing the 200DMA although it is still below the median at –250 while the $NAMO (McClellan) has just pierced the upper trend line of the downward channel and crossed over both the 50DMA and 200DMA’s. $NAHL (Highs/Lows) has improved and crossed back over the 50DMA while $NAAD (Advance/Decline) is looking kind of toppy in which the 50DMA and 200DMA remain entwined. BP%'s are in an uptrend, but still well below the 50DMA. BBands are beginning to pinch with the next 100 points or so from here being what I would consider to be a formidable resistance zone.
One last note: The COMP is currently sitting at a crossroads. The reason I say this is that the 2080’s had once been formidable shelf of support, but with the January decline this area was breached and has now become resistance. This is one of a series of resistance zones (so to speak) on the way towards a new high. Also there was a rather large gap, which has been recently filled over the last few trading days’ action. Last but not least this area is sitting on a major Fib line area which can be explained in the following posts that I wrote throughout the week on the Your Economy board.
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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