Overview: It’s that time once again to review the past week and look into the next. As mentioned in the last update with which this post replies; Fundamental analysis is getting to be a bigger part of my game and I have to tell you market breadth stinks, it is downright pathetic. Not only has market breadth been weak before the most recent decline, it is picking up steam. The price action may not lead one to believe what is taking place and as I alluded to in last weeks update; We may be getting ready for a dose of selling. Hard to discern, but do not let the market bore you. This is a stealth decline. A lull you to sleep kind of decline that keeps everyone guessing while one tries to figure out just what is going on, it is happening before your very eyes. I wholeheartedly believe this and I have the data to back up my statement. Just look at COT’s data, fund inflows, insider trades and the amount of money fund managers have at their disposal. Briefly, COT’s are one sided with the Small Speculators (long) bumping heads with the Commercials (short) and in some cases Large Speculators (short) as well. Fund flows have been going almost exclusively into International funds. Insider sales in excess of $5 Trillion compared to $190 Million in purchases, that’s a 29.1 ratio of sales to purchases and this month is just about over. Last but not least, mutual fund cash levels are below 5%, that’s right 5%. You just cannot get a whole lot more bullish than that. Sure the smart money is big time short, but that should be telling you something. If this data does not scare you, it should at least raise an eyebrow. Top it all off with the rising rates atmosphere and this has Y2K written all over it, maybe worse. I will not bother to get into the bubbles, debts and deficits, you have heard about those ad-nauseam, but these are worse now. Will it happen overnight? I doubt it, but do not kid yourself, this kind of activity is unsustainable and we now have a Fed with needle in hand. What I do find interesting though is that the markets are just now noticing the rate hikes. This too shall pass as Mr. Market and its players seem to have short term memory. In the meantime, the U$D has strengthened taking down gold which cut right through what underlying support there was in the $430-$435 area, but oil is another story altogether. It seemed like a fairly substantial sell off in oil took place and just as quickly as it fell we are right back to knocking at the door of $55 bbl.
Economic #’s: As usual we received a mixed bag although we are leaning towards a trend where the numbers are not overwhelmingly weak, but more consistent in the weekly and monthly patterns.
PPI rose 0.4% from the prior months 0.3% and forecasts for the same. As a result, prices of goods ready for retail sales have climbed 4.7% in the past 12 months.Core PPI which excludes food and energy rose a more moderate 0.1%, in line with forecasts and down considerably from the prior months 0.8%. The core PPI is up 2.8% in the past year, the fastest gain in more than 9 years. In February, energy prices increased 1.4% including a 5.2% rise in gasoline. Consumer food prices increased 0.8% including the largest rise in egg prices in 4 years. Finished capital equipment prices fell 0.2% and prices of consumer durables fell 0.5%. Light motor truck prices fell 2.8%, the largest drop in 2 years while passenger car prices dipped 0.9%.
CPI ] rose 0.4% from the prior months 0.1% and exceeding forecasts of 0.3% led by soaring energy costs and higher prices for housing, medical care and air fares. Core CPI which excludes food and energy rose 0.3% from the prior months 0.2% and forecasts for the same. The CPI is up 3% in the past year, while the core rate has risen 2.4%, the biggest gain since August 2002. The core rate had risen 0.2% for four months in a row before February's upside surprise.
ICSC-UBS Weekly Chain Store Sales rose to 0.2% and down from last week’s 0.6%. The index is up 3.4% year-over-year for the 3rd week in a row. Johnson Redbook Retail Sales was up 4.3% after reporting a 1.0% decline in the prior week.
Existing Home Sales fell 0.4% to an annual rate of 6.79 Mln from an upwardly revised pace of 6.82 Mln, but ahead of forecasts for 6.70 Mln. Last month's sales activity was 6.1% above the 6.40 Mln unit pace in February 2004. Total housing inventory levels rose 10.7% at the end of February with 2.38 Mln existing homes available for sale, which represents a 4.2-month supply at the current sales pace.
New Home Sales rose 9.4% to a 1.226 Mln annual rate exceeding the 1.15 Mln forecast and upwardly revised 1.12 Mln from 1.106 Mln annual rate the month before. The median price increased 9.6%, the biggest gain since February 1993, to $230,700. The February price increase, which reflected a jump in the number of homes costing $200,000 or more, followed an 8.6% slump in January that was the largest since September 1981.
MBA Mortgage Applications fell 9.5% to 658.8 from 727.6 a week earlier and 39.3% from a year ago. Mortgage lending has now declined in 6 of the past 7 weeks. Index of Refi Applications fell 16.5% to 1894.4 after rising 4.2% or 2267.5 in the prior week. Applications for ARM’s made up 39.5% of total applications and was down from the 42.9% previous reported. ARMs, accounted for 33.5% of all activity, vs. 32.4% in the previous week.The Purchase Index decreased 3.5% to 446.4 after a 2.5% increase in the previous week, the decline was the first in the past 4 weeks. The fixed 30-year mortgage rates rose to 6.01% up 6 basis points from 5.95% the previous week. Fixed 15-year mortgage rates averaged 5.56%, up from 5.47% in the prior week. ARM mortgage rates averaged 5.35%, up from 4.99% a week earlier.
Initial Jobless Claims came in at 324K or an increase of 3K from the upwardly revised 321K from 318K previously reported. Forecasts had called for a decline to 315K.
Durable Orders rose 0.3% to $201 Bln after an upwardly revised –1.1% from a previously reported –1.3% decline, but came in short of the forecasted increase to 0.8%. Orders excluding transportation fell 0.2%, but were expected to rise 0.3%. This was the first drop in 3 months with the dollar value of orders close to expectations of $202.2 Bln for all durable goods and $147.5 Bln for durables excluding transportation.
WLI (Weekly Leading Index) fell slightly to 135.2 compared with a downwardly revised 135.8 in the prior week. The annualized growth rate, which smooths out weekly fluctuations rose to 3.9%, a 42-week high from an upwardly revised 3.5% in the prior week.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose 4.1 Mln bbls, but according to API rose 8.8 Mln bbls. Gasoline according to DoE fell 4.1 Mln bbls, but according to API fell 4.7 Mln bbls. Distillates according to DoE fell 2.8 Mln bbls, but according to API fell 4.7 Mln bbls.
While the past week was relatively slow for Econ #’s, the week ahead promises to be a busy one. We can look forward to Consumer Confidence, Chain-Deflator, GDP final), Initial Jobless Claims, Personal Income & Spending, Chicago PMI, Factory Orders, Auto & Truck Sales, Help Wanted Index, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Mich Sentiment, Construction Spending and ISM Index.
It is amazing to me how the mincing of a few words can change so many peoples outlook on things to come (or supposedly to come). This week as you are most likely well aware, the FOMC raised interest once again, what a surprise! And as I am also sure you are aware, it wasn’t the fact that rates increased, but the language used by the Fed that had such an effect on the markets this week. If interested, you can read the entire FOMC statement here #msg-5825157 parsed by Barry L. Ritholtz for us that are Fed-Speak impaired. I can’t help but ask myself what is the big deal? It is more or less the same as before with a slight, very slight tweak in the language. Yet it brought about quite the knee jerk reaction. I personally think people read way too much into this stuff, they live to read between the lines and 2nd guess what the next move might be. Well I can tell you what to expect, rates are going up! Maybe it is just me, but it has been made perfectly clear for some time now that rates will be raised, the Fed has said it over and over again. Whether it is a quarter of a point or a half point at a time, they are going up and that is ALL that really matters. And what about inflation? Is this news to you? I am willing to bet that you know about inflation, that you feel it and that you don’t need some stinking indicator to tell you about it. If that isn’t enough, the bond market has been pricing it in for months. I guess what I find somewhat ridiculous is that the moguls of Wall Street are just now figuring this out. Just what planet do these people live on? Obviously they have more money than they know what to do with, especially if they are not aware of what is going on. Then again, maybe they are fully aware and are just jerking our chain and working the spin. The institutional clowns or whoever it is that decided to panic about something that we have known about and had months to prepare for, act as if we were blind sided by a tractor trailer. What about the U$D? Yeah, it got some air under its wings, but just how far do you think this bird will fly with the shape of things going forward? Nothing, I repeat, NOTHING has changed… The only thing that may be changing is that people are finally pulling their heads out and taking notice of what has been so blatantly obvious for some time now. All I can say is that if the mincing of a few words garnered this type of reaction, just imagine what a real crisis will be like…
What can we expect now?: As I had mentioned a couple of weeks back; The next couple of weeks should be very interesting and I believe we are in for more of the same range bound volatility we have been experiencing for sometime now, nothing much has changed. Volatility has played a large part in the recent movements as well as Econ #’s and news in general. These seem to be weighing on the markets minds where good news is bad news and bad news is bad news, just the opposite of what we have experienced over the last few months with the exception of January. The mood seems to be swinging back to that January feeling although we have not experienced the sharp decline (yet). I believe we continue down the same path we have been traveling and that I mentioned in the last update which is as follows: The new lows are outpacing new highs, volume has been down more often than not and when a down day occurs it exceeds the extremes of an up day. 50DMA’s have been crossed on the major indices with the COMP about to test its 200DMA. Not only that, but 2000 is a psychological level. Low and behold, that 2000 level has been breached although we are currently sitting right at the 200DMA as we speak. Thursday lead to a test of 2000 and was rejected. From here it is quite possible for a number of scenarios to play out such as we test the upper range or 2000-2020 or we fall back and test 1960 or so. SPX could pull a double bottom at around 1163, but if that does not hold we most likely visit 1140. The DJIA on the other hand is sitting at support, if this gives way a test of the 200DMA or 10350 looks to be in the cards. Unless perception changes I tend to believe the lower ranges mentioned will be tested this coming week although a bounce may occur first. While we look to be oversold, we could still go lower before real extremes are met. Either that or the extremes will be relieved and then we head lower. Also the P/C ratio has been declining and market breadth is still weak. The Bbands are fluted and MACD’s are in a nose dive, not a pretty picture…
On a technical note, Bullish Advisors are at 53.6% with Bearish Advisors at 27.8%. Although the Bullish outlook has not dropped much, Bearish has increased. VIX/VXN trends are mixed with the VIX turning up out of the range like base that was forming over the last month and a half and the VXN is still basing, both indicators turned down on Thursday’s action. CBOE Equity P/C Ratio is at .500 with a 21DMA of .653. The RSI 5-Days are very Oversold across the board and the RSI 5-Wks are Oversold on the COMP and INDU, but Neutral on the SPX. The $NASI Daily (Summation) 50DMA has crossed under the 200DMA and the indicator has formed an H&S pattern which is quite evident. The $NAMO Daily (McClellan) 50DMA crossed below the 200DMA back in early Jan’05 and is and the indicator is in an overall down channel The $NAHL Daily (Highs/Lows) 50DMA is about to cross under the 200DMA with the trend also being in a downward channel. The $NAAD Daily (Advance/Decline) 50DMA crossed below the 200DMA in early Feb. and as of late this indicator has had a time of it getting above the median. The BP%'s are mixed and oddly enough the BPINDU looks the strongest, followed by a 50DMA crossover on the SPX and BPCOMP about to test the 200DMA.
Some charts of interest posted earlier can be found on the Your Economy board where some QQQQ sentiment and ratios can be found here #msg-5838688 and a cycle chart here #msg-5824453. Also an FOMC vs COMP chart here #msg-5823696 and some weekly indicators posted a while back, yet very relevant can be found here #msg-5450832
NOTE: I continue to hold a USPIX position which I will flip long when the time feels right. CORE: HSGFX, PCRDX, PRPFX, QRAAX, RSNRX and TAVIX. Also holding ANO, BHP and SWWC for the longer term. SWING: GSS, CDIC
Disclaimer: This disclosure is not a recommendation to buy or sell or to do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding as to create a track record. I am not a day trader and only attempt to identify up/down trends and play the swings.
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