Replies to post #4842 on Your Economy (No Politics) (YE1)

[marketmaven]

France warns against EU break-up
June 19, 2005 (Frogs Getting Nervous...See ya, Ag Subsidies)
From: Agence France-Presse
http://www.news.com.au/story/0,10117,15663623-1702,00.html

FRENCH European Affairs Minister Catherine Colonna has warned EU countries tempted to go it alone after the latest crisis summit to seek a consensus rather than a break-up of the 25-nation bloc. "We need to think together, but debate openly, in a consensual way and without a break-up, on what we want for Europe in five years, 10 years, 30 or 50 years," Colonna said on France Inter radio.
"We have to define together, and I mean together, all 25, what the Europe of tomorrow could be. All together and not at the will of a few," she said.

British Prime Minister Tony Blair appealed for "a fundamental debate about the future of Europe and its direction" after rejecting a compromise on the bloc's budget for 2007-13 at the summit, which broke down in acrimony. "Britain, which takes over the presidency (of the European Union) from July 1 will have a heavy responsibility to ensure that Europe gets back running after playing a part in the summit's failure," she said.

"One cannot say that (the summit on Thursday and Friday) was a success for anybody, or even a success for the British prime minister. There is no success for anybody when there is a failure for Europe."

She saw the crisis in Europe as "primarily coming from a weakening of the European spirit".

"Some have kept their national egos, while it is only the European spirit that enables one to find the solutions together," she said.

[Bullwinkle]

~:~:~Market Trend Update for the Week Ahead~:~:~



Overview:
It was enough to lull the most hardcore market participant to sleep, but after the last couple of trading days I bet you’re awake now… After 2-3 weeks of a rather boring, low volume range bound market, we got a little excitement to close out the week. The movement was a break to the downside off of the resistance levels we have been bouncing around since the beginning of the month. A few excerpts mentioned in the previous update with which this post replies; {it’s a coin toss as to which direction the indices will break. I will continue to stand by my original call that the break will be to the downside} – {technical parameters are not aligning in support for a move up} – {this is not quite the Happy Family Theory of Markets scenario playing out as divergences are evident}. Many stars had to align for this move to take place. Other than the technicals and divergences previously mentioned in my last update, it really all started with seeds of nervousness about the Current Account deficit reported the Friday before. On Monday we saw a disappointing LEI followed by Greenspan’s testimony on how the Yuan revaluation would have little, if any effect on the trade imbalance or creation of jobs and the stage was set. Then like clockwork we turned lower on the Full Moon – Bradley Turn combo on the 23rd. As for CoT data, open interest fell like a stone and is at the lowest levels on the NDX and DJIA I have seen since the recovery began back in 2003. SPX open interest is also in decline and at the lowest levels of the year, but not at the extremes seen on the indices mentioned. As you may or not know, most of the SPX’s strength is attributable to oil/energy companies within the index. Equity funds saw inflows of $2.5 Bln with 55% or $1.37 Bln going into ETF’s and $837 Mln going into International Funds. We also had $17.6 Bln net cash inflows into MM funds. Oil is on fire and running for a close above $60bbl. Gold is looking strong, but it will be interesting to see if $445 can be taken and the U$D is bumping resistance at 89. Yields are teetering at 4% and the CRB is at 315 with a test of 325 looking like quite the possibility…

Economic #’s:
There was not a whole lot of Econ data reported this week, but what we got was not all that pretty. Couple that with some testimony on China currency revaluation by big Al and what we had was a chilling effect…

LEI (Leading Economic Indicators) fell –0.5% after a previously reported –0.2% and coming in below forecasts of –0.3%. This is the 4th time in 5-months that the index has declined with 9 of the 10 indicators that make up the Conference Board's index contributing to the decrease in May.
MBA Mortgage Applications fell 11.3% in the week that ended June 17, to 786.8, the decline was the biggest since May 2004. The index of applications for loans to buy homes fell 9.4% to 479.4 while the gauge of applications to refinance existing mortgages declined 13.2% to 2,575.0. The 4-week average for the overall index rose 1.9% to 784.6 from 770.3. Refi’s decreased as a percentage of all mortgage applications, at 45.6% of total applications, from 46.4% the previous week. Applications for ARMs fell to 30.7% of total applications from 30.9% the previous week. The average fixed 30-year mortgage rate averaged 5.63% last week, excluding fees, up 1 basis point from 5.62% the previous week. The average contract interest rate for 15-year fixed-rate mortgages rose last week, up 6 basis points to 5.24% from 5.18% a week earlier. Rates on 1-year adjustable-rate mortgages rose to 4.46% from 4.38% the prior week.
Existing Home Sales fell –0.7% to 7.13 Mln after a previously reported 7.18 Mln and coming in below forecasts of 7.15 Mln. Still it was the 2nd highest level on record. The median sales price of existing homes increased to $207K from $205K.
New Home Sales rose 2.1% to 1.208 Mln after a previously reported 1.316 Mln that was revised down to 1.271 Mln and coming in well below forecasts of 1.32 Mln. The median price of new homes fell to $217K from $232K in April. Sales of new homes account for about 15% of the residential real estate market. Sales of previously owned homes make up the rest.
Initial Jobless Claims fell by 20K to 314K from an upwardly revised 334K in the prior week with expectations having been for 330K. The 4-weeks moving average fell 2.5K to 333K from 335.5K in the previous week. The number of people continuing to collect state jobless benefits fell to 2.6 Mln in the week that ended June 11 from 2.638 Mln the prior week. The 4-week moving average of continuing claims fell to 2.603 Mln from 2.596 Mln. The insured unemployment rate fell to 2.0% from 2.1% the week before last.
Durable Orders rose 5.5% after a previously reported 1.4% which had been revised downward from an originally reported 1.9%, but came in above forecasts of 1.5%. That is until excluding transportation equipment (basically aircraft orders as Boeing received orders for 200 planes last month, up from 14 in April), otherwise Durable Orders fell –0.2% and was the 3rd decline in the last 4-months.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE fell by 1.6 Mln bbls, but according to API fell by 5.4 Mln bbls. Gasoline according to DoE rose by 200K bbls, but according to API rose by 2.0 Mln bbls. Distillates according to DoE rose by 1.3 Mln bbls, but according to API rose by 812K bbls.

Next week’s Econ activity picks up considerably with Consumer Confidence, Chain Deflator & GDP, Initial Claims, Personal Income & Spending, Chicago PMI, Help Wanted Index, FOMC Policy Mtg, Auto & Truck Sales, Michigan Sentiment (rev), Construction Spending and ISM Index…


Earnings season is upon us and of the handful of reports received, all is not well… That may change as we enter July, but for now we are seeing short falls and/or reduced forecasts from various companies of differing sectors and industries. It all started with INTC’s mid Qtr update, which did not impress Mr. Market. The guidance was not what had been hoped for and the potential of over supply issues remain. After the AAPL announcement most had expected a pop!, but the market slipped a bit. Since then (around June 10th) the market regained its footing and all was forgotten for the most part. Now that we have progressed deeper into the month we are starting to see more warnings or forecast reductions and few upside surprises. While some of these may fall into the “no big surprise” category such as MWD having been hit with a $1.5B settlement payout (although this should not be reflected in the books yet) and F with sagging SUV sales (although the new Mustang is said to be flying off showroom floors and should be picking up the slack) we also saw warnings and/or reduction in forecasts from the likes of DECK (retail – footwear & apparel), NUE (steel & iron - basic materials), ITW (industrial goods – tooling & machinery), COCO (education & training services), ELK (building materials), ATYT ( semiconductors), TWP (building materials), AOS (consumer goods – electronic equipment). None of these are slouches by any means, the diversification and breadth of industry with which warnings are coming from is noteworthy. The most noteworthy of these are ELK, ITW, TWP and AOS because these companies primarily serve the residential and commercial construction industries. Now do I have your attention? This could be the beginning of a new trend, which sheds a whole new light on the construction industry. Will this trend continue? The verdict is still out, but I would not bet against it and here’s why… ISM and Philly Fed have been slipping over the last 4-months while Durable Goods Orders have declined for the 3rd time in 4-months (excluding transportation). Then there is the issue of an inverting yield curve and LEI has declined for the 4th time in 5-months. Last but not least, the BDI or Baltic Dry Index has basically fallen off of a cliff. While PPI and CPI have supposedly remained tame, but excluding food and energy they have risen 3.5% and 3.7% respectively for the year. To date, that is more than GDP for the year. Just imagine if food and energy were included (and they are if you live in the real world). Couple all of this with rising energy demand, slowing consumer sales, the rising price of oil, poor job creation and falling wages and what we have is a recipe for the “R” word. While it may be early to say a “recession” is in the making, I am going to say it anyway. Chinks in the armor are evident and unless there is a flattening or change in trend, we are slowly but surely moving into a recession…

What can we expect now?:
While we did get a decisive move (and everyone’s attention), it is a little early to pass judgment on this move and what exactly is in store from here. The DJIA got thumped, the SPX followed suit, but the move on the COMP was less dramatic. This in itself is again setting up a divergence in price action between the indices where weakness varies much like what we saw on the way up where strength varied. The bullish scenario shows us that overbought conditions had been mostly worked off prior to the downward move that started on Thursday and a recoup of losses is not out of the question. The bearish scenario shows us that resistance held its ground and bullish sentiment is still way too high. Either way, I doubt we go anywhere in a hurry although I do believe we will most likely lean towards weakness in the week ahead. We have a lot of Econ data on tap and an FOMC Mtg where everyone will be looking for any change in the Fed’s language and reading between the lines and putting their spin in play. We have a holiday weekend coming up with earnings reports beginning to pick up shortly thereafter. I just don’t believe too many will be willing to do too much prior to the 4th of July. As for the U$D, a small double top may be forming at 89, I do not see the U$D breaking through the shelf of resistance between here and 92.5 anytime soon (if at all). Gold has gotten through the $440 barrier with $445 oz. set in its sights. I tend to believe that a top is close at hand, but if Gold should breakthrough $445, then the highs of $456 will most likely be tested. Oil has touched $60bbl on an intraday level, but has yet to make a print. Next week we most likely get that print…

On a technical note, Bullish Advisors are at 53.9% with Bearish Advisors at 20.2%. The VIX/VXN have performed an about face and have spiked upward although they still remain within very tight ranges 11-12 on the VIX and 14-15 on the VXN. CBOE Equity P/C Ratio is at .578 with a 21DMA of .570 as the ranges continue to run tight. The RSI 5-Days are very Oversold on the COMP & DJIA and Oversold on the SPX with RSI 5-Wks being Neutral across the board. The $NASI Daily (Summation) has turned down and very close to the centerline while the 50DMA remains below the 200DMA, The $NAMO Daily (McClellan) has moved below its centerline with the 50DMA having crossed back over the 200DMA in the beginning of June, The $NAHL Daily (Highs/Lows) has turned down and very close to the centerline while the 50DMA remains below the 200DMA, The $NAAD Daily (Advance/Decline) is well below the centerline although the 50DMA has crossed back over the 200DMA for the first time since Feb. and BP%'s are all still in overall downward trends where the 50DMA crossed under the 200DMA back in May. On another note, I still see a lot of possible double tops (R2K & COMP) and H&S possibilities (INDU, SPX, NASI and all of the BP%’s) attempting to play out…

Charts for the indices and indicators mentioned are posted below for your viewing pleasure…






























NOTE:
I continue to hold a USPIX position, which I will flip to UOPIX when appropriate.

CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX. Individual Stocks; ANO, BHP, SWWC

SWING: XLE

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 for tracking purposes only. I am not a day trader and only attempt to identify up/down trends and play the swings.