OVERVIEW: What a wild week, talk about fireworks… As I am sure you are aware we had a trade shortened week, but a more eventful 4-days we could not ask for. Comets, Hurricanes and Terrorists, oh my! Not to make lite of the horrific bombings that took place in London, this should serve as a reminder to us all that terror can strike at anytime, anywhere… Just like a disease, terrorism has no preference as to whom it afflicts. As for the markets in general, they shrugged it all off with amazing resiliency. After having cited questionable internals and indications for weakness, I was of the belief that further weakness was to come and it looked as if that would be the case. Instead we saw a broad based 2-day rally that resembled the 2-day downdraft just a couple of weeks back. Oddly enough, we also had a New Moon on the 6th, what effect this may have had on the cosmos is up to you to decide. Personally I find it intriguing when natural events that we take for granted such as this occur within a close proximity of market & world events. Logically speaking? There is no logic, so don’t bother. As mentioned in the previous update with which this post replies; All I can say is be prepared because we are in no mans land where most anything can take place… Well most anything did and while the ranges specified were broken on the COMP, the SPX and DJIA are still below the tops of those ranges, but the R2k on the other hand broke out to new highs. Not much has changed as far as CoT open interest goes, although it does appear as though Commercial short positions are being accumulated on the SPX and NDX, but more notably on the SPX. The Equity fund inflows for the week were $717 Mln although $656 Mln or 91% of that found its way into Non-domestic securities. Small Cap Growth/Value funds reported net inflows of $589 Mln and International funds reported net inflows totaling $551 Mln. Money Market funds reported net inflows of $13.4 Bln with Tax-exempt MM funds reporting inflows of $9 Bln, the largest inflows to that sector since 7/7/04. We also saw strength in Oil, which made it to new highs well above $62bbl before settling down at $59.5. The U$D has been trending lower (albeit modestly) since hitting 90.80 and Gold found some buyers, but there was no follow through after the initial spike on the 7th. The CRB, which has been extremely volatile as of late finished off the week around 310.
ECONOMIC #’s: Another week, another set of hedonic data…
Factory Orders rose 2.9% coming in above the 0.7% previously reported, but below expectations of 3.0%. Excluding transportation they fell –0.1%, which was lower than the –0.4% previously reported. Once again the orders numbers were bolstered by bookings of commercial aircraft. Demand for business equipment declined for a third month in four. A measure of future business investment, orders for non- defense capital goods excluding aircraft, fell 2.5% after rising 1.7% the month before. Shipments of non-defense capital goods excluding aircraft, a measure the government uses in calculating gross domestic product, rose 0.5% after rising 1.5%. Factory inventories were unchanged for a 2nd month in May and inventories were up 7.5% from a year earlier. The inventory-to-shipments ratio, a measure of how long goods remain unsold, held at 1.24 months in May. ISM Services rose to 62.2 after a previously reported 58.5 and beating expectations of 59.0. While the non-manufacturing gauge is below the 62.4 average for all of last year, figures greater than 50 mean the expansion continues. The non-manufacturing index follows the July 1 release of the institute's manufacturing gauge. That index rose to 53.8 in June, the first rise in 7-months, from 51.4. Manufacturing accounts for about 13% of the economy. MBA Mortgage Applications rose 9.6% in the week ended July 1 compared to the prior week. Also on a seasonally adjusted basis, applications for mortgages to buy homes jumped 9.1% and refi applications increased by 10.2%. The 4-week moving average for overall applications is up 1.3%. Refi’s accounted for 45.7% of total applications last week, up from 45.4% a week earlier, while adjustable-rate mortgages increased to 30.7% from 30.0%. Average contract interest rates on 30- and 15-year fixed-rate mortgages increased last week to 5.58% and 5.18%, respectively, from 5.47% and 5.06% a week earlier. The rate on 1-year ARMs averaged 4.60% last week, up from 4.42% in the prior week Initial Jobless Claims rose by 7K to 319K from an upwardly revised 312K in the prior week with expectations having been for 320K. The number of people continuing to collect state jobless benefits fell to 2.581 Mln in the week that ended June 25 from 2.597 Mln the prior week. The 4-week moving average of continuing claims was largely unchanged at 2.603 Mln. Average Workweek & Hourly Earnings remained unchanged from the previous months report with the number of average weekly hours worked by production workers holding at 33.7 for a second month in a row and hourly earnings increasing 0.2% or a whopping 3 cents. Nonfarm Payrolls rose to 146K or an increase of 42K over the previous months report which was revised upward to 104K from 78K. Payrolls still came in below expectations of 195K. On another Note, Challenger, Gray and Christmas reported planned layoffs for June as being nearly 111K, the highest in 17-months. If we were to subtract the number of planned layoffs from the current payrolls report, we would see a net gain of 35K jobs for June. Unemployment Rate fell to 5.0% from a previously reported 5.1%, the lowest since the terrorist attacks in September 2001. I understand that this data is not questioned by the bought and paid for media, but after citing the data just mentioned under Nonfarm Payrolls it does not take a scholar to realize something is askew. Average Workweek & Hourly Earnings dipped 2-pts in May to 37 from a previously reported 39 and below expectations of a 40 reading. In the last 3-months, help-wanted advertising declined in all 9 U.S. regions. Steepest declines occurred in the Mountain (-15.4%), South Atlantic (-13.9%), and East South Central (-11.7%) regions. Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE fell by 3.6 Mln bbls, but according to API fell by 2.7 Mln bbls. Gasoline according to DoE fell by 900K bbls, but according to API fell by 483K bbls. Distillates according to DoE rose by 4.0 Mln bbls, but according to API rose by 1.2 Mln bbls. Wholesale Inventories rose by 0.1% bringing the total value of inventories to $350.1 Bln, but was well below the 0.7% previously reported and expectations for a 0.5% rise. The amount of time wholesale goods went unsold, known as the inventory-to-sales ratio, was unchanged from April at 1.18 months. A year ago the ratio was 1.15. Wholesaler’s account for about ¼ of all business inventories while Retail and factory inventories make up the rest. Consumer Credit fell –$3.02 Bln to a seasonally adjusted $2.127 Tln as consumers slowed their borrowing for the 1st time in 18-months. The previous report had showed an increase of $1.3 Bln with expectations having been for an increase of $4.0 Bln. Nonrevolving credit, reflecting closed-end loans for cars, boats, education expenses and vacations, fell by $3.75 Bln after rising $1.72 Bln. Like the decline in total consumer credit, the decrease in non-revolving credit marked the 1st dip since Nov’03. Revolving credit, which includes credit and charge cards, pushed higher, rising $724.9 Mln after a revised drop of $565.7 Mln the previous month.
Next week’s Econ activity will be picking up with Import/Export Prices, Trade Balance, Treasury Budget, CPI, PPI, Initial Claims, Retail Sales, Business Inventories, NY Empire State Index, Capacity Utilization, Industrial Production and Michigan Sentiment…
Maybe it’s just me, but this is some screwy world we live in… Shortly after the terrorist attacks in London, it was realized that many people who rely on public transit would be essentially stranded and unable to get home. Leave it to the hotel industry to raise their prices on this day, not because of the preparations needed for the immediate demand as they would like people to believe, but to take advantage of the public and a bad situation. Talk about selfish corporate greed. In a time when compassion is most needed, it will cost these stranded people more to spend the night in a hotel after their city has come under attack. Then we hear from our local news agencies that this incident has provided us an excellent opportunity for a dry run. An opportunity? The only opportunity I see is that for the terrorists as we are still in a reactive mind set, not a proactive one. We are obviously still not doing enough if an incident such as this has to provide the impetus for an opportunity to practice our emergency operations. These should be done on a regular basis, over and over and over again until an emergency of this caliber can be confidently handled as if it were 2nd nature. Last but not least, we have our irrational markets… The market reaction was knee jerk as expected, but I suppose as long as it does not happen in our backyard it is of no real consequence, right?
It is at this time I would like to bring to your attention a new ideology that is sweeping the nation. It is called “Stop Making Sense” or SMS and since we are being trained to believe that reality is of no consequence, let SMS be your new proxy. We see SMS in action on an almost daily basis, but lets apply the SMS ideology to the examples just mentioned: It would be a noble initiative to lower hotel prices during a human crisis such as the attack on London (or at least keep them at the same rate), but that would be compassionate during an extraordinary time of need, so SMS! It would be a good practice to perform emergency crisis procedures on a regular basis (especially in these times), but that would be strategic, so SMS! It would be pleasant if markets were based on an unbiased media, untainted economic numbers, earnings and fundamentals, but that would provide for a free market atmosphere, so SMS! If it makes sense to do something a certain way and it is not being done, you can bank on it that money is somehow involved…
WHAT NOW?: While I could bore you with indicators, chart patterns and and market analysis, why not just flip a coin -- heads we go higher and tails we head lower >8^) Actually, I am not sold on this current move. Just as I had reservations about the decisiveness of the 2-day drop back in the end of June, this move seems eerily familiar. While the easiest thing to do would be to proclaim new highs are on the horizon, this current move gives me reason to pause before passing any judgment. As stated a couple of weeks back after the 2-day decline; 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. I feel the same now as I did then, show me…As of this moment I suspect that we will see more of the same range like volatile activity in the coming week, much the same as we have experienced since the beginning of June. What we do know is that the COMP is leading along with the R2K, but I am seeing a broadening top (megaphone) on the COMP. The SPX and DJIA are trailing, but not too far behind. The markets in general are so heavily manipulated that only those in the know have any inkling of what is to come. Whether it is just a prop that gets wind under its wings or the set-up for a serious take down, we have been in a phase of trading activity that I do not believe too many are familiar with. We have seen an extraordinary amount of sideways action and if I didn’t know any better I would say that it was a distribution phase under the cover of repatriation of funds by way of corporate stock buy backs. Everyone (including myself) are taking their best shot at putting it all into some kind of coherent perspective. The markets move the way the wind blows and just when you feel you may have a gauge, the wind blows in another direction. A few weeks ago I felt that the longer we continued to hang around this area the more of a chance we had to move on to test the highs. Shortly thereafter we got our 2-day burst to the downside. So if the markets continue to meander around this week, it brings into question the sincerity of this current 2-day run. I feel if we do not get the follow through this week, then the chances of a decline increase as we move closer towards August. While a resolution to either side would be nice, I highly doubt it will come that easily as we still have a long summer ahead. As far as Oil, Gold and the U$D go, I expect more of the same. Oil should continue higher as all eyes will be on Hurricane Dennis, once landfall is made and damage is assessed then we may see some relief. The U$D most likely continues to trend sideways and Gold looks to have put in an intermediate top. The highlights for the week to come will surround earnings releases, Econ data, a Bradley Turn date on/around the 13th and Options Expiry. Should be a lively week…
On a technical note, Bullish Advisors are at 53.9% with Bearish Advisors at 21.4%. That is slightly off of the previously reported 55.1% bullishness. VIX/VXN are within pretty tight ranges of 11-13 on the VIX and 14-16 on the VXN. CBOE Equity P/C Ratio is at .424 with a 21DMA of .553, that is a rather low closing ratio. The RSI 5-Days are still Neutral across the board. The $NASI Daily (Summation) and $NAMO Daily (McClellan) have turned up above their centerlines. The $NAHL Daily (Highs/Lows) and $NAAD Daily (Advance/Decline) are in strong uptrends. The BP%'s (going back to Jan’04) are making lower highs and higher lows as mentioned in the previous update, essentially working their way towards a wedge like pennant formation. They still have a ways to go to change this trend by giving us a higher high and will be interesting to watch develop…
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.
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.
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