Replies to post #6413 on Your Economy (No Politics) (YE1)

[FinancialAdvisor]

Nice write-up Bullwinkle... as usual, one thing you missed though about next week, is that earnings reports will really start to trickle in...

Here's a few for instance...

Monday:
AA - Alcoa
DNA - Genentech

Tuesday:
AMD - Advanced Micro Devices
AAPL - Apple Computer, Inc.

Wednesday:
APOL - Apollo Group
HDI - Harley-Davidson
MTB - M&T Bank Corporation

Thursday:
PII - Polaris Industries Inc.
WGO - Winnebago

Friday:
BBT - BB&T Corporation
BSX - Boston Scientific Corporation
GE - General Electric
NGAS - NGAS RESOURCES INC
UNH - UnitedHealth Group, Inc.
KRI - Knight Ridder
FDC - First Data


Now the week after next is when the real fun starts, big boys like Google, Yahoo, & Ebay!...

[Bullwinkle]

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



OVERVIEW:
Time to review the past week and look into the next. Where has this year gone? This year has just flown by, here we are in the middle of October with Halloween, Thanksgiving and Christmas coming up fast. And before you know it we will be on the brink of another new year. I certainly hope that the updates I provide are found to be useful in some way, shape or form. They are only worth the space I take up to write them, but I feel I have accomplished what I set out to do and that is to be informative and if nothing else, make people think. Anyway, this week was nothing short of volatile as all of the majors seemed to find an interim bottom on Thursday. We were in oversold territory and at some key support areas, so a bounce was not unexpected. The big question is, is this just a pressure release of the oversold condition or something more?,, We are officially into earnings reports and they have been mixed at best. Those that have given good reports have been thumped such as AAPL and those that have warned, missed and/or given downward guidance have been whacked, just look at LXK for instance. What the rest of the reports hold for us is yet to be seen, it really is all about sentiment and while market sentiment has remained steadfast, consumer sentiment has not. Economic numbers have been laboring and the inflation fears are for real. It will be very interesting to see how holiday shopping pans out this year. Some important support levels were tested this week and as mentioned in the last update with which this post replies; I do not believe these support areas will hold, but we may see a bounce in here. I am more inclined to watch for a test of COMP 2055 or 50% Fib followed by 2016 or 61.8% Fib -- SPX 1203 or 38.2% Fib followed closely by 1190 or 50% Fib -- DJIA 10363 or 50% Fib followed by 10277 or 61.8% Fib -- R2k 643 or 50% Fib followed by 629 or 61.8% Fib. On an intra-day level we saw COMP 2026, but not quite 2016. SPX fell further than anticipated and went to 1170 with the DJIA falling to 10190 and R2k to 618. All of the 200DMA’s have now been decisively breached although the COMP and R2k are back to testing those areas. Some support/resistance levels have been earmarked at #msg-8129512 where I have drawn up some charts. Please take a moment to review them as the areas outlined will most likely be of importance moving forward. The CoT’s data continues to show low open interest on the majors with Oil heading down considerably off of its peak OI and Gold OI is still through the roof. Probably the most interesting of these charts is that of Gold where there are as many Large Spec Longs as there are Commercial Shorts, a tug of war to be sure. The positions can be viewed at #msg-7253670 – Volume did fall off this week and as witnessed and detailed by AMG Data Services, so did equity inflows. Equity funds reported net cash inflows totaling $493 Mln and outflows totaling $409 Mln excluding ETF activity in the week ended October 12. Domestic funds reported net cash outflows totaling -$512 Mln (-$891 Mln xETF’s) and Domestic funds reported net outflows for the 7th consecutive week for the first time since 4/2/03. International Funds reported net inflows of $933 Mln ($410 Mln xETF’s) with YTD net inflows totaling $59.9 Bln, surpassing the $57.9 Bln record set for all of 2004. Money Market funds reported net inflows of $18.528 Bln! Oil looked rather weak by moving into the low 60’s, but still managed to close out the week near $62bbl. With concerns over demand and stocks associated with the black gold taking a hit, crude still managed to tow the line. Gold moved close to the $480 an oz. mark before falling back to $470 ($469.50) and the U$D continued to hang in the 89 area with another attempt at 90. The CRB remains quite volatile, tested its 50DMA once again and finished out the week at 333. The 10-yrs and 30-yrs T-Note yields continue to strengthen finishing out the week at 4.491% and 4.712% respectively…

ECONOMIC #’s:
Weak, very weak. Nuff said…

Import/Export Prices of 2.3% vs 1.2% and 1.2% vs 0.0% excluding oil on the Import side with 0.9% vs –0.1% and 1.1% vs –0.1% on the Export side. Prices of goods imported into the U.S. posted their biggest gain since 1990 in September, led by rising oil and natural gas prices. Prices for farm exports fell -1.4% while those for non-farm exports rose 1.1%. The increase excluding oil was the largest since record keeping started in January 1989 because of increases in natural gas prices.
Initial Claims were 389K vs 391K with expectations having been for 360K. The 4-week moving average of claims fell to 396K from 405K the week before, compared with 317K the week before Katrina struck. The number of people continuing to collect state jobless benefits decreased to 2.873 Mln for the week ended Oct. 1 from 2.878 Mln the week before. The 4-week average rose to 2.799 Mln, the highest level in a year, from 2.725 Mln. The insured employment rate, which tends to track the U.S. jobless rate, fell to 2.2% from 2.3%.
Trade Balance was –$59.0 Bln vs –$59.0 with expectations having been for –$59.5 Bln. The gap in goods and services trade was the 3rd-largest on record. It is expected that soaring fuel costs will cause imports to rise faster than exports in coming months, keeping the trade deficit wide.
Treasury Budget was $35.8 Bln vs $24.6 with expectations having been for $37.0 Bln. At the beginning of this year, the White House projected a $427 Bln shortfall for 2005, which would have set another record in sheer dollar terms. The Congressional Budget Office forecast a gap of $365 Bln, although both lowered their forecasts as the year progressed. The federal deficit hit $319 Bln for the budget year that just ended, although a surge in Katrina-driven spending promises to drive the shortfall up again.
CPI/Core CPI was 1.2% vs 0.5% with expectations having been for 0.9%. The Core Rate was 0.1% vs 0.1% with expectations having been for 0.2%. And if you believe that, then you must be from Mars because consumer prices rose last month by the most in 25 years as energy costs posted the biggest jump on record. Consumer prices were up 4.7% for the 12-months ended in September, the most since May 1991, while core prices were 2.0% higher. Housing costs, which include some energy costs and account for more than 1/3rd of the index, increased 0.4% after rising 0.2%. A category designed to track rental prices increased 0.1%. Almost 60.0% of the CPI covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets. Service prices rose 0.4% last month and are up 3.2% over the last year. The cost of medical care increased 0.3% after being unchanged in August. Airfares fell 1.4% last month, after falling 2.2% the previous month.
Retail Sales was 0.2% vs –1.9% and 1.1% vs 1.0% excluding Autos. Expectations had been for 0.5% and 0.8% (excl Autos) respectively. Non-store retailers, which include online purchases and catalog sales, increased 0.2% in July after a 2.9% rise a month earlier. Retail sales account for almost ½ of all consumer spending, which in turn accounts for about 2/3rd of the economy.
Capacity Utilization was 78.6% vs 79.8% with expectations having been for 79.4%.
Industrial Production was –1.3% vs 0.2% with expectations having been for –0.4%. Manufacturing production fell –0.5% in September as mining output, which includes oil and natural gas extraction, plunged 9.1%.
Business Inventories was 0.4% vs –0.4% with expectations having been for 0.2%. The inventory-to-sales ratio remained at a record low of 1.26 months.
Michigan Sentiment was 75.4 vs 76.9 with expectations having been for 80.0. U.S. consumer confidence unexpectedly fell for a 3rd month to the lowest in more than 13-years.
MBA Mortgage Applications dropped 2.6% in the week ended Oct. 7 compared to the prior week. Also on a seasonally adjusted basis, applications for mortgages to buy homes eased by 0.9%, while refinancing applications fell 4.9%. Refinancings accounted for 43.5% of last week's total applications, down from 44.5% in the prior week, while adjustable-rate mortgages slipped to 29.5% from 29.8%. Among fixed-rate mortgages, the average contract interest rate for a 30-year mortgage climbed to 5.98% from 5.94% on a week-to-week basis, while a 15-year mortgage was flat at 5.55%. The rate on a 1-year ARM averaged 5.26%, up from 5.13%. Overall, the 4-week moving average tracking mortgage applications activity was down 2.2%.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute). Crude according to DoE rose by 1.0 Mln bbls, but according to API rose by 7.2 Mln bbls. Gasoline according to DoE fell by –2.7 Mln bbls and according to API fell by –2.8 Mln bbls. Distillates according to DoE fell by –3.4 Mln bbls, but according to API fell by –3.0 Mln bbls.

Econ activity for the week ahead slows a bit, We will get the following (expectations): The NY Empire State Index (20), PPI (1.1%)/Core PPI (0.2%), Building Permits (2.05 Mln), Housing Starts (1.95 Mln), Fed’s Beige Book, Initial Clams (N/A), LEI (–0.5%) and the Philly Fed (10)…


It’s all about earnings. As mentioned earlier, good reports have been met with skepticism and bad reports have been taken out to the woodshed for a beating. Of course it is still too early to tell if the mood changes as some of the faves and big caps begin to report, but so far nothing to write home about. Couple this with the ever-present pressure of high fuel/energy costs, the weakening economic numbers, slowing in the housing market, a Fed on a mission and, and… Well, it does not bode well for the rest of October, possibly November. Obviously this could all come under the category of “a wall of worry”, but what doesn’t these days? Anytime the soup gets too thick this phrase is trotted out and the market participants are there for it. I see a slippery slope of hope, not a wall of worry and I feel much more comfortable being short than long the market. If one were to look at the pros and cons, there is SO much more to be concerned about than content with. But rationale and fundamentals are not in vogue, spin is… It is getting so bad that talking heads are looking for a soft landing in the housing market and a Fed off of their backs. All I can say is if wishes were horses, dreamers would ride. This alone should tell you something, it is an admission that a bubble exists and the economy is weak if it cannot sustain the rate increases. The markets are so much more prone to downside risk than it is upside rewards, we should not even need to discuss it. Again, spin trumps reality, the masses just cannot resist a good story no matter how flawed it may be. All in all if you pick your spots, there is money to be made. If this market is allowed to correct in earnest without the prop of the invisible hand, I believe it will make for a great buying opportunity going into the holly jolly season. BUT something tells me that would be too easy. With that said, buckle up my friends, I see some rough road ahead…

Knowledge is Power…


WHAT CAN WE EXPECT NOW?:
As outlined earlier in the Overview and link to S/R charts, there are some very important lines to watch. The one that jumps out at me the most are the high traffic areas I outlined. These have proven to be trading ranges for months at a time and we bounced off of the bottom of these areas on the COMP and R2k, which are showing a little more resiliency than that of the SPX and DJIA. The DJIA has been weak all along, but the SPX has been a rock up until recently. The biggest reason for this that I can see is that the SPX is heavily weighted in Oil and Oil Service stocks. Basically profit taking and concerns of a slowdown in consumption have led to the exodus. Still oil is holding its own and as far as I can see just going through a normal corrective phase. With that said, I would like to draw your attention to some charts at #msg-8132052 (COMP vs NASI, NAMO and BP%) and #msg-8132087 (COMP vs EPC and VXN). Basically these do not look promising for any kind of a sustained move to the upside. When viewing these charts, pay close attention to the MA’s, a telling story there I believe. Also we see that the oversold indices are now sitting at neutral and that’s after only 2-days of mediocre movement. Last but not least we saw the A/D and Up/Down volume improve, but volume in general is lagging and the new lows to new highs are sending a different message entirely. On Friday for instance, the NASD saw more than 3:1 new lows over new highs and on the NYSE we saw nearly 10:1 new lows over new highs. This divergence in breadth is troubling. Also the PC ratio is beginning to drop again. After topping out at .90, it is now near .70 and in a fairly strong up trend. Put it all together and this smells like a sucker bounce to me. But hey, this market can turn on a dime… My main concern going forward is that we get stuck in that trading range or “traffic area” I mentioned earlier in the S/R charts. As for the U$D, Oil and Gold, I think we follow the same script as we have been seeing. The U$D test of 90 is in the works as we oscillate in this area before the Fed hand withdraws and allows the currency to float on its own volition. Gold is staying put and I believe we are looking at a consolidation phase before another ramp into Christmas ensues. As mentioned before, Oil is and will always carry wild card status for the unforeseeable future, but a correction has been overdue and we may see some more weakness in the week ahead. I believe this will be followed with a launch on Petrol company earnings reports. Whether we get into the 50’s before then or not is yet to be seen.

Technically speaking, Bullish Advisors are at 45.8% with Bearish Advisors at 29.2%. The VIX and VXN, which had spiked above their ranges of 12-14 and14-16 respectively are now residing in what may become a new range of VIX 14-16 and VXN 16-18. Still early on that call and will need to see what next week holds. The CBOE Equity P/C Ratio ended the week at .702 with a 21DMA of .637. The RSI 5-Days are Neutral across the board. The $NASI Daily (Summation), $NAMO Daily (McClellan), NAHL Daily (Highs/Lows), $NAAD Daily (Advance/Decline), 200DMA and Bullish %'s are all in steep downtrends. Charts of the aforementioned can be viewed below along with the major indices…






























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

CORE:
Funds; HSGFX, PCRDX, PRPFX, QRAAX, RSNRX ,TAVIX

**XLE was sold the week before last -- Opened an SRPIX position with the proceeds**
--will reenter XLE after an oil correction finishes taking place--

Individual Stocks; BHP, SWWC
Speculative Stocks; ANO

SWING:
PMPIX

Disclaimer:
This disclosure is not a recommendation to buy, sell or do as I do. It is only to give my thoughts on current market conditions and share the positions that I am holding. I am not a day trader and invest mostly in funds or baskets of stocks and attempt to identify up/down trends and occasionally perform swing trades.