OVERVIEW: Another week gone by and it is time for another update. As seen over the last month or two, we have had bouts where all things related to the markets were moving up together. And as seen over the last month or two when this phenomenon has taken place, it is only a matter of time before any number of the indices blinks or falls out of bed. This is what we have seen take place again this past week. Most everything took a dive toward the mid part of the week or shortly after the FOMC meeting where the Fed raised rates by .25% yet again. The majors for the most part took the hit towards the end of the week while Oil has been softening, but still close to $65bbl. The strength has remained in Gold, Silver (commodities in general), the U$D and Treasury yields which have been on the move higher since just prior to the FOMC meeting. As mentioned in last weeks update with which this post replies: This coming week most likely will see a lot of sideways chop and slop even though many speak in a matter of fact manner about rate hikes being over, one and done, etc. Maybe rate hikes will take a pause, however I doubt the Fed’s work is done. As seen, market volatility picked up and the rate hikes will likely continue. Volume has been healthy across the majors where we are seeing anywhere between 2.2B to 2.7B shares changing hands. Still and as mentioned before, the new Hi/Lo’s are not corroborating with the Adv/Dec and Up/Down volume. I noted this prior to the rally coming off of the big falling out on Friday, Jan 20th, but the difference between now and then is the spread between the Hi/Lo’s where back in Jan we were seeing a 6:1 ratio are now more like a 3:1 spread. Last but not least, earnings reports are beginning to take their toll on the markets psyche. The majority of big players have not fared well, either missing or guiding lower. When the big guns miss estimates, something is in the air. Be careful…
The CoT data shows that not much has changed as open interest continues to trend higher and a positions in Commercial Short interest on the majors are on the build. Gold remains with a downtrend in open interest and Commercial Shorts lining up against Large Spec Longs, but open interest on Oil has shot through the roof and more Commercial Shorts being established. You can go here to view the CoT data graphs #msg-9171642 -- Equity Fund flows as detailed by AMG Data Services reported Equity funds (xETF’s) net cash inflows totaled $2.852B in the week ended February 2, with 78% (2.218B) going to Non-domestic funds. Exchange Traded Equity Funds reported net cash inflows of $4.765B with the largest ETF Inflows being $1.793B to the Mid Cap SPDR fund and $1.275B to the iShares Russell 2000 Index fund. The largest ETF Outflows were -$1.401B from the SPDR Trust Series I fund and -$632M from the iShares Dow Jones Select Dividend Index. Money Market funds reported net redemptions of -$6.614B. The full report can be viewed at #msg-9561913 and if there was any wonder where US investors are putting their dollars, then read #msg-9503325 -- As for Oil, Gold and the U$D, we saw some weakness in Oil, but as mentioned earlier finished out near $65bbl or $64.76 to be exact. that was short lived to say the least as Oil finished out at near $67bbl ($66.68). Gold has remained steadfast and broke through the $560’s and into the $570’s with a high near $575, but ended the week at $568 and the U$D continued to show strength by piercing the 90 mark and closing the week at 89.89… The CRB has pulled back a little, but closed out the week with a strong upward to 345.90. Treasury yields remain in an up trend and closed the week with 2yrs@4.59%, 5yrs@4.50%, 10yrs@4.53%, 20yrs@4.70% and 30yrs@4.64% …
ECONOMIC #’s: A lot of data for the past week and all is not well when looking under the hood of this vehicle we call our economy…
Personal Income – Dec = 0.4% vs 0.4% Expected 0.4% Personal Spending – Dec = 0.9% vs 0.5% Expected 0.8% #msg-9480749
Employment Cost Index – Q4 = 0.8% vs 0.8% Expected 0.9% #msg-9500328
Consumer Confidence – Jan = 106.3 vs 103.8 Expected 105.0 #msg-9500355
Employment Cost Index – Q4 = 0.8% vs 0.8% Expected 0.9% #msg-9500328
Auto/Truck Sales – Jan = GM +6.0% / F +3/0% / DCX +5.0% #msg-9519622
Construction Spending – Dec = 1.0% vs 0.5% Expected 0.2% #msg-9519641
ISM Index – Jan = 54.8 vs 55.6 Expected 55.5 #msg-9519697
ISM Services – Jan = 56.8 vs 61.0 Expected 60.0 #msg-9561782
MBA Mortgage Applications week of 1/27 = fell -5.1%, Refi’s were off –1.5% #msg-9519734
Oil Inventories – 1/27 as reported by the DoE / API: (Crude bbls= +1.9M / +5.9M) (Gas bbls = +4.2M / +3.7M) (Distillates bbls = -200K / -883K) #msg-9519790
Productivity – Q4 = -0.6% vs 4.5% Expected 1.0% #msg-9534301
Factory Orders – Dec = 1.1% vs 3.3% Expected 1.0% #msg-9561770
Michigan Sentiment – Jan = 91.2 vs 93.4 Expected 93.1 #msg-9561760
Initial Claims – week of 1/28 = 273K vs 284K Expected 295K #msg-9544456
Average Workweek – Jan = 33.8 vs 33.8 Expected 33.8 Hourly Earnings – Jan = 0.4% vs 0.4% Expected 0.3% Nonfarm Payrolls – Jan = 193K vs 140K Expected 250K Unemployment Rate – Jan = 4.7% vs 4.9% Expected 4.9% #msg-9561737
Challenger, Gray & Christmas Planned layoffs top 100,000 #msg-9544459
The Real State of Unemployment FRB of Cleveland Data & Charts #msg-9544604
I am trying to understand why some are making such a stink about subsidizing ethanol. Here we have a homegrown product that would create jobs, is good for the environment and would move the country away from its dependency on foreign oil. While I happen to agree with what President Bush had to say in his State of the Union Address about our oil and energy issues, I have heard this rhetoric before only to see it slapped down by legislation that undercuts the very purpose of the funding for such initiatives. No child left behind and support for the Biosciences are only a couple of examples where the story from the lips of our leaders never materializes into reality. These words are said to look good or pose, usually before important events such as elections end up being nothing more than empty promises. Some other statements I take issue with is the line item veto. What good would a line item veto do for an administration that has never used the power of the veto to begin with? Actually I see just the opposite occur, more like a line item add-on because issues that never would pass on their own merit are combined in 10lbs of documents created behind closed doors at late hours and then shoved down the throat of Congressional members at the last minute and voted on before they can ever be fully reviewed. Pork, pork and more pork #msg-9563012 . Congressional members are just supposed to trust that what is in the bill is for the better good of all. It is this very same tactic and trust that got us into Iraq. This all comes full circle right back to why alternative energy will never receive the support it deserves and such an initiative is already dead before it is even on the table. Let’s face it, our leaders have no desire to see alternative energy fully get off the ground. Read what the recently passed energy bill does for the highly profitable dirty-power industries at Dirty Financing. Rest assured, you will never see this happen for alternative energy, bioscience or any other initiative that threatens the ties between specific corporations and our leadership. I am sorry, but words are just words until they are backed up by action and those who only point a finger of blame while lining the pockets of their inner circle need to be held accountable. For more on energy subsidies, go to Earth Track.
Talk Is Cheap, Integrity Is Not…
WHAT CAN WE EXPECT NOW?: I believe we will see more weakness in the week ahead for the simple reason that we were unable to sustain the current move off of the Jan 20th selloff. Last weeks new highs on the R2K and Transports left us with a divergence between indices. We appear to have entered a realignment or distribution phase; strong volume and no follow through to the upside. The markets look lethargic and I do not see any real catalyst to hang a rally hat on. The bias is leaning toward the downside and a decline may pick up some speed. The bottom line is that some pending questions (excuses) for holding up the averages have been erased as earnings reports confirm that a slowing economy is upon us and rate hikes will continue for the unforeseeable future although some still remain in denial. Add in the uncertainty surrounding Iran and I just do not see us going anywhere in a hurry. We are in a news driven environment and some kind of favorable news or Fed action will be required to get this moving back up as there is really no other reason for the markets to trend higher. I am looking for a test of COMP 2200, SPX 1250 and DJIA 10650… As for the U$D, Gold and Oil -- the U$D has been getting support, but I believe resistance in the 90 area will become evident. Gold may continue higher, but I believe we will see some basing in the $560’s. Oil likely remains somewhat volatile, but I still doubt we go below $62bbl anytime soon…
Technically Speaking, the week ended with Bullish Advisors are at 52.6% with Bearish Advisors at 25.8%. The VIX and VXN found support and moved up to 13 & 17.5 respectively. The CBOE EPC Ratio ended the week at .698 and TPC ratio at 1.085. The RSI 5-Days finished Neutral across the board once again. The P/C ratios, VIX/VXN, $NASI Daily (Summation), $NAMO Daily (McClellan), NAHL Daily (Highs/Lows), $NAAD Daily (Advance/Decline), 200DMA stocks and Bullish %'s all can be viewed below along with the major indices…
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 attempt to identify trends and create a track record. I am not a day trader and invest mostly in funds or baskets of stocks, perform occasional swing trades and some scalps. Data presented may not be 100% accurate as I do make mistakes, so please perform your own due diligence.
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