Liquidity Continues to Support Market

After yesterday's sell off, I was fairly certain the market would probably see more selling pressure in short order, and we got it. But it didn't last the entire trading day. The lows came early on and by the close the broader market managed moderate gains.

The dollar fell modestly, while oil prices hit an intra-day low of $95.25 per barrel, but rallied to close up 0.8% at $98.97 per barrel.

The April Producer Price Index (PPI) was released this morning and showed an increase of 0.8%, which was higher than the 0.5% increase economists were looking for. Core PPI was up 0.3%, which was also a tad higher than expected.

Retail sales for April rose by 0.5%, which was just shy of the target 0.6% increase that was expected.

Initial weekly jobless claims were higher than forecast as they came in at 434,000, vice an expected 423,000.

Let's go to the charts:



Both NAMO and NYMO moved back up again, with both crossing back through their respective 6 day EMAs, which flips them back to a buy. These signals are now relatively neutral for the moment.



NAHL and NYHL both ebbed a bit higher and are pretty much sitting on their trigger points.



TRIN is also sitting on its trigger point, which TRINQ spiked higher and remains on a sell.



BPCOMPQ ebbed a bit lower today and remains in a sell condition.

So not a whole lot can be gleaned after today's action, but BPCOMPQ continues to point lower. The system remains on a buy in any event and I can only surmise that liquidity continues to support this market. No revelation there, it is what it is.

I'm seeing subtle signs in the market that suggest a fed rate hike may not be too far off. That's not a prediction as these signs are only just starting to show up the past week or so and it could just be a temporary condition, but I'm watching just the same. I think most of us can agree that inflation is alive and well and sooner or later the Fed will have to deal with it. And that means rate hikes.

 

[Mapper]

Coolhand, thank you for the excellent daily analysis.

I wanted to add a note of disagreement regarding your inflation comment. I agree that many people want me to believe that inflation is on the rise, but I just don't see it. Yes, gas and some food items cost marginally more yet inflation measures are largely below the level the Fed wants. Inflation measures showing the largest increases are volatile and commodities have just dipped. Oil is dropping and still off pre-recession highs. Housing is still WAY down, cars and other durables seem quite stable. Furthermore, my pay and that of many others, is frozen and unemployment remains high...tough to inflate anything w/out any air.

Edit...and I just hear how the biggest driver of recent inflation is the cost of new and used vehicles...

I still don't think we have the free cash to "drive" any real inflation; and the increased cost of new and used vehicles is said to stem from Japan Earthquake, which I tend to think would be a temporary issue?

 

[coolhand]

Hi Mapper.

I almost didn't mention inflation in my comments last night for two reasons. First, not everyone agrees on the degree of inflation in our economy and arguments can be made on either side. Second, the signs I'm looking at are too subtle yet to be taken too seriously. In other words, we could months away, perhaps into 2012 before inflation really becomes a concern.

It's not so much what I believe, but what some of the charts are hinting at. And some of the pros I follow are in-line with this thinking too.

It's an inexact (soft) science to be sure. That's why I also said I wasn't making any predictions. It's too easy to be wrong.

Coolhand, thank you for the excellent daily analysis.

I wanted to add a note of disagreement regarding your inflation comment. I agree that many people want me to believe that inflation is on the rise, but I just don't see it. Yes, gas and some food items cost marginally more yet inflation measures are largely below the level the Fed wants. Inflation measures showing the largest increases are volatile and commodities have just dipped. Oil is dropping and still off pre-recession highs. Housing is still WAY down, cars and other durables seem quite stable. Furthermore, my pay and that of many others, is frozen and unemployment remains high...tough to inflate anything w/out any air.

Edit...and I just hear how the biggest driver of recent inflation is the cost of new and used vehicles...

I still don't think we have the free cash to "drive" any real inflation; and the increased cost of new and used vehicles is said to stem from Japan Earthquake, which I tend to think would be a temporary issue?

 

[coolhand]

Why Fed's Bernanke May Be Right On Inflation —So Far

http://www.cnbc.com/id/43022295

 

[Mapper]

Thanks for the clarification. I am certainly interested to see/hear you discuss what your charts are indicating.

The comment I disagree with was "most of us can agree inflation is alive and well". While technically correct, opposed to deflation, I think the latter (or insufficient inflation) is still the bigger concern. I certainly hear about inflation worries every day, it grows tiresome because it seems the argument is made almost entirely on the basis of gas, and to a lesser extent, commodities. I'm no economist, but I know oil and commodities are notoriously volatile and affected by extraneous, transitory world events...not to mention speculation. The article you linked describes this.

Not trying to make an argument either way, I'm certainly not qualified to make any accurate predictions about the US economy. As mentioned, I missed the nuance that you are beginning to see signs of inflation in your charts...that is certainly good and useful information. Just indicating that not everyone out there is immediately afraid of runaway inflation.