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Overview:
Another week is in the books and it’s that time once again to review the past week and look into the next. We saw some big time volatility this week with big swings up and down, saw-tooth type patterned days that generally finished off where they started. As mentioned in the last update with which this post replies;
Volatility has played a large part in the recent movements as well as Econ #’s and news in general. These seem to be weighing on the markets minds where good news is bad news and bad news is bad news. For as much volatility as we’ve been subjected to over the weeks, the indices are still in relatively good shape. This gives hope to the holders on. Some major support areas are about to be tested yet again and it is amazing that we have not fallen further. I tend to believe the forces that be such as foreign investors, hedge funds, program trades, the Fed or any of a number or combination of these entities are quite possibly responsible for propping a market that would otherwise fall like a rock. This is what has created the volatility we are seeing, a fighting of the tape so to speak which has kept the indices from traveling to where they may naturally rest. And with this there has been an absence of fear although you would not know that by market breadth. One look at market breadth tells a completely different story whereas selling is quite evident even though it may not be clearly seen via the price action on the indices nor through the lack of extremes seen on onetime relevant indicators. Let’s face it, slowing growth, rising rates, inflation fears, etc, etc, are just not conducive to higher market prices. Equity fund flows dried up this week and the Commercials seem to be indicating (provided I am interpreting the data correctly) that they have their fill on the short side. This may be the single most important indicator of all as the COT’s data is saying that now is the time to unwind those positions and start looking for some bargains, but for that to materialize a lot more pain is due. Until we see some real fear a decent bottom will not be made and until a decent bottom is made, a real rally will not begin. What we need is capitulation and if we do not get capitulation then we may continue down the path of least resistance in a slow drawn out manner. As they say “we can do this the easy way or we can do this the hard way”. We currently seem to be taking the lower road or “hard way”. We may remain in a kind of funk that I have mentioned in the last couple of updates, which is as follows;
We may be getting ready for a dose of selling. Hard to discern, but do not let the market bore you. This is a stealth decline. A lull you to sleep kind of decline that keeps everyone guessing and while one tries to figure out just what it is that’s going on, it is happening before your very eyes. I do not mean to be so redundant with this statement that has appeared in the last few updates, but I believe this is exactly what has been happening and when given the fact that we have not done much more than described, it leaves little room to elaborate. The internals over the last few weeks do not justify the price action and we have quite a divergence between what is going on and what has been happening. The cliché’ “lead, follow or get out of the way” does not apply here as the leaders are missing in action, the followers do not know who to follow and we cannot seem to get out of our own way. A resolution is close at hand, but the day-to-day grind has been nothing short of a wearing journey and may only be in its infancy of a grinding decline that could last for many months.
Economic #’s:
A very busy week with more of the same mixed messages, but even as manipulated and constantly revised the majority of these numbers tend to be, we are steadily seeing the unpleasant reality of an economic slowdown beginning to surface…
Consumer Confidence fell for the 2nd straight month dropping 2.0 points to 102.4, down from a revised 104.4 in February. Forecasts had been for a reading of 103. The Expectations Index declined to 93.7 from 96.1. The Present Situation Index slipped to 115.6 from 116.8 while Business conditions are "good" edged up to 25.8%, but those claiming conditions are "bad" also increased slightly to 16.0% from 15.7%. Consumers saying jobs are "hard to get" rose to 23.8 % from 22.4%, while those claiming jobs are "plentiful" improved to 21.3% from 21.1%. Consumers' outlook for the next six months eased further in March.
GDP (final) ] remained unchanged at 3.8% although forecasts had been for an upwardly revised 4.0%. For all of 2004, the government left unchanged its previous estimate for GDP growth of 4.4% with growth in 2003 being 3.0%. Higher personal spending as well as investment on equipment, software and inventories drove GDP up in the 4th quarter.
Chain Deflator rose at a 2.3% annual rate instead of the forecast and previously reported 2.1% last month. The deflator was 1.4% in the third quarter.
ICSC-UBS Weekly Chain Store Sales fell 1.0% in the week ended March 26, compared with a 0.2% increase the previous week. Sales at major retailers rose by 3.9% and compared with the same week a year ago, sales increased to a 4.5% after a 3.4% rise the preceding week.
Johnson Redbook Retail Sales were down 0.7% compared to a 4.3% rise in the prior week.
MBA Mortgage Applications increased 2.4% to 674.3 after falling 9.5% to 658.8 a week earlier. The Index of Refi Applications fell 2.0% to 1857.2 after falling 16.5% to 1894.4 in the prior week. The Purchase Index rose 5.5% to 470.9 after falling 3.5% to 446.4 in the previous week. Applications for ARMs accounted for 36.6% of last week's total applications, up from 33.5% a week earlier. This was a record high for ARM’s and reflected the recent move in mortgage interest rates. Refi’s dropped to 37.8% of last week's total applications from 39.5% in the prior week. The fixed 30-year mortgage rates rose to 6.08% up 7 basis points from 6.01% in the previous week. Fixed 15-year mortgage rates averaged 5.61%, up from 5.56% in the prior week. The 5/1 ARM rose 3 basis points to 5.61% while ARM 1-year mortgage rates averaged 4.39%, up from 4.12% a week earlier.
Initial Jobless Claims came in at 350K or an increase of 20K above last weeks 330K which was upwardly revised from 324K. Forecasts had called for a decline of 10K to 320K.
Chicago PMI rose to 69.2 in March from 62.7% last month and beating forecasts for a reading of 60.4%. This was the highest level since 1988. In addition, the PMI's factory employment index jumped to 66.0% from 57.7% and is at the highest level since 1983.
PCE or the Price Index for consumer spending which is one of Alan Greenspan's favorite measures of inflation climbed 0.3% in February after rising 0.2% in January. Analysts had expected the PCE Price Index to show another 0.2% rise.
Core PCEwhich excludes food and energy prices, advanced 0.2% in February after a 0.3% increase the previous month. It is up 1.6% from a year ago.
Factory Orders rose 0.2% rise and higher than the downwardly revised 0.0% from 0.2%. Forecasts had been for a 0.4% increase. The index rose on demand for civilian aircraft, but orders actually fell 0.1% when transportation was excluded.
Auto/Truck Sales sold 1.6 Mln new cars and trucks or 4.6% more than the same month last year. Car sales for the year are flat compared to the same period a year ago, while truck sales declined 1.0%. Despite the slow start, the quarter ended with consumers buying about 3.9 Mln vehicles, nearly as many as last year.
Average Workweek remained unchanged at 33.7, but within the factory sector, the average workweek and overtime hours shrank slightly in March.
Hourly Earnings rose to 0.3% from a flat 0.0% previously reported and slightly above the forecast of 0.2%.
Help Wanted Index remained at 41, the same as in January, and up from 40 a year ago. In the last 3-months, help-wanted ads have increased in all nine regions of the U.S.
Nonfarm Payrolls posted a gain of 110K, which was less than half the 225K that had been expected and well below the downwardly revised 243K from 262K that was previously reported. There were 7.7 Mln people unemployed in March with the average duration of 19.5 wks without work, the highest since November.
Unemployment Rate dropped to 5.2% from the previously reported 5.4%. The share of the working-age population working or actively seeking a job in March held steady at 65.8%, a nearly 17-year low first reached in January. And, the number of people who could find only part-time work rose sharply, as did the number of self-employed.
Michigan Sentiment (rev) fell to 92.6 in March from 94.1 in February, the measure slipped to 92.9 in early March. Forecasts for the final March reading were 92.7. The survey's expectations component eased to 82.8 from 84.4 in February, while sentiment on current conditions fell to 108.0 from 109.2.
Construction Spending rose 0.4% in February to a seasonally adjusted annual rate of $1.05 Tln, but falling short of forecasts and a previously reported 0.6% which had been revised downward from 0.7%. Private nonresidential spending, often seen as an indicator of business confidence, dropped 1.2% in February after striking a record high the previous month. February's decline was the largest monthly decrease since January 2004, when it fell 2.6%.
ISM Index ease slightly to 55.2 from a previously reported 55.3 in February, forecasts had been for 55.0. The ISM factory report, which contains its own gauge of hiring prospects, also showed some softening. Its employment index fell to 53.3 from 57.4, while the prices paid index rose to 73 from 65.5. The new orders index rose to 57.1 from 55.8.
ISM Services shot up to 63.1 from a previously reported 59.8, forecasts had been for 59.0. Service firms tacked on 86K jobs, the weakest since July with Retail and Temp jobs sliding.
WLI (Weekly Leading Index) was flat at 135.0 in the week ended March 25 compared with a downwardly revised 135.0 in the prior week. The index's annualized growth rate, which smoothes out weekly fluctuations, is also flat at 3.7% compared to a downwardly revised 3.7% in the prior week.
Oil Inventories as reported by the DoE (Dept of Energy) and API (American Petroleum Institute).
Crude according to DoE rose 5.4 Mln bbls, but according to API rose 2.6 Mln bbls.
Gasoline according to DoE fell 2.9 Mln bbls, but according to API fell 1.9 Mln bbls.
Distillates according to DoE fell 1.1 Mln bbls, but according to API fell 639K bbls.
After so much happening this past week, next week slows to a snails pace by comparison. On deck we have Initial Jobless Claims, Wholesale Inventories and Consumer Credit. We also will have our regular weekly readings on Retail Sales, Mortgage Applications, Oil Inventories and WLI…
Looks can be deceiving… Some years ago I was in the family room just relaxing and watching TV. It is a cozy room and as I sat watching TV, I heard a strange sound. I could not tell if it was background noise from the television or what it was, so I muted the TV and the sound did not go away. It was not a loud noise and the best way to describe it would be as a persistent type of crackling. At first I could not figure out where it was coming from, so I sat and listened and then my eyes locked on a portion of paneling near the doorway (the room had wall to wall paneling). I noticed that the paneling had a slight ripple to it. At first I thought it was just glare from the window, but I had never noticed it before and it seemed kind of strange. So I got up and move towards this area. The closer I got, the louder the crackle got. I put my ear up to the paneling and sure enough it was where the sound was coming from. Not knowing just what it was that I was dealing with, I pushed my finger against the paneling. You can probably imagine my surprise when my finger went right through the paneling like it was rice paper. The more I pushed through it, the more that tore away. The wall was full of termites! They had hollowed out the paneling leaving behind only the veneer covering (and tons of termite dirt beneath the surface). It was unbelievable, yet if I had not heard that crackle I would not have detected what was going on beneath the surface because the panel looked as if it was still intact. Now this is a true story and you are probably asking yourself “what has this got to do with anything”? A LOT… Had I not seen or heard the signals a lot more damage would have been done and the repair costs could have been much more costly had I not caught them in time. The current market reminds me all too well of that day. Everything on the outside looks normal enough, yet below the surface all is not well. The market internals are telling us something here, are you listening? The same way those termites hollowed out that panel under the guise of veneer that looked to be a relatively solid panel, the termites are hollowing out the market under the guise of what appears to be relatively normal market activity. Termites are like fleas, you can never really get rid of them all, even if you do not see them, they are there. The moral of the story is remain vigilant because looks can be deceiving…
What can we expect now?:
I expect more of the same, a continuing grind that will lead to lower highs and lower lows. Volatility is the name of the game. Sooner or later the underlying support areas will give way to the weight of what is occurring day after day by way of the deteriorating internals and waning market breadth. As mentioned in the last update with which this post replies;
From here it is quite possible for a number of scenarios to play out such as we test the upper range of 2000-2020 or we fall back and test 1960 or so. SPX could pull a double bottom at around 1163, but if that does not hold we most likely visit 1140. The DJIA on the other hand is sitting at support, if this gives way a test of the 200DMA or 10350 looks to be in the cards. Unless perception changes I tend to believe the lower ranges mentioned will be tested this coming week although a bounce may occur first. While we look to be oversold, we could still go lower before real extremes are met. Either that or the extremes will be relieved and then we head lower. Needless to say, this is the way things more or less went and are currently still playing out. I see no need to adjust this statement at this time. Once those areas are breached we an get a better idea of what to expect next. Gold on the other hand seems to have found some support in the $425 area and is forming some semblance of a base, if that area does not hold we still have the 200DMA and then strong support at the $408-$410 area. The U$D appears to be forming some kind of odd H&S pattern, but it may just be a double top in the 85 area. Oil has a mind of its own and this is one industry I would not bet against. I still feel we see $60bbl before $50bbl, but if we do hit a rough patch and decline, then today’s movement may be a double top. Even if so, I do not believe we fall below the $47bbl mark. I posted some annotated charts earlier in the week covering the U$D, Oil and Gold which tend to support these finding at the
Your Economy board
#msg-5879874 Last but not least we have a Bradley turn due on/around the 5th, but this is a weak cycle turn that may or may not have an effect on the markets. There will not be another strong Bradley turn date for another 2-3 months. There will be a smattering of weak signals during this timeframe, but the last strong turn date was March 4th and so far it has stuck.
On a technical note, Bullish Advisors are at 53.6% with Bearish Advisors at 27.8% and while bearishness has increased, it is hardly the type which signals capitulation. The VIX/VXN trends are somewhat mixed where VIX has turned upward and is testing the 14’s, a break of the 14 area would signal that a test of 16 is at hand. The VXN on the other hand is oscillating across the 17’s and still within its basing pattern. CBOE Equity P/C Ratio is at .813 with a 21DMA of .648. The P/C Ratio has been range bound for months between the ~.500 and ~.800 area. The RSI 5-Days are Neutral across the board and the RSI 5-Wks are Oversold on DJIA, Neutral on SPX and very Oversold on the COMP. The $NASI Daily (Summation) 50DMA clear cross under of the 200DMA with an H&S pattern and indicator reaching -667. The $NAMO Daily (McClellan) 50DMA clear cross under of the 200DMA and in a downward channel with the indicator reaching –20. The $NAHL Daily (Highs/Lows) 50DMA just crossing under the 200DMA and in a downward channel with the indicator reaching -63. The $NAAD Daily (Advance/Decline) 50DMA clear cross under of the 200DMA with the indicator reaching -882. The BP%'s remain in a downtrend with $BPCOMP & NDX heading below the 200DMA, $BPSPX tipping the 200DMA and looking to cross under and BPNYA clearly breaking below the 200DMA.
NEW YORK (MarketWatch) - U.S. stocks opened to the downside Monday morning as crude-oil prices continued to set new records as they approached the $60 mark.
