It's Sunday. I'm engrossed in USA's Criminal Intent"athon". I'll be back tomorrow.
Sunday, September 30, 2007
Saturday, September 29, 2007
Last Week's Markets
This is not a very impressive chart.
1.) The red line is drawn from the weekly opening to the weekly close. Notice we really didn't move anywhere.
2.) The upward movement for the week came from opening gaps up. I drew two golden colored lines for Wednesday and Thursday. The line extends from the opening to the close for the day. Notice that prices moved around the opening for those days but then returned to near opening levels at the close. If there was real excitement in the market about future prospects we would have seen a rally during the trading session.
On the daily chart notice we have a lot of weak candles -- candles with very small bodies -- and declining volume for the week.
The 5-day QQQQs are somewhat better, but they still have the same problem as the SPY -- big opening jumps without any follow-through during the trading day. The big difference between the SPYs and the QQQQs is Tuesday when the QQQQs had a good day up and the SPYs dropped at the open.
The 10-day QQQQ chart shows a 10-day uptrend firmly in place. Also note there are two trends in place which should help going forward.
The daily chart shows the QQQQs have broken through resistance but also have the small candle bars and decreasing volume that the SPYs had. This indicates traders are mulling their options. While there isn't enough good news to move higher, there isn't enough bad news to move lower either.
The transportation average isn't confirming. It is trading below the 200 day SMA and all of the shorter SMAs are below the 200 day SMA. If the economy were expanding we would need to transport more stuff from point A to point B. This average isn't saying we have more stuff to transport.
Market breadth is getting better.
The New York and NASDAQ new high/new lows are improving.
And the NY advance decline line is moving up in a range.
However, the NASDAQ advance/decline line is still in a range.
Barrons' trader's column summed it up best
MATERIAL, INDUSTRIAL AND ENERGY stocks pushing their midsummer highs make this seem, once again, like the best of times. But straggling financial and consumer-discretionary stocks tell a different tale.
Bifurcated markets like today's don't extend forever and often end when the stronger stocks succumb to the same selling pressure hurting the laggards. Many extended material and industrial stocks already reflect the high hopes of global growth, and "things can change quickly when these stocks hit targets and investors decide to take profits," says Oppenheimer's chief market technician, Carter Braxton Worth. In contrast, the concerns dogging financial and consumer stocks won't change overnight.
The market's split personality becomes even more apparent when a stock chart of the uber-miner BHP Billiton (BHP) is juxtaposed against that for uber-retailer Wal-Mart (WMT): BHP has surged 115% over the past year while Wal-Mart is down 11%. Similarly, the world's largest steel company, Arcelor Mittal (MT), is up 143% while one of the largest consumer stocks, Toyota Motors (TM), is up just 7%.
The bifurcation could limit the stock market's short-term upside. "Take profits in extended names in the material, industrial and energy sectors and hold the cash," Worth says. "Don't redeploy into the beaten-down groups. There will be time enough to get in" when it's clear they aren't headed lower.
Last Week's Markets
This is not a very impressive chart.
1.) The red line is drawn from the weekly opening to the weekly close. Notice we really didn't move anywhere.
2.) The upward movement for the week came from opening gaps up. I drew two golden colored lines for Wednesday and Thursday. The line extends from the opening to the close for the day. Notice that prices moved around the opening for those days but then returned to near opening levels at the close. If there was real excitement in the market about future prospects we would have seen a rally during the trading session.
On the daily chart notice we have a lot of weak candles -- candles with very small bodies -- and declining volume for the week.
The 5-day QQQQs are somewhat better, but they still have the same problem as the SPY -- big opening jumps without any follow-through during the trading day. The big difference between the SPYs and the QQQQs is Tuesday when the QQQQs had a good day up and the SPYs dropped at the open.
The 10-day QQQQ chart shows a 10-day uptrend firmly in place. Also note there are two trends in place which should help going forward.
The daily chart shows the QQQQs have broken through resistance but also have the small candle bars and decreasing volume that the SPYs had. This indicates traders are mulling their options. While there isn't enough good news to move higher, there isn't enough bad news to move lower either.
The transportation average isn't confirming. It is trading below the 200 day SMA and all of the shorter SMAs are below the 200 day SMA. If the economy were expanding we would need to transport more stuff from point A to point B. This average isn't saying we have more stuff to transport.
Market breadth is getting better.
The New York and NASDAQ new high/new lows are improving.
And the NY advance decline line is moving up in a range.
However, the NASDAQ advance/decline line is still in a range.
Barrons' trader's column summed it up best
MATERIAL, INDUSTRIAL AND ENERGY stocks pushing their midsummer highs make this seem, once again, like the best of times. But straggling financial and consumer-discretionary stocks tell a different tale.
Bifurcated markets like today's don't extend forever and often end when the stronger stocks succumb to the same selling pressure hurting the laggards. Many extended material and industrial stocks already reflect the high hopes of global growth, and "things can change quickly when these stocks hit targets and investors decide to take profits," says Oppenheimer's chief market technician, Carter Braxton Worth. In contrast, the concerns dogging financial and consumer stocks won't change overnight.
The market's split personality becomes even more apparent when a stock chart of the uber-miner BHP Billiton (BHP) is juxtaposed against that for uber-retailer Wal-Mart (WMT): BHP has surged 115% over the past year while Wal-Mart is down 11%. Similarly, the world's largest steel company, Arcelor Mittal (MT), is up 143% while one of the largest consumer stocks, Toyota Motors (TM), is up just 7%.
The bifurcation could limit the stock market's short-term upside. "Take profits in extended names in the material, industrial and energy sectors and hold the cash," Worth says. "Don't redeploy into the beaten-down groups. There will be time enough to get in" when it's clear they aren't headed lower.
Friday, September 28, 2007
Weekend Weimar
The markets are closed. Stop thinking about them or the economy. It's Friday -- do something else.
I'll have a market recap for the week tomorrow and a preview of the coming week on Sunday.
Weekend Weimar
The markets are closed. Stop thinking about them or the economy. It's Friday -- do something else.
I'll have a market recap for the week tomorrow and a preview of the coming week on Sunday.
Consumer Spending Increases
From the BEA:
From Bloomberg:
Here is a chart of chained (inflation-adjusted) personal consumption expenditures.
Here is a chart of the month-to-month percent change in the chained dollar figures
The big reason for the jump was a 2.8% increase (in chained 2000 dollars) of durable goods. However, this figure has been jumping around quite a bit:
In general, these are very good numbers. Last month's increase was good and this month's increase is better. However, I would caution that the big jump is from durable goods. Considering these are usually more expensive items that require financing, we need to look with caution to next month's numbers.
Personal income increased $40.2 billion, or 0.3 percent, and disposable personal income (DPI)increased $37.2 billion, or 0.4 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $54.8 billion, or 0.6 percent. In July, personal income increased $61.5 billion, or 0.5 percent, DPI increased $60.3 billion, or 0.6 percent, and PCE increased $37.3 billion, or 0.4 percent, based on revised estimates.
From Bloomberg:
Consumer spending in the U.S. rose more than forecast in August, a sign the fallout from a weaker job market and collapse in subprime lending has yet to reach the biggest part of the economy.
The 0.6 percent rise in spending was the biggest in four months and followed a 0.4 percent increase in July, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation cooled.
Lower gasoline prices, auto-dealer discounts and a jump in air-conditioning use during last month's hot spell lifted demand, economists said. Smaller price increases give Fed policy makers room to reduce interest rates again should job losses and declines in home values lead to a deeper slowdown.
``Consumers were out in force in August even though we had the credit crunch'' mid month, said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who correctly forecast the gain in spending. ``Inflation is behaving quite well.''
Here is a chart of chained (inflation-adjusted) personal consumption expenditures.
Here is a chart of the month-to-month percent change in the chained dollar figures
The big reason for the jump was a 2.8% increase (in chained 2000 dollars) of durable goods. However, this figure has been jumping around quite a bit:
In general, these are very good numbers. Last month's increase was good and this month's increase is better. However, I would caution that the big jump is from durable goods. Considering these are usually more expensive items that require financing, we need to look with caution to next month's numbers.
Consumer Spending Increases
From the BEA:
From Bloomberg:
Here is a chart of chained (inflation-adjusted) personal consumption expenditures.
Here is a chart of the month-to-month percent change in the chained dollar figures
The big reason for the jump was a 2.8% increase (in chained 2000 dollars) of durable goods. However, this figure has been jumping around quite a bit:
In general, these are very good numbers. Last month's increase was good and this month's increase is better. However, I would caution that the big jump is from durable goods. Considering these are usually more expensive items that require financing, we need to look with caution to next month's numbers.
Personal income increased $40.2 billion, or 0.3 percent, and disposable personal income (DPI)increased $37.2 billion, or 0.4 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $54.8 billion, or 0.6 percent. In July, personal income increased $61.5 billion, or 0.5 percent, DPI increased $60.3 billion, or 0.6 percent, and PCE increased $37.3 billion, or 0.4 percent, based on revised estimates.
From Bloomberg:
Consumer spending in the U.S. rose more than forecast in August, a sign the fallout from a weaker job market and collapse in subprime lending has yet to reach the biggest part of the economy.
The 0.6 percent rise in spending was the biggest in four months and followed a 0.4 percent increase in July, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation cooled.
Lower gasoline prices, auto-dealer discounts and a jump in air-conditioning use during last month's hot spell lifted demand, economists said. Smaller price increases give Fed policy makers room to reduce interest rates again should job losses and declines in home values lead to a deeper slowdown.
``Consumers were out in force in August even though we had the credit crunch'' mid month, said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who correctly forecast the gain in spending. ``Inflation is behaving quite well.''
Here is a chart of chained (inflation-adjusted) personal consumption expenditures.
Here is a chart of the month-to-month percent change in the chained dollar figures
The big reason for the jump was a 2.8% increase (in chained 2000 dollars) of durable goods. However, this figure has been jumping around quite a bit:
In general, these are very good numbers. Last month's increase was good and this month's increase is better. However, I would caution that the big jump is from durable goods. Considering these are usually more expensive items that require financing, we need to look with caution to next month's numbers.
Dollar Hits Record Low
From the WSJ:
Note on this above daily chart the dollar dropped right after the Fed cut the discount rate 50 basis points. Expect this trend to continue so long as the Fed is in easing mode.
For those of you who want to cement a bearish chart in your memory, this is it. Notice the following.
1.) The trend is clearly downward. The sell-off for the last year has been constant and continued.
2.) All of the moving averages are trending lower. I think of the moving averages as the general price movement for the last x period. For example, a 10 day moving average is the two week trend. The 20 day moving averages is the weekly trend. Notice here all of the moving averages -- short, medium and long-term -- are moving lower.
3.) The shorter moving averages are below the longer moving averages. The means the short-term trend is pulling the longer term trends lower.
4.) Prices are below the moving averages. This is pulling all of the moving averages lower as well.
5.) Recent, post rate cut price action is circled on the chart.
The bottom line is this chart says "sell-me". Period.
The dollar sank to an all-time low against a basket of major currencies as U.S. housing data continued to come in even weaker than economists' already-low expectations.
The New York Board of Trade's DXY dollar index, which began in 1973 and measures the dollar against six top rivals, fell to 78.16 in New York, beating its previous intraday low of 78.19, from 1992.
"The new low in the index was the result of negative dollar sentiment we've been seeing all week, starting with lower-than-expected housing data on Tuesday and magnified by weak new-home sales data" on Thursday, said David Powell, senior currency strategist at IDEAGlobal in New York.
Note on this above daily chart the dollar dropped right after the Fed cut the discount rate 50 basis points. Expect this trend to continue so long as the Fed is in easing mode.
For those of you who want to cement a bearish chart in your memory, this is it. Notice the following.
1.) The trend is clearly downward. The sell-off for the last year has been constant and continued.
2.) All of the moving averages are trending lower. I think of the moving averages as the general price movement for the last x period. For example, a 10 day moving average is the two week trend. The 20 day moving averages is the weekly trend. Notice here all of the moving averages -- short, medium and long-term -- are moving lower.
3.) The shorter moving averages are below the longer moving averages. The means the short-term trend is pulling the longer term trends lower.
4.) Prices are below the moving averages. This is pulling all of the moving averages lower as well.
5.) Recent, post rate cut price action is circled on the chart.
The bottom line is this chart says "sell-me". Period.
Dollar Hits Record Low
From the WSJ:
Note on this above daily chart the dollar dropped right after the Fed cut the discount rate 50 basis points. Expect this trend to continue so long as the Fed is in easing mode.
For those of you who want to cement a bearish chart in your memory, this is it. Notice the following.
1.) The trend is clearly downward. The sell-off for the last year has been constant and continued.
2.) All of the moving averages are trending lower. I think of the moving averages as the general price movement for the last x period. For example, a 10 day moving average is the two week trend. The 20 day moving averages is the weekly trend. Notice here all of the moving averages -- short, medium and long-term -- are moving lower.
3.) The shorter moving averages are below the longer moving averages. The means the short-term trend is pulling the longer term trends lower.
4.) Prices are below the moving averages. This is pulling all of the moving averages lower as well.
5.) Recent, post rate cut price action is circled on the chart.
The bottom line is this chart says "sell-me". Period.
The dollar sank to an all-time low against a basket of major currencies as U.S. housing data continued to come in even weaker than economists' already-low expectations.
The New York Board of Trade's DXY dollar index, which began in 1973 and measures the dollar against six top rivals, fell to 78.16 in New York, beating its previous intraday low of 78.19, from 1992.
"The new low in the index was the result of negative dollar sentiment we've been seeing all week, starting with lower-than-expected housing data on Tuesday and magnified by weak new-home sales data" on Thursday, said David Powell, senior currency strategist at IDEAGlobal in New York.
Note on this above daily chart the dollar dropped right after the Fed cut the discount rate 50 basis points. Expect this trend to continue so long as the Fed is in easing mode.
For those of you who want to cement a bearish chart in your memory, this is it. Notice the following.
1.) The trend is clearly downward. The sell-off for the last year has been constant and continued.
2.) All of the moving averages are trending lower. I think of the moving averages as the general price movement for the last x period. For example, a 10 day moving average is the two week trend. The 20 day moving averages is the weekly trend. Notice here all of the moving averages -- short, medium and long-term -- are moving lower.
3.) The shorter moving averages are below the longer moving averages. The means the short-term trend is pulling the longer term trends lower.
4.) Prices are below the moving averages. This is pulling all of the moving averages lower as well.
5.) Recent, post rate cut price action is circled on the chart.
The bottom line is this chart says "sell-me". Period.
Agricultural Price Inflation Will Be With Us Awhile
from the WSJ:
This is an incredibly important story for several reason.
1.) It highlights how incredibly ridicules the Fed's "core inflation targeting is. The Fed's theory as to why core inflation is important is highlighted in the first paragraph. However, the real reason for the run-up -- which should be the Fed's stance -- is highlighted in the third paragraph. Demand for basic commodities is increasing, which is going to drive up prices for a long time. Hence, core inflation targeting is the dead-wrong inflation policy for the Fed to be targeting.
2.) Consumer spending. As food prices increase food expenditures take more money out of take home pay. This decreases the amount that consumers can spend on other goods and services. Considering consumer spending is responsible for 70% of the US' GDP growth, this has profound implications.
Here are some futures charts. Notice they are all trending up.
Corn:
Oats:
Soybeans:
Wheat:
And notice how higher agricultural prices are bleeding into livestock prices:
My biggest fear is the Federal Reserve is going to miss this boat entirely which has terrible policy implications for the US.
In the past, such increases have been caused by temporary supply disruptions. Following a poor harvest, farmers would rush to capitalize on higher crop prices by planting more of that crop the next season, sending prices back down. But the current rally, which started a year ago in the corn-futures trading pit at the Chicago Board of Trade, is different.
Not only have prices remained high, but the rally has swept up other commodities such as barley, sorghum, eggs, cheese, oats, rice, peas, sunflower and lentils. In Georgia, the nation's No. 1 poultry-producing state, slaughterhouses are charging a record wholesale price for three-pound chickens, up 15% from a year ago.
What's changed is that powerful new sources of demand are emerging. In addition to U.S. government incentives that encourage businesses to turn corn and soybeans into motor fuel, the growing economies of Asia and Latin America are enabling hundreds of millions of people to spend more on food. A growing middle class in these regions is eating more meat and milk, which in turn is increasing demand for grain to feed livestock. In the U.S., a beef cow has to eat roughly six pounds of grain to put on a pound of weight, and a hog about four pounds.
This is an incredibly important story for several reason.
1.) It highlights how incredibly ridicules the Fed's "core inflation targeting is. The Fed's theory as to why core inflation is important is highlighted in the first paragraph. However, the real reason for the run-up -- which should be the Fed's stance -- is highlighted in the third paragraph. Demand for basic commodities is increasing, which is going to drive up prices for a long time. Hence, core inflation targeting is the dead-wrong inflation policy for the Fed to be targeting.
2.) Consumer spending. As food prices increase food expenditures take more money out of take home pay. This decreases the amount that consumers can spend on other goods and services. Considering consumer spending is responsible for 70% of the US' GDP growth, this has profound implications.
Here are some futures charts. Notice they are all trending up.
Corn:
Oats:
Soybeans:
Wheat:
And notice how higher agricultural prices are bleeding into livestock prices:
My biggest fear is the Federal Reserve is going to miss this boat entirely which has terrible policy implications for the US.
Agricultural Price Inflation Will Be With Us Awhile
from the WSJ:
This is an incredibly important story for several reason.
1.) It highlights how incredibly ridicules the Fed's "core inflation targeting is. The Fed's theory as to why core inflation is important is highlighted in the first paragraph. However, the real reason for the run-up -- which should be the Fed's stance -- is highlighted in the third paragraph. Demand for basic commodities is increasing, which is going to drive up prices for a long time. Hence, core inflation targeting is the dead-wrong inflation policy for the Fed to be targeting.
2.) Consumer spending. As food prices increase food expenditures take more money out of take home pay. This decreases the amount that consumers can spend on other goods and services. Considering consumer spending is responsible for 70% of the US' GDP growth, this has profound implications.
Here are some futures charts. Notice they are all trending up.
Corn:
Oats:
Soybeans:
Wheat:
And notice how higher agricultural prices are bleeding into livestock prices:
My biggest fear is the Federal Reserve is going to miss this boat entirely which has terrible policy implications for the US.
In the past, such increases have been caused by temporary supply disruptions. Following a poor harvest, farmers would rush to capitalize on higher crop prices by planting more of that crop the next season, sending prices back down. But the current rally, which started a year ago in the corn-futures trading pit at the Chicago Board of Trade, is different.
Not only have prices remained high, but the rally has swept up other commodities such as barley, sorghum, eggs, cheese, oats, rice, peas, sunflower and lentils. In Georgia, the nation's No. 1 poultry-producing state, slaughterhouses are charging a record wholesale price for three-pound chickens, up 15% from a year ago.
What's changed is that powerful new sources of demand are emerging. In addition to U.S. government incentives that encourage businesses to turn corn and soybeans into motor fuel, the growing economies of Asia and Latin America are enabling hundreds of millions of people to spend more on food. A growing middle class in these regions is eating more meat and milk, which in turn is increasing demand for grain to feed livestock. In the U.S., a beef cow has to eat roughly six pounds of grain to put on a pound of weight, and a hog about four pounds.
This is an incredibly important story for several reason.
1.) It highlights how incredibly ridicules the Fed's "core inflation targeting is. The Fed's theory as to why core inflation is important is highlighted in the first paragraph. However, the real reason for the run-up -- which should be the Fed's stance -- is highlighted in the third paragraph. Demand for basic commodities is increasing, which is going to drive up prices for a long time. Hence, core inflation targeting is the dead-wrong inflation policy for the Fed to be targeting.
2.) Consumer spending. As food prices increase food expenditures take more money out of take home pay. This decreases the amount that consumers can spend on other goods and services. Considering consumer spending is responsible for 70% of the US' GDP growth, this has profound implications.
Here are some futures charts. Notice they are all trending up.
Corn:
Oats:
Soybeans:
Wheat:
And notice how higher agricultural prices are bleeding into livestock prices:
My biggest fear is the Federal Reserve is going to miss this boat entirely which has terrible policy implications for the US.
Northern Rock Borrows £8BN
It transpires that Northern Rock has borrowed another £5BN from the Bank of England, bringing its indebtedness to the BoE close to £8BN.
This means that Northern Rock has now borrowed the equivalent of 33% of its retail deposits at the end of June.
How long has this bank got left in its present form?
Who will buy it, and at what price?
This means that Northern Rock has now borrowed the equivalent of 33% of its retail deposits at the end of June.
How long has this bank got left in its present form?
Who will buy it, and at what price?
Thursday, September 27, 2007
Today's Markets
Just like yesterday, the market gapped up at the open but then traded around the opening price for most of the day. Basically, the markets are torn between a good 2Q GDP report of 3.8% and a lousy new home sales number. The first signals things are fine and the second signals the economy isn't fine.
On the three day chart, notice how choppy trading is. We get a big move up but no follow-through. That tells me the upward movement is technical -- traders buying on the open, but not enough excitement to continue bidding up the market during the rest of the trading session.
The daily chart shows two very narrow trading days. These are not good technical signs. They indicate a lack of excitement among traders.
Something I missed and which was mentioned on the WSJ Marketbeat blog was the transportation average's 50 day SMA crossed below the 200 day SMA a few days ago. So not only are the transports trading below the 200 day SMA (which is a bearish sign) the moving averages are moving lower and into bearish territory. These are not good technical developments.
Along that line, notice the following two transportation charts.
The railroad sector isn't in bad shape. It's just treading water, though.
Trucking is clearly in a major downtrend and has crossed below the 200 day SMA -- a very bearish sign.
Finally, we have the QQQQs. While they are advancing, the candles are very weak, indicating a reversal to retest support will probably happen soon.
Today's Markets
Just like yesterday, the market gapped up at the open but then traded around the opening price for most of the day. Basically, the markets are torn between a good 2Q GDP report of 3.8% and a lousy new home sales number. The first signals things are fine and the second signals the economy isn't fine.
On the three day chart, notice how choppy trading is. We get a big move up but no follow-through. That tells me the upward movement is technical -- traders buying on the open, but not enough excitement to continue bidding up the market during the rest of the trading session.
The daily chart shows two very narrow trading days. These are not good technical signs. They indicate a lack of excitement among traders.
Something I missed and which was mentioned on the WSJ Marketbeat blog was the transportation average's 50 day SMA crossed below the 200 day SMA a few days ago. So not only are the transports trading below the 200 day SMA (which is a bearish sign) the moving averages are moving lower and into bearish territory. These are not good technical developments.
Along that line, notice the following two transportation charts.
The railroad sector isn't in bad shape. It's just treading water, though.
Trucking is clearly in a major downtrend and has crossed below the 200 day SMA -- a very bearish sign.
Finally, we have the QQQQs. While they are advancing, the candles are very weak, indicating a reversal to retest support will probably happen soon.
