Market Mondays

Last week, the SPYs finished an up(A), down(B), up(C) pattern.


The EMAs are still in a bullish configuration: the shorter EMAs are above the longer EMAs, prices are above all the EMAs and all the EMAs are moving higher.


A.) Momentum is increasing and

B.) Money is flowing into the market.

The two charts below are of the micro-cap (IWC), small cap (IWM) and mid-cap(IWR) markets. Notice all the charts confirm last week's action with the exception being some of these markets saw price moves above/through important resistance levels. This is important as it indicates that markets which are riskier saw larger gains.

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Kraft To Be Investigated

The City Takeover Panel is to investigate as to whether Kraft misled Cadbury investors wrt a promise to keep Cadbury's Somerdale factory open.

Kraft said on November 9 2009:

"Kraft Foods believes it will be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and invest in Bournville, thereby preserving UK manufacturing jobs."

After the deal was completed, Kraft said that the factory would close by 2011, losing 500 jobs.

Aside from allegedly misleading Cadbury, the promise unforgivably gave false hope to the workers at the plant.

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Weekend Weimar and Beagle

It's that time of the week. Don't think about the markets or the economy for the next two times. We'll be back early Monday.

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Weekly Indicators: Bonus Weekend Photo Contest

- by New Deal democrat

Another BLS employment report, another negative number. At least for February the -36,000 reported job losses were much better than feared due to blizzard. Back out census hiring and the loss was a little worse, at -51,000. Virtually the entire loss can be blamed on construction workers, both residential and commercial, as well as government employees -- the laggards as I expected per my comments earlier this week. Unemployment remained steady at 9.7%. Average hours worked declined slightly, including manufacturing hours. I haven't crunched the numbers yet, but I suspect we are going to have the first negative LEI in almost a year when February is reported.

Other monthly measures of jobs all were better. The household survey turned higher for the 2nd month in a row. It looks like December was the bottom in that survey, which is now at a 5 month high. The ADP report at -20,000 was tied for smallest preliminary loss since the recession began. The Challenger report was also the best in well over a year. Best of all were both ISM indexes which were consistent with actual job growth in both areas, most likely starting next month.

In other news, Retail Sails reported that "Preliminary results show total sales increased 6.0% from a year ago to $28.9 billion for the 30 retailers we track, while same-store sales were up 3.9% compared to a 3.4% drop in the year-ago period."

While the "same store sales" number could be subject to survivor bias, the total sales number probably isn't -- since defunct retailers simply contribute zero.

If general retail sales for February are shaping up decently, car sales dropped to a 5 month low:

2009-12-01 11.201
2010-01-01 10.769
2010-02-01 10.340

This month's car number is also subject to a lot of wiggle room, since buyers would presumably like to stop, as well as drive, new Toyotas. It appears that most prospective Toyota buyers are simply waiting, rather than buy a different brand.

Turning to high-frequency weekly numbers, same store sales for the week of February 27 were up +0.7% YoY and down -0.8% WoW. The 4 week average for February is +0.7% YOY. Shoppertrak reported a much stronger, +4.3% YoY number for retail sales for the week.

Rail traffic showed improvement YoY and comparatively with last week on all indexes. Baseline traffic, however, while improving is still slightly below last year. The culprit seems to be coal. Should we blame it on global warming?

The BLS new jobless claims report decreased to 469,000. The 4 week average also decreased slightly to 471,000.

The E.I.A. reported gas sales once again slightly under last year's, and gas prices rose again to $2.70/gallon. At week's end, a barrel of Oil traded for just under $82.00. Oil's long slow uptrend from last summer is intact, and we look on course to hit the critical $90/barrel or $3/gallon figure in a few months. This is my biggest concern for later this year.

Daily withholding taxes continued to improve. On March 3, 2010, $36.5B had been collected so far this month, vs. $36.2B for the first 3 days of March last year, so we are starting out the month ahead of last year. February finished -2.3% below last year.

Because the same date may fall on a weekday vs. weekend YoY, I am also going to start tracking the 20 day moving average of withholding tax receipts. For the last 4 weeks, $131.9B has been paid this year, vs. $134.7B last year, for a decline of -2.1%.

Withholding tax receipts by month since October are as follows:
Oct. $124.7B -12.8% YoY
Nov. $127.7B -8.8% YoY
Dec. $154.9B - 7.6% YoY
Jan. $140.0B -6.7% YoY
Feb. $ 139.6B -2.3% YoY

And now, this week's special weekend bonus feature ...

The below photo shows something that everybody should see at some point, on their "Bucket List" so to speak. Your mission is to figure out what this is:

Have a very nice weekend and I will give the answer next Friday!

Update: Well I've been busted because apparently y'all can read my file name for the photo!
If you haven't seen it, you should. Until last year, you could stand more or less right next to the glow -- until the hole opened up!

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Two Points on Employment/Unemployment

The household number of employed -- which typically bottoms before the establishment survey -- may have bottomed. Note the blue line above.

Secondly -- and this is from Barry over at the Big Picture -- the recent spike up in initial unemployment claims is actually pretty typical.

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BLS: Establishment Jobs Drop -36,000; Unemployment Rate at 9.7%

From the BLS:

Nonfarm payroll employment was little changed (-36,000) in February, and theunemployment rate held at 9.7 percent, the U.S. Bureau of Labor Statisticsreported today. Employment fell in construction and information, while temporary help services added jobs. Severe winter weather in parts of the country may have affected payroll employment and hours; however, it is not possible to quantify precisely the net impact of the winter storms on the measures. For more information on the effects of the severe weather on employment estimates, see the box note at the end of the release.

Let's take a look at the report's data.


The unemployment rate appears to have topped out. However,


The jobs picture is floating around 0 rather than positive gains.

From the household survey:

The number of unemployed people increased by 34,000, increasing from 14,837,000 to 14,871,000.

The household employment population increased by 308,000.

Not in the labor force decreased by 176,000.

From the establishment survey:

Total goods producing industries say 60,000 in losses, with the biggest hit to construction at -64,000. Manufacturing actually added 1,000 jobs along with 20,000 last month. That tells us the long increases in various manufacturing measures are starting to lead to some job growth. My guess is the drop in construction employment is weather related.

Service jobs increased 42,000, with a big increase coming in professional services (+51,000). Temp help again increased, this time by 47,500.

Average weekly hours decreased .1 while average hourly earnings increased $.03. Average weekly earnings also dipped because of the decrease in hourly earnings.

I'd call this report fair. The positive signs are in the household survey's increase in employment (which typically leads the establishment survey) and temporary work. That lack of a meaningful increase in jobs is disturbing, however.

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Forex Fridays

I've drawn several possible upward sloping trendlines to show the basic fact that the uptrend has been broken.


A.) Notice there is no clear consolidation pattern -- no clear triangle/pennant/head and shoulders. Instead, prices are simply moving between roughly $23.50 and $23.90


Note the price EMA picture.

First, the 10 and 20 day EMAs are now moving sideways, indicating the trend is weakening. However, the 50 is still moving higher.

Also note the 200 day EMA is moving higher, indicating the long-term trend is now up.

So far, this chart looks to be consolidating.

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Olympic Sale

As the Greek financial crisis simmers "gently" there have been calls, perfectly serious ones, that Greece should hold an "Olympic" sale and sell some of its islands in order to raise much needed cash.

The calls for this Olympic sale, unsurprisingly, have come from Germany.

Josef Schlarmann, a senior figure in Germany's governing Christian Democratic Union party (CDU), said:

"What should a bankrupt person be doing?

Selling everything he owns to pay his creditors, that's what. For the Greeks that means buildings (eg Acropolis) and unpopulated islands."

Needless to say the Greeks are none too impressed with these "helpful" suggestions, and it is fair to assume that they will add to the tensions surrounding the upcoming meeting between Angela Merkel and Greece's Prime Minister, George Papandreou.

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Yesterday's Market

In the Market Monday's column I wrote the following;

Are the SPYs moving into an A/B/C (up/down/up) pattern? Let's take a look.

The chart for the week confirms that we're in the middle of a standard A (move up), B (pennant/consolidation pattern) C (second leg up) pattern.

Also note the EMA picture that is evolving. The shorter EMAs are above the longer EMAs, all the EMAs are moving higher and prices are above all the EMAs.

This trend is confirmed by the underlying technicals:



A.) Momentum is increasing

B.) Money is flowing into the market.

The big wild card right now is the employment report.

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Beige Book Sees Continued Improvement

The Fed released the Beige Book yesterday. This is a great piece of work for anyone interested in the economy. It presents a general overview of economic activity.

Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.

Let's go to the data to get some more detail.

Consumer spending showed signs of improvement in many Districts since the last report but was hampered in several regions by severe weather conditions in early February. Retail sales improved in the Chicago, Minneapolis, Dallas, and San Francisco Districts, and New York said sales were well above year-ago levels in January and met expectations in February despite inclement weather. Philadelphia also reported that sales were moving up slowly until snowstorms hit in February. Boston and Cleveland characterized sales as mixed but slightly higher overall than year ago levels. Sales were lower than expected in the Atlanta and Kansas City Districts and were down from year-ago levels in the St. Louis District. Several Districts reported that sales were strongest for lower-priced items, while sales of luxury and big ticket items remained sluggish. However, San Francisco noted scattered reports of increased discretionary spending, and Cleveland said some retailers noted a broader, if still slight, increase in demand across a variety of products. Inventories were being managed carefully and held at fairly low levels in most Districts, but Chicago said rising sales were leading retailers to begin rebuilding inventories from low levels.

For more on this, see the recent post on personal income.

Nonfinancial services activity was reported as steady or improved by the majority of Districts. Boston, St. Louis, Minneapolis, and San Francisco reported generally solid demand in health-care services, although Minneapolis noted continued weakness in elective procedures. New York indicated that a growing number of service firms planned to increase capital spending in the months ahead, but investment expectations diminished among high-tech companies in the Kansas City District. Richmond reported that service revenues fell due to the record snowstorms, but a few contacts saw a slight pickup in demand, particularly architectural firms, hospitals, and financial service professionals.

See yesterday's post on the ADP employment report for more information -- this ADP report is largely concerned with service sector employment.

In addition, the ISM released their non-manufacturing index yesterday:

"The NMI (Non-Manufacturing Index) registered 53 percent in February, 2.5 percentage points higher than the seasonally adjusted 50.5 percent registered in January, indicating growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 2.6 percentage points to 54.8 percent, reflecting growth for the third consecutive month. The New Orders Index increased 0.3 percentage point to 55 percent, and the Employment Index increased 4 percentage points to 48.6 percent. The Prices Index decreased 0.8 percentage point to 60.4 percent in February, indicating an increase in prices paid from January. According to the NMI, nine non-manufacturing industries reported growth in February. Respondents' comments vary by industry and company about business conditions."

Here is a chart of the relevant data:



Notice the clear improving trend that has been in place since the end of November 2008.

Manufacturing activity increased further in most Districts, although Minneapolis, Dallas, and San Francisco characterized overall activity as flat or mixed. Philadelphia reported widespread production increases across most industries, and manufacturers in the Cleveland District reported a general rise in capacity utilization. Many Districts reported strong production in metals, and the Boston, Dallas, and San Francisco Districts noted strength in high-tech equipment, particularly semiconductors. Cleveland, Chicago, St. Louis, and Dallas noted solid improvements in auto-related manufacturing. A consumer goods company in the Boston District said European sales were at healthier levels. Contacts in the Chicago District reported strong growth in Asian exports but remained concerned about China's underlying economic strength. Dallas reported that exports for natural-gas based products remained strong, but weak demand for refined products has trimmed margins and cut capacity utilization further. Construction-related activity remained weak in the Chicago and Dallas Districts, and new orders for commercial aircraft and parts were sluggish in the San Francisco District. Philadelphia and Richmond noted productions delays due to the winter snowstorms in February, but some factories were able to make up the losses with longer work hours and extended shifts. Several manufacturers in the Philadelphia District said production gains could be limited due to continued tightening in credit markets and adverse developments in taxes and regulations. Plant managers in a few Districts reported that a large number of customers were simply restocking inventories, leading to concerns about the sustainability of the increase. However, contacts in most Districts remained optimistic for future months, with several reports of planned increases in capital spending.

For more detail/information, see the latest post on the ISM manufacturing data.

Residential real estate markets improved in a number of Districts, remained weak or softened further in the New York, Atlanta, and Chicago Districts, was little changed in the San Francisco District, and characterized as mixed in the St. Louis District. Richmond also reported overall housing activity as mixed, but one contact noted that absent the harsh weather, market conditions might have improved. Adverse weather conditions also hampered home sales and construction in the New York, Philadelphia, and Atlanta Districts. Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30. Philadelphia, Cleveland, Kansas City, and Dallas reported that sales were strongest for low-priced and starter homes, while Dallas cited financing difficulties for high-end homes. Home construction was down or stagnant in most Districts, with the exception of the Minneapolis, Kansas City, and Dallas Districts. Atlanta said the most pronounced weakness was among Georgia homebuilders, and San Francisco attributed weak construction activity to elevated home inventory levels. Home prices mostly remained flat or declined slightly, but signs of improvement were noted in the Boston and San Francisco Districts. A real estate agent in a relatively upscale area of the New York District said prices have continued to drift downward but that short sales were relatively rare and most transactions were still above the mortgage balance.

Commercial real estate conditions remained weak or declined further in most Districts, although some Districts noted slight stabilization or modest signs of improvement. Commercial real estate activity weakened in the Richmond, Minneapolis, Kansas City, Dallas, and San Francisco Districts, though Dallas noted that leasing fell at a slower rate and San Francisco cited increased leasing in some segments. Boston and Philadelphia said conditions remain weak, but both noted some improvement in sales of commercial space. New York reported softer activity in the New York City area but some steadying in vacancies and rents elsewhere, while St. Louis said activity remained weak throughout the District. Several Districts also noted that many tenants were pushing for, and in some cases receiving, concessions on rents. All Districts reporting on commercial construction said that activity remained weak or slow, except for some moderate boost from federal stimulus projects and other public construction. Credit for commercial development and transactions was still very difficult to obtain in several Districts, though San Francisco noted a slight improvement in financing availability.

Housing is not doing well. New homes sales are bouncing along the bottom and existing home sales have dropped sharply over the last two months. This is an area of the economy where we need to see more improvement and quickly.

The pace of layoffs slowed in most Districts, but hiring plans still remained generally soft. New York cited a slowdown in layoffs at a securities firm and noted a pickup in hiring in what was still characterized as an exceptionally weak legal industry. Staffing firms in the Boston District also saw a strengthening in demand, particularly from the financial and manufacturing sectors. Several manufacturing and construction firms in the Cleveland District began recalling workers, and temporary staffing accelerated in the Richmond, Atlanta, and Chicago Districts. However, Chicago said demand for permanent workers was low, and a manufacturing contact in the Richmond District held back employment due to productivity improvements. Layoffs were also reported at several retail and manufacturing firms in the Dallas District, and Minneapolis said companies in the medical insurance and financial services industries reduced employment. Wage pressures were minimal, but Boston and Cleveland noted a lift in salary freezes and Richmond said wages rose at service and retail businesses.

The opening sentence says it all -- layoffs have slowed (but they are stuck at uncomfortable levels right now) but there is no hiring yet. In short, the bleeding has stopped but we aren't getting better from there.

The bottom line is clear: the economy is continuing to improve.

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