Friday, September 24, 2010

Market comments for Sept. 24th and the implications beyond. (UPDATE)

Before I get into reporting on the Durable Goods Orders data being released this morning for August, I thought I would comment about the manipulation of the stock market and give some evidence to support such a claim. Looking back over the past 10 years of chart data available for the Dow and for the S&P 500 and comparing both Indexes to the 10 year Treasury yield, one can see from the charts below that the S&P has more closely tracked the 10 Year Treasury yield much closer than has the Dow. The Dow is only comprised of 30 stocks and is more easily manipulated than the 500 stocks making up the S&P.

The gap today from looking at the 10 year period is -55% for 10 year Treasuries vs. the Dow, while the gap for 10 years Treasuries vs. the S&P is -35%. However, even more importantly, both Indexes are signaling a significant drop is in order for both Indexes.

You can clearly see the pattern tracks each other over the 10 year timeframe, but that the gap between each comparison is at its greatest, as of the close of the market yesterday. We are do for both the Dow and the S&P to drop significantly to close these gaps. And with the Fed looking at continued quantitative easing the current 2.56% Treasury yield on the 10 Year Treasuries is not going to go up in yield any time soon.

Here are 1 year charts of the Dow vs 10 Year Treasury yields. They tracked together until about May and when the 10 year yield dropped the Dow held and finally has gone up and widened the gap in the past 2 months, with the widest gap in the past 10 days. Something has to give here, and I strongly believe it will be the stock market. The big question of the day is whether it will happen during the month of October. If it's not the stock market going down, then 10 year Treasury yields are about to rise sharply against the Fed's wishes.

OK, now for the data on Durable Goods Orders for August. The prior month of July came in at +0.4%, but expectations are so low for August, they have expectations of -2.0%. If you also look at Durable Goods orders ex-Transportation, expectations are for +0.5%. July's data had come in at -3.7%. So here's the data:

Durable Goods Orders for August came in at -1.3% vs. latest expectation of -2.0% which was revised down from previous expectation of -1.4%. So we came in very close to the original number of -1.4%, but the news stories are saying now "much better than expected."

Durable Goods Orders ex Transportation for August came in at +2.0%. July's data revised downward to -2.8% for July.

I will update this post for New Home Sales to be released at 7:00am PST, so come by again. Expectations are for 270K New Homes sold for August. July's data was 276K New Homes sold. I might add that previously the expectation was for 291K New Homes to be sold in August, but it had been revised downward. They most likely wanted to say see they beat the new expectation versus missed the old one. Isn't that managing people's psychology as a delusion? I think so! Oh, and by the way, the same thing was done to expectations on Durable Goods Orders. They had originally expected a -1.4% for August, but now with -2.0%, they have a chance to beat it, thus trying for an induced market rally. It worked as Dow Futures went form +60 to +103 on the news.

Let's summarize here to take stock. Durable Goods orders for Aug were down -1.3% from July. Now July's number was revised up from +0.4% to +0.7%, so the real question is how do they calculate this months data? Do they calculate it by saying we are down -1.3% from +0.4% last month or do they calculate it from being down -1.3% from +0.7% the previous month? It is based on dollar volume of Goods Ordered, but they show only percentages. Hmmmm, I smell a rat! What do you think?

UPDATE: 7:00am

August New Home Sales were Unchanged from July. July's New Home Sales were down a whopping
-7.7%. So here's the goody. July's New Home sales were revised up from their initial 276K to 288K homes. August data came in at 288K, so no difference from July. Now you've got to love this, expectations originally were for 291K New Home Sales to be announced but recently that number was revised downward to 270K New Home sales. So now, with 288K new Home Sales, the media and gov't can say that the number was better than expected! Simply Amazing!!!

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Blogger Mac said...

Interesting charts. We have certainly been in a range bound cycle for some time. Given the increasing signs that the "great recession" is slowly ending, I think we will continue to be range bound (roughly a Dow of 9,600-10,700) for some time.

Do you actually base your own investment decisions on your analysis? If so, I suggest your comments and advice would be more meaningful if you openly shared your real portfolio allocations by %, shared changes you make in allocations, AND shared your portfolio performance on a monthly and annual basis.

6:20 AM  
Blogger Charles Amico said...

Mac, I do this for personal enjoyment, not for the entertainment value of my readers. If you like what I post for charts and such, I welcome your reading it. If not, then don't waste your time. I am not a Financial Advisor and don't pretend I am. You might want to ask your Financial Advisor for guidance.

6:30 AM  
Anonymous Anonymous said...

I just picked up AVNR 6K. If the market is going to take years to correct, this will be a good position to have.

10:30 AM  

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