Market comments for Aug. 17th, 2011

Today I have put together a 3 month chart of the S&P 500, which shows we are battling a similar fight between the Bears and Bulls, as we are in the Dow charts. Pretty much all the Indexes have a similar pattern. What is driving our patterns is not a sector problem, specific industry issue or stock issue but rather a phase of US growth that has slowed down enough to give many investors pause as to whether they want to take on more risk right now by buying stocks of less risk by selling them. The chart below shows the S&P and its low support level at 1120 and the upper resistance level at about the 1200 level. We won't break out of this range, either lower or higher, until the news turns one direction or the other. Listening to domestic economic news is not enough. You must also listen to what is happening in Europe with its debt issues as well as China for any glimpses of a major slowdown there too.

This morning the PPI data for July was released and it showed a +0.2% reading compared to a -0.2% reading for June. Expectations were for a +0.1% reading for July.

Core PPI came in at +0.4% for July as compared to a +0.3% reading for June. This makes a rise of 7.7% year over year in Core PPI. That is inflationary. Gold has advanced in premarket and European markets are mixed this morning within a tight range.

Tomorrow Initial Jobless Claims data will be announced at 5:30am PST, along with data on CPI, Existing Home Sales, the Philadelphia Fed data and Leading Indicators. So much to digest here.

The meeting yesterday between Germany's Merkel and France's Sarkozy left many unsatisfied as expectations were high for some major announcement and there was none. They did not embrace the aggressive purchasing of Eurobonds as a solution, nor did they strongly propose the Financial Purchase tax I had spoken about yesterday. Just to show another similarity of chart patterns, the chart below is of Germany's DAX Index. Notice the similarity of the patterns most recently.

And lastly, VP Biden went to China to assure leaders we are good for our debt to them and not to worry about the downgrade of the US from AAA to AA+ rating. Good luck selling that when they are looking for some tangible reassurances. VP Biden is good with the blarney so we shall see.

Market comments for July 15th UPDATE

The CPI data came in at -0.2% in June, compared to +0.2% in May. Core CPI came in at +0.3% in June and was up +0.3% in May. This is showing that core prices are really rising as many feared. This economy is sounding more like we are in "stagflation". These CPI Core numbers are in line with what is happening with what has happened to the Core PPI numbers as well. In June Core PPI rose to +0.3% from a May reading of +0.2%.

The Empire State Index came in at -3.76 in July versus in June it was -7.96. Expectations for July were for the number to be 0.0, so this is not a good number and indicates a slowing business climate. That's hard to imagine given the business climate has felt like it has almost stopped the past 3 months. This data is in line with the Inventories data which is also rising and showing that Manufacturing is slowing down even further. This data is feeding into fears a double dip recession is going to occur.

Later this morning, Industrial Production data will be released for June, as well as Capacity Utilization and Michigan Sentiment data for July. Here's what to watch for Industrial Production came in in May at +0.1% and expectations for June are for a +0.3% reading. I expect the number to disappoint. Capacity Utilization came in last month at 76.7% and expectations are for a reading of 77%, indicating more usage of existing capacity. I think this number will disappoint as well and be below 77%. And lastly, Michigan Sentiment in June came in at 71.5, and expectations are for it to be 70.0% reading. I believe this number will be somewhere between 71.5% and 70.0% and will not be off by much, resonating with the general feelings in the country of negativity, partly based upon the politics of the moment on the issue of whether the Congress is going to raise the debt ceiling and also the higher Unemployment numbers this month. The trends are not good and we may be very close to going back officially into a recession.

Bah, humbug! The Futures look positive this morning in advance of this data. The Dow Futures indicated +44 before the CPI data came out and the Empire State Index. Now the Dow Futures indicate a +43 reading, so nothing has really changed with respect to the Futures.

Today is Options Expiration for July so expect high volume today.

UPDATE: 6:55am PST

Industrial Production came in at +0.2%, not +0.3% as expected. But the huge news is that the Michigan Sentiment came in at only 63.8 vs an expectation of 70.0 and a reading last month of 71.5!!! This is a huge disappointment but a realistic data point on how people are really feeling.

Capacity Utilization came in at 76.7%, same as last month and not the 77.0% expected.

Market comments for July 14th

Initial Jobless Claims data was released this morning and came in at 405K. This is a reduction of 22,000 from the previous week, but still over 400K. Expectations were for only 370K this week. The data from the previous week, however, was revised upwards from 418K to 427K Initial Jobless Claims, so again, not in the right direction for a recovery.

The PPI came in at -0.4%, while expectations were for -0.2%. This shows deflationary, not inflationary pressures are building, as the Fed is worried most about.

Retail sales for June came in at +0.1%, which is not much, but expectations were for a -0.3% number. Retail Sales Ex-Auto came in unchanged from the prior month. Thus, we have stagnation in Retail Sales.

The Dow Futures are up about 26 points at this hour, but I have a difficult time being convinced the market will rise today, given the way the issue of raising the debt ceiling has taken over most news commentary as a gloomy outlook. But in a market manipulated by the Fed, anything is possible. And with Moody's threatening a downgrade of the U.S., this is indeed a major game of chicken being played out nationally.

Market comments for June 14th

The latest data released this morning was on Retail Sales for May. Expectations were for -0.7% but the actual number came in at only -0.2%. See, that's an improvement. Retail Sales ex Auto came in at +0.3% and expectations were for the number to come in at +0.4%.

The PPI for May came in at +0.2% while expectations were for a reading of +0.1%. That's all the financial statistics for today which are meaningful although Business Inventories for April data will be released at 7:00am PST, I will not report it.

Dow Futures are up about 100 points today so expect that long awaited bounce this morning. But the overall trend appears to be down and with talk of more quantitative easing, it is clear the Fed sees deflation as the problem, not inflation.

Market comments for April 14th, 2011

Initial Jobless Claims rose unexpectedly last week to 412,000, going back above the 400,000 level many thought were in the rear view mirror. Also the PPI number for March came in at +0.7%, while Core PPI came in unexpectedly at +0.3%, causing more worries about inflation creeping into goods produced.

Futures are down in pre-market with the Dow down about 54 points. Still to come out tomorrow are CPI, Core CPI, Industrial Production, Capacity Utilization and Michigan Sentiment.

Yesterday the Dow closed up a few points as shown in the chart below, but if you look at the other leaders like CAT, DD and others in the Index, you will notice that volume was down yesterday and that the trend of these leaders looks like they will continue down. Unless new leaders emerge in the Dow Index, then the Dow is set to continue to drop as we are now below the 25 and 50 day Moving Averages on these stocks.

Market comments for Oct. 14th, 2010

Data released this morning shows that Initial Jobless Claims were higher at 462,000. Expectations were of 450,000. Last week the numbers reported were only 450,000, so this spike is in the wrong direction. However, as usual, they adjusted the prior week's data up from 445,000 to 449,000. Continuing Claims came in at 4.399 Million vs 4.511 Million the prior week. But the 4 week moving average is up to 459,000. When you really think about it, Americans are losing jobs to the tune of greater than 450,000 a week and have been doing so for a very long time! How sad for American workers and their families. This is not a good report for President Obama going into the elections in a few weeks.

On another note, the PPI came in at +0.4%. This was the same data as reported for August. The Core PPI, year over year increase, is up only 1.6%. The Trade deficit came in at -$46 Billion versus -$43 Billion last month. Expectations were for improvement to being down to -$40 Billion, so this too was in the wrong direction. With China's currency resisting world pressure to appreciate because they have an unfair advantage I believe they will continue to defy the world and will keep their currency as low as they can. Why not, they are in the drivers seat and they know it. Even if the whole world dropped their currencies they couldn't get it low enough to match where China's currency is because their population works for under a $1 a day. We just can't compete with them nor can anyone else.

Foreclosures reached a record 100,000 last month, and the background story, which emerged a week ago, was that an investigation of Banks and their foreclosure process is being conducted. Bank of America had stopped all foreclosure processes in 50 States pending an investigation by them.

Futures are close to unchanged or slightly lower after the release of the data.

It is now clear that with the sizable debt this country has, that the way we are dealing with it is to devalue our currency so that the value is half of what it was so we can pay the debt off in cheaper dollars to China, who holds our debt, as does Japan. That is why Japan is trying to lower its currency as well so they get paid eventually relatively equivalent dollars and why China will not inflate its currency. The major world powers are in a Currency war right now. This game is going to end very badly as wealth is being transfered out of the United States.

But we are all happy now because the stock market appears to be rising, right?! How naive the American public is. That is the price we all pay for a poor education of our kids who someday grow up and are fooled by the talking heads in Washington and vote against one's own personal interest.. Education is the one answer to get this country back on track and we haven't even begun to get serious about improving education yet. That is why we get the Government we deserve.

Market comments for Sept.16th (UPDATE)

Initial Jobless Claims came in at 450K and expectations were for 440K. That was a little more than expected. The prior week number was 451K but here again, it was revised up to 453K. The number is still basically the same, week after week, so the jobless picture is not getting better, but also at this period of time isn't getting worse either. That is good news for those employed, but bad news for the long term unemployed, as it is still very difficult to get a job.

Continuing Claims came in at 4.485 Million. Expectations were for 4.450 Million. The prior week's number was 4.478 Million but was revised upward today to 4.569 Million. Again a more negative number than previously reported. You would think with all these revisions over the past months that sometime they would revise them downward, but they don't. That is part of the reason why I believe the numbers are being deliberately manipulated.

PPI numbers released for August were +0.4%. The prior month of July it came in at +0.2%. Expectations were for +0.1%. Core PPI came in at +0.1% compared to prior month's data of 0.3%.

The Futures market is still negative with Dow Futures down about 42 and the S&P 500 down about 6 points.

FedEx sees 1Q profit double, and you would think that is good news. However, they said that the Global recovery isn't as strong as was previously reported by them. Also, in the announcement, they said they are going to layoff 1700 jobs. Read the entire story here.

Other news, which caught my eye this morning was that foreclosures are up 25% on the year. The increase in foreclosures came even as the number of properties entering the foreclosure process slowed. To read the complete article click here.

I know what you are thinking right now. Where is the market going? If it were based on the data, it should be down much lower than where we are now. But it doesn't seem to be following that course of late. It doesn't make sense to me that the market has been rising this past 2 weeks, but it has. So your guess is as good as anyone's right now. You decide!

The next data out will be at 7:00am PST and it will be the Philly Fed data. Last month the number came in at -7.7, which surprised many. Initially expectations were that the number would come in today at +2.0, but since the expectation was lowered to 0.0, so we will see what actually it come sin at. Come back and I will post it below, just after 7:00am PST, with the word UPDATE, added in the title of this post.

UPDATE 7:30am PST

The Philly Fed data came in lower than expected at -0.2, which drove the market lower. The day is setting up as a Hammer Candlestick pattern, which usually means that the trend has been broken and it shall now drive lower in coming days of trading. Trading volume is still very low, relatively speaking.

Economic data for the week ahead

This is an important week on many fronts to be paying attention to the data to be released on the economy. Most likely Tuesday's information will be the most important, as a plethora of data will be released in the morning and before the stock market opens. Also to contend with is Options Expiration for August on Friday. Here's the line up and expectations for the data this week.

Monday, Aug. 16th NY Fed, Empire Mfg. Index for August. Market Expects 7.0, Prior Month was 5.1
Tuesday, Aug. 17th Housing Starts for July. Market expects 555K. Prior Month was 549.
Tuesday, Aug. 17th Building Permits for July. Market expects 573. Prior Month was 586.
Tuesday, Aug. 17th PPI for July. Market expects +0.2%. Prior Month was -0.5%
Tuesday, Aug. 17th Core PPI for July. Market expects +0.1%. Prior Month was +0.1%.
Tuesday, Aug, 17th Industrial Production for July. Market expects 0.8%. Prior Month was 0.1%
Tuesday, Aug. 17th Capacity Utilization for July. Market expects 74.8%. Prior Month was 74.1%
Thursday, Aug. 18th Initial Jobless Claims. Market expects 470K. Prior week was 484K.
Thursday, Aug. 19th Continuing Claims. Market expects 4.500 Million. Prior week was 4.452 Million.
Thursday, Aug. 19th Leading Indicators for July. Market expects +0.2%. Prior reading was -0.2%

Friday is Options expiration for August and I do expect increased volatility and an significant increase in Volume on Friday.

Economic Indicators for July 15

Here I am waiting for a flight from Rochester, NY to go home via Chicago and I check the economic news out at 5:30am PST, and guess what, I see more bad news. For a starter, the PPI came in at -0.5 percent, which is another indicator we are in Deflation, not Inflation! Anybody listening out there? And that's with all the stimulation the gov't was allowed to spend. Paul Krugman warned that we needed twice as much stimulus back when the government was deciding what was needed, but Republicans in the Senate and a few Democrats like Ben Nelson and Independent Joe Lieberman wouldn't support any more. In fact they didn't even suppot the amount which was approved by Democrats and Independent Bernie Sanders of Vermont. Thank God they passed what they did!

Here's the other piece of news. The NY Fed announced that the Empire Manufacturing Index came in at 5.0, which is barely manufacturing. Last month the number was 19.6 and the expectation for this month was for a reading of 19.0, so how's that for a taste of reality.

One last piece of data to type on this iPhone, Continuing Claims came in much higher than expected at 4.654 Million Continuing Claims versus an expected number of 4.440 Million Claims. Still think the economy is getting better? What planet are you living on, because it doesn't look that way from where I sit!

I will be watching the market as much as I can traveling home today. God bless the iPhone! Good luck investing or trading.

Leading Economic Indicators for week of July 12th.

Leading Economic Indicators for the week are as follows:

Tuesday, July 13th:
Trade Balance for May. Market expects $39.5 Billion.
Treasury Budget for June. Market expects $70 Billion.

Wednesday, July 14th:
Retail Sales for June. Market expects -0.2%. Last month -1.2%
Export Prices for June.
Import Prices for June ex-oil
Business Inventories for May 0.3%.
Minutes of FOMC meeting released at 2:00pm EST.

Thursday, July 15th
Initial Claims
Continuing Claims
PPI for June. Market expects -0.1%
Industrial Production for June. Market expects -0.2%
Capacity Utilization for June. Market expects 74.1%
Philadelphia Fed for July. Market expects 10

Friday, July 15th
Core CPI, CPI for June. Market expects 0.0% & -0.2%
Michigan Sentiment for July. Market expects 74.0, and prior reading was 76.5%

In overnight trading the Nikkei is up 7 points at this hour. This is not reinforcing of the drive last week so only time will tell what will happen. If you are on vacation, enjoy it and visit here less frequently. Summer comes only once per year unfortunately. :)

PPI, Housing Starts for May: Not really good, but will it affect the market?

Yesterday was an unusual day in the market. The Dow soared up above the R2 (Resistance) level of 10,377, closing above 10,400 and all on bad news during the day. I had said it wouldn't happen. I was wrong. The Futures were pointing down as the PPI data and Housing Starts data was to be released. The PPI (Producer Price Index) came in at -0.3% compared to being down -0.1% in April, while Housing Starts were down -10%. May Building permits were down -5.9% after being up +3.9% in April.

The PPI numbers continue to support the fact we are in a Deflationary period, contrary to many who believe we are in Inflation. Does it really make a difference? It should as it affects Fed policy, but the stock markets seem to be driven by the beat of a different drummer and we aren't sure who's beating that drum, are we. This stock market even has Cramer scratching his head, as he said on his CNBC Mad Money show yesterday. To quote Cramer, "It makes no sense at all!"

Where are we going?: Latest on the stock market trend both long term and short term

It's time for one of those posts where I take a very lofty view of the stock market and a minute view at the same time and explain to my readers how I look at the market from day to day when trading. To do this I have put up many charts staring as long as a 30 year chart of the Dow to as small as an Intraday of yesterday's trading. I hope this helps you at least see what I see. Let me start with the broad view using the Dow 30 year chart.

As usual, I will look at each chart observing "W" pattern formation. As I have noted here before, these "W" patterns are often referred to as Head and Shoulder patterns. I suggest you read up on on these patterns somewhere like Investopedia, which has a significant wealth of facts and lessons for any investor. Getting back to those "W" patterns, I will underline in red each "W" pattern I want you to be looking at and we will be looking for which way the slant of the line appears to be heading. If the line heads down, it implies the market will follow by going down below the bottom right leg of the "W". If the slant points upward, the market should go up.


Looking now at the Dow 30 year chart above, you will notice the "W" pattern of the stock price and the fact that it is slanted down. To me this means that although we have made highs of 11,000 recently and 14,000 before that, we are headed lower and should go lower than the previous low, which was at 6,400 on the Dow. That seems to contradict conventional wisdom by the "experts" on CNBC and others who have said any correction will go to Dow 8,000. If that were so, then the previous low would not have gone below 8,000 and there would be no slant of the "W" pattern. So that is one thing I wanted you to see along with me. But there is another interesting point to be made on this chart, but it doesn't involve the stock price, but rather, the Volume in the bottom section of the chart.

As you can plainly see, there has been 3 distinct periods where the Volume made a significant step up. I have drawn Blue lines to define each step. The first step was from 1980 to about 1988, the second step up from 1988 to 1998, and the last step up from 1998 to now. But in this last step, it looks to me that the Volume is increasing steadily over this 12 year period .Just think, the Volume was significantly lower just 10-15 years ago in the buildup to the year 2000 Dot.com bubble bursting. I don't know many investors who have increased their purchases of shares over these past 10 years and yet the Volume is over double the previous period. Part of the explanation could be that the bank shares like Citigroup, symbol C, have dropped in value so much that there are Billions of shares traded now compared to previous times, but that doesn't entirely explain it.

To me the only explanation is that the Government has been using its reserves to keep this market sustainable at these levels through firms like Goldman Sachs and others these past 2 years investing with nearly free money from the government. It's a way fro the government to make money too since the wealthy don't want to be taxed.

Anyway, I think this Volume will eventually drop as people get more scared and leave the market as their gambling table of choice. Any major market drop will scare a generation of investors away, as may have happened in the recent drop to 6,400 on the Dow. Ok, now let's move on to another chart.


This next chart above is off the Dow for the past 10 years. I have underlined several "W" patterns to show you again the predictability of this pattern at determining the market direction immediately after the "W" pattern is formed. Several of these in this chart show this to be true. You will notice the last "W" pattern I drew in red to the right of the chart appears to slant down. This will be clearer in shorter time period Dow charts to come. The other thing to look at on this 10 year chart is the volume spike near the low of 6,400, when Volume increases and price is dropping it is very bearish for the market. Same is true when the market is going up on high volume. However, if price rises on low volume, that too is bearish.


This 3rd chart above, shows the Dow for the last 1 year period. I have underlined a number of "W" patterns here as well. As you can see in this last period, the "W" pattern was flat. This implies the Dow moving sideways, not up and not down. It implies a tight range until the next "W" pattern emerges.


And lastly, the final 1 month chart of the Dow. I have drawn 2 red lines. Let's focus on the last one which points up. We can't tell much form this except that the market should go up from this latest rally the past few days, correct? However, the previous red line under the "W" pattern is slanted down and it has not yet been fulfilled. It may be a fluke. Remember I have said these aren't 100% accurate predictors, but rather about 90%. However, I conclude 2 things from this. First, is that while it might be a fluke, the Dow will not go too high from here. It possibly could go as high as Dow 10,500-10,600 range, as I have mentioned a few weeks ago. However, it may just fizzle out and return to another major drop on any negative trigger. I would be cautious trading here. And Volume is barely hanging in this past week at 200 Million shares where if you look at the 30 year chart it looks like the average for this period should be more than the 200 million shares.

So what do you do when the signals are mixed? I can't tell you what you should do, but I can tell you how I am thinking about it. Because the short term is so murky, I pull back to what I do know. That takes me to look at the 30 year chart. So while I mark time, I keep in mind that the overall trend will be down, so if I am going to buy any stock Puts, I can wait a bit and if the market rises, I should be able to get them cheaper. I most likely won't risk buying any stock Call Options either. And lastly, waiting until there is clarity is just fine as well.

I am sitting on a number of TZA Call Options. My latest purchase was for $1.55 each for a Strike Price of $9.00 for October. I also purchased some Puts on a Dow index stock I will keep nameless.

I hope this isn't boring and has been informative. Good luck out there. Next week the key Leading Economic Indicators I will be watching will be these:

Wednesday PPI, Core PPI, Housing starts, Industrial Production (expect PPI to be negative)

Thursday Jobless Claims, Consumer Price Index, Core CPI (Watch for Deflation in Core CPI numbers)

That's it from here. have a nice weekend. And remember, there is nothing wrong with taking profits and being in cash right now. It is the only safe place to be contrary to the hype out there in my view. To make this point further, click here on a video clip of Maria Bartiromo of CNBC's Closing Bell interviewing Bob Prechter of Elliott Wave International.

A philosophical view of the stock market and commentary.

Yesterday's market action was a function of fluctuations in currency movement and the same could happen today, according to Art Cashin of UBS Warburg on CNBC this morning. I don't know if that was the cause but there was a surge of the dollar at the open yesterday and, within an hour of the close, the Dollar dropped. Theses fluctuations are expected to continue as Europeans settle in on what they think about the Euro now in light of the 1 Trillion bailout of EU zone countries.

Having said that, we continue to be in a negative frame of mind in US markets. Today the PPI number for April came in at -0.1%, which is deflationary in itself. That continues to plague our economy as we have had negative CPI or zero CPI with all the money and stimulus the Fed has been actively creating. Even with this major effort, there appears to be deflation worries continuing and so far the Fed has not managed to abate this concern. Inflation watchers, rightfully so, keep looking for inflation to rear its ugly head. It has in effect with the rise in Gold and other precious metals, but not enough to turn the tide in the direction of inflation. There is contention on this topic in most Cable programs based upon commentary by their guests.

You would think this would be the most ideal time to pay down Federal Debt with nearly zero interest rates, but it appears for political reasons we prefer to pay the debt down when interest rates rise and the pain is greater. I just don't understand the shortsightedness of Americans. I do understand the politics of the situation, as we are a democracy where politicians are working to get re-elected immediately after winning an election and pain means sure defeat at the polls. Which is why the pain caused by our lack of backbone in dealing with these issues at a logical time is not great enough to make us move into action. That is why we had a Great Depression and why we are destined to repeat history again, unfortunately. This is why I favor the view the markets will drop significantly and shake us to the core as the excesses of the 80's to the first part of the 21st Century will shape a new generation of true fiscal conservatives. We need a cleansing and we are going to have one. That is why the markets do follow Elliott wave Theory and are based on Fibonacci numbers. It is based upon the very nature of man (and woman).