Market commentary for the week of Nov.8th

It will be a slow week regarding economic data being released. We have the usual Weekly Jobless Claims and Continuing Claims on Thursday. There is data being released on the Trade Balance and on Friday there is information being released from Michigan Sentiment and Consumer Confidence Indexes. So it is really a quiet week as far as data is concerned.

I have attached a chart showing the Put to Call ratio for all equities for 2009 and 2010. On Friday we hit a multi month low on this reading. At extremes of the top and bottom they are buy and sell signals. We are approaching the low, which often can mean a sell signal is close. The day of the low is not the actual day the market reverses but it often does within a week. I would prefer to see the Put to Call ratio down to 0.50 to 0.55 for a definitive signal, but we haven't had that low a number in a very long time. Although on Nov. 5th, we did reach a low of 0.55 in the first hour of trading and then it moderated later to close at 0.69 for the day, as you can see in the chart below.

The lowest blue point occurred on April 14th. The Dow closed that day at 11,123 and then it rose to the peak you see on May 20th. The Dow on May 20th was at 10,068, so you can clearly see that the low point was a sell signal for the Dow and other indexes. If we go any lower on the Put to Call ratio, I would say it is a Sell Signal of an anticipated market drop.

Also, one important fact not to be thought of lightly is the planned elimination of the Bush tax cuts as of January 1st. The Congress is creating uncertainty, as to whether the lame duck Congress will approve extending the Bush tax cuts for another year for everyone, or just those making up to $250,000/year. That means many may choose not to take a chance that Congress will approve the tax cuts and, instead, sell their stocks to lock in their profits for 2010 in the lower tax bracket. So there are many moving parts. Instead of the market rising as it usually does in anticipation of the Christmas shopping season, we actually may have pressure to sell stock before years end. So paying attention to this Put to Call ratio and the activities of Congress are most important! Stay tuned! Oh, and don't forget to take the mini poll on the right margin of this page. Thanks.

New milestone for WeThePeople visitors

I had to update my Blog Tracking data. Evidently a day or so ago I crossed over 60,000 Visitors have come to my site and they have viewed over 95,000 pages. This covers 1403 posts over that period. While that might look impressive, it isn't as I have had this web site for a few months longer than 5 years. Anyway, I want to thank you all for visiting this site. This past year I think I have had about 5-6 really great posts. They are difficult to write and they take the most time on my part, and that can be fleeting, as other matters often take priority. I will strive to do a better job and increase not only the quality of my posts but the diversity of topics again. I have enjoyed writing about the stock market and the economic news, but I also like pulling together apparently non related facts and weave a story that shows they are very related and often affect peoples lives. Wish me luck. :)

A review of the economy, the stock market and where we are with respect to historical norms

A review of a 2 year chart of the S&P 500 below, shows that on Thursday we broke just below the support level going back to the 2008 lows. We bounced back above it yesterday but indeed it does set up an interesting September and October period. We have been in a relatively tight range now since about June and one way or another we are either going to break below the Red support line or we are going to break above the Blue resistance line. After Fed Chairman Bernanke's speech yesterday, the optimists bet we were going to break above resistance. They succeeded and drove the market back up over the red support line with a gain of 17 points on the S&P 500 or 1.6% and a gain of a whopping 164 points or 1.6% on the Dow, to get comfortably back above Dow 10,000, closing at 10,150. (You can click on any chart here to make it bigger and then go back a page to continue reading)

But the reasoning for this strong rally, which came with an increase in Volume, was that the revised GDP for Q2 wasn't as bad as many had thought, coming in at 1.6%. Fears were that it would come in at 1.3% or less. That was the cause for the celebration. Another situation where bad news (a quarter of only 1.6% growth when we need 3-4% growth) had many fooled into thinking the economy is getting better. It just isn't so, if you look at many of the facts reported this past week. Admittedly, much of the data released this week and last was not good for a recovery. That tells us more about the quarter we are in, than the 2nd quarter, which is long gone. But I suspect, in the coming week or two, many are going to rethink these numbers and realize the most recent data suggests we are getting worse than we were in Q2 and that Q3 may be zero growth to negative growth.

Let's review the data from the past 2 weeks to see where we are with only 30 days or so left before the end of Q3.

The biggest concern was the Initial jobless Claims of 2 weeks ago. They came in unexpectedly at 500K. Expectations were they would have come in at 470K. That's a 30K jobless claims difference. This week they came in at 473K versus an expectation of 476K. Now the headlines were that the number came in better than expected and while that is true, it was only a 3K difference between what was expected and what the actuals were. And they revised that previous week's data from 500K to 504K. No one paid any attention to that revision, as there was not one comment made about that. So overall, is almost 1 million jobs lost in 2 weeks good for the economy for the 3rd Quarter, or not?

Now let's look at the item most affected by people out of a job-- Existing Home Sales-- because they can't afford to pay their mortgages, and are trying to sell these homes before they go into foreclosure. Existing Home Sales came in this week at 3.83 Million Homes. Does this sound like a lot of homes? Let me put it into perspective. It was a decline of 27.2% from the previous month of 5.27 Million Homes. The number shows a huge drop on a chart, as you can see below.

Ok, we've looked at Initial Jobless Claims, and we have looked at Existing Home Sales. Now let's look at whether the Consumer is buying anything, by looking at Durable Goods Orders for July, the first month of Q3. Durable Goods Orders were expected to come in at +3.0% and what came in was a miserly +0.3%. That is a huge difference. Consumers aren't buying and they represent 70% of the economy. Below is what the data looks like charted. Kind of flat, isn't it?

The only thing left to look at is the mood of Consumers. Is it getting better or worse and how does it compare to the past? As you can see from the chart below, we are not at the lows but we did drop a bit and are not where we need to be. Consumers need to be buying products and helping to create a vibrant economy. I could argue that this is a good thing as many were motivated by a spending spree, unparalleled in our history. Changing to a more modest behavior will help people save more and have a cushion, instead of going from paycheck to paycheck to survive. Indeed the Savings rate has been moving up as is shown on the chart below. The Current Personal Savings Rate is 6.2% among Americans. And reporting on my Mini Poll, I asked my readers if they would borrow money from banks if credit were easier to access. 80% said no, with 118 of you voting.

So if you look at all this data, you can come to the conclusion that while we are not at the very lows where we were in 2008, we certainly aren't anywhere near recovery. The only thing showing recovery has been the stock market. In that case, the stock market has moved way beyond reality even if you assume the market is 6 months ahead of current economic data. The reason for this in my view is that companies have achieved their earnings targets. They have done so not by increased revenue form Sales, but rather by belt tightening and layoffs. This is shown by both the Initial Jobless Claims and the official Unemployment Rate not improving, and a case could be made it is getting worse. Besides the real unemployment rate including underemployed is between 20 and 22 Million Americans, as the chart below shows. That is not a good thing. Look at the Blue line on the chart below and notice it isn't dropping at all.

Add to this the political dilemma we are in, with partisanship being led by the Republican Party and Tea Bag movement, enjoined by Democrats, and you have a condition ripe for potential violence. We have never been so polarized as a country in our lifetime. I wrote about this in an earlier post titled, Where are the Adults?! It is related to this, if you haven't yet.

So we enter the most volatile month of the year in a few days and this one will be no different. The only question is how much of a shift will there be? I'm betting it is significant.

Moral of the story: There is BS out there.

Please vote in my new Mini Poll on the right margin. Thanks.

Market comments for Aug. 27th (UPDATE)

While I was waiting for the GDP numbers to be released this morning and knowing September was just around the corner, I was wondering how this Sept. markets were going to be compared to other years. Then I got the Chart of the Day from chartoftheday.com and see they have answered my question with today's chart. It isn't looking pretty is it.

The GDP number came in at +1.6% Revised from 2.4% previous estimates and they had expected the number to come in at +1.3%. Before the release of the number the Dow Futures were up +27 and after the release of the data it is at +68. There is a definite upward bias going into the open this morning. European markets are mixed with not much movement up or down at this point. Think about this for a moment. When is a 1.6% revised GDP worth it for the markets to go up? Answer: When they thought it would be much worse! That's where we really are in this economy!

Only 3 trading days left in August. As you can see from the chart above that August usually is barely over +0.2% gains for the month. The Dow closed July at 10,466, so we are significantly down form that going into today's trading. We started off the year at a Dow of 10,428, so we are definitely down for the entire year so far and I don't see any recovery in the market before the end of the year and as I have stated many times I see us going a lot lower into the next year. So hang on to your hats today as it is difficult to guess whether the market will be pumped up or trashed. VIX should be something to watch today. Yesterday it closed at 27.37 and for the past it has stayed above its 50 day Moving Average for the first time in about a month and a half.

Fed Chairman, Bernanke, will be speaking today in the Jackson Hole, WY gathering of business leaders and is expected to take questions from them. His comments will move the markets.

With the Dow set to move back up today, expect Gold to also go up so that the net Dow to Gold ratio stays low. It has been recently in an 8.1 to 8.3 range and I don't see this ratio going higher any time soon. In fact I see it going lower. The net is that when the Dow does rise, its real value as measured by Gold is less.

UPDATE: 7:00am PST
While the Fed Chairman was releasing his speech to the press, the Univ. of Michigan Consumer Sentiment number was released and it came in lower than expected at 68.9 vs an expectation of 69.6 for August. Last month the data came in at 69.6, so this is even lower and marks a number of months it has slipped.

Market comment for Aug. 18th

It is going to be a quiet day. No real economic data is released until Thursday, when we get Initial Jobless Claims and Continuing Claims data. The Jobless Claims numbers are very important because we have a number of weeks in a row where there has been an increase. This is not good and in the wrong direction. If the number can come in at equal to or less than 465,000 that will help stop this trend and give us a breather for another week. If the number comes in equal to or over 490,000 that would be nerve-wracking for the market and we could take a bigger step down. Tis would increase the volatility because of Options expiration on Friday.

The Dow and the S&P 500 are in a tight range of about 7-9% as is drawn on the 2 charts above. That is very difficult to trade unless you have some computer program telling you when to buy and when to sell. So best to wait for a breakout one way or another. I am sitting pat expecting the market to drop in Sept. I'll keep that strategy until the data shows something else.

Economic data released today, Aug. 17th (Update)

The beginning of economic data for the week was released this morning. First up was Housing Starts for July. They came in at 546K. Expectations were for 555K. The prior month was revised down to 537K from 549K. Building Permits for July came in at 565K. Expectations were for 573K. The previous month was revised down to 583K from 586K. While these numbers are lower than expected, it wasn't off by a lot so the market will look at these as good news.

The PPI number came in at +0.2%. The market expected +0.2%, so that was in line with expectations. The Core PPI came in at +0.3% for July. The market expected +0.1%, so this was higher than expected.

Industrial Production came in at +1.0%. The market expected +0.8%, again better than expected.

This has set up the market to rise as the Dow Futures now are +65 going into the open. Now we wait for the Initial Jobless Claims for Thursday and Continuing Claims. The Initial Jobless Claims will be the most important going into Friday's Option Expiration for August.

WallMart had better than expected earnings form oversees growth. That set the market up for a rise earlier. It is clear China is still dragging some of the world economies to a better than expected Q3 GDP number no matter what the final result would be. But if they slow down the world is screwed as is China as expectations have been building with the Chinese population of an ever growing improved condition in their lives. It's hard to get off that drug, once someone has had the initial taste as the Chinese will certainly find out some day. It is their only concern about destabilization within its borders.

UPDATE: 7:45am PST

Capacity Utilization data came in at 74.8%. This was exactly what was expected. It is an uptick from the prior month reading of 74.1%, so it is in the right direction. But Factories need to get to a minimum of 85% to be generating lots of jobs and we have a long way to go to get there. Here is a historical perspective on the data.



Average 1972-2009 79.2%
From 1988-1989 high 85.2%
From 1990-1991 low 78.7%
From 1994-1995 high 85.1%
From 2008-2009 low 68.2%
July 2009 69.1%

Now this is the progression for 2010
Feb. 72.4%
Mar. 72.8%
Apr. 73.1%
May 74.1%
Jun. 74.1%
Jul. 74.8%

So the data is definitely improving and going in the right direction for a recovery but at this rate it would take several years to get back up to 85%, assuming we don't have a setback.

Market outlook for July 2 and beyond

The Unemployment rate came in better than expected at 9.5% in June versus 9.7% in May. Hours worked in June were down -0.1% compared to data for May which was up +0.2%. Private Sector jobs increased 83,000 in June compared to adding 33,000 in May. Non Farm payrolls were down -125,000 jobs. Market reaction was somewhat positive with the Futures on the Dow up 12 points. The unemployment rate percentage is better than it has been in about a year. The question of the day is whether this news is enough to stop the downtrend in the market. My view is that it is NOT because the social mood in the country is poor and depressed. Not much for people to celebrate these days. For the past 2 days we have dipped below very strong Support levels which indicate to me that the next stop will be to test 8;000 on the Dow. This will take some time, possibly the Fall, and it will not go in a straight like down but rather a series of lower lowers with small rallies up.

I will be here and reporting my views throughout the morning. Then it is off to see the Marin County Fair and my wife's art pieces which are being shown in the Fine Arts exhibit. Here below are two of her recent pieces of Metal art being exhibited. Enjoy.



Come back later today to see more on the markets. Take time to read some previous posts going as far back as March. I don't think you will be disappointed. Have a Happy July 4th weekend.

UPDATE: 7:50am PST

Well we have enough enough know to see the direction of the market after the market went up then down then up, forming a "W" pattern which slants down. So we should go lower today from the lows on this chart. Also, because Monday is a holiday, I think many will not want to be Long going into it and therefore there will be more selling than buying. Stay tuned!

UPDATE: 8:10am PST

The data is in and the Dow did go lower as the slanted "W" pattern suggested. We will have to wait to see the next "W" pattern emerge but one thing is for certain, while the Unemployment rate dropped to 9.5%, the market is in a negative mood as I said earlier and the trend will continue down in the coming days, weeks and months. It will feel like a Chinese water torture, drip, drip, drip. Hmmm, that sounds like Water Boarding and torture!

Update: 10:53am PST

Here's the last "W" pattern I am posting before the close today. To me it says we are going still lower. So far today, every call has been correct as the downward slanting red line indicates future direction. It is a good, but not perfect, predictor as you have seen. We will see what happens today, but I do not want the indexes to form an inverted Hammer pattern, closing at the low, as it would mean a reversal in trend and I just don't see it in the cards in the immediate future.