Today's Markets

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On the SPYs, notice that prices have already broken the upward slloping trend line that started at the beginning of March. Also note prices have crossed over one downward sloping trendline, but have been contained by another.


Although prices have broken through upside resistance, they have since fallen through. However, the upward sloping trend line still stands.


The iwms got to one downward sloping trend line, but have since retreated. However, prices are still above the upward sloping trend line that started in early March.

Remember -- sell-offs are natural, especially after strong rallies. But right now prices are right at important levels. In some case -- the IWMs and the QQQQs, prices have moved back through important areas of support which they moved through recently.

We're Nowhere Near a Bottom in Housing

From CNBC:

More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters.

Dann Adams, president of U.S. Information Systems for Equifax, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier.

He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year.

Employment Overview, Pt II

Average hourly earnings in constant 1982 dollars (inflation adjusted) have been constant for the duration of this expansion. That is consistent with the median household income information from the Census Bureau as well. The recent jump is due to the drop in hours documented below.


Notice the weekly hours have dropped since (roughly) mid-2008. This indicates that employers are trying to do everything they can to avoid lay-offs.

These two statistics tell us two very important facts.

1.) The total hours worked have been dropping for the last year or so, and

2.) Wages have been stagnant for the duration of this expansion.

Employment Overview

Above is a chart for total non-farm payrolls. Notice the following:

-- The total number of non-farm jobs is almost at the level of the peak from the last expansion.

-- The best read of job creation from the last expansion is we created 8.2 million jobs. We have now lost 5.1 million jobs, or 62.19% of all jobs created during the last expansion. That's the largest percentage lost of jobs created in the previous expansion for any expansion in the last 60 years.



Above is a chart for total manufacturing jobs in the US. Notice this area of the economy did not grow at all during the latest expansion. Some of this was caused by the increase in productivity. But there is also the issue of the US not increasing its manufacturing base significantly enough to warrant the hiring of new employees. My guess is this is the result of a bubble economy.


Above is a chart of total service employment. Notice this is the primary place where jobs grew during the last expansion. In fact of the 8.2 million jobs created, 8.5 million came from the service sector. In other words, we have a net loss of manufacturing jobs throughout the last expansion that was entirely made up for by the gain in service sector jobs. And -- we have a long way to go to in terms of service jobs to lose.

Treasury Tuesdays

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Notice the following on the yearly chart:

-- Prices spiked at the end of last year in reaction to the credit crunch

-- Prices have since come down, but are still above the 200 day SMA

-- The last three months of price action can be contained in a triangle consolidation pattern




Prices are now below all the SMAs. In addition, the 50 day SMA has been moving lower since the end of February/beginning of March. The large spike we saw was from the Fed's announcement that they would be buying Treasury bonds. However, that does not seem to be enough to keep the market moving higher. But also note that prices are still above the upward sloping trendline started at the end of January. This line may be the real support line that stays under prices as a result of the Fed buying Treasury bonds.

Today's Markets

Take a close look at the volume total for the last two days. Volume has dropped big time. That should concern anyone because it says that people are standing on the sidelines rather than participating in the market. Also note that prices have not been able to move higher. It looks like we are getting a cluster of price points right about the 10 day SMA that are just going to sit there for now.

On the good side, the SMA picture is looking good. The 10 day SMA is still moving higher and the 20 day SMA is about to move through the 50 day SMA.

However, as I pointed out in today's long post, the lack of overall market breadth is concerning me a lot.

Market Monday's -- Is This a Real Rally?

This will be a long post. I will keep it up until I post a Today's market post after trading is over. I'm going to take an in-depth look at the recent rally along with the market's overall direction to see if we have put in a bottom. I should add the following two caveats.

1.) For me, market analysis is about percentages. Essentially I look at all the data and if 50.1% leans one direction then that is the direction I will look in. Actually, I ideally want more than a mere simply plurality. But you get the idea. And in a perfect world, we want 100% of the data in one direction. But we're not going to get it. So, hopefully, we can find at least say 60% of the data going in one direction or the other.

2.) The markets and the economy like to make an ass out of me whenever possible.

Let's begin.

Here is the chart that started this line of thinking:



The market topped in 2007. Since then we have had 4 rallies which provided a gain of (roughly, I'm eyeballing the chart) 16%, 8%, 26% and 25%. Again -- these are approximations. The point is this rally is one of the larger rallies we've seen.

But,



We've seen the market move through previous levels before. Take a look at the chart above and note that prices have moved through previously established price points before but subsequently solid off. So if we're going to call this a rally or a turning point we'll need far more information from other sources.


Finally, prices are still contained by the downward sloping trend line that that connects the recent highs. While there is a longer downward sloping line from the market top, I'm a bit reluctant to use it over the line that connects the more recent highs. Simply put, I'm more interested in reading these charts from a conservative angle.

However,


The SPYs have moved through the above drawn line.

First, take a look at this chart of the Transportation average:



Note that the transportation average held in until the end of 3Q 2008 -- an incredibly long time. But since that time prices have crashed, falling 43% to their current level. However, let's add an important trend line:



Last week the transportation average breached the downward sloping trend line that started when the market dove lower at the end of 2Q2008. Here's a closer look at the breach:


Prices gapped higher several days ago when they also moved though the 50 day SMA. Also note the 10 and 20 day SMAs are moving higher and prices are above all three SMAs. The main problem with this chart is the lack of volume on the move higher. Ideally we want to see a stampede into stocks to say we are definitely moving higher. But the lack of volume could also be a sign that retail investors are staying away from the market and instead we are seeing the smart money move in. In addition, consider the following chart of the Transports using exponential moving averages:


On this chart, the 50 day EMA has moved into a horizontal position while the 10 and 20 day EMAs are closer to crossing over. Also note that prices are above all the EMAs.


But note that downward sloping trend line which connects the highs from late December and early January is still intact. However,



Prices have crossed over the above drawn downward sloping trend line.

Let's add a few more data points to the mix:


The QQQQs have recently broken through key resistance established earlier this year. This is technically an important important development. In addition


A closer look at the SMA picture of the QQQQs indicates the 10 and 20 SMAs have crossed over the 50 day SMA, all three SMAs are moving higher, the shorter SMAs are above the longer SMAs and prices are above all three (although still below the 200 day SMA). Bottom line, the QQQQs are now in a very bullish profile, although ultimately we'd like to see more of an upward angle on the 50 day SMA.

Finally on the equities side, let's take a look at the IWMs:


Notice that prices moved though the long, downward sloping trend line that started at the market top almost a year ago. However, I'm a bit uncomfortable using this line, largely because it starts at an incredibly high price spike that was far higher than then then prevailing prices. So let's look at the IWMs using some of the shorter trend lines:


Notice that there are two downward sloping trendlines that connect recent price highs. Prices are about to move through one and are nearing the second. In addition,


The 10 day SMA has moved through the 50 day SMA, the 20 day SMA is moving higher and prices are above all the SMAs. On the con side, the 50 day SMA is moving lower and the 20 day SMA is still below the 50 day SMA (although it is moving higher). But also note on the second IWM chart, we've been in a similar situation regarding the SMAs before and didn't get anywhere.

So with the Russell, we're really close to making a technical break through but we're not there yet. However,


The IWMs have already broken the above line, indicating further breaks are clearly possible.

Finally, let's take a look at market breadth:


The NY advance/decline line may be in the middle of a bottoming formation. Ideally, we want this line to make an advance beyond the horizontal line established at the beginning of this year.



The NASDAQ's advance/decline line is still in a clear downtrend. However, prices are just about to move across one of the downward sloping trend lines containing prices from the upside.

I find the above two charts of breadth to be extremely important; they indicate that at minimum the overall market direction is neutral. In addition, while the QQQQs have broken out of important technical levels, they have done so on negative market breadth. This is not a good development; ideally, we want to see a market advance on an increasing breadth indicator. And the fact that the NYSE market breadth has yet to move through previous highs on a strong advance adds to my concern.

So let's sum up:

-- The SPYs have made a strong advance over the last few months, but have done so before only to return to their downward move. In addition, the trend line that connects recent highs still contains (is above) current price action.

-- The Transports recently broke through their longer downward moving trend line but did so on weak volume. In addition, this is a recent break. Finally, a trend line that connects the more recent tops still contains (is above) prices.

-- The QQQQs have broken through an important trend line.

-- The IWMs are about to move through an important downward sloping trend line and have already moved through the longer line that connects the 2008 high with recent prices

All of the evidence leads me to literally a 50/50 conclusion at best. And that isn't good enough.

At a minimum, I would like the following to happen.

We have the QQQQs breaking key levels. That's a good start. The IWMs need to move through the downward sloping trend line just above current prices. In addition, we need one more of the averages -- preferably the SPYs -- to also more through a downward sloping trend line that connects more recent price highs. While the SPYs, IYTs, and IWMs have all moved through some of the sharper downward sloping lines, each still has an important "containment" line above it that prices must move through for this to be a rally.

In addition, we need to see the advance/decline lines of both the NASDAQ and the NYSE break important upside resistance levels. This is also incredibly important because it would indicate money is flowing back into equities in sufficient quantity to change the market's internal dynamics.

But finally, I would add we're on the brink of a change. The averages are inching towards it but just aren't there yet.

Weekend Weimer and Beagle

The markets are now closed. Think about anything except the markets or the economy. To that end...

Fed In Congressional Crosshairs

From the WSJ:

For the past 18 months Federal Reserve officials have been fighting off storms in financial markets – now they’ve got a storm brewing in Congress that they’re going to have to direct their attention to fighting.

The Senate on Thursday passed a resolution that put it in the line of fire of lawmakers who want to shake up the Fed’s regional bank system. In a nonbinding resolution that passed 96-2, the Senate called for “an evaluation of the appropriate number and the associated costs of Federal reserve banks.”

A nonbinding resolution is a long way from becoming law. But it’s a clear signal to the Fed that it is headed for increased scrutiny on Capitol Hill. (It was also striking that Nancy Pelosi, speaker of the House, last month held Fed Chairman Ben Bernanke out as partly to blame for the troubles at American International Group Inc.)

And then there is this:

In another warning shot at the Federal Reserve about its disclosure practices, the Senate Thursday called on the central bank to reveal the names of institutions that receive its loans and what they’re doing with the money.

The Senate’s nonbinding resolution, which doesn’t have the force of law, was a sign of mounting mistrust in Washington about the course of government rescue programs and the Fed’s role in them. It passed 59-39, a strong show of support.

Lawmakers are likely to keep pushing the central bank to disclose more about the firms receiving Fed as part of its vast financial rescue efforts. Though a resolution doesn’t have the force of law, it could become attached to legislation at a later date.

Let's take these one at a time.

As the first article notes, the Federal Reserve banking system has not been revised since its inception -- we are still using the same district system established at least 70 years ago. I'm guessing there have been noticeable changes since then which are not reflected in the Fed district maps.

However, the second issue is trickier. When a bank goes to the Fed it's usually because they can't get any help from other banks in the short term loan market. That means the Fed is the lender of last resort. The bank asking for help may want to keep things quiet so they can fix their problem without causing a banking panic. At the same time, the public -- and more importantly individual account holders -- may want to know the bank is in trouble so they can pull their money out. In other words, it's a far trickier proposition.

About The Factory Order's Number

From the Census Bureau:

New orders for manufactured goods in February, up following six consecutive monthly decreases, increased $6.1 billion or 1.8 percent to $352.2 billion, the U.S. Census Bureau reported today. This followed a 3.5 percent January decrease. Excluding transportation, new orders increased 1.6 percent. Shipments, down seven consecutive months, decreased $0.4 billion or 0.1 percent to $365.9 billion. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 2.6 percent January decrease. Unfilled orders, down five consecutive months, decreased $10.7 billion or 1.4 percent to $773.2 billion. This was the longest streak of consecutive monthly decreases since September 2002-January 2003. This followed a 2.0 percent January decrease. The unfilled orders-to-shipments ratio was 5.98, down from 6.07 in January. Inventories, down six consecutive months, decreased $6.2 billion or 1.2 percent to $529.7 billion. This also was the longest streak of consecutive monthly decreases since March 2003-January 2004 and followed a 1.1 percent January decrease. The inventories-to-shipments ratio was 1.45, down from 1.46 in January.

Why is everybody thrilled by this number? The primary trend of all these data points is down:

New orders were down the last 6 months before the latest increase

Shipments were down 7 consecutive months

Unfilled orders were down 5 consecutive months

In other words -- the primary trend is lower. The latest data points are counter-trend.

Forex Fridays

The weekly chart tells us the dollar has formed a double top. First, note the obvious price action. However, also note that the second top had a lower RSI than the first, indicating the second top was far less powerful price than the first top. Also note the same is true with the MACD -- which is also declining. Also note that prices tried to rally through the 20 week SMA but could not make it.


On the daily chart:

-- The 10 and 20 week SMA have moved through the 50 week SMA, although the 10 week SMA is moving higher

-- The 20 week SMA is still moving lower

-- The RSI is weakening

-- The MACD is moving lower

Today's Markets

Today's action sure looks like a spinning top to me...,

Consumer Delinquencies Hit High

From CNBC:

More U.S. consumers have fallen behind on loan payments than ever before, and the problem may worsen as millions more find themselves out of a job, a study released Thursday shows.

According to the American Bankers Association, which represents most large U.S. banks and credit card companies, the percentage of consumer loans at least 30 days late rose to a seasonally-adjusted 3.22 percent in the October-to-December period from 2.9 percent in the prior quarter.

The ABA said the fourth-quarter rate was the highest since it began tracking the data in 1974, with delinquencies rising in nearly every category. It said these credit trends are unlikely to improve before 2010. Many consider the deep recession the worst since the Great Depression of the 1930s

"Job losses have really hurt the economy and will continue to inflict pain for several months," James Chessen, the ABA's chief economist, said in an interview. "The greater the losses are, the more severe an impact it has on all credit markets."

The ABA study covers direct auto, indirect auto, closed-end home equity, home improvement, marine, mobile home, personal, and recreational vehicle loans. It excludes bank credit card and education loans.

Consider that information with this data from the FDIC's Quarterly Banking Profile:

A Closer Look At the ISM Data

Here is a link to the report:

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The rapid decline in manufacturing appears to have moderated somewhat, as the PMI remains in the mid-30s for a third consecutive month. While the PMI is slightly higher in March, the New Orders Index offers greater encouragement, as it rose above the 40-percent mark for the first time in seven months. The Production Index showed no benefit as yet from the improvement in new orders, as it continued to decline at a rate similar to March. The rate of decline in the Employment Index slowed slightly, and the same held true for the Prices Index. A special question was asked with regard to the Economic Stimulus Package, and five of the 18 manufacturing industries expect to derive some benefit from the stimulus." (See Special Questions section at the end of this release.)

So -- the bottom line is things might be moderating. The index is in the mid-30s for the third consecutive month. While there is no hard and fast rule about how many data points are required for a trend to exist, three points in the same area is obviously better than 1.

Let's look a bit deeper in the data.

* "We remain challenged to align our capacities with demand." (Nonmetallic Mineral Products)
* "Most of the international markets have been reducing inventory levels and they are forecasting improvements in the next 4 to 6 months." (Chemical Products)
*
* "Many pockets of improvement." (Electrical Equipment, Appliances & Components) "Still very slow. No stimulus package for manufacturing. Down 30 percent." (Fabricated Metal Products)
* "What we are feeling now is that customers aren't making their final payments on equipment that has already been shipped." (Machinery)

Anecdotal information provides a mixed bag of data. Some parts are challenged, but some are seeing "many pockets of improvement." While this is hardly a data series to hang your hat on as it were, there are bits of good news.

And then there is this:

New orders index

Mar 2009 41.2
Feb 2009 33.1
Jan 2009 33.2
Dec 2008 23.1

The index is increasing which is a very positive sign as it indicates buyers are starting to rev up their engines. Again I want to caution, this is only three months of data so we are hardly out of the woods. And the last month was not good as 6 showed increased but 10 showed decreases. But I also think calling this trend encouraging is warranted.

And then there is this:

Overall production index

Mar 2009 36.4
Feb 2009 36.3
Jan 2009 32.1
Dec 2008 26.3

This has also been growing over the last three months. However, the same caveats apply to this number as the new orders number. In the latest report only two industries showed an increase in production while 12 showed a decrease

Overall things are still depressed. But the new orders and production trends over the last 4 months are encouraging.

Can the Bull Market Continue?

From Marketwatch:

To me, the recent rally looks dangerously similar to each of the previous bear-market rallies that have failed over the past year. At the beginning of March, few people believed a rally was possible. It seemed everyone was convinced the S&P 500 was headed for 600 or worse. With stocks 20% higher and economic data that is "less bad," the media seems dominated by those expecting a new bull market driven by a second-half recovery.

Perhaps the market has seen the lows and a cyclical bull market can continue. Yet to endorse this view, investors must make the aggressive assumption that actions by the country's leadership have solved the financial and economic crisis such that this heavily indebted economy can return to growth later this year.

For example, the Treasury's public-private investment plan to buy up to $1 trillion in bad assets leaves critical questions unanswered, including what price will be offered for the assets and whether the banks will be willing to sell at that price.

Most disturbing, the plan relies on more debt to solve a debt-induced problem, akin to solving a drinking problem by ordering another round. Fundamental problems remain, including weak bank balance sheets, too much debt, and too little capital.

The bull case lies in the growing confidence that trillions of monetary and fiscal stimulus dollars will gain traction. The Fed and other central banks around the world are pulling out all the stops, keeping interest rates low and buying mortgage-backed and Treasury securities.

This is an interesting article that gets to the heart of the current rally: can the plans of the government as envisioned and implemented work? Ultimately the plans boil down to standard Keynsian economics; when the economy slows the government can provide the missing demand stimulus through macro-level spending. However, this will probably involved the issuing of more government debt, which seems counter-intuitive in a recession.

I should note that I endorsed the stimulus plan in an article back in January. My logic was straightforward. GDP is comprised of 4 elements: personal consumption expenditures, gross investment, exports and government spending. Three of these numbers -- PCEs, investment and exports are in negative territory. From a practical standpoint that leaves government spending to make-up the slack. It's that simple.

However, there are big problems associated with that idea as well -- namely, the issuance of a mammoth amount of debt to pay for the increased spending. Consider the following debt totals from the Bureau of Public Debt:

09/30/2008	$10,024,724,896,912.49
09/30/2007	$9,007,653,372,262.48
09/30/2006	$8,506,973,899,215.23
09/30/2005	$7,932,709,661,723.50
09/30/2004	$7,379,052,696,330.32
09/30/2003	$6,783,231,062,743.62
09/30/2002	$6,228,235,965,597.16
09/30/2001	$5,807,463,412,200.06
09/30/2000	$5,674,178,209,886.86

The current total is over $11.1 trillion.

All of this debt has to go somewhere -- it can't simply exist in a vacuum. Therefore, asking the question of "where will all this debt go" is the key to the current rally. Assuming there are buyers we're fine. When people stop buying, we've got problems.

Thursday Oil Market Round-Up

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Notice the following on the weekly chart:

-- The MACD is rising and has given a buy signal

-- The RSI is rising

-- Prices have broken through the top line of a triangle consolidation pattern

-- Prices are above the 10 and 20 week SMAs




The chart above shows a much clearer version of the triangle consolidation that occurred over the last few months along with the price break out. Also not the MACD has been rising for the last 5 months -- although it just gave a sell signal. The RSI has also been rising but has been dropping as well. Prices have fallen to the 20 day SMA which is providing technical support right now.

The fundamental picture for oil became incredibly cloudy with the GM situation. A GM bankruptcy -- even a controlled one -- would be a big problem for the economy as a whole and oil demand in particular. Until that situation is resolved resolved in a satisfactory manner I think the oil market will come under pressure.

Today's Markets

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After hitting a peak a few days ago the market has been in sell-off mode. Right now it is looking for technical support, which it has found at two locations. The first was 38.2% Fibonacci line. The second was the 50 day SMA which prices used today.



The chart above shows that prices have numerous technical support levels going forward.

ISM At Lowest Reading in 30 Years

From the Chicago Tribune:

A closely followed measure of Chicago-area manufacturing and commercial activity fell in March to its lowest reading in nearly three decades, an industry trade group reported Tuesday.

Economists had expected the index compiled by the Institute for Supply Management-Chicago to inch upward to 34.5 from February's weak 34.2. Instead, the index, often referred to as the Chicago PMI, tumbled to 31.4, its worst reading since July 1980.

Under the format used by the ISM-Chicago, a reading above 50 indicates manufacturing is expanding, while a below-50 reading means it is contracting.

And the hits just keep coming....

Can the Bull Market Continue?

From Marketwatch:

To me, the recent rally looks dangerously similar to each of the previous bear-market rallies that have failed over the past year. At the beginning of March, few people believed a rally was possible. It seemed everyone was convinced the S&P 500 was headed for 600 or worse. With stocks 20% higher and economic data that is "less bad," the media seems dominated by those expecting a new bull market driven by a second-half recovery.

Perhaps the market has seen the lows and a cyclical bull market can continue. Yet to endorse this view, investors must make the aggressive assumption that actions by the country's leadership have solved the financial and economic crisis such that this heavily indebted economy can return to growth later this year.

For example, the Treasury's public-private investment plan to buy up to $1 trillion in bad assets leaves critical questions unanswered, including what price will be offered for the assets and whether the banks will be willing to sell at that price.

Most disturbing, the plan relies on more debt to solve a debt-induced problem, akin to solving a drinking problem by ordering another round. Fundamental problems remain, including weak bank balance sheets, too much debt, and too little capital.

The bull case lies in the growing confidence that trillions of monetary and fiscal stimulus dollars will gain traction. The Fed and other central banks around the world are pulling out all the stops, keeping interest rates low and buying mortgage-backed and Treasury securities.

This is an interesting article that gets to the heart of the current rally: can the plans of the government as envisioned and implemented work? Ultimately the plans boil down to standard Keynsian economics; when the economy slows the government can provide the missing demand stimulus through macro-level spending. However, this will probably involved the issuing of more government debt, which seems counter-intuitive in a recession.

I should note that I endorsed the stimulus plan in an article back in January. My logic was straightforward. GDP is comprised of 4 elements: personal consumption expenditures, gross investment, exports and government spending. Three of these numbers -- PCEs, investment and exports are in negative territory. From a practical standpoint that leaves government spending to make-up the slack. It's that simple.

However, there are big problems associated with that idea as well -- namely, the issuance of a mammoth amount of debt to pay for the increased spending. Consider the following debt totals from the Bureau of Public Debt:

09/30/2008	$10,024,724,896,912.49
09/30/2007	$9,007,653,372,262.48
09/30/2006	$8,506,973,899,215.23
09/30/2005	$7,932,709,661,723.50
09/30/2004	$7,379,052,696,330.32
09/30/2003	$6,783,231,062,743.62
09/30/2002	$6,228,235,965,597.16
09/30/2001	$5,807,463,412,200.06
09/30/2000	$5,674,178,209,886.86

The current total is over $11.1 trillion.

All of this debt has to go somewhere -- it can't simply exist in a vacuum. Therefore, asking the question of "where will all this debt go" is the key to the current rally. Assuming there are buyers we're fine. When people stop buying, we've got problems.

Consumer Sentiment Drops, But a Silver Lining?

From IBD:

The Conference Board's Consumer Confidence Index edged up 0.7 point in March to 26 from February's 25.3, the lowest since records began in 1967. About half of respondents say business and job conditions are poor. Homebuying plans sank to a 26-year-low.

But consider these charts from Pollster.com





Do the above two polls indicate we'll start to see consumer sentiment and confidence start to rebound?

Wednesday Commodities Round-Up

Click on all images for a larger image


Notice the following on the industrial metals charts

-- The MACD is rising and has given a buy signal

-- The RSI is rising

-- Prices have been in a downward sloping consolidation pattern since the end of 2007

-- Prices and the SMAs are in a tight range, indicating indecision



Notice the following on the agricultural price chart:

-- the MACD is rising and has given a buy signal

-- The RSI is rising

-- Prices are in a triangle consolidation pattern that started at the end of last year

-- Prices and the SMAs are in a tight trading range

Bottom line: commodities have clearly broken their price spike from last year and are currently consolidating the sell-off. However, prices have not dropped farther, indicating we are probably developing a price floor. From a fundamental perspective, it's important to remember we're still in the middle of a recession which is depressing overall demand.