Back Tomorrow

The markets are closed today. I'll be back in the morning.

Weekend Weimer and Beagle.

It's that time of the week again. Take a break from the markets are have yourself a weekend. See you on Monday.

We're Nowhere Near the Bottom In Housing, pt II

From Bloomberg:

The number of previously owned unsold homes on the market at the end of April jumped to 4.55 million, up from 4.12 million in March. The total represented 11.2 months' supply at the current sales pace, the highest on record and up from 10 months at the end of the prior month.

This is a super-glut. Combine this with the price news from earlier today and you have big problems. Still.

US Auto Makers -- Dumb As a Bag of Rocks

First, here is a long term chart of oil:



Does anybody see a trend here? Anybody? It sure looks to me like oil is in the middle of a multi-year bull market, intensified by the economic growth of two of the worlds largest countries India and China. For those of you in the economic forecasting department at Ford that's called "an increase in demand" and it means prices will go up. At some point prices will become so high that people might want to purchase a more fuel efficient vehicle, like say a Prius.

Toyota Motor Corp (7203.T: Quote, Profile, Research) said on Thursday that cumulative sales of its Prius hybrid car had topped 1 million units worldwide since its launch just over a decade ago.

The Prius, the world's first mass-produced gasoline-electric hybrid car, first went on sale in Japan in late 1997 and in other markets in 2000. Toyota remains the leader in hybrid sales, with Honda Motor Co (7267.T: Quote, Profile, Research) a distant second with its Civic model.

.....

By slashing production costs for the hybrid system, Toyota has said it would make the technology available across its line-up, with an aim to sell at least 1 million hybrid vehicles annually soon after 2010.

Yet, the US auto industry made their bed with ..... trucks and SUVs which aren't exactly the most fuel efficient models on the planet. As a result, we get stories like this:

Ford Motor Co.'s plan to return to profitability got run over by a truck.

The rise of gasoline prices toward $4 a gallon is causing a major shift in the U.S. auto industry that threatens to push the Big Three auto makers and some of their rivals to a new level of peril. In recent weeks, sales of pickup trucks and sport-utility vehicles -- already falling in recent years -- took an unexpectedly sharp tumble.

Those declines triggered a surprise announcement by Ford on Thursday that it's now "extremely unlikely" the company will return to profitability in 2009, as it previously predicted. Just last month, Ford was hailed by the market after it reported an unexpected $100 million in first-quarter net income.

In a Thursday conference call, Chief Executive Alan Mulally said the industry has "reached a tipping point" and that the falling truck sales represent a long-term shift in the U.S. auto market, not a short-term dip.

"We saw real change in the industry demand for pickup trucks and SUVs in the first two weeks of May," Mr. Mulally said.

On Thursday, Ford said it will cut truck and SUV production by as much as 40% in the second half of this year, compared with the year-earlier period. Previously, Ford had hoped to get a second-half lift from the launch of a redesigned F-150 pickup truck. The F-150 is the top-selling vehicle in the U.S.

If the downfall was caused by a random catastrophe I'd have more sympathy. But this has been right in front of them for sometime now. Yet according to the article Ford was banking on a redesigned F-150 truck? At a time when Prius sales are kicking their ass? These guys deserve to fail. It also explains why Toyota's stock is at 100



And Ford is at 7.5

We're Nowhere Near the Bottom In Housing

From the WSJ:

Home prices are falling faster as the economy slows and turmoil in the mortgage markets continues.

Prices fell an average of 1.7% nationwide in the first quarter from the final three months of 2007, according to the Office of Federal Housing Enterprise Oversight. The decline was the largest in the index's 17-year history. The government index, which is seasonally adjusted and based on data for home purchases, had dropped 1.4% in the prior quarter. Compared with a year earlier, home prices dropped 3.1% in the first quarter.

.....

Other nationwide indexes show steeper declines. The S&P/Case-Shiller index, which includes a broader variety of mortgages and which showed a nationwide drop of 8.9% in the fourth quarter from a year earlier, is set to release first-quarter figures next week.

"The OFHEO report shows the weakness in the housing market, but does not, in our view, fully portray the dire state of the market," Lehman Brothers economist Michelle Meyer said in a note to clients.

Let's review the basic issues in the housing market.

1.) Inventory of existing homes is sky-high.

2.) Foreclosures are increasing, which is adding to a bloated inventory total.

3.) The US consumer's confidence is dropping, which is lowering the possibility of more home purchases.

4.) The US consumer is already in debt up to his eyeballs, meaning the possibility of him taking on more mortgage debt is pretty low.

As a result of all these factors, we get price decline headlines like the one from today. And it's not going to end anytime soon because of the 4 above mentioned data points. The best we can hope for right now is that by the end of the year we'll actually have an idea about when the market will stabilize. Maybe.

Today's Markets

Actually, this is yesterday's markets, but who's counting, right?

The big news from two days ago was the indexes dropping hard through support. Let's see how that has played out.



The SPYs are still through the 10 and 20 day SMA along with the support line started in mid-March. But yesterday the markets cooled off a bit, making today that much more important -- especially the close. If prices drop at the or near the close, we've got a big problem.



On the QQQQs, notice the average is right at the 200 day SMA -- precarious technical territory. Today's close will be very important from a technical perspective.



Notice the IWMS are still moving higher, using the 20 day SMA for support. However, the IWMS have broken their upside support a bit ago.

Friday's Forex Round-Up

Let's start with a long-term chart of the dollar:



Remember we're dealing with an incredibly weak chart. Prices have been dropping for the better part of to years, with prices continually breaking through downside support and making new lows. This had been going on for two years -- long before the economy started to slow. That means traders saw fundamental problems with the economy long before big drops in GDP started to show up.



On the daily chart, notice that Prices formed a consolidation triangle from mid-March to the end of April. Then prices rallied out from that pattern. However, prices have had a hard time maintaining any upside momentum. Prices have now dropped below all the SMAs. Also note the 10 day SMA has crossed below the 20 day SMA and the 50 day SMA is at best even. A few weeks ago, the general consensus was for the dollar to rally. Now it doesn't look that hot.



The Euro has been the direct beneficiary of the dollar's drop. Notice the euro is in the middle of a multi-year rally with a strong uptrend in place. Also notice that as prices rallied, they also consolidated their gains in several places, allowing traders to digest price action and plot their next move.



On the daily euro chart, notice the broadening pattern at the beginning of the year and the upward sloping wedge pattern from the end of March to the end of April. Prices dropped from there and fell below the SMAs. But notice how the euro has bounced back and moved through all the SMAs. Also note the 10 day SMA has moved through the 20. This chart is turning around, although it's not time to say with confidence it's completely bullish.



On the weekly yen chart, notice the strong rally that started in the middle of last summer -- right before the US market started to tank hard. Also notice that as prices have rallied, they have also fallen back in several triangle patterns to consolidated gains. Finally, notice how the week chart uses the 20 week SMA as support.



The yen broke through upside support in mid-April, but formed a solid downward sloping channel starting in mid-March. Since the beginning of May prices have been moving sideways as traders await the next big move.

So -- what can we discern from all this?

1.) The dollar's "comeback rally" isn't shaping up that well.

2.) The euro may be turning around, but we can't make a solid call yet.

3.) The yen is waiting to see what happens.