Friday, June 5, 2009

Weekend Weimar and Beagle

It's that time of the week. I'll be back early Monday. Until then....

The Other Side of the Employment Report

From the BLS

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in May at 9.1 million. The number of such workers has risen by 4.4 million during the recession. (See table A-5.)

About 2.2 million persons (not seasonally adjusted) were marginally attached to the labor force in May, 794,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 792,000 discouraged workers in May, up by 392,000 from a year earlier. Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor
force in May had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities. (See table A-13.)

The continuing unemployment issues are going to be a big problem going forward -- especially if we have a slow growth economy once we get out of recession.

Employment Down 345,000

From the BLS:

Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent. Steep job losses continued in manufacturing, while declines moderated in construction and several service-providing industries.

In addition:

The change in total nonfarm employment for March was revised from -699,000 to -652,000, and the change for April was revised from -539,000 to -504,000.

Let's look at two important charts from the report:

The chart above indicates we may have bottomed from the employment perspective. In addition:

Most of the job losses have occurred in Maunfacturing.

Bottom line: this is a very encouraging report. It signals things are moving in the right direction.

Forex Fridays

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On the weekly chart, notice prices have fallen through a bear market flag pattern that formed a few weeks ago. Prices are now through all the weekly SMAs which would provide technical support; they will now provide resistance on an attempted upswing. Also note the MACD and RSI are dropping. Both have room to run lower.

The dollar is once again a bear market chart. The MACD and RSI are both moving lower. Prices are below all the SMAs, the shorter SMAs are below the longer SMAs and all the SMAs are moving lower. The drop started at the beginning of March right when the stock market rally started. Interesting....

Thursday, June 4, 2009

Today's Markets

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Notice the SPYs are having a big problem getting over the 95 handle. Corey over at Afraid to Trade made some great observations about this a few days ago. The bottom line is prices are running up against this level and so far have not gotten through. That could be a problem. Also notice

The OBV printed a lower total for the recent move higher. That tells us there might be something amiss.


Both the QQQQs and IWMs are still moving higher and have moved through important resistance levels. This tells us that risk based capital is still interested in seeking return.

Infaltion Isn't an Issue

I dealt with this point in this article.

Job Cuts Chart

Simply put, that is a great looking chart. It tells us we are in a trend of declining job cuts. It also bodes well for the future. Combine that with this chart:

From the DOL:

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 621,000, a decrease of 4,000 from the previous week's revised figure of 625,000. The 4-week moving average was 631,250, an increase of 4,000 from the previous week's revised average of 627,250.

While the 4-week number increased, the week over week decreased. In other words, it still looks as though the front-end of the employment situation is getting better. However, there are still major issues out there on the employment front. "But the alarming news in the report was a sizable 110,000 jump in continuing claims for the May 16 week. The gain was the 19th in a row and at 6.608 million sets another record high."

In addition, consider this chart from Calculated Risk:

Notice that initial claims are near the high level established in the early 1980s. While past performance is no guaranty of future performance, it is interesting that we're at the same level.

Emerging Markets Rebounding

From the NY Times:

If investors in New York and London are seeing the first delicate signs of a recovery, their counterparts in developing countries say they are witnessing a full-on spring.


After a crushing fall in the last year and a half, stock markets in developing countries are riding a wave of optimism that the recovery of the global economy is at hand and being led by the developing world, especially China. Though emerging markets remain far below the lofty highs they attained more than a year ago, investors are again viewing their chances of growth as better than those of the United States or Europe.

As a result, the Indian Nifty stock index has jumped by 64 percent in the last three months. China’s CSI 300 index of shares in Shanghai and Shenzhen has risen 37 percent and Brazil’s Bovespa increased 41 percent over the same period. By comparison, the Standard & Poor’s 500’s gain of 28 percent looks modest.

Let's take a look at some charts. Click on all charts for a larger image

Brazil: from October to the end of March prices formed a nice horizontal bottom. Now prices are in a strong uptrend. Note the price/SMA relationship is incredibly bullish -- prices are above the SMAs, all the SMAs are moving higher and the shorter SMAs are above the longer SMAs

Russia: prices consolidated in a triangle pattern at the beginning of this year. Then prices broke higher and have continued. Notice how volume increased as prices moved higher. Note the price/SMA relationship is incredibly bullish -- prices are above the SMAs, all the SMAs are moving higher and the shorter SMAs are above the longer SMAs

India: prices bottomed at the beginning of March and have been moving higher since. Note the price/SMA relationship is incredibly bullish -- prices are above the SMAs, all the SMAs are moving higher and the shorter SMAs are above the longer SMAs

China: prices bottomed at the beginning of this year in a downward sloping triangle pattern. Since then prices have been moving higher. Note the price/SMA relationship is incredibly bullish -- prices are above the SMAs, all the SMAs are moving higher and the shorter SMAs are above the longer SMAs

Thursday Oil Market Round-Up

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The weekly chart is still very bullish. Notice the MACD and RSI are still moving higher. The RSI still had room to run before it hits 70 and higher -- a level where it can stay pegged for some time. Prices are above the 10 and 20 week SMAs. In addition, those SMAs are both moving higher with the shorter above the longer.

The daily chart is also strong, although it could indicate we're nearing a topping out point. First, notice prices have been moving higher since late February. They have con consolidated twice. Also note the price/SMA relationship is the most bullish possible -- prices are above the SMAs, the shorter SMAs are above the longer SMAs and all the SMAs are rising. But also note the RSI is now above 70 and the MACD may also be nearing a topping out place.

Let's see how this plays out against the fundamental backdrop:

Crude oil stocks are still way above average

Regular prices are increasing because

Demand is inching up

Wednesday, June 3, 2009

Today's Markets

A tale of three charts.

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The 10 day SPY chart looks as though the prices consolidated and then broke out of the consolidation.

The QQQQs look as though they've been in an upswing instead.

Finally, have the transports topped for now? And will the indexes now move lower? Note this in conjunction with the points I made yesterday about he MACD's of the averages being close to overbought.

The bottom line is right now there are mixed signals in the markets. The rally is a bit long in the tooth, but there are no strong reasons for the market to make a major sell-off right now. As a result, the markets are just a bit confused on where to go.

The "Telethon" is Over

From the WSJ:

J.P. Morgan Chase & Co., Morgan Stanley, American Express Co. and regional bank KeyCorp said Tuesday they sold a combined $8.7 billion in common stock. That pushed the total value of shares sold by the 19 financial firms that were stress-tested by the government to at least $65 billion since the results were announced May 7.

Nonguaranteed debt sales and the conversion of preferred shares to common stock have generated roughly another $20 billion, for a total of $85 billion or more, giving most of the banks considerably more capital than U.S. regulators have required them to amass as they ride out the recession. Money is pouring in so fast that surprised bankers can hardly believe it, especially since most investors didn't want to go near financial stocks just three months ago, even though they were nearly 40% cheaper.

It's funny that this is not a more important or more publicized story. The bottom line is the overall mood relative to the banking sector is much better now than it was even a few months ago.

Now -- that does not mean we are out of the woods. In fact -- we have a long way to go. But it is good news.

Corporate Lay-offs Dropping

From Marketwatch:

Planned corporate layoffs declined 16% in May from April to 111,182, the lowest total since September, according to an unscientific tally released Wednesday by outplacement firm Challenger Gray & Christmas.

Job-reduction announcements were up 7.4% compared with May 2008.

So far in 2009, planned layoffs of 822,282 as tallied by Chicago-based Challenger Gray are more than twice as high as they were over the first five months of 2008, with layoffs having peaked in January at 241,749.

The figures are not seasonally adjusted.

"This decline in job cuts could be short-lived," said John Challenger, CEO of the outplacement firm. He noted that the second quarter of the year is typically the slowest for layoffs; the fourth quarter ranks as the busiest.

In particular, more layoffs could be coming in state and local governments, auto manufacturing and retailing, he said.

I've turned moderately bullish of late. What started this off was this chart:

Click for a larger image.

Notice the 4-week moving average which appears to have topped. This jibes with the article which is noting we're seeing a preliminary reduction in corporate lay-offs. Also note -- the year over year levels are still high and unemployment is still at 8.9% so we're nowhere near out of the woods.

I would call this period the initial moves back into positive growth. There are still plenty of things that can go wrong -- like the bankruptcy of a major car company sending very negative ripples out across the economy. But the initial moves are encouraging.

Will We See Growth in the Third Quarter?

From Barron's:

The recent flow of data continues to be consistent with a bottoming out of the economy this summer and the resumption of growth sometime in the second half of the year (we believe it will be the third quarter). Against this backdrop, there is ongoing concern that the backup in long-term Treasury yields will spoil the party. However, as we've pointed out before, the slope of the yield curve (which has widened), not the level or rate of change in Treasury yields, bears the strongest leading correlation to future GDP growth. The rate of change in corporate-bond yields (which have fallen as Treasury yields have risen) also bears a significant leading (inverse) correlation to future GDP growth.

Lastly, the spread between risky and riskless bonds (which has narrowed as Treasury yields have risen) also bears a significant leading (inverse) relationship with future growth. In sum, as Treasury yields have backed up, the yield curve has steepened, corporate-bond yields have receded, risk spreads have compressed, and other risky assets (equities, emerging-market stocks) have been rallying. This is consistent with faster future growth, not a tipping-over of the recovery process.

In other words, massive fiscal stimulus, monetized by the Fed, appears to be ramping up demand, which the financial markets should discount in advance.

What the article says (essentially) is bond traders are better forecasters.

Personally, I think this is a but premature. Instead, I think the 4th quarter is the most likely target for when growth might turn positive.

Wednesday Commodities Round-Up

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The weekly agricultural price chart is still very bullish. The MACD is rising and has some room to run as does the RSI. Prices have advanced above the 50 day SMA and continue to move higher. The 10 and 20 day SMA are moving higher with the 10 above the 20.

The daily chart is also very bullish. Notice that prices are above all the SMA, the shorter SMAs are above the longer SMAs and all the SMAs are moving higher. The MACD is sill rising, although it may be approaching topped out territory for now. Also note the RSI is at technically oversold readings, the RSIs can stay pegged at these levels for some time.

Industrial prices are continuing their move higher. After rising from a consolidation pattern they formed another triangle consolidation pattern over the last few weeks but have since moved higher through that. Note the MACD and RSI are still rising. Finally, the 10 and 20 week SMAs are moving higher and the 10 day SMA is above the 20 day. Prices are using them for technical support.

On the daily chart notice the prices started moving higher at the end of February. This chart better shows the consolidation that took place from mid-April until just recently. However, prices have advanced through upside resistance on a big gap higher.

Tuesday, June 2, 2009

Today's Markets

Take a look at the following charts that show the last year's worth of action. Click on all images for a larger image.

The SPYs are are above the 200 day SMA but are just below key resistance.

The QQQQs have broken out and are moving higher.

The IWMs are just above key resistance.

So the price picture is positive. But, take a look at the on balance volume of the SPYs and QQQQs

The SPYs OBV is decreasing. The IWMs and QQQs have a rising OBV.

Personal Income Pt. II

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Real PCEs have been bouncing around quite a bit over the last 7 months. But notice that for 6 of those months they have been clustering between $8.167 trillion and $8.211 trillion. This is what I saw when I wrote an article titled "are retail sales bottoming" several weeks ago.

After a spike up in January, real durable goods purchases have been decreasing for three months. That is a clear downward trend. However, note that sales are still above their fourth quarter lows.
Real non-durables are also moving lower. But

Real service expenditures are moving higher.

Here are two charts from econoday that better show my thinking.

Notice there are two boxes. The first occurred at the end of last year and shows a massive month over month percentage change. However the severity of the month over month change is decreasing for the last few months. In addition, the year over year number has been bouncing around on a bottom since the beginning of the year.

Real DPI is increasing.

Personal Income Pt. I

Yesterday the BEA released personal income information. In part 1 I'll look at the charts from the income portion. In part II I'll look at the expenditures.

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The general trend for compensation is down.
Employee compensation is down as well, as are

wages and
Personal income and receipts from assets. The only sub-part of income increasing over the last 7 months is
Transfer payments.

The Latest Expansion's GDP, Investment

Today I'm going to continue on the GDP theme by looking at investment.

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All figures are in 2000 chained dollars.

Total gross investment increased until the beginning of 2006 when it started to decline.

Gross investment as a percentage of GDP also increased to a bit above 17%% in 2006 and has fallen since. Now it stands at 11.86%.

Non-Residential Structures remained relatively constant until about mid-way through the expansion. Then they took off in a big way. They have only recently started to fall.

Non-residential structures increased from about 2.5% of GDP to 3% of GDP and has only recently started to fall.

Residential investment increased until the end of 2005/beginning of 2006. It has since dropped hard and fast.

Residential investments as a percent of GDP followed the same track. Now it stands at 2.58%.

In late cycle increase in non-residential investment probably prevented a housing crash back in 2006. By that time the housing bubble was nearing its absolute peak. But the increase in commercial real estate investment pulled residential construction workers into the commercial market.