Foreclosures Down Month to Month, Up Year Over Year

From the WSJ:

Foreclosure filings for November surged 68% from a year ago but dropped 10% from October, another sign that foreclosure activity overall may have peaked for the year, a foreclosure-listing service said.

RealtyTrac Inc. Chief Executive James J. Saccacio said that November's 10% drop from October was the first double-digit monthly decrease observed since April 2006.

The sequential decline "could indicate that foreclosure activity has topped out for the year, but the true test of whether this ceiling will hold will come at the beginning of next year -- when we anticipate that a seasonal surge in foreclosure filings and another possible wave of resetting mortgages could place further pressure on the housing market," Mr. Saccacio said.

No -- foreclosures aren't going to decrease. Why can I say that with near certainty? Because we have a slew of resets next year.



There is no way we're going to see a decrease in foreclosures anytime soon.

But Bonddad! The Bush plan is in effect! That will save us!

No it won't. The most liberal estimate I have seen about the number of homeowners it would help is about 400,000. However, the most conservative estimate I have seen about foreclosures next year is 1.2 million. So, assuming the best outcome of the Bush plan and the best outcome on the foreclosure front, we're still looking at 800,000 foreclosures next year.

Now, let's add that information to the existing home inventory figures.



And the months of supply:



Short version: assuming the best of all the estimates, we're still looking at a world of hurt.

Today's Markets

Wow - what a roller coaster ride today.



The SPYs opened lower then gapped down hard on heavy volume. But they consolidated there and moved higher over the rest of the session. The only negative on this chart is the possible double top. But there is a ton of news between today's close and tomorrow's opening.



On the six day chart, notice we're still below a long-term (5 day) trend line. However, if the index can break through this line and hold above it tomorrow, it could indicate a trend reversal from the post-Fed sell-off.



The QQQQs followed the same path as the SPYs, with the exception of a strong gap upwards when the index started to rally.



On the six day chart, notice the QQQQQs are a bit further below the 5-day downward sloping trend line.



This is the strongest chart of the day. Notice the IWMs had heavier volume on their rally and closed with a solid volume spike and strong bar. These are positive developments.



On the 6 day chart, notice the IWMs have already broken through the downward sloping, post-Fed trendline. This is another good development.

Now, the big question for tomorrow is this: will the markets follow the Russell 2000s lead and break through their trend lines?

Exports Help to Alleviate Slowing Economy

From the Christian Science Monitor:

But after years when American consumers have pulled the global economy forward, today the roles are largely reversed. A growing global economy is providing the best source of momentum America has right now, as the nation's consumers struggle to cope with high oil prices and a downturn in the housing market.

How big is the momentum? Enough to offset much of housing's negative impact. Over the year that ended on Sept. 30, a rise in US exports has equaled the decline in residential construction that represents the biggest portion of housing's current drag on growth.

"One of the reasons that the US economy has avoided a recession so far, despite a ... prolonged downturn in the housing industry, is because of the stimulus that the US has received from the global boom," says Ed Yardeni, an economist at Yardeni Research Inc. in Great Neck, N.Y. "It's been a big benefit, and I think it will continue be so."

Global growth benefits the US through several channels:

•The most obvious is that exports have been rising, now running at an annualized pace of $1.7 trillion, up from $1.5 trillion a year ago.

•America's largest companies also gain profits from sales of goods and services by their foreign-based operations. The employees are overseas, but the resulting profits provide a cushion for these companies during a US slowdown. Just ask General Motors Corp.

•The US enjoys access to foreign sources of capital that are more abundant than ever. This includes a continuing flow of investment funds – despite the drawbacks of a weaker dollar and the mortgage woes of US banks. It also means direct investment by foreign firms in US operations.

This is the chief benefit of the falling dollar -- increased exports. However, I would add the following cautionary notes.

1.) Overall profit growth for S&P 500 companies was negative last quarter, indicating that growth in foreign sales was not enough to mitigate the impact of a slumping US economy.

2.) The dollar's position has been increasing the calls from around the world for moving away from the dollar. While a cheap dollar is good, a dollar that people are dumping as a reserve currency is bad.

3.) Exports accounted for about 13% of total US GDP (approximately). In other words, there are still other areas of the economy (like consumer spending) that are larger and far more important for their overall impact.

Still, it's good to see exports increasing. And it's really nice to report something positive.

Retailers Having a Tough Holiday Season

From the Street.com

This past weekend brought a big surge of traffic, but not enough to make up for the lack of sales throughout the holiday season, industry observers say. As a result, retailers will have to cut their prices deeper -- driving down profit margins -- and keep their doors open longer to gain some ground in the home stretch.

.....

Britt Beemer, chairman of America's Research Group, expects holiday sales to increase only 1.8% this year, his lowest forecast in over 10 years.

Even with deeper discounts this week, Beemer is skeptical that retailers can make up for the traffic they lost all season.

.....

Although Black Friday, or the day after Thanksgiving, generated a 4.8% increase in traffic, industry watchers say things have tapered off considerably since. The first two weeks of December saw a lull, and only now are the crowds starting to come back.

.....

And the peak of the season is still to come. This Saturday is expected to be the busiest shopping day of the year for retailers, eclipsing Black Friday.

Chen expects those retailers who have been promoting all along will continue promoting, including in the women's apparel sector, which saw soft sales even before the holiday season began.

.....

Even online sales seem to be losing some traction. According to research firm, comScore, online retail spending has grown more than $22 billion between Nov. 1 and Dec. 14, which marks an 18% climb. While that still represents a record level, it is less than the 26% increase during the same period last year.

.....

"The current economic realities appear to be having a negative impact on the growth in consumer spending," said comScore Chairman Gian Fulgoni in a statement. "From the subprime housing meltdown to a decline in home values to higher gas prices and an uncertain stock market, many consumers across all income segments are either feeling the pinch this holiday season or are lacking the confidence to spend at the rate they had in the past."

Remember that big discounts = lower profit margins.

I should also make the following cautionary remarks.

1.) Americans love to shop and will do anything to continue shopping. That means that while there is still time before Christmas it's possible consumers could pick-up the pace.

2.) I would extend the "Christmas shopping season" to sometime in January because of gift cards and the heavy, post-Christmas promotions we have seen of the last 5+ years. It's standard to see all sorts of new year's bargains.

3.) All that being said, there are plenty of reasons for consumers to pull in their spending wings right now. The housing market is a mess, the economy has plenty of bumps in it, energy and food prices are high (and food prices are probably increasing) and in general people are very concerned about their economic environment. This is not a situation that encourages free-spending ways.

Is is a long-term chart of retail sales from econoday.



Although there was a decline in the year-over-year number from January 2006 to mid-2007, the number has been increasing of late. Some of that is probably due to lower year on year comparisons and price inflation. However, there have been some nice increases on a monthly basis as well, as indicated by the gray lines representing monthly changes.

Let's go to the charts to see what traders think about the retail sector:



On the 5-year, weekly chart we see a pretty tight trading range of 10-15 points. In other words, despite the pretty strong retail sales numbers from above, traders have been lukewarm about the retail sector for the duration of this bull market. That's pretty interesting because the fundamentals would indicate this is a good area of the market.



On the daily chart, notice that starting in July, the market went into a classic bear market chart of lower lows and lower highs. While the beginning of this sell-off in retail coincided with the market's first big subprime hit when Bear Stearns announced massive losses, the index has failed to rally with the market.



The 3-month chart shows the moving average picture. Notice that:

1.) We're below the 200 day SMA.

2.) The 200 and 50 day SMA (longer-term trends) are down.

3.) The shorter term trends are rising.

4.) The SMAs are bunched up, with conflicting short and long-term signals.

Short version: according to traders, retail isn't looking that hot right now. While the shorted SMAs indicate we could be getting a short-term upswing, the long term trend is down.

Agricultural Prices Increasing

I've talked about agricultural prices a lot, largely in the context of inflation. The chart below explains why these prices are really important right now.



For the last three years, agricultural prices have been increasing. The chart above shows an incredibly strong chart that is a great example of a bullish chart. Prices formed a strong base in 2005. They rallied from the base and then consolidated in a bullish pennant formation in 2006. After selling off a bit, prices again rallied into 2007 where they again consolidated in two patterns -- a broadening pattern and then a triangle pattern. Prices have risen twice since then. In short, this chart says prices are increasing and will be for the foreseeable future.

From Bloomberg:

Wheat futures gained in Chicago as rising food costs signaled increased demand for the grain at a time of shrinking global stockpiles. Corn and soybeans declined as recent advances may have been overdone.

U.S. consumer prices rose the most in two years last month, while inflation surged 6.9 percent in China and 3.1 percent in Europe. Inflation is accelerating as oil and other energy prices reached records in November, spurring investors to buy commodities as a store of value.

``The global backdrop of inflationary pressure is supportive for agricultural products as we head into 2008,'' Nie Ben, manager at Liaoning Cifco Futures Co., said by phone from Dalian in northeastern China today.

.....

Corn reached a nine-month high yesterday at $4.4325 a bushel, while soybeans extended a rally to the highest since 1973 on speculation that U.S. demand for fuel made from grain and oilseeds will surge. The Senate passed a bill Dec. 13 that may boost use of alternative fuels such as ethanol and biodiesel.

Let's look at some of the individual charts:



Except for a price spike in early 2004, corn traded in a 20% range for 8 years. An old trading saying is the longer the base, the stronger the rally. If that holds, we're in for one hell of a bull run.



On corn's weekly chart, note it has been in a bull market pennant pattern for most of this year. This is a classic consolidation pattern. Also note that prices are making a move to break out of this pattern and move higher.



The monthly soy chart shows prices have been here before.



But, for the last two years, soy beans have also rallied. This is another example of a bullish chart. Note the continual pattern of higher highs and higher lows. While soy beans have been here before as the monthly chart demonstrates, this week chart shows there is every reason for prices to continue higher.



Like corn, wheat was in a pretty tight range for 8 years.



But since then, prices have clearly rallied. They broke out of their base in late 2006. From the end of 2006 through the first quarter of 2007 prices consolidated. Then they broke out. The only drawback to this chart's bullish angle is the possible formation of a double top this year.

Short version: agricultural prices are in a strong position to continue moving higher.

Today's Markets

Sir prints-a-lot speaks and the markets freaks. Imagine that.

I'm going to do this a bit backwards today. Here is the 5-day SPY chart in five minute increments.



Ever since the Fed's policy announcement the market has not been happy. Notice that

1.) The market dropped immediately after the announcement.

2.) While the market popped the next day, it could not hold.

3.) The market consolidated on Thursday and Friday. However, the market sold-off at the close on Friday.

And then there is today's chart:



Notice the numerous gaps, and the heavy volume on several down bars. In addition, the market sold-off on heavy volume right at the close.



While much of the analysis for the SPYs applies to the QQQQs, notice on today's chart:



We have a solid downward trend with heavy selling at the close.



And the Russell 2000 has a lot in common on the five day chart....



But like the SPYs, this index couldn't hold the consolidation pattern it established in the morning.

Go back to the daily charts -- the charts from today. Notice that on all three charts the bulls tried to regain control of the markets. There are places where you can find a strong upward moving bar with accompanying heavy volume. But also notice the market could not maintain this upward momentum. That's a troubling development, because it indicates the bears are developing more control over the market right now.

Let's go to the three month daily charts:



Today, prices moved through the 20 day SMA and the upper trend line of the 4-year uptrend of the average. That's not good. There is little technical support below the current price level, save previously noted price levels.



On the QQQQs we have the same situation, although today's bar is far more bearish because it is longer.



And on the IWMS, notice this is the second day prices have moved below the lowest moving average. Also notice there is only one close technical support is from the lows of late November.

About the only good thing about the daily charts is the SMAs are a mess. The SPYs and QQQQs have very conflicting signals coming from their moving averages right now. however, the IWMs are very close to a very bearish alignment with the shorted SMAs below the longer SMAs.

What Mish Said

From Mish:

Prices of things we need (food and energy) continue to rise. Prices of most everything else are dropping. If you do not eat, drink, or drive, or need medical care you are in great shape. Then again, perhaps that makes you a robot.

Read the whole thing.

Alan -- STFU Already

Dear Alan --

You are not the head of the Federal Reserve anymore. In addition, your easy credit policies got us in this mess.

Please, shut the f(^k up, already.

I now return you to your regularly scheduled blog.

Is the Dollar Making A Comeback?

From the WSJ:

A combination of factors has helped to stabilize the dollar, though it remains quite weak. Some recent data have given comfort to those expecting the broader economy to escape the housing crisis with a slowdown in growth rather than an actual recession -- typically defined as two consecutive quarters of contraction. The Federal Reserve is taking new steps to tame the credit crisis. Countries in the Persian Gulf, which appeared on the brink of breaking their currency pegs to the U.S. dollar, have refrained from making any changes.

.....

One recent challenge to the gloomy view on the economy came Thursday, when data showed retail sales in November were more resilient than predicted. The figures suggested "we don't really have a freefall in the U.S. economy," says Adnan Akant, a currency specialist at money manager Fischer Francis Trees & Watts. "It's slowing down but not falling out of bed."

Then on Friday, government data showed inflation last month was stronger than expected. That generated a fresh wave of dollar buying, pushing the greenback up about 1.4% against the euro in a day. Since late November, when the dollar weakened to a record low versus the euro, it has strengthened about 3%. Still, the dollar remains 8.5% weaker against the euro since the start of the year. Late Friday in New York, one euro fetched $1.4423.

The retail sales figures for November were countered by two weeks of weak December sales, so I wouldn't go hanging my hat on those numbers.

However, the inflation story is far more important. Simply put, the Fed is now really hemmed in policy wise and may not be able to lower rates much more in the wake of the recent inflation numbers. And that could be dollar bullish -- or at least dollar neutral.

But, it's also important to remember the overall US economic picture isn't that solid. Corporate profits are weakening, job growth is fair but not great and housing problems aren't going away anytime soon.

Let's go to the charts:



On the daily chart, notice the dollar has clearly rallied from it's late November lows. It moved through the 20 day SMA, consolidated in a triangle pattern and then rallied through the 50 day SMA. Both of these are technically significant events because the SMAs will now provide technical support in the event of a sell-off. In addition, the 20 day SMA has turned positive as well -- for the first time in a long time. This indicates the shorter term trend is moving positive as well. Plus, with prices now above this number, this SMA will now get pulled higher.



However, on the weekly chart we still have a pattern of lower lows and lower highs. The index is going to have to move through 80 before we can start to think about a trend reversal. This means that we could merely be looking at a standard bear market rally instead of a rebound.

Let's Review the Markets

Whenever I find the markets confusing -- which I definitely do now -- it's really helpful to look at multiple time frames. So let's look at the five year, one year and 3 months charts of the SPYs, QQQQs and IWMs to see what they say.



On the five year SPY chart we have a clear upward sloping channel that started in early 2004. The SPYs broke out of this channel in late 2007 and have used the upper channel line as support. What's important about this chart is the existence of two long-term trend lines that provide lower support for the average.



On the one year chart, we can better see how the average has used the upper channel line for support. What's important here is the possible formation of a double top. This would make sense considering the fundamental economic background. While we've seen some wild price swings over the last few months, the index has enough strength to keep from falling too far below the trend line. However, also notice that prices have stayed below the 200 day SMA for some ling periods of time.



The 3-month chart gives us a better view of the moving average picture, and it is a mess. No SMA gives us any idea of a possible direction. The 50 day SMA is moving lower, the 10 is jumping around and all of the SMAs are within close proximity of each other. In short -- this index has no idea where it wants to go.



There are two trends on the 5 year QQQQ chart. The first is an upward sloping channel and the second is a rally that started in late 2006. So we have three trendlines that can provide technical support for the average.



On the year-long chart, we have a weakening rally. Note that prices have not moved higher after their peak in late October. That is a troubling development because it indicates upward momentum may not be there anymore.



The three month chart shows the SMAs, and they are a big mess. While prices are above the 200 day SMA, the other SMAs are bunched together. The 50 is the highest which is not a good development. In short -- and like the SPYs -- this index is looking for a direction right now.



This is the chart that causes me the greatest concern. The Russell 2000 was in a good four year rally, but has fallen through support. And it gets worse.



The index has bounced off the lower channel of the four year uptrend. In addition, we have a bearish lower lows and lower highs pattern developing, starting in early July.



On the 3 month chart, note the average is below the 200 day SMA, the 200 day SMA is heading lower along with the 20 day SMA, the shorter SMAs are below the lonoger SMAs and prices are below all the SMAs. This is not a good chart.

A Closer Look at Utilities

If ever there was a sector that got people excited -- utilities ain't it. But over the last few months, utilities have staged a very impressive rally. My guess is there are two reasons. First, these are considered safe investments, which are very attractive during crazy market times. Secondly, interest rates are dropping, which benefits any industry that typically relies on borrowed money.

Let's take a look at some charts.



Above is a chart of the utilities ETF, XLU. The index has risen about 13% since late August.



Above is a chart with the moving averages. Note the following:

1.) The index is above the 200 day SMA

2.) All of the moving averages are moving up.

3.) The shorter SMAs are above the longer SMAs.

In short, this is a bull market chart. The only drawback is prices are currently below the 10 day SMA. But a closer look at the latest rally indicates the index is using the 20 day SMA as technical support, so this move is not fatal right now.



On the year long chart, notice that prices have moved above previous highs established in late May of this year.

In short, this chart looks very impressive. Now, let's look at some sectors within utilities, courtesy of prophet.net



Diversified utilities are in the middle of a five year rally. There have been two prolonged periods of consolidation -- one in the second quarter of 2004 and the other in late 2005 to early 2006. But in general, this index has been quietly moving upwards. The only negative to this chart is the possible double top it may be forming over this year.



Electric utilities are also moving up over the last five years. However, they had a big drop earlier this year. But the index has risen about 10% since then in a nice, quiet rally. Also note the index bounced off the long-term support after the sell-off, keeping the long-term uptrend intact.



Foreign utilities look very impressive. They have been rising for five years. But they had a really big move starting in mid-2006. They have been consolidating for most of this year and may be forming a double top. If they successfully bounce off the shorter support line from this year's consolidation it will be a good sign.



Water utilities are a bit messier. While this chart has been rising, it is prone to prolonged periods of consolidation. It has had five such periods over the last five years. In addition, the index is now consolidating in a triangle pattern.



Gas utilities are somewhere between water and foreign utilities in terms of attractiveness. While they are also prone to prolonged periods of consolidation, they have moved up more consistently over the last five years, making them somewhat attractive.

Last Week's Markets

One of the great things about taking a day or two off is the gaining of perspective. When I'm caught up in the middle of the markets on a daily basis, I see the next 5 minutes. But after a day off, I get to see things with a bit more clarity.



The SPYs consolidated until the Fed meeting, after which the markets showed their displeasure with the Fed's decision. The SPYs jumped at Wednesday's open, but couldn't maintain the momentum and spent the rest of the day selling off. The SPYs consolidated on Thursday and Friday, but ended the week on a high-volume sell-off -- which is never a good development.

Notice the SPYs couldn't keep the upward momentum going on Wednesday or twice on Friday.



The QQQQs analysis mirrors the SPYs. However --


The IWMs reveal what appears to be a big fundamental problem in the markets right now.

First, notice the very clear three day downtrend. On Thursday the IWM formed a rounding bottom -- a clear reversal pattern. But, they tried to rally from this twice and couldn't maintain upward momentum.

What does this tell us? Traders were eager to sell into rallies last week, indicating they are looking to dump positions rather than accumulate new positions.

This week could be very interesting indeed.