Thursday Oil Market Round-Up

The weekly chart is still very bullish. After a long and painful fall at the end of last year, prices consolidated in a triangle pattern over a 4 month period. Now prices have broken out of that pattern to the upside. The rallied and fell back to the 10 week SMA. Now they have advanced beyond the previous high which is technically a good sign. Also note the MACD and RSI have upward sloping trends and each has plenty of room to run.


The daily chart shows the consolidation. In actuality we had two triangle patterns where prices consolidated. Also note that prices rallied from the first triangle, topped and moved sideways for a bit and now are moving higher. Moves like this allow the market to "catch its breath" as it were. Some traders get out and others get in. Finally, note the MACD has given a buy signal and the RSI is increasing.

All of this is perplexing against the fundamental backdrop.


Oil stocks are increasing and are far above the average range.

Gas stocks are near the top of their average range.

Gas prices are holding steady at just above $2.00/gallon. This indicates there isn't must demand pull on prices. The lack of demand pull is coming from



A big decrease in the miles driven.

And yesterday I looked at the price charts of various transportation sub-components. They weren't pretty.

Today's Markets

Just got back in the office. I'll post this in the morning

Orbitz Down Earnings Got Me Thinking....

From the WSJ:

Orbitz Worldwide Inc.'s first-quarter loss widened sharply on a write-down related to declines in the company's stock price.

The online travel agent has looked to aggressively cut costs as demand falls. Businesses and consumers have been scaling back travel amid the weak economy, and those cutbacks hurt companies like Orbitz, which allows customers to book hotels and flights at discount rates through its site.

The company posted a loss of $336 million, or $4.02 a share, compared with a year-earlier loss of $15 million, or 18 cents a share. The latest results included a $332 million write-down because of the decline of the company's stock price during the quarter. Total operating costs more than doubled, although cost of revenue declined on lower volume.

I'm a big fan of Dow Theory, which basically says averages have to confirm each other. If one average goes up, other averages should also increase. This is especially true with the Transportation averages. If things are better, we should be shipping more stuff and traveling more. The reverse is also true. So if things are getting better according to Ben, why is Orbitz reporting a poor quarter?

So, here are some charts from Prophet.net that show sub-sections of the transportation industry.

Click on all images for a larger image


This chart really caught my eye. If things are getting better shouldn't we be shipping more stuff? Prices are still moving lower and volume is still high indicating traders are dumping shares.





And the railroads trucking and shipping areas are still moving lower. On the positive side, at least the volume has subsided on the shipping and trucking charts.




And we sure aren't traveling individually or in a business capacity yet.

Bottom line - the transportation subsets don't tell a story of recovery.

More Signs of Credit Thawing

From the WSJ:

A key measure of risk reached its lowest level since last fall as investors snapped up the biggest junk-bond issue of the year, further signs companies can now borrow to meet their cash needs but still have to pay above-normal rates.

.....

"A few months ago, you couldn't give a bond away," said Mitch Stapley, chief fixed-income officer for Fifth Third Bank in Grand Rapids, Mich. "But now signs are coming into place that things are looking better, there becomes a scramble to get that credit exposure."

Credit markets are extending a rally that took hold in April -- tracking gains in stock markets -- as investors became more confident banks were recovering from the recent market turmoil and the housing market was showing signs of having hit a bottom. The reduction in Libor indicates liquidity is returning to the financial system, and the ability of companies to sell debt shows they can finance themselves, albeit at higher rates.

Momentum gathered in deals eligible for a federal program to boost consumer lending, and Bank of New York Mellon sold bonds without government backing.

Here's the accompanying chart

Bernanke's Happy Talk

Click on all images for a larger image

Ben was on the hill yesterday. He gave a generally happy talk. Personally, I think he's lying through his teeth. Here's why:

However, the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households' spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market and the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight.

Yes, consumer spending increased 2.1% in the first quarter. But looking a bit deeper into the data we don't see a lot of strength. As I pointed out in this post the main reason for the first quarter increase was a jump in durable goods purchases in January. This total has decreased the last two months and is still far below the September/October levels of last year. In addition, wages are decreasing in a big way. In fact, disposable income increased only because of transfer payments and tax reductions. And consider this chart of total household debt as a percentage of GDP:



And combine that information with this chart of the savings rate:

So -- wages dropping, households area losing wealth, the job market is terrible, households are heavily in debt and are increasing their savings rate. There are the reasons I'm bearish about consumer spending.

Bernanke continued:

The housing market, which has been in decline for three years, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing. In particular, the average interest rate on conforming 30-year fixed-rate mortgages has dropped almost 1-3/4 percentage points since August, to about 4.8 percent. With sales of new homes up a bit and starts of single-family homes little changed from January through March, builders are seeing the backlog of unsold new homes decline--a precondition for any recovery in homebuilding.

Here is a chart from Martin Capital of new and existing home sales:





I dealt with the new home sales market in this post yesterday. Bottom line -- sales may be bottoming. But we only have two months of data to back that up making a prediction of a bottom seem premature.

As for the existing home sales market, he is correct that sales may have bottomed. Of course they may have bottomed last year as well. And again, remember the household debt chart from above? Who is going to buy these homes?

And all of that is before we get to the massive drop in home prices from the Case Shiller price index:

Ben goes on about business investment:

In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak. Spending for equipment and software fell at an annual rate of about 30 percent in both the fourth and first quarters, and the level of new orders remains below the level of shipments, suggesting further near-term softness in business equipment spending. Recent business surveys have been a bit more positive, but surveyed firms are still reporting net declines in new orders and restrained capital spending plans. Our recent survey of bank loan officers reported further weakening of demand for commercial and industrial loans.¹ The survey also showed that the net fraction of banks that tightened their business lending policies stayed elevated, although it has come down in the past two surveys.

Here is a chart of the percentage change in gross investment from the preceding quarter:


Investment has been weak for some time and was terrible last quarter.

I barely see the possibility of a recovery at this point. And I don't see a robust recovery in any way. On that Ben and I agree:

Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.

Wednesday Commodities Round-Up

Click on all images for a larger image


The weekly industrial metals chart is still bullish. First, the MACD and the RSI are still rising. Prices have broken out of the consolidation pattern. In addition, prices are using the 10 week SMA as technical support. The 10 and 20 week SMA are both rising with the 10 above the 20.



The daily chart shows a mixed situation. While prices are technically still in an uptrend they have sold off from their peak a few weeks ago and have yet to move through the previous high. The RSI and MACD confirms the weakening of the price picture.


The weekly agricultural chart is bullish. Notice the rising MACD and RSI. The RSI is only at a reading around 50 so it has plenty of room to move higher as does the MACD. Prices have advanced through the triangle consolidation pattern as well. However, the SMA picture is a bit jumbled right now.


The daily chart -- like the industrial metals daily chart -- is mixed. The general trend is still up. But note both the RSI and MACD have printed a near horizontal pattern in April. Also note the SMAs are in a very jumbled orientation -- they are tied closely together. While they are technically in a bullish position (shorter above longer, all moving higher) we need more time in this position to make a solid call.

Bottom line: the long-term charts are still bullish. My guess is traders are playing two long-term trends: the eventual economic rebound and a hard asset inflation play. The daily charts show that traders are having second thoughts, but we haven't seen those thoughts bleed over into the weekly chart.

Today's Markets

Click for a larger image

This is a gorgeous chart. Prices have been moving higher in an exceedingly disciplined manner. notice how prices move up a bit and then spend the next few days trading around the fibonacci retracement levels. Prices have done this three times over the last 10 days in an incredibly efficient manner.

Below are the charts for the QQQQs and IWMS. Notice the exact same trend.

Senior Loan Survey Data Points

From the Federal Reserve:

Click on all images for a larger image

Demand for commercial and industrial loans is down, but
Notice that lending standards for C and I loans took a sharp upward turn in the 2Q07 and have been tightening for the most part since. However there is some good news in the latest report:

On net, about 40 percent of domestic respondents, compared with around 65 percent in the January survey, reported having tightened their credit standards on commercial and industrial (C&I) loans to firms of all sizes over the previous three months. On balance, domestic banks have reported tightening their credit standards on C&I loans to large and middle-market firms for eight consecutive surveys and to small firms for ten consecutive surveys. Although 40 percent is still very elevated, the April survey marks the first time since January 2008 that the proportion of banks reporting such tightening fell below 50 percent.

That's good news. And there's more:


The percentage of respondents tightening CRE loans is decreasing although



The demand for CRE loans is still depressed.

The report noted:

About 65 percent of domestic banks, on net, reported tightening their lending standards on commercial real estate (CRE) loans over the previous three months, compared with about 80 percent in the January survey. On balance, domestic banks have been tightening credit standards on CRE loans for 14 consecutive surveys, and the April survey marks the first time since October 2007 that the net proportion of banks reporting such tightening fell below 70 percent.

Finally, the number of banks tightening residential credit increased although



Residential demand is increasing.

The report noted:

In the April survey, somewhat larger fractions of domestic respondents than in the January survey reported having tightened their lending standards on prime and nontraditional residential mortgages. About 50 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages over the previous three months, and about 65 percent of the 25 banks that originated nontraditional residential mortgage loans over the survey period reported having tightened their lending standards on such loans. About 35 percent of domestic respondents saw stronger demand, on net, for prime residential mortgage loans over the previous three months, a substantial change from the roughly 10 percent that reported weaker demand in the January survey. About 10 percent of respondents reported having experienced weaker demand for nontraditional mortgage loans over the previous three months-a substantially lower proportion than in the January survey. Only two banks reported making subprime mortgage loans over the same period.

Frankly, this report is good and should be a reason why people think things are getting better.

You Are Here

Click for a larger image:

Are There Signs of Recovery in the New Homes Market?

Click on all images for a larger image

From the NY Times:

Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing.

Indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year.

“It’s fragile, and it could easily be fleeting,” said an MDA DataQuick analyst, Andrew LePage. “But history suggests this is how things might look six months before prices bottom out.”

The story has many important caveats.

Instead, this is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.

When a market bottoms, foreclosures usually stop piling up and banks become more willing to make loans, confident the collateral backing them will not fall in value.

Nationally, signs of progress in real estate are still faint at best. Existing home sales in March were down 7 percent from last year, according to the National Association of Realtors.

The supply of unsold homes was about 10 months, a number that has changed little over the last year and is abnormally high. But first-time buyers were an impressive 53 percent of the market — and that was largely before a first-time buyer’s tax credit of $8,000 became available.

With the tax credit in place and interest rates low, the pace of sales may be picking up. The Realtors’ group said Monday that the number of houses under contract in March was up 1 percent from a year earlier. Those pending deals will be reported in the existing-home sales for April and May.

Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. First American CoreLogic, a real estate data firm, reported that “the depth and breadth of price declines continued to worsen in February.” Fitch Ratings recently revised its estimate of future declines to 12.5 percent, from 10 percent, saying the drop would extend to the end of next year.

Let's look at some data to see how it's playing out.


The overall trend in new home sales is clearly down. The last two months we have possibly seen a bottom in sales, but we need more data before we make that call. In addition



The months of available supply at the current sales pace is really high indicating we've got a ton of work to do before we can claim victory.
Total sales in the North East are down over the last three months and are below year ago levels.
Sales in the South may have bottomed. But we need more data to make that call. And we've below year ago levels as well.

Sales in the mid-west are down and are below year ago levels.

Sales in the West have risen the last two months but are the overall trend since last July is down and we're still seeing current levels below year ago levels.



And the Case Shiller Index tells us prices are still falling at fast rates. And consider this chart of city's real estate prices.



God I feel like the big bad bear to whom nothing is ever enough. But I just don't see enough data to say things are getting better.

Treasury Tuesdays

Click for a larger image

This is pretty much the final straw for me in arguing against the rally. Until now Treasuries have not sold off. However as the chart above clearly shows prices for the 7-10 year area of the market have fallen through support levels established from the consolidation pattern. Now the only technical indicator holding prices up is the 200 day SMA which is also the line between bull and bear markets. Finally, note that the SMAs are starting to form a bearish picture -- prices are below all the SMAs, the shorter SMAs are below the longer SMAs and all the SMAs are moving lower. This at a time when the Fed is buying Treasuries to prop up the market. That's pretty impressive.

I should add -- I still don't see the fundamental reason for this rally in stocks and sell-off in the bond market. There are still plenty of negative issues that have to be dealt with. But this is also a situation where you look at the chart in front of you, put blinders on and then continue trading.

Today's Markets

The SPYs continue their move higher. Most importantly, today prices moved through key resistance levels. Also note the 200 day SMA is in reach.


The QQQQs have advanced beyond the 200 day SMA printing a strong bar today. The bullish orientation of the SMAs (shorter above longer, all moving higher and prices above the SMAs) continues.

The IWMs advanced through key resistance today with a strong bar.

The bottom line is I still don't see the fundamental reason for this rally. At best the fundamentals are weak. But it seems as though traders are moving in solely in anticipation of a recovery without really considering the fundamentals. In addition there is probably a bit of short-covering going on as well.

Marginally Attached Workers Increases

From the BLS:

When economic conditions deteriorate, greater attention is paid to persons who are without work and seeking jobs—the unemployed. At such times, there is also greater interest in a group of persons who do not meet the official definition of unemployment but who have shown interest in labor force participation. These individuals—referred to as “marginally attached to the labor force”—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 actively searched for work in the past 4 weeks. The number of persons who were marginally attached to the labor force increased sharply during the current recession, rising to 2.1 million in the first quarter of 2009.

That big spike up is interesting.

Construction Spending Increases

From Bloomberg:

Spending on U.S. construction projects unexpectedly rose in March for the first time in six months as increases in commercial and government projects overshadowed an ongoing drop in home building.

The 0.3 percent gain followed a revised 1 percent drop the prior month, the Commerce Department said today in Washington. The advance in non-residential projects was led by building of power plants, hotels and factories.

Manufacturing increased from $6,291 to $6,904. This is a particularly interesting number especially in light of the record low level of capacity utilization.



Click for a larger image.

This months manufacturing number is the highest reading in 5 months and is 65% higher than the same month last year. That's simply remarkable

In addition, total non-residential construction increased which is also interesting considering the market for commercial real estate is down:

AMERICANS IN THE PAST TWO YEARS have been closely watching residential real estate, as TV commentators breathlessly relate each downward tick in home prices and upward move in foreclosures. But all the while, another important part of the real-estate market has been quietly cratering, all but ignored by the general press. Since peaking in early 2007, the value of the nation's commercial property has fallen an estimated 30% to 40%.

You can get a good idea of the pain being suffered by looking at an index of real-estate investment trusts, the publicly traded entities that investors use to play the commercial real-estate sector. The MSCI REIT Index fell 77% from a high of 1233 in February 2007 to the low of 287 hit in March. Since then, it has rebounded 45%, to 420, as investors seek opportunities and the economy seems to be improving.

But the commercial-property sector remains fraught with peril. Some REITs will be strong enough to snap up buildings at bargain prices, while other REITs may go bust or need to raise gobs of new equity to bolster their debt-heavy balance sheets. The commercial real-estate problem has become a focus of federal regulators in recent weeks as they stress-tested the 19 largest U.S. banks to see where losses could pop up if the economy, rather than recovering, worsens.

Why has the value of REITs tumbled an average of 65%, while the value of their properties has slid more like 35%? REITs tend to rely on borrowed money. That boosted profits in the good times, from 2002 to 2007, but has magnified problems ever since.

Consider the following REIT graphs from Prophet.net. All have the same caption: prices are near record lows on high volume:





The above graphs are far more consistent with the year over year number:

Market Monday's

The SPYs are in a bit of an odd place technically. They are still in an uptrend but they have broken their primary uptrend that started in early March. In addition, they are still having trouble getting above the 88 level which is technically important. In addition, prices have lost their upward momentum. But the price/SMA picture is still solid with prices above all the SMAs, all the SMAs moving lower and the shorter SMAs above the longer SMAs.

I included a three month chart simply to show that the old trend line looks like the "real" trendline. It has more contacts with prices.


The QQQQs are the best performing average out there. Notice how prices continue to move higher. Also note prices are above th 200 day SMA, albeit with weak bars. That move is technically very important.


The IWMs are still in an uptrend and have gotten about important technical resistance. In addition, the price/SMA picture is very bullish as well.

So -- what gives with this rally? Where are the fundamentals backing it up? The latest GDP report showed a 6.1% contraction -- although there was an encouraging pick-up in consumer spending. But there are serious questions as to whether or not that can continue with household wealth getting clobberred in from real estate, stocks and job losses. The drop in inventories led some to argue we'd see a pick-up in orders.

This somewhat backed by the data, but then there is this:

Eighteen of 19 carload commodity groups were down from last year, with only the catch-all category of all other carloads defying the trend and showing a 12.8 percent increase. Declines among the remaining commodity groups ranged from 8.0 percent for grain mill products to 62.4 percent for metals.

Intermodal volume of 184,509 trailers or containers was off 17.8 percent from last year, although up 0.7 percent from the previous week this year. Container volume fell 12.4 percent from last year, while trailer volume dropped 37.1 percent.

Total volume was estimated at 27.7 billion ton-miles, off 21.1 percent from 2008 but up 1.8 percent from the previous week this year.

And consider this:

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 4.5 percent in March, marking the first month-to-month decrease of 2009. The gains during the previous two months, which totaled 4.5 percent, were erased with March’s drop. (February’s increase was revised down to 1.5 percent.) In March, the SA tonnage index equaled just 101.4 (2000 = 100), which is its lowest level since March 2002. The fleets did report higher volumes than in February, as the not seasonally adjusted (NSA) index increased 10.2 percent, but that is well below the 15 to 20 percent range that NSA tonnage usually rises from February to March. In March, the NSA index equaled 104.7.

Compared with March 2008, tonnage contracted 12.2 percent, which was the second-worst year-over-year decrease of the current cycle. In December 2008, the largest year over-year contraction, tonnage dropped 12.5 percent from a year earlier.

All things being equal, if things were getting better we'd be shipping more stuff. Yet the year over year numbers are still bad. That tells me we have a long way to go.