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

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:



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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.

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.

Treasury Tuesdays

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There's been a fair amount of talk/analysis regarding the Treasury market's recent sell-off. The above chart is a 5-year chart of the IEFs (7-10 year treasury) which places the move far more in context.

Prices spiked in 2008 for a simple reason: the stock market was selling off. The SPYs went from 145 to 90 -- a drop of 38%. At times of panic, investors look for safety. This is what lead to the big move into Treasuries. In addition, at the end of last year and the beginning of this year there was continual talk of depressions and severe recessions. Also note the SPYs fell an additional 22% at the beginning of this year.

The recent Treasury sell-off started right around the time the stock market started to rally. In other words, what we're seeing in the Treasury market is a reallocation of assets from low risk to higher risk assets. Also note prices are still above the levels that existed in 2004-2007 when the economy was growing. This tells us that a further sell-off wouldn't be as large a problem as commentators are arguing.

Today's Markets

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Big day from a technical perspective:


The SPYs broke through upside resistance and moved above the 200 day SMA. Also note the 10 day SMA is moving above the 20 day SMA.



The QQQQs -- which are already about the 200 day SMA -- also broke through upside resistance today. In addition, the 10 day SMA broke through the 20 day SMA



The IWMs broke through upside resistance as well, moving above the 200 day SMA on good volume.

However, notice the MACD on all of the following charts. I ran the daily chart back 5 year on each average. I have to wonder how mush upside is left.

ISM Up

From the Institute for Supply Management:

The devil here is in the details. Consider the following information:

The overall PMI has increased 5 months in a row from 32.9 in January to 42.8 in May. while this is still technically in contraction because it's below 50 the overall trend is very positive.

New orders have increased from 33.1 in February to 55.1 in May. New orders have increased every month.

Production has increased from 36.2 in February to 46 in May. Production has increased every month.

The Backlog of orders has increased from 31 in February to 48 in May.

New export orders have increased from 37.5 February to 48 in May.

Here's a chart of the ISM from econoday:



There are still problem spots in the report. There were only 5 industries reporting growth:

Five of the 18 manufacturing industries reported growth in May. These industries — listed in order — are: Nonmetallic Mineral Products; Plastics & Rubber Products; Machinery; Food, Beverage & Tobacco Products; and Printing & Related Support Activities. The industries reporting contraction in May — listed in order — are: Textile Mills; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Primary Metals; Transportation Equipment; Computer & Electronic Products; Wood Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Chemical Products; Petroleum & Coal Products; and Paper Products.

Employment, inventories and customer inventories are still weak.

But overall, the chart is encouraging.

The Latest Expansion's GDP, PCE's Part II

Let's continue a look at the latest expansion's GDP with an in-depth look at PCEs.


Consumers continued to devote a larger percentage of their spending to durable goods for most of the expansion. Notice this percentage topped out in the last three quarters of 2007 before falling sharply for the next four quarters.
Non-durables as a percentage of income also increased, but they topped at an earlier time -- the first quarter of 2007. Then they continued to drop as a percentage of PCEs until their spike last quarter.


Oddly enough, services decreased as a percentage of PCEs until the third quarter of 2007 when they started moving higher.

The Latest Expansion's GDP, PCE's Part I

I'm going to spend today looking at what happened during the last expansion from a GDP perspective. Simply put, I want to see what the data days about the latest expansion. So, let's start with personal consumption expenditures.

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All data is based on 2000 chained dollar numbers.

Personal consumption expenditures (PCEs) rose consistently until the fourth quarter of 2007 when the recession began. Then from 3Q07 to 2Q08 they still increased but at a far lower rate. The last two quarters of last year they dropped hard. This was a primary reason for the contraction in GDP because PCEs comprise 70% of GDP. Last quarter we saw a bump but we'll have to wait and see if it continues.
Durable goods was a big reason for the drop. Notice that these topped out in the fourth quarter of 2007, moved down a bit for the next two quarters and then fell hard in the third and fourht quarter of last year.

Like durable goods, non-durable goods purchases topped out in the fourht quarter of 2007. They rose a bit for the next two quarters and then fell in the later half of 2008.

Services have yet to contract.

Market Mondays

The same commentary applies to all three major averages. All three are in consolidation patterns at the top of rallies. Prices and SMAs are in tight ranges indicating traders don't know where to go next. On the good side, the indexes are hanging onto gains made in the rally. On the bad side, the rally is stalled waiting for some type of indication strong enough to send the markets in either direction.