The S&P 500 and OEX have both hit a DeMark Sequential (TM) 9 sell signal. 

 

There is no letting up. The Fed reported in its weekly (Thursday, 4:30 pm) release today that money supply growth continues to boom in the U.S.

For the 13 weeks ending Feb-13-06 (last figures available), the growth of M3 was +7.9 pct from the comparable period 52 weeks ago, and +9.4 pct compared to 26 weeks ago. The money supply growth year-over-year, has escalated over last week’s figures.

As you know, the total money supply is growing three times faster than the total economy. This week, like the last, and the one(s) before that, it picked up speed.

Are you not finding a consistency in these remarks week after week?

The dow closed on another new year high today @ 11137.81, the SPX is pushing right on its upper string @ 1295.  The nasty bounced back but much under its old highs, so we have the same old game, with highs and divergences coming from all angles. Housing was up 2.82%, Airlines up 2.29%, and Banking up 2.15%. How this all works as CPI was higher than expected and interest rate pressures should continue to mount.  I still think 1340-50 is upside cap before this market takes a serious rest. I have been taking it easy on the blog as there isn't much news to report the way I see it. Let the prices determine if we go higher or lower in short term then we can discuss our next moves. A good time remains for patience. Market ending shenanigans are in full force as tomorrow is T+3 for the institutions and so we have the no news environment along with tape painting attributes taking us where it will.  I hope have the time of your life!! Enjoy your evening.

 

 For the rest of the day, the U.S. inflation data is going to be called “benign” by Big Media. In fact, I have already referred to it being “hot” and I picked up the word from Haver Analytics.

The problem here is that the Wall Street casino will not call a spade a spade, unless of course it happens to fit with their general storyline. I liken this charade to a casino where on betting a winning Red 16, the croupier calls you color blind.

The point here is that red is really black if Wall Street says it is because it’s their casino.

With these kinds of rules, you wonder why they don’t own ALL the yachts.

 

For the 13 weeks ending Feb-16-06 (last figures available), the growth of M3 was +7.8 pct from the comparable period 52 weeks ago, +9.4 pct compared to 26 weeks ago. These numbers are an increase of +0.1 pct over those reported a week ago.

In other words, the situation is getting worse. As you know, the total money supply is growing three times faster than the total economy. This week, like the last, and the one(s) before that, it picked up speed.

The U.S. is financing the incredible growth in countries like China and India. And there will be a day of reckoning. Soon.

The bothersome point is that Wall Street employs hundreds of well-educated, well-compensated economists, but they are not issuing warnings.

Maybe those people can read the line item stuff and miss the big picture. Do you think? Or maybe they understand the big picture, but get paid to cover it up.

· The total number of mortgage applications fell 7.3% last week, the third consecutive weekly decline. The declines have been sufficient to reverse virtually all of the 5.2% increase in applications during the month of January.

· Purchase applications dropped a sharp 7.9% w/w and added to declines during the prior four months. The average level of purchase applications in February is down 17.6% from the peak month of July last year.

· During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

· Applications to refinance fell 6.5% w/w to the lowest level in one month.

· The effective interest rate on a conventional 30-year mortgage rose for the third straight week and settled at 6.52% versus an average 6.34% in January. The effective rate on a 15-year mortgage also rose to 6.21% versus an average 5.98% last month. Interest rates on 15 and 30 year mortgages are closely correlated (>90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.

· The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site here.

Enjoy the long weekend, it sure was a grinder of a week, with most players standing around and waiting all week for Bernake, then we had a plain jane options expiration.  

The Dow is making new four-and-a-half-year highs and against that we have three declining peaks in the Nasdaq. I don't recall the last time that happened but it is a bearish divergence and one that demands our attention.

New highs at 228 on the NYSE are also way below the 458 such, posted on Jan. 27. I've discussed this situation with several people and what do you think their reaction is? Not concerned, and they tell me that the Nasdaq could now run up and eliminate the divergence and new highs can expand again, too. That, of course, can happen and in this Teflon market it's happened before, but it's more likely that the entire market is going to fall and in this game of probabilities, these divergences are a plain bearish warning.

Volatility was off as much as %10.2 today and finished off about %7. What I found interesting was that on a daily chart a nice gap was filled on the VIX from 1/13/06. My bet that with options expiration tomorrow and a long weekend coming up for Prez weekend, I would be willing to be a nice sell off may preceed the weekend tomorrow due to the crushing the VIX and the gap filling had today in reaching the lower end of the bollinger band. Let's see if it plays out tomorrow, but I took some nice short exposure into the close today on some select market names in anticipation of a little bit of a run in volatility over the next week.

 

 

 

 

 

The 20-day MA of the McClellan Oscillator crossed below the 50-day MA on October 10, December 20, and Friday. The Nasdaq bottomed both times on October 10 and December 20. A temporary bottom is due to happen again soon.

Under the circumstance, next week or two, may present a great opportunity to sell into the rally before the market begins to trend downward.

Yesterday felt weak, but volume told me not to read to much into the action. The Nasty was down big but Dow held its own and SPX rallied into the close. No new lows were taking out and volume was pukey.  The market now waits for BB (Bernake) to speak to congress and the senate tomorrow and Thursday. Retail numbers look good at first glance today up around 2.5%, so that doesn't bode well for the Fed to stop raising rates.  Good is bad for interest rates.  Let's see if we can get some more definitive action or the wait and see trade continues to play out for the next few days to here BB speak.  TRB upgraded and looking higher, I have said for some months that the old line media trades like NYT, CMCSA, TRB continue to be some of our favorite long core holdings. These guys aren't going away overnite and this may offer some upside for long holders.

Hedging Your Bets With Matt Davio:  Good, Bad, and the Ugly

I wanted to keep this week’s column short and sweet and work off four simple charts that appear in the written version of this podcast – one good, two bad, and one really ugly.

 

 

First off – there is the Gold Chart.  In this chart, Gold continues its stairstep to heaven with two nice touches on the 50-day moving average since September of 05.  This is a really bullish chart; and although gold looks a bit stretched by the various stochastic technical indicators, a nice steady pullback to the 530 range before another bullish move up would be healthy.

 

The second chart is that for commodities.  It shows an even better picture of the budding inflation than the gold chart.  This inflation has been building in commodities since bottoming in March of 03 as the Iraqi started.

I don’t know how anyone can deny inflation when you look at GOLD, oil, and all the commodities.  Regardless of what hedonic numbers the government throws out to disguise these effects, inflation is pervasive and growing.  These are the good charts I see out there, even with Oil and Energy and Metals taking a well deserved break this week as the current momentum players are taking profits and going short for a spell.

 

Now to continue to the Bad.  The Standard and Poor’s Index or SPX has not yet broken in my eyes.  However, it does appear to be putting in a broadening top pattern. The SPX broke the 50 dma and is not looking healthy to me.  You see the touches up to 1295 highs and around that head you see two solid shoulders.

However, on the plus side, the SPX continues to hold the 1250 range and has since we began the fall rally in October. So until 1245 can be broken on the bottom end, we remain in the range.

I also think that this last week’s work by the SPX indicates that we may yet have another push to new highs in the SPX before we break lower. I would suggest a run up to around 1350 before the highs may be seen.  However, if we close under 1245 all bets are off and we will be heading back down to the 1170 range.  Personally, I don’t feel great urgency to be short right now unless we were to break that 1245 range, but I would definitely be a seller of the next “breakout” of the SPX up to 1350. 

 

Finally, the ugly chart must be viewed.  This is the Nasdaq 100 or NDX  The NDX broke the 50dma solidly this week and looks to be leading the market down as we begin the next leg of rotation.  This chart shows clear weakening by tech stocks and to me all solid rallies up to 1700 on the NDX should be sold.

 

More broadly, I must say that volatility has picked up. A sea of change is upon us as all asset classes that have been moving in concert are finally starting to break down and move in different directions providing opportunities in the markets we really haven’t seen in over 4 years. It is inevitable that volatility returns from the ultra low levels that we have been witnessing over the past 4 years. I think that this is again an exciting time to be active as a market player.

Power up to a flat open. We had a pretty nasty reversal yesterday, although the pundits I see reported it as another positive day. What I saw was a SPX and NDX that just had plain nasty turn arounds in the last 1.5 hours of the day. Was this options related as we expire next Friday the 17th? Or was it Terrorism fears with the Olympics kicking off tonite?  How about plain selling over buying.  There is interestingly to me, not much fear in this market, but also not much feeling of froth.  No man's  land in the markets pretty much. Ground Hogs day is the story again.  We are stuck right in the middle of the recent highs/lows and we are just waiting for the next direction to highlight itself. Until then, breath in and breath out and wait for nice patient setups as they always come and you don't need to force the issue while we wait. 

QSII was a big miss and the weekly chart showed chinks a few weeks back when it made a new high and then failed to hold it.

 

 

Good time for a break from trading as the markets are winding down the post earnings environment with just a few names left to report.  This offers a good time to see how things are going to play out, I still see possibility of a run to 1310-1350 on the SPX, but favor the downside in the mid term picture down to the mid 1150 range. 

BBY is gapping up big on beat the guidance game after they just downed the number in December. Really a silly game Wall Street likes to play.  Name is running right to the old high in the low 53's let's see if they can "break it out" or if this will be the end.  Cramerica taking profits on REDF, that was a nice sell yesterday up to 34 on that silly run.  This am its trading down to 28.5. Easy come easy go Cramerica.  Oprah or Howard, Oprah or Uma, as Letterman would say. XMSR up big on nailing Oprah to their channel. I still don't get the entire Satellite radio thing, the names SIRI and XMSR are like airlines, just names to trade as I don't see possibility of profit from satellite radio personally in the very near future.

Have a great day out there.

 

test blog

 

Wednesday, February 8, 2006

We have clearly seen a trend change away from pure momentum names such as HANS, ISRG, CME, UARM,AAPL and Commodities in general getting smacked. I think rallies can now be sold and I am playing for a nice bounce here as there is some support here @ 1255 on the SPX but eventually we should test lower, probably in the 1175 range if not 1140.  I think the key reason the SPX Has been strong has been due to the fact that Oil and Energy and Metals have been running like momentum names, falsely propping up the overall market. Once this momentum is snapped, which clearly happened yesterday the market has had a sea of change in character. Momentum markets don't end pretty and the 2nd shot across the bow yesterday was not pretty. I believe we are somewhat oversold short term and I am generally positioned neutral at this point waiting for a nice reversion rally to be sold over the next week or so.  Define your risk and good luck out there today.

We power up on Tuesday after a very slow Monday in the markets. There was very little to talk about on Monday as we slinked into the close at about the same spot we closed on Friday. We are solidly below the 50dma on the INDU, NDX, and SPX. If we don't hold the lows from yesterday today, we may be grinding towards the January lows on all indices it appears.  1245 looks like a target on the SPX if we can't hold the lows in the am.  There continues to be quite a void in the economic/earnings front as we are entering the quiet season now that the bulk of earnings are behind us.  I would expect the next trend whether up or down to develop over the next few days.  I tend to lean towards selling rallies into any index rallies at this point, although patience is the key to this trade. Let the new trend develop and secure itself, as there will be plenty of time for the trades to play out.  Name your risk, define it and stick with your trading plan in these slow news days.