Sitting on a Signal: No More Waiting

This morning I felt the conviction to pull the trigger on my equity long exposure and recommended getting neutral. The reality is that there is no longer enough reward potential for the degree of downside risk that appears to be supportable by the technical evidence. I may be early if I get it right, otherwise I'm just wrong. The decision came amid widespread observations of the S&P 500 head & shoulders formation having completed according to some, a notable exception is Carl Swenlin. This evening he and his daughter published their position, saying that they have little confidence that the formation will not complete itself, thereby signalling a bear trend beginning. They described their perspective this way, "Let's be honest, things don't look good right now. The PMO (Price Momentum Oscillator) had a negative crossover today and although support held, Carl and I don't think it is likely to hold much longer. The original set-up was for a rally off the June low, a retracement to about 1080 and then the resumption of the rally. That didn't happen and that is not good."

One of the most vocal technical analysts is Chris Kimble, on DShort.com, who wrote this description of today's activity for his post this evening. "Seems like no matter what business channel you were listening to today, all the "talk was about support, at the 1,040 level." This support line has been in play several times since mid-January.

Is something different this time around, in testing support?

Market Data & Charts: Week Ending 6/25/2010

Below the "Read More" are updates of the charts last posted on June 1.

Market Index	2009 Close	6/25   Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,143.81	-2.94%	-2.73%
S&P 500	1115.1	1,076.76	-3.65%	-3.56%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	3.11%	-0.15%	-0.74%
5 yr T-note Yld		1.90%	-0.16%
5 yr infl adj Note		0.23%	-0.08%
Implied 5 yr Inflation %		1.67%	-0.08%
2 yr T-note Yld	1.14%	0.65%	-0.08%	-0.49%
2-10 Yr Slope	2.70%	2.46%	-0.07%	-0.24%
90 day T-bill Yld		0.13%	0.04%
Gold ($/oz)	$1,096.95	$1,256.20	-0.13%	14.52%
WTI Oil ($/brl)	$79.36	$78.86	0.96%	-0.63%
VIX "Worry Index"	21.68	28.53	19.12%	31.60%
Credit Spreads		6/25   Close	Week Change
Inv Grade Credit Idx		4.86%	-0.06%
Low Grade Credit Idx		8.89%	-0.05%
Markit CDX Inv Grd Idx		120	5.26%
Markit CDX Mid Grd Idx		174	0.00%

BEA News: GDP and Corporate Profits, 1st Quarter 2010 (third estimate)

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.7 percent in the first quarter of 2010,(that is, from the fourth quarter to the first quarter), according to the "third" estimate released by the Bureau of Economic Analysis.
Also, profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $116.9 billion in the first quarter, compared with an increase of $108.7 billion in the fourth quarter.
 
The full text of the release on BEA's Web site can be found at
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

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U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Sitting on a Signal: It's Frustrating

Art Cashin is interviewed this morning on CNBC, by their talking heads, about the direction of the markets. He is both a technician and a fundamentalist when it comes to evaluating market conditions. I like his evaluation.

Market Data: Week Ending 6/18/2010

Market Index	2009 Close	6/18   Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,450.64	2.35%	0.22%
S&P 500	1115.1	1,117.51	2.37%	0.22%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	3.26%	0.03%	-0.59%
5 yr T-note Yld		2.06%	0.03%
5 yr infl adj Note		0.31%	0.04%
Implied 5 yr Inflation %		1.75%	-0.01%
2 yr T-note Yld	1.14%	0.73%	0.00%	-0.41%
2-10 Yr Slope	2.70%	2.53%	0.03%	-0.17%
90 day T-bill Yld		0.09%	0.02%
Gold ($/oz)	$1,096.95	$1,257.80	3.19%	14.66%
WTI Oil ($/brl)	$79.36	$78.11	5.87%	-1.58%
VIX "Worry Index"	21.68	23.95	-16.81%	10.47%
Credit Spreads		6/18   Close	Week Change
Inv Grade Credit Idx		4.92%	-0.10%
Low Grade Credit Idx		8.94%	-0.35%
Markit CDX Inv Grd Idx		114	-8.80%
Markit CDX Mid Grd Idx		174	-9.84%

One Eye on China: The Black Box

In an earlier post titled One Eye on China: Are the Wheels Wobbling, I described some observations that comparisons of the economy of China with any other economy is nearly impossible. The primary obstacle is that the government controls most major banks and major industries. Their economic data is not widely distributed or even made public. Suspicion surrounds any released data, since China will not show anything but a favorable light on itself.

Posted on the Big Picture today is a real interesting article written by Peter T Treadway, PhD, Historical Analytics LLC, titled China the Black Box. Inquiring minds will find more depth for their understanding of the thinking of China's leaders and it's growing consumer society. Here is a taste of his article...

Mutual Fund Flows

Washington, DC, June 16, 2010 - Total estimated inflows to long-term mutual funds were $2.07 billion for the week ended Wednesday, June 9, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Estimated Flows to Long-Term Mutual Funds
Millions of dollars

		5/12/2010	5/19/2010	5/26/2010	6/2/2010	6/9/2010
Total Equity		-10,050	-1,083	-17,390	-658	-2,881
	Domestic	-7,018	-745	-13,442	-1,119	-3,660
	Foreign	-3,032	-339	-3,948	461	779
Hybrid		-592	635	-2,102	-189	220
Total Bond		1,030	5,300	3,334	3,894	4,734
	Taxable	480	4,387	2,883	3,132	4,331
	Municipal	550	913	450	762	403
Total		-9,612	4,851	-16,159	3,047	2,073

Equity funds had estimated outflows of $2.88 billion for the week, compared to estimated outflows of $658 million in the previous week. Domestic equity funds had estimated outflows of $3.66 billion, while estimated inflows to foreign equity funds were $779 million.

Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $220 million for the week, compared to estimated outflows of $189 million in the previous week.

Bond funds had estimated inflows of $4.73 billion, compared to estimated inflows of $3.89 billion during the previous week. Taxable bond funds saw estimated inflows of $4.33 billion, while municipal bond funds had estimated inflows of $403 million.

Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Historical flow data is available on the ICI website.

Sitting on a Signal

Below are updates to the pair of graphs I've used recently to observe price trends. First is the S&P 500 index 6 month history line. The red horizontal line is on the 1103 possible support level. I am also showing an upper line at the 1151 mark as possible resistance. Since the last post, the Bollinger Band (not illustrated) lower band line has move to 1045 from 1039, the mean line is now at 1084, dropping from 1092, and the upper band line is sitting at 1123. Volume continues to be weaker on up days than volume on down days. The second graph illustrates the number of companies in the S&P that are trading at a price higher than the 150 day moving average for the company. It can be viewed as an early signal of a developing rally or the tail of a dying rally. Bottom line, I'd really like to see big volume on an up day. Big, like a 25% increase from present volume levels. It's not a number I want, it is a sense of enthusiasm from the market.

May 2010 Consumer Price Index

The latest Consumer Price Index news release (http://www.bls.gov/news.release/pdf/cpi.pdf) was issued today by the Bureau of Labor Statistics. On a seasonally adjusted basis, the CPI-U declined 0.2 percent in May after falling 0.1 percent in April. The index for all items less food and energy increased 0.1 percent in May after being unchanged in April. Table 2 of the report shows that the seasonally adjusted and annualized rate of change for CPI-U over the past three months, through May 2010, is -0.7%, and for the past six months is 0.3%.

Housing Starts Making Case For New Stimulus

Today's report on new housing construction shows that home builders backed away from beginning new single family projects after the federal tax credit program ended at the end of April. This is one of the first housing reports to follow the end of the tax incentive. I'm reading analysis at Calculated Risk to see what conclusion he draws from the data. He is very thorough in his real estate coverage. I believe that the deep rooted importance of home construction and ownership in our economy is going to motivate a new federal incentive program. Here is the housing report...

Market Data: Week Ending 6/11/2010

Market Index	2009 Close	6/11   Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,211.07	2.82%	-2.08%
S&P 500	1115.1	1,091.60	2.51%	-2.15%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	3.23%	0.03%	-0.62%
5 yr T-note Yld		2.03%	0.05%
5 yr infl adj Note		0.27%	0.00%
Implied 5 yr Inflation %		1.76%	0.05%
2 yr T-note Yld	1.14%	0.73%	0.00%	-0.41%
2-10 Yr Slope	2.70%	2.50%	0.03%	-0.20%
90 day T-bill Yld		0.07%	-0.05%
Gold ($/oz)	$1,096.95	$1,217.70	0.00%	11.01%
WTI Oil ($/brl)	$79.36	$73.78	3.17%	-7.03%
VIX "Worry Index"	21.68	28.79	-18.86%	32.80%
Credit Spreads		6/11   Close	Week Change
Inv Grade Credit Idx		5.02%	0.09%
Low Grade Credit Idx		9.29%	0.20%
Markit CDX Inv Grd Idx		125	6.84%
Markit CDX Mid Grd Idx		193	11.56%

Sitting on a Signal

The stock market indexes are showing higher end of day levels the past two days and three of the past four. This is really welcome after some big 2-3% daily moves previously where it three down out of four. The few signals I spend more time following are getting a little more positive each day. High volume on advancing days will confirm market support and signal recovery.

Signals Worth Waiting For

Looking for some good news to be the positive catalyst for a stock market that seems like it is forming a LTR with the 1050 S&P level. Tonight these headlines at Bloomberg.com are what I'm waiting for.
•Goldman Sachs $2 Billion Hudson CDO Said to Be Target of Second SEC Probe
•China's May Exports Surge 48.5% as Demand Withstands European Debt Crisis  
•BP Trades as Junk Bond Amid Credit-Default Swap Inversion: Credit Markets  
•Australia Added 26,900 Jobs in May, More Than Estimated, on Mining Demand  
•New Zealand Boosts Key Rate for First Time in Three Years; Currency Rises 
My expectation now is that there is less chance of 1050 support level giving way to a move lower at the close.The GS headline is just a feel good, populist headline, it does little for the market. Same for the BP headline.China reporting a surge in exports is good news there and that translates to the US, since they own us. China is struggling internally, I've read, trying to stimulate economic growth that is not export driven. At the same time, the Peoples Bank of China is creating restrictive policies on state banks in an attempt to cool the real estate development bubble in the big cities. Job growth in the Australia mining sector is obviously a positive for the commodity driven economy. And the interest rate policy announcement in NZ is good for their economy, although not for the US dollar exchange rate, but there is little commerce that I can think of where the exchange rate matters with NZ.

Ten Year Bond Still in Demand

Good news continues for the US Treasury, and the broader bond market, following today's ten year note auction. This information is found on Bloomberg today following the auction:

Highlights
Results are solid for the Treasury's monthly 10-year note auction, which this month is a reopening of the May issue. The $21 billion auction stopped out right at the 1:00 bid, at 3.242 percent with coverage at a better-than-average 3.24. Non-dealers took down 54 percent of the auction, no better than average. Slightly smaller auction sizes helped results for both this auction and yesterday's 3-year auction. Auction size for tomorrow's 30-year auction is also on the low side, at $13 billion.

Market Data: Week Ending 6/4/2010

Market Index	2009 Close	6/04   Close	Week Change	YTD Change
Dow Industrials Avg	10428.05	9,931.22	-2.03%	-4.76%
S&P 500	1115.1	1,064.88	-2.25%	-4.72%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	3.20%	-0.09%	-0.65%
5 yr T-note Yld		1.98%	-0.11%
5 yr infl adj Note		0.27%	-0.07%
Implied 5 yr Inflation %		1.71%	-0.04%
2 yr T-note Yld	1.14%	0.73%	-0.04%	-0.41%
2-10 Yr Slope	2.70%	2.47%	-0.05%	-0.23%
90 day T-bill Yld		0.12%	-0.04%
Gold ($/oz)	$1,096.95	$1,217.70	0.22%	11.01%
WTI Oil ($/brl)	$79.36	$71.51	-3.33%	-9.89%
VIX "Worry Index"	21.68	35.48	10.63%	63.65%
Credit Spreads		6/04   Close	Week Change
Inv Grade Credit Idx		4.93%	-0.03%
Low Grade Credit Idx		9.09%	0.12%
Markit CDX Inv Grd Idx		117	1.74%
Markit CDX Mid Grd Idx		173	-2.26%

Still Sitting on a Signal

The best description for my market outlook on this weekend, following a poor Friday market, is that wide swings are back and support levels are getting tested and will hold. Now let me explain my belief. The return of wide swings is based on the heightened risk associated with investing today. It is a secret to only the investor still embracing their denial. For everyone else, the race to be the first one out of unhedged long positions is a reality. I should say for readers of this post, that I have expected the level of volatility would be above trend since August 2009 and I have been wrong. I expect more days of big percentage changes until there is a sentiment changing event like a technical market bottoming (short-term) or a political event (longer-term) like a consensus among the G20 finance ministers.

Mutual Fund Flows for April

Washington, DC, May 27, 2010 - The combined assets of the nation’s mutual funds increased by $21.1 billion, or 0.2 percent, to $11.224 trillion in April, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.

Total Net Assets of Mutual Funds
Billions of dollars

	Apr 2010	Mar 2010	% chg	Dec 2009
Stock Funds	5,279.2	5,202.7R	1.5	4,957.6
Hybrid Funds	686.6	671.2R	2.3	640.7
Taxable Bond Funds	1,919.4	1,870.1R	2.6	1,749.1
Municipal Bond Funds	481.1	475.3R	1.2	457.1
Taxable Money Market Funds	2,504.3	2,619.0R	-4.4	2,918.8
Tax-Free Money Market Funds	353.8	365.0	-3.1	397.4
Total	11,224.4	11,203.3R	0.2	11,120.7

R=Revised data; Components may not add to the total because of rounding.

Waiting for a Signal

I described my bullish outlook recently in a previous post. The stock market is presenting what might be a nice entry point for cash right now. And it might be presenting an attractive bear trap. Here are a couple of charts that illustrate why I am not ready to commit to anything but cash until the market leads me to a conviction about what direction it wants to move in. First up is the S&P 500 Index candlestick with its 200 day moving average (200MA) line for reference, and underneath is volume for the index. The 200MA is the long term mean line.

Buffett on Municipal Bonds

Warren Buffett is making news today with comments describing his worry for the muni-bond market:

Buffett, Berkshire’s chairman and chief executive, has previously warned about the risks of insuring municipal bonds. In his annual letter to shareholders in 2009, he said public officials may be tempted to default on bonds whose payments are guaranteed by insurance companies rather than push through needed tax increases. He said guaranteeing municipal bonds against default “has the look today of a dangerous business.”

Local governments rely on the $2.8 trillion municipal bond market to raise money for construction projects and fund other budget items. The financial crisis and recession battered governments across the U.S. by cutting into tax collections and causing pension-fund losses. Some governments failed to set aside enough money to cover retirement benefits promised to employees, which may place increasing strain on public finance.

Market Data & Charts: Week Ending 5/28/2010,

This week I am going to begin adding some graphs of some currency and commodity data, after the "read more" break. I will add the graphs monthly.

Market Index	2009 Close	5/28   Close	Week Change	YTD Change
Dow Industrials Avg	10428.05	10,136.63	-0.56%	-2.79%
S&P 500	1115.1	1,089.41	0.16%	-2.36%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	3.29%	0.05%	-0.56%
5 yr T-note Yld		2.09%	0.07%
5 yr infl adj Note		0.34%	-0.08%
Implied 5 yr Inflation %		1.75%	0.15%
2 yr T-note Yld	1.14%	0.77%	0.01%	-0.37%
2-10 Yr Slope	2.70%	2.52%	0.04%	-0.18%
90 day T-bill Yld		0.16%	0.01%
Gold ($/oz)	$1,096.95	$1,215.00	3.20%	10.76%
WTI Oil ($/brl)	$79.36	$73.97	3.19%	-6.79%
VIX "Worry Index"	21.68	32.07	-20.02%	47.92%
Credit Spreads		5/28   Close	Week Change
Inv Grade Credit Idx		4.96%	0.06%
Low Grade Credit Idx		8.97%	-0.14%
Markit CDX Inv Grd Idx		115	-6.50%
Markit CDX Mid Grd Idx		177	2.31%