Look At All The Great News!
Everything is coming up roses. What used to be NAPM numbers were up yet again from 54.7 last month to 55.6. Anything over 50 is considered positive. Construction spending was up 1.1% over last far outpacing the expected .6% increase, and I'm certainly doing my part by borrowing money to buy and spiff up my new digs. Excess debt - It's the American Dream! Wahoo! Party hats and horns! The recession we never had is over!
We're still waiting on auto and truck sales as I write this. But in the meantime, I've noticed something interesting about recent economic figures that has become all too prevalent. This will come as no surprise to veteran readers, but I need to point out again that aggressive accounting practices are not just the domain of American businesses.
Let's dig deep beneath the reported numbers starting with NAPM numbers, which are now known as collectively as the ISM Index. While new orders rose to 65.3, a 15-yr high, Inventories remained low at 41.2. Add to this that Production fell off from 61.2 to 57.8. Sure, just numbers, but what this says is that production is tightly linked to inventory replacement and maintenance rather than new economic growth. Business has no stock to fill orders and is producing to maintain minimal inventory, not to warehouse any anticipated surge of growth. Companies still have no pricing power and profits (or lack thereof) are still a concern. To these guys, the future remains cloudy, but at least they think they have seen the worst of it.
Now let's examine the construction spending numbers. Those great numbers we saw last month for January? Revised downward to 0.8% from 1.5%. So January wasn't as good as we thought. February's number (1.1% as noted above) was due exclusively to a 3.5% pop in residential spending (I'm doing my part now for April numbers). The law of averages says then that something else must be taking a hit. You would be right if you guessed that January's slight gain was revised to a 3% decline. Bet the news didn't report that though.
Anyway, the reason I bring this up is not to poke fun at the talking heads on CNBC or any other news source for that matter, but rather to remind every one that the Department of the Treasury, the Bureau of Labor and Statistics, and our local representatives collectively in Congress make Enron look like nap time in Kindergarten. No matter, we've lived with it this way for years and the world won't fall apart tomorrow.
All that said, permit just a moment to focus up on today's activity on the major exchanges. After all, that's why we're here, isn't it? Long story short, low volume indicates no conviction currently in either direction. Another thing that may be directly related to window dressing from last Friday, especially on the Dow stocks, is the big hit they took early in the day when the index was down 140 points. My best guess is that those trimming were coming off the tree today. Now that "dressing season is over, those stocks were properly logged into the "holdings" column of our favorite mutual funds, and sold today. Meanwhile the tech heavy NASDAQ moved up nicely.
P.s. - Merrill painted a bleak picture for retailers noting that, "The rally is behind us." I also want to chime in on Prudential downgrade of Ford (F) to Sell. First, it's rare to get a broker to list a Sell rating, but Pru comes out with their fair share, most of which are usually right on. While this is likely a Ford- specific problem, it's a poor reflection on the industry as well. Like the old saying goes, "What's good for GM (Ford in this case) is good for the county. I'll point out again the top six tech stocks combined (MSFT, INTC, CSCO, DELL, QCOM, WCOM) fall slightly short of just GM's or F's sales. The auto business is huge with only the oil business being in the same league. It still pays to watch the auto business for a barometer of the economy.
Well enough on that. . .to the charts!
Dow Industrial chart - INDU (weekly/daily/60):
No great shakes here for the bulls. Weekly chart has topped and rolled and has further downside according the stochastics. Daily chart while showing some minor strength in stochastics only seems to have support just below 10,300 for now. Compressed daily Bollinger bands suggest a break is coming and it will likely be down thanks the downward sloping upper band. 60-min is merely rangebound offering no clear direction except to say that the Dow is temporarily on the upswing to the next overbought stochastic where it will predictably reverse (again).
NASDAQ chart - COMPX (weekly/daily/60):
Pity the poor NASDAQ that is about to smack its head at resistance comprised of the 200-dma and a descending daily trendline, not to mention the 50% retracement bracket. Same compressed Bollinger bands here too. Neutral weekly stochastics tell nothing as the daily stochastics point to continued strength. Look for trading tops around 1870 tomorrow as 60-min stochastics reach for overbought.
S&P 500 chart - SPX (weekly/daily/60):
Weekly stochastic here look weak too. However the daily and 60- min are cooperating for perhaps further bullish action. But for the near-term trading outlook, the 60-min chart looks bullish to 1155.
VIX? Who cares? It's back above 20, but not by much suggesting fear is no where to be found and will not factor into my trading for now other than to keep me on high alert for a rise in volatility. When volatility rises, I'll make money from Vega, most likely on puts. But for pure mechanical moves, stochastics suggest market direction is in favor of calls. Should volume increase tomorrow, highly likely in my opinion as traders come back to work from an extended Easter holiday, buying pressure will make itself known on the tape. I just don't see seller's ready to take center stage right now. But I don't see a giant bull party beginning now either.
See you at the bell.