Option Investor

Daily Newsletter, Thursday, 12/25/2008

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  1. Market Wrap

Market Wrap

Twas the day before Christmas

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While many market participants are taking the week off to spend time with family and friends this holiday season, today's economic calendar was rather full.

While equities witnessed a rather lackluster and abbreviated session, Nymex crude oil plunged an additional $2.00 after the 01:00 PM tick, settling down $3.63, or 9.31% at $35.35.

Global Economic Calendar -

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Stock futures pointed to a modestly higher open after the Commerce Department said orders for durable goods came in at a better-than-expected 1.0% decline in November versus economists' forecast for a 3.2% drop after a very sharp 8.4% decline in October, which the Commerce Department said was the largest drop since September 2000.

Durable goods orders have fallen in three (3) of the last four (4) months, and one of those months - September - saw orders coming in flat.

Core durable good orders (ex-transports) actually rose by 1.2% in November, which was also better than the -3.0% forecasted decline, but the Commerce Department also revised its October core figure orders down to a 6.8% decline.

A quick look inside the durable goods data showed transportation equipment falling 7.4% in November, with civilian aircraft plunging 37.7%. Defense aircraft orders fell 10.9%, while auto and auto parts orders edged lower by 0.2%.

Sectors showing some gains in orders had computer and electronic products orders rising 5.9%, machinery orders rose 4.1%, while orders for electrical equipment and appliances ticked up 0.3%.

The Commerce Department added that shipments for November fell 2.6%, with unfilled orders falling 0.6%. Inventories of durable goods rose 0.5%.

Additional economic data on the jobs front remained gloomy. The Labor Department said the number of workers filing new claims for unemployment benefits jumped by 30,000 to 586,000 last week, the highest since November 1982, which suggests a steepening drain of jobs is likely into 2009.

Personal spending and income data were largely inline with expectations. Not shown in today's economic calendar is that personal savings rose to 2.8% of personal income in November from 2.4% in October. While still low, the modest increase shows signs of the recession is causing consumers to begin putting more into their bank accounts rather than spending it.

Additional data had the Mortgage Bankers Association (MBA) saying its Mortgage Applications composite surged 48.00% to 1,245.40 last week, due in large part to a massive number of refinance applications. The MBA's refinance index rose 62.6% to 6,758.6 with a 30-year fixed rate falling to 5.04% on average from 5.18% the week before. The purchases index, a helpful measure of new and existing home applications rose 10.6% to 316.5, slightly above the 4-week average of 315.5.

The Dow Jones Home Construction Index (DJUSHB) 211.42 -1.39% continued to ease having recently retraced 50% of its mid-September high close (366) to mid-November low close of 144.00.

I should reiterate again that the MBA data is APPLICATION information and one should NOT assume all applications for purchases and refinances are ACCEPTED. However, the data is useful for consumer DEMAND, or WANTS.

DJ Home Construction (DJUSHB) - Daily Intervals

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I continue to look for "catalyst" indicators that might point for some sign of economic recovery, or give us hint to STRENGTH that would provide a catalyst for buying in the MAJOR indexes, specifically the S&P 500 (SPX.X) 868.15 +0.57%.

A few weeks ago I showed some potential head/shoulder bottoming patterns (all still in play) on their 60-minute intervals, and I still view the HOUSING arena as a sector/index that can provide further clue to MARKET and ECONOMIC direction.

While the MBA data suggests some renewed strength in PURCHASES, the DJUSHB looks like it could be vulnerable to further pullback to the 186-ish area, but that's a level where we should expect to find some buyers (see MBA data).

Mark my words here. If next week's MBA PURCHASES data builds strong and DJUSHB is 186-ish, this one will be the CHART OF THE WEEK, and I would be BULLISH with a very nice low risk, HIGH potential return trade in some of the builders.

At 10:35 AM ET the Energy Information Agency (EIA) released its weekly crude oil and products inventory data.

Crude oil stockpiles fell by 3.1 million barrels to 318.18 million barrels compared to economists forecast for a 400,000 barrel build. Total gasoline stockpiles rose for a third-straight week with a hefty 3.3 million barrel build. Conventional gasoline stockpiles rose by 1.85 million barrels.

Total distillates also saw a build of 1.8 million barrels with ULS diesel up 2.1 million barrels, while kerosene-type jet fuel stockpiles saw a draw of 569,000 barrels. Heating oil stockpiles fell by 687,000 barrels to 41.16 million barrels and are relatively unchanged versus a year ago.

On the demand side of things, refiners lowered their crude oil inputs by 41,000 barrels/day to 14.511 million barrels/day, which is roughly 4.65% below year-ago runs of 15.218 million barrels/day. Refiners utilized 84.68% of operable capacity, which was up slightly from last week's 84.12%. My tabulated number of days of crude oil supply edged down to 21.7 days from last week's 21.8 days of crude oil supply.

February Crude Oil (cl09g) - Daily Intervals

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Just after the 01:00 early close for the U.S. Oil Fund (USO), February Crude Oil Futures (cl09g) really started weakening further to eventually settle down $3.63, or -9.31% at $35.35.

At 01:00 PM ET, February crude was trading $37.72!

If I were to draw any observation from this late action it would be that when "humans rushed to the door" to make it home in time for some eggnog, what little buying their was today, when gone, was likely short-covering bears.

I once again want to BENCHMARK Friday's Jan'09 (cl09f) TERMINATION data/price on the above February contract, where this month's roll once again looked rather bearish.

First thought of any type of strength now becomes a SETTLE above $42.36.

Second thought/observation is if oil can SETTLE above $42.36 for MORE than six (6) CONSECUTIVE sessions, which it hasn't been able to do since settling above the December termination benchmark of 11/20/08 for six (6) sessions.

That wasn't "the bottom" either.

SPX and VIX.X - 60-minute intervals

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At the conclusion of last Wednesday's market wrap, I thought the VIX.X might be at an important level where further decline in volatility measures might be a "catalyst" to bring in some buyers for the S&P 500 Index (SPX.X).

With cursor boxes set at last Wednesday's close, the VIX.X has moved notably lower from the 50.00 level, but so has the SPX.X.

However, "volatility" has certainly started to be taken out of the SPX in recent weeks.

With the SPX itself BELOW the MONTHLY Pivot (881.59) and this WEEK's Pivot (889), it has me thinking institutional computers are going to have more of a SELL BIAS at that level.

Friday's after Christmas have been up/down 50% of the time since 1998 according to the StockTrader's Almanac.

Russell-2000 Index (RUT.X) - 60-minute intervals

[Image 6] The small caps of the RUT.X are now the ONLY major index that I tabulated MONTHLY Pivot levels for that REMAIN above the MONTHLY Pivot.

Last week I began noticing an UPWARD trend from the MORNING of 11/20/08 to the 12/01/08 "right shoulder low" and the EXTENSION of that trend may be getting some ATTENTION as a support trend on five (5) different occasions now.

That TREND and the December MONTHLY Pivot are perhaps a near-term bulls "last defense" in hopes of a Santa Claus rally.

With the Dow Industrials, S&P 500, S&P 100, NASDAQ-100 closing BELOW their respective MONTHLY Pivots (8,644, 881.59, 425.66, 1,196), the RUT.X become my "last line of defense" into the end of the year.

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