Friday, December 25, 2009

Breakout to New Highs

Noticed how often the market gaps opening higher , then does nothing all day . Also notice when the market closes that nearly 100% of the net gains had been put in... One wonders why the market opens at all some days.

100% of the markets recent gains have come from the overnight market (gap opens) and without them, the market would have been flat for three months.

The market has climbed steadily higher despite increasingly declining trading volume and consistent and material withdrawals from domestic equity mutual funds. Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September.

The followers of this market will immediately realize what this implies: not only is there no volume breadth to the recent move in the markets, but the actual push higher likely occurs on at most tens of thousands of futures contracts on a daily/weekly basis. The fact that literally several blocks of AH trades, used persistently, can move the market higher by 6% over the past 3 months, even as regular trading accounts for absolutely no part of this move, and that the SEC finds nothing troubling about this phenomenon, should be sufficiently telling about how "efficient" US markets have become.

New home sales on Wednesday toppled like a drunk at an open bar ! New home sales crashed 11% in November to a 355,000 annual rate, which are 60,000 below low estimates! The hit includes downward revisions of 42,000 to the prior two months, which means the prior data were either put together by incompetent government boobs or were simply lies. No surprise there.

Tech issues outperformed again Thursday in a very slow session marked by anemic volume and decreasing volatility. Because of a lack of corporate news releases, investors focused largely on economic data releases.

The Labor Department reported a larger-than-expected decline in initial jobless claims (newly laid-off workers filing claims for unemployment). Compared to the previous week, these dropped from 480,000 to 450,000, better than the consensus estimate of 470,000. Although the labor market overall is still considered to be weak, today's data is encouraging as initial jobless claims are now at their lowest level since the fall of 2008. However, the impact of temporary holiday employment and low wages is hard to gauge and factor into seasonal adjustments. According to economists, initial claims numbers consistently below 425,000 (for at least several weeks) would be required in order to signal a stronger labor market (and an economy that is actually generating new jobs rather than just losing employment at a lesser rate). By the way most of those jobs been created are low wages or minimun wage, low skills, service jobs in Walmart, McDonals or Pizza delivery !

The Commerce Department reported that big-ticket durable goods orders to US factories were up 0.2% in November. While the overall increase was below economists'' expectations (for a 0.5% gain), orders were up 2% when transportation orders are excluded. Transportation suffered from a plunge in commercial aircraft orders and from slumping demand for motor vehicle parts. More orders however came from other sectors such as machinery, primary metals, as well as from computers and electronic products.

Two signs of more lingering after effects from the financial crisis / recession: In a rare Christmas Eve vote in the Senate, the US government debt ceiling has been raised by $290 billion to a total of $12.4 trillion. Further, the Treasury Department announced that it has removed a $400 billion financial cap on the money it is willing to lend to keep certain companies in business. Instead of capping the amount of funds it provides, the Treasury Department said it will start using a more flexible formula, basing the amount of support on how much a firm loses per quarter.

Beleaguered mortgage guarantors Fannie Mae and Freddie Mac (who purchase home loans from lenders and sell them to investors) are key beneficiaries of the changed procedures. Fannie Mae and Freddie Mac together own / guarantee close to 31 million home loans worth about $5.5 trillion, equating to roughly half of all US mortgages.

Osc. DownCrossed SELL Signal : Sold E-Mini S&P 500 at 1122 on the close of Thursday December 24.

1 comment:

  1. I thoroughly enjoy the honesty in posts. Glad to see someone with a contrarian view of this recent move.