January 19th, 2009
Weekly review of the markets
Last week, we were expecting the start of Earnings season and nobody was expecting much from it...
Monday, Earnings season was officially open but the first big one only occurred end of day with Alco so much of the day was a "profit taking" day thus a negative day all over the board...
Tuesday, after Alcoa disappointing results -28c vs -10c... Mr Bernanke later announced that more liquidity would need to be injected into the system. Even through all this negativity and a volatile day we managed to remain pretty much unchanged from the day before.
Wednesday retail sales started the dance with another disappointing result ie -2.7% vs -1.2%... Those analysts should really consider another trade; weathermen maybe?! Worst part is that retail sales ex-auto 9 without the auto input) was even worst with a -3.1% vs an expected -1.4%! This means that it's no longer the auto sales that are bringing the retail sales data down... On top of that, Deitsche Bank surprised with an announcement that they may file a loss of $B6.3 while cutting its dividend 0.50 Euros. Markets opened lower and continued down until we found a bottom where we stayed all day.
Thursday was very volatile and started on the negative side; at one point the Dow was even down 200 points! Before the open we learned the PPI was down 1.9% and +0.2% when excluding food and energy.. Jobless claims were a little lower than expected (finally!) but it was believed it was because a lot of them were expired. Markets continued down the first half of the day before bouncing to finish slightly higher on the day. Nothing can really explain why this occurred except maybe an oversold condition where bottom feeders come out from under their rocks...
Friday the CPI came out lower by 0.7% but taking food and energy out it was unchanged at 0%. industrial production was lower than expected (!) at -2% vs the 1% expected by our "ought to be weathermen" analysts... and the Bank of America announced their first loss in over 17 years! The rescue plan for this same bank was the focus on the day though. We opened higher but this represented too good an opportunity for profit takers considering the upcoming volatile week... Thurday's nice candle didn't deliver...
This Week
Last weeks activities were driven by earnings and considering we are afraid to get more bad surprises, caution was the key word. This week, once again, should be an earnings affair considering not much will happen on the economic news front; except of course the inauguration on Tuesday which "could" cause a optimism rallye... Once again, apart from the inauguration, earnings are the focus this week since big players are at bat: IBM Tuesday, ATI, USB, AAPL and EBAY Wednesday, BK, F, AMD, GOOG et MSFT Thursday, and GE Friday...
Technically, Thursday seemed to point towards a reversal on all indexes but Friday didn't deliver. That being said, this level is now acting as support but the general trend remains negative so be careful. if you want to join the optimism rally ( if it occurs) make sure to be sharp since it might be short-lived and reverse quickly and fast...
*if you want more information on technical indicators and Technical analysis in general I strongly recommend you click here
Economic Calendar Data Source: Bloomberghttp://www.bloomberg.com/markets/ecalendar/index.html
(Reports I consider will impact the market the most with definitions and expectations)
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Monday January 19th
US Holiday: Martin Luther King Jr. Day
Tuesday January 20th
Federal Government closed for Inauguration Day
State Street Investor Confidence Index
08:30ET
Definition
The State Street Investor Confidence Index measures confidence by looking at actual levels of risk in investment portfolios. This is not an attitude survey. This index is current since it uses data collected at the close of the previous Wednesday and is reported on the second to last Tuesday of each month
Why Do Investors Care?
Conventional wisdom suggests investors are confident when stocks are rising and pessimistic when falling. But in fact, the State Street group notes prices tend to be higher when economic fundamentals are strong; i.e., when economic indicators are growing at a healthy clip. But a good investor confidence measure "should indicate whether, for a given set of fundamentals, investors are bullish or bearish on risky assets."
State Street believes direct measurement, rather than a survey of portfolio managers who often don't have time to fill out monthly questionnaires, is a more reliable approach to consumer confidence. The investor confidence index is compiled with techniques based on modern portfolio theory. According to State Street, "the more of their portfolios that professional investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence." So when investors choose to increase their holdings of risky assets, this confirms their confidence has increased. Incidentally, State Street believes investor confidence can exist in a bear market as well as a bull market.
Since market players have become so enamored with consumer attitude surveys, it probably would be useful for both professional portfolio managers and amateur investors to consider investor attitudes.
Wednesday January 21th
MBA Purchase Applications
07:00ET
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Why Do Investors Care?
This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
ICSC-Goldman Store Sales
7:45ET
Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.
Why Do Investors Care?
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.
The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.
Redbook
08:55 ET
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Why Do Investors Care?
Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.
The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, once again, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.
EIA Petroleum Status Report (Pay attention to this one)
10:35 ET
Definition
The Energy Information Administration (EIA) provides weekly information on petroleum inventories in the U.S., whether produced here or abroad. The level of inventories helps determine prices for petroleum products.
Why Do Investors Care?
Petroleum product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in crude oil prices - or price increases for a wide variety of petroleum products such as gasoline or heating oil. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for crude oil may not be as strong. If inventories are rising, this may push down oil prices.
Crude oil is an important commodity in the global market. Prices fluctuate depending on supply and demand conditions in the world. Since oil is such an important part of the economy, it can also help determine the direction of inflation. In the U.S. consumer prices have moderated whenever oil prices have fallen, but have accelerated when oil prices have risen.
Housing Market Index (Pay attention to this one)
13:00 ET
Definition
The National Association of Home Builders produces a housing market index based on a survey in which respondents from this organization are asked to rate the general economy and housing market conditions. The housing market index is a weighted average of separate diffusion indexes: present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes. (National Association of Home Builders/Wells Fargo)
Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the housing market index, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Whether the housing market index reflects new home sales or home resales, once a home is sold, it generates revenues for the realtor and the builder. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home sales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Thursday January 22nd
Housing Starts
8:30 ET
Consensus 0.615M
Market Consensus Before Announcement
Housing starts in November plummeted another 18.9 percent. The November pace of 0.625 million units annualized was down 47.0 percent year-on-year. The decline in starts was led by the multifamily component which dropped 23.3 percent while the single-family component fell 16.9 percent. Starts are not likely to resume an uptrend soon due to continued heavy inventory overhang of both existing and new homes for sale.
Housing starts Consensus Forecast for December 08: 0.615 million-unit rate
Range: 0.575 million to 0.679 million-unit rate
![[Chart]](InvestorRules_Newsletter_clip_image001_0012.gif) |
Monthly figures are often volatile; housing starts fluctuate more than many indicators. According to the Commerce Department, it takes five months for total housing starts to establish a trend. Consequently, we have depicted total starts relative to a five month moving average. |
Data Source: Haver Analytics
2009 Release Schedule |
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Definition
Housing starts measure initial construction of residential units (single-family and multi-family) each month. A rising (falling) trend points to gains (declines) in demand for furniture, home furnishings and appliances.
Why Do Investors Care?
Two words...Ripple Effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic "ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.
Jobless Claims
08:30ET ET
Consensus 610K
Market Consensus Before Announcement |
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Definition
New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility.
Why Do Investors Care?
Jobless claims are an easy way to gauge the strength of the job market. The fewer people filing for unemployment benefits, the more have jobs, and that tells investors a great deal about the economy. Nearly every job comes with an income that gives a household spending power. Spending greases the wheels of the economy and keeps it growing, so a stronger job market generates a healthier economy.
There's a downside to it, though. Unemployment claims, and therefore the number of job seekers, can fall to such a low level that businesses have a tough time finding new workers. They might have to pay overtime wages to current staff, use higher wages to lure people from other jobs, and in general spend more on labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and bond markets. Federal Reserve officials are always on the look out for inflationary pressures.
By tracking the number of jobless claims, investors can gain a sense of how tight, or how loose, the job market is. If wage inflation threatens, it's a good bet that interest rates will rise, bond and stock prices will fall, and the only investors in a good mood will be the ones who tracked jobless claims and adjusted their portfolios to anticipate these events.
Just remember, the lower the number of unemployment claims, the stronger the job market, and vice versa.
Friday January 23rd
EIA Natural Gas Report (Pay attention to this one)
10:35 ET
Definition
The Energy Information Administration (EIA) provides weekly information on natural gas stocks in underground storage for the U.S., and three regions of the country. The level of inventories help determine prices for natural gas products.
Why Do Investors Care?
Natural gas product prices are determined by supply and demand - just like any other good and service. During periods of strong economic growth, one would expect demand to be robust. If inventories are low, this will lead to increases in natural gas. If inventories are high and rising in a period of strong demand, prices may not need to increase at all, or as much. During a period of sluggish economic activity, demand for natural gas may not be as strong. If inventories are rising, this may push down oil prices.
That's it for this week,
Trade safely
Yours truly,
Eric LeRiche
http://www.InvestorRules.com
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