The Stock Market Pulse

($49.95/month value)

Week of March 9th, 2009

 

Weekly review of the markets

 

Last week, all figures pointed towards new lows

Monday, the few reports came up as expected or a little better in a few cases. The real News came from warren Buffet who claimed the crisis would get worst before it gets better and that it could be as long as late into 2010 until we see the economy turn for the better! Any comments from Warren Buffet are taken very seriously and the markets responded violently to his comments by plummeting through the support levels we hoped, a few weeks back, would be strong enough to resist further degradation but this was just too much... The Dow even went below 6800 at some point!

Tuesday, no economic news were on tap and the markets, being so oversold, opened slightly higher which was expected but after Bernanke basically repeated the economy was in bad shape and Goldman Sachs were predicting the GDP would drop another 7% in the first trimester, it cancelled out and we had a sideway kind of day..

Wednesday, the ISM non-mfg survey came out a little lower then expected. Some rumors were circulating that GE would lose its AAA credit rate but regardless the markets managed to close higher which can only be explained by the oversold status of the markets.

Thursday the markets opened lower even if the economic news were all that bad for a change... Factory orders came out better than expected. 639000 Job claims brought the total up to 5,11 Millions. Moody announced it was considering lowering the credit status of Wells Fargo and Bank of America. These news were that dramatic but regardless, the markets plummeted to new lows. We need to look back many many years to find such levels...

Friday employment data were on tap and surprise surprise, they were bad... Not only did we loose another 651000 jobs in February we also revised up the number of jobs now expected to be lost over the coming months. Unemployment went over 8%, from 7.6% to 8.1%. Surprisingly, the markets open very strong but it was a sucker rally since after that it went into free fall. We even went lower the prior lows. its only towards the very end of the day that the markets turned when `shorters` covered their position to sleep better during the weekend but it was too little too late to give the week a good finish.

This Week

The picture is definitely not "rosy". With employement getting worst and every single piece of data pointing to further degradation of the world economy plus the technical aspect which point to lower lows with no support levels in sight and the ones we can find are so far away in time it's hard to believe they hold any credibility so it's anybody's guess right now how low we will go before we turn the other way

That being said, it wouldn't be the first time the markets find a way to go the opposite way everybody is predicting so remain cautious if you short any stocks. I would recommend you don't "sleep" with your shorts... :-)

Technically, we are now looking at levels we considered before but were too afraid to mention because we thought people would call us crazy and accuse us of being sensationalists but we are here folks!

 

With the recent break of our triangle we could expect the SnP to fall as low as 500

 

 

The Dow's next stop seems to point toward 5000 points!

 

 

Finally, the Nazdaq which was holding strong when the other two went south is finally flinching and it's quite possible it will go as low as 1000!

 

*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 March 9th

 

SPEECHES

United States : Chairman Speech

Tuesday March 10th

 

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.

SPEECHES

Description
Federal Reserve Chairman Ben Bernanke speaks to the Council on Foreign Relations in Washington. Audience Q&A expected.

at 8:30

 

Redbook
10:00 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, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.

Wholesale Trade

Definition
Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories.

Why Do Investors Care?
Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a slower rate of growth that won't lead to inflationary pressures.
Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy. Activity at the wholesale level can be a precursor for consumer trends. In particular, by looking at the ratio of inventories to sales, investors can see how fast production will grow in coming months. For example, if inventory growth lags sales growth, then manufacturers will need to boost production lest product shortages occur. On the other hand, if unintended inventory accumulation occurs (i.e. sales did not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the inventory data provide a valuable forward-looking tool for tracking the economy.

 

Wednesday March 11th    

 

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.

 

EIA Petroleum Status Report (Pay attention to this one)
10:30 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.

 

Treasury Budget
14:00 ET
Consensus: $-205.7B

Definition
The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance of the annual fiscal year (which begins in October) are followed as an indicator of budgetary trends and the thrust of fiscal policy.

Why Do Investors Care?
The budget data have several direct and indirect meanings for the financial markets. The most direct relationship lies between the size of the budget deficit and the supply of Treasury securities. The higher the deficit, the more Treasury notes and bonds the government must sell to finance its operation. From there it's simple supply and demand -- if demand is constant but the supply of bonds goes up, the price goes down. The same is true if the deficit falls or is eliminated altogether -- the government needs to sell fewer Treasury bonds, so the supply drops and the price of T-bonds rises. In the past few years, the budget deficit has increased dramatically, and this has put more Treasury securities into the market place.

The Federal government borrows money through the issuance of Treasury securities; so higher deficits mean a larger supply of securities and (again, assuming constant demand) lower prices. With notes and bonds, lower prices are equated with higher yields, so in this example, the government borrows money at higher interest rates. That impact ripples across all other interest rate-bearing securities and creates a higher interest-rate environment for stocks, which is bearish.

In addition to following the trend in the budget deficit or surplus, investors can gain valuable insight to the state of the economy by looking at the government's tax receipts. Higher tax receipts lead to an improved deficit situation when economic conditions

Market Consensus Before Announcement
The U.S. Treasury monthly budget report showed another huge deficit for January with the Treasury's budget shortfall coming in at $83.8 billion, bringing the fiscal year-to-date gap to $569.0 billion and dwarfing the $89.0 billion January cumulative for last year.

TARP outlays, totaling $37.8 billion in January versus $55.0 billion in December, were heavily responsible for the continuing surge in the deficit. History provides little guidance to current federal spending but can provide perspective-basically out of morbid curiosity. Over the past 10 years, the average deficit for the month of February has been $79.7 billion and $109.2 billion over the past 5 years. February typically has a far worse deficit than other months in the year.

2009 Release Schedule

Released On: 1/13 2/11 3/11 4/10 5/12 6/10 7/13 8/12 9/11 10/13 11/12 12/10 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Thursday March 12th

 

Retail Sales
 8:30 ET 

Retail Sales - M/M change -0.5 %
Retail Sales less autos - M/M change -0.2 %

Definition

Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth.

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.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.

Market Consensus Before Announcement
Retail sales unexpectedly rebounded in January with a 1.0 percent gain, after a 3.0 percent drop in December. But the stronger number, which came off a low baseline in December, was likely due to heavy discounting to move inventories sitting on store shelves. Excluding motor vehicles, retail sales made a 0.9 percent comeback, after falling 3.2 percent in December. Looking ahead, the news is mixed. Discounters have been doing well in the chain store numbers. But others have not fared as well. The continuing deterioration in the labor market suggests that the bump up in sales in January was temporary. We already know that the auto component will be weak from a 4.7 percent monthly drop in February for unit new motor vehicles.

Nearly 75 percent of the time, changes in monthly retail sales are between +1 percent and -1 percent. However, there are many months in which the monthly change falls outside that range. Most of the time, excessive increases or decreases are due to higher/lower spending on motor vehicle sales. Year-over-year changes in retail sales can be volatile as well, but tend to be smoother than monthly changes.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/14 2/12 3/12 4/14 5/13 6/11 7/14 8/13 9/15 10/14 11/16 12/11 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

 

Jobless Claims
08:30ET ET
Consensus 645K

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.

Market Consensus Before Announcement
Initial jobless claims actually reversed course, easing down 31,000 to 639,000 in the February 28 week from 670,000 the prior week. Even continuing claims showed a 14,000 dip for the February 21 week. But the four-week averages for both series continue upward, indicating that the unemployed are having a hard time finding jobs. The four-week averages for both hit record highs in the latest release.

Weekly series fluctuate more dramatically than monthly series even when the series are adjusted for seasonal variation. The 4-week moving average gives a better perspective on the underlying trend.

Data Source: Haver Analytics  

 

Business Inventories
10:00 ET
Consensus -1.0%

Definition
Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity.

Why Do Investors Care?
Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth that won't generate inflationary pressures.
Rising inventories can be an indication of business optimism that sales will be growing in the coming months. By looking at the ratio of inventories to sales, investors can see whether production demands will expand or contract in the near future. For example, if inventory growth lags sales growth, then manufacturers will have to boost production lest commodity shortages occur. On the other hand, if unintended inventory accumulation occurs (that is, sales do not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the business inventory data provide a valuable forward-looking tool for tracking the economy.
Market Consensus Before Announcement

Business inventories fell 1.3 percent in December but that was more than offset by a 3.2 percent plunge in business sales. In turn, the stock-to-sales ratio jumped 3 tenths to 1.44. Businesses have been trying to keep inventories in line but sales weakness has stayed one step ahead. But just maybe, that will change in January with the 1.0 percent jump in retail sales.

Inventories tend to rise when economic conditions are strong; since sales are rising at the same time, the inventory-to-sales ratio may remain stable, or rise at a very slow pace. Inventories tend to drop when economic conditions are weak; since sales are falling at the same time, the inventory-to-sales ratio may remain relatively stable. The I-S ratio then begins to rise as sales fall more quickly than inventory growth.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/14 2/12 3/12 4/14 5/13 6/11 7/14 8/13 9/15 10/14 11/16 12/11 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

 

EIA Natural Gas Report (Pay attention to this one)

10:30 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.

 

Friday March 13th 

International Trade
08:30ET ET
Consensus -38.1B

Definition
The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production.

Why Do Investors Care?
Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods and services here in the U.S. Exports show the demand for U.S. goods in countries overseas. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of U.S. trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

Market Consensus Before Announcement
The U.S. international trade gap in December continued to contract, once again due to a drop in oil prices and a fall in import demand. But exports also dropped again. The overall U.S. trade deficit shrank to $39.9 billion from a $41.6 billion gap the month before. The December narrowing was led by the oil deficit which decreased to $18.8 billion from $19.7 billion in November. The nonoil goods deficit also shrank to $31.6 billion from $32.9 billion the month before. We can expect continued softening in both exports and imports as both the U.S. and overseas economies fall further into recession.

Exports grow when foreign economies are strong. The weaker the foreign exchange value of the dollar, the less expensive goods and services are to foreigners, and this also helps spurt export activity. Imports grow when U.S. economic growth is robust. Imports are also spurred by a strong foreign exchange value of the dollar.

Data Source: Haver Analytics  

The international trade balance has posted a deficit almost continuously since the 1980s. Any trade deficit is a drag on U.S. GDP growth, but a smaller deficit adds to growth, while a larger deficit decreases GDP growth.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/13 2/11 3/13 4/9 5/12 6/10 7/10 8/12 9/10 10/9 11/13 12/10 Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

 

Import and Export Prices
Import Prices Consensus : -0.8%
Export Prices Consensus : N/A

Definition
Indexes are compiled for the prices of goods that are bought in the United States but produced abroad and the prices of goods sold abroad but produced domestically. These prices indicate inflationary trends in internationally traded products.

Why Do Investors Care?
Changes in import and export prices are a valuable gauge of inflation here and abroad. Furthermore, the data can directly impact the financial markets such as bonds and the dollar. The bond market is especially sensitive to the risk of importing inflation because it erodes the value of the principal (the original investment) which is paid back when the bond matures. It also decreases the value of the steady stream of interest rate payments on this type of security.

Inflation leads to higher interest rates and that's bad news for stocks, as well. By monitoring inflation gauges such as import prices, investors can keep an eye on this menace to their portfolios.

Market Consensus Before Announcement
Import prices dropped 1.1 percent in January on lower prices for oil and other commodities. Excluding petroleum, prices fell 0.8 percent, a little less steep than prior months. While consumer goods and capital equipment have not been as soft, we are likely to see oil and other commodities pull import prices down in February.
 

Yearly changes in import and export prices reveal long term trends in inflation for tradable goods.

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/14 2/18 3/13 4/9 5/13 6/12 7/10 8/13 9/11 10/14 11/13 12/11 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

 

Consumer Sentiment
10:00 ET
Consensus 55.0

Definition
The University of Michigan consumer surveyquestions 500 households each month on their financial conditions and attitudes about the economy. Consumer sentiment is directly related to the strength of consumer spending. Consumer confidence and consumer sentiment are two ways of talking about consumer attitudes. Among economic reports, consumer sentiment refers to the Michigan survey while consumer confidence refers to The Conference Board's survey.

Why Do Investors Care?
The pattern in consumer attitudes and 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. Consumer confidence did shift down in tandem with the equity market between 2000 and 2002 and then recovered in 2003 and 2004. Consumers became more pessimistic in 2005 when gasoline prices surged.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.

Market Consensus Before Announcement
The Reuter's/University of Michigan's Consumer sentiment index for February came in at 56.3, compared against 61.2 in January. The latest number was barely above the record low of 51.7 set in May 1981. With the continued worsening in unemployment and further declines in stock prices, we may see a new record low set for March.
 

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.)

Data Source: Haver Analytics  

2009 Release Schedule

Released On: 1/16 1/30 2/13 2/27 3/13 3/27 4/17 5/1 5/15 5/29 6/12 6/26 7/10 7/24 8/14 Released For: Jan Jan Feb Feb Mar Mar Apr Apr May May Jun Jun Jul Jul Aug

 

That's it for this week,

Trade safely

 

Yours truly,

 

 

Eric LeRiche

http://www.InvestorRules.com

 

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