The Market Ticker

That was amusing.



Two days of indecision and below the wedge, now closing back into it - but not above. Today was a potential judgement day, but judgement was denied. The Nasdaq was interesting today as well; here 'ya go:



Heh, that's what other channel there at the right side? Hmmmmm... Yes, that really is what it looks like - a trading channel that appears to be getting established, and guess which way it points?

Is that all? Uh, no. Here's the Russell



Heh, same channel, same slope! WHAT?!

So now we have two indices that say "heh, wait a second!" while the Dow continues to power on to higher and higher levels.

The DOW, by the way, violated the channel today to the topside.

So now we have a true dichotomy here. We have the DOW breaking the channel to the topside, we have the S&P that is about to get sphinctered out of its channel, and we have the Russell and Nasdaq saying not so fast buddy.

Now here's the problem - the Nasdaq is still posting a SELL on all measures EXCEPT Stochastics and so is the Russell 2000. But the S&P and DOw say otherwise.

So who do you believe here?

Well, in the broader market, one of the two has to win eventually. While the Russell and Nasdaq can underperform the S&P and Dow, for them to have a solid SELL (which for aggressive investors could be interpreted as a "Short" signal) while the other two indices are posting "HOLD LONGs" (the S&P) or "BUY" (DOW) simply cannot hold for long at all.

One of these two views is correct. The 10 year bond appears to be signalling that the Russell and Nasdaq are right by moving lower in price (higher in rates, which means real interest rates are going up), but again, is this an artifact of the market's rise or something else?

We shall see. For the time being if you're long the S&P500 or DOW, enjoy it. If you're long the Nas, you got your signal yesterday. Unless that signal reverses (and despite the rise today, it did not) there's no good read on what's up. The Russell 2000 remains on a Sell going back nearly a week now.

In short this is a high risk scenario for both sides. If you're playing long, be nimble and be ready, and I hope you're doing it on the DOW. If you're playing short, I hope you're doing it on the Nasdaq, because if you're shorting the DOW here, you're getting killed.

More if I see anything interesting overnight.....

The futures, up to now, may be indicating the same pattern we've had for the last couple of days. A pop at the open - but will it hold? As a backdrop, we have Beijing saying that they're going to reign in money growth - one way or another.

What do 'ya think we got from housing today?

Answer: 1.52m annualized starts (up , permits down - revised down to 1.57, now 1.43m, way below expectations (down 8.7%) - the sharpest fall in 17 years. And year over year, that "starts" number is still a 16% decline.

The futures didn't like it in general, although the Nasdaq didn't move on the news. We may see a bit of a relief rally in the Nasdaq, at least at the open. The bond has ticked down a bit to 4.69, back into its trading channel, but then rebounded right up to the top - at 4.70. It got just out of the channel yesterday at 4.71; anything over 4.70% is potential trouble as a selloff in the credit markets would indicate a flight out of the US for the credit markets.

Update: 8:17AM, bond now indicated at 4.71%. Back to where we were yesterday. Watch out kids - a rally in the broader markets with a selling-off bond market is unlikely to hold, as real interest rates are determined by the market - not the Fed - and they're ticking up!

Before you cheer the start number, consider carefully what happens when you add supply to a market that already is oversupplied..... what do you think that will do to prices on all those new homes that are now on the market, when you keep "loading the cart" with yet more inventory? Is this the latest incantation of "we'll lose a bit of each sale but make it up with more volume?"

Interesting....

Federated (Macys, etc) reported bad earnings and lowered guidance, citing bad April sales. Yet more cracks in the dam......

The consumer is the whole deal here, and it sure looks like things aren't good. About the only place we're seeing strong spending is in the high end - consumers who are more-or-less immune to economic issues.

We shall see how the day unfolds... the last two days we've seen an up open and then a strong fade into the close. We shall see if this pattern continues and if the technical damage to the internals accumulates further.

This is getting very interesting. The following ought to make it quite clear; here's our old friend Mr. SPX




Now that's not very good. We pinged the channel again and came off it, near the low of the day. That's four days outside.

Now look at this, our Good Buddy Nasdaq



That's the Nasdaq Composite. It is right at support, closing just above it this afternoon!

Now look at this one:




That's the DOW, of course, with some serious divergence - riding the top of the channel, but unable to hold a penetration that it attempted today. And by the way, the Transports are right at the bottom of their channel, not at the top. Dow Theory says that a confirmed break upward on the Dow 30 cannot happen without the Transports.

Judgement day tomorrow?

And, by the way, the OEX chart (S&P 100 - 100 largest companies) looks like the S&P, not the Dow.

So what we've got here is some serious divergence. That does not bode well for the technical stability of the market at this juncture.

On technicals the DOW has not yet posted a SELL. The OEX has posted a SELL on the MACD but has not confirmed on Stochastics, nor on my proprietary indicator. In fact, right now the DOW is the only "BUY" that is currently uncontroverted.

The OEX has a SELL on the MACD but neither of the other indicators confirms that.

The SPX has a SELL on the MACD and Stochastics, but not on my proprietary indicator.

The Nasdaq Composite posted a confirmed sell today on MACD, Stochastics and my proprietary indicator turned negative today. This is a decisive SELL - if I still had positions in the Qs (I don't) I'd be out in the morning and considering a short! Oh wait - I did short (bought QID) the other day. We'll see what tomorrow brings on that one - if support is broken I'm buying more of those.

The Russell 2000 also has a confirmed SELL on it and in fact the RUT posted a SHORT signal this afternoon! It is below support and all three primary indicators I use are now solidly negative. Hmmm... maybe I need to look at an Ultrashort Russell 2000 ETF.....

The deterioration appears to have started with the small caps and techs this time, and is spreading upwards into the larger cap names.

I made a comment about the 10 year bond being a bellweather - it crossed the 4.70% level today, closing at 4.71. While this is not decisively out of its trading range, it is deeply troubling, because it signals that traders are selling US Treasuries. That implies that money flow is net negative, perhaps into foreign markets.

There is simply no way the DOW can hold up the broader markets. Money flows today were awful outside of the DOW 30. The S&P had money flows of 2:1 on the decline side, while posting an AD line of 2:3. This says that the sellers were more vigorous than the buyers in their money flows and when it exceeds the A/D percentage it shows conviction in the trend.

I am not yet ready to call the party over, but given that the market "saw through" the CPI headline number - the internals of that release were in fact quite bad - one cannot expect the run to continue unless the rest of the market comes along for the party!

In 1999, the SPX led the party poopers, followed by the other indices. This time around it looks like the Russell and the Nasdaq are the leaders, with the RUT going into SELL territory first, now the Nasdaq, with the SPX close behind it and the DOW still doing its best to defy gravity.

This does not necessarily presage a "plunge", but it may well presage a decline that is protracted and serious, much as it was in 2000.

By the way, you also have others picking up on the liquidity-driven (as opposed to fundamental-driven) market. Specifically, Fidelity International's Bolton said this:

"Fidelity International Ltd.'s Anthony Bolton, the fund manager who helped turn the company into the U.K.'s largest mutual fund company, said shares may be about to fall because there's too much risk in financial markets. "

'Ya think?

Oh, he's put his money where his mouth is too - he apparently has shorted certain segments of the market. No big surprise!

Then there's this on homebuilder confidence:

"The National Association of Home Builders/Wells Fargo index of sentiment fell to 30 this month from 33 in April, the Washington-based association said today. The reading matched the figure for last September, which was the lowest since February 1991. Readings below 50 means most respondents view conditions as poor."

Anyone surprised? I'm not! Gee, how many signals do you need to know what's up?

• Consumer spending down (WalMart and other same-store sales.)
• Homebuilder confidence is in a homeless shelter.
• The spring home-selling season is officially a bust (as of this morning's numbers); no more of this "weather" nonsense. Nobody is buying - period.
• Home prices are down - the other shoe.
• 1Q GDP is under 1%, adjusted. Probably 0.7% or so.

If we're not already in the big "R", we're about to be.

How well do equities perform during recessions?

By the way the VIX didn't spike and my CALL bet might turn out badly - I've only got tomorrow. Such is life - that's why I didn't bet more than the lunch money. Of course it did close near the high of the day, so there's still the possibility that we get a rout tomorrow, giving me a profit anyway. As of right now there's no bid, so absent that move tomorrow they're a zero.

By the end of this week we will, I suspect, know the answer on the broader market, at least in the short term. The divergence must converge, and we now have imminent confirmation from the Nasdaq Composite.

One more day like today, and top-level support is gone on the 'Daq.

As the backdrop to the CPI number, both WalMart and Home Depot reported, and both were fairly disappointing, indicating what I've been harping on - a slowing consumer. Home Depot, with profit off almost 30%, is getting the woodshed treatment in the premarket, although it has rebounded some from its lows. WalMart is down slightly.

Asia was down big with Shanghi off 3.6% and all the other big bourses in Asia trading down 1% or so.

The premarket prior to the CPI number has been pretty quiet......my "nine panel", with the exception of Yahoo, shows no activity. Yet.

And then there is this ominous sign from Iran..... Centrifuges cranking up eh? Not good. This is a seriously bad thing, as eventually Israel is going to whack these plants if we don't do it first. Middle East turmoil is not a good thing in that it will, of course, spike oil precipitously.

And the CPI is...... up 0.4 headline, up 0.2 ex-food and energy. Empire manufacturing was 8.0, exactly as expected.

The futures came up post-announcement, from significantly down now pointing higher.

The unadjusted number was off for the most part due to a slackening of energy inflation; the rest was a matter of housing core prices not being up materially - and about 40% of the core is embedded housing components. Falling prices for clothing helped keep things in check - is this good news? Let's see..... we don't buy things and retailers cut prices. What's that word we use when GDP contracts? I think it starts with an "R"....

The bad embedded news is found in inflation-adjusted wages. Average weekly earnings for non-supervisory workers were actually down 0.5% in April on an inflation-adjusted basis. With the home equity ATM machine closed, this should - and did - translate straight into bad sales numbers at the retailers.

Now how's that? Simple - do you know anyone who doesn't need food or energy? Of course not. So this "cooked" CPI number may be good for the Fed, but the economy is not "The Fed" - it is the consumer, and when you look beyond the headlines, the consumer remains in trouble.

Looks like the Fed is "officially" on the sidelines; we now have a sub-1% growth rate in the first quarter, and inflation appears to be holding fairly stable - although above the Fed's target. No rate cut for the cheerleaders.

In a potentially ominous sign, however, bond traders are pushing up rates, selling treasuries..... the 10 year rate is now up to 4.69%, which is the top of its trading range.... if it pushes through 4.70%, breaking the recent trading range, the selling may accelerate, pushing real interest rates materially higher.

Gee, do you think the bond market has it figured out?

You have to wonder - will the equity market read beyond the headlines today, once they've had a while to think about it? And what of the housing data due out tomorrow?

April just came in with awful foreclosure data, up 62% year-over-year, and home prices and sales are posted down yet again. Down 6.6% for existing home sales, with prices down 1.8%. Gee, is it soup yet? Stabilization says the Realtors. Yeah, right - the foreclosure folks say "not a prayer; foreclosures usually go down in the spring, but not this time."

The homebuilder index comes out this afternoon. It will be interesting to see if they try to put lipstick on the pig.

Watch out for both thrown and falling pianos..... while most of the time you only have to look out for one, this time around it looks like the risks are roughly equal that you could get brained with either.

Everything was going along all nice and peachy until....



What was that?! Does someone know something about the CPI number due out tomorrow? That pop was pretty interesting. Or was it the Fed's survey on lending standards which came out around that time?

Not sure... but the selloff was big, it was certain, and it, with the exception of the DOW, drove everything into the red where it stayed - especially the Nasdaq, which was punished for 0.6% on the close.

Both WalMart and Home Depot report tomorrow morning, along with the CPI number.

And here's our friend....



Ping! Right up into the channel with that pin, and right back down. Called a "spinning top" in chart parlance, it shows indecision between bulls and bears. Well duh, says I.

I was chortling a bit as CNBC tried to spin this one. It wasn't a big deal, then it was, then it wasn't again. Discount it all based on the Fed's remarks on lending.

Well ok, that might be true. But was that limited to mortgages? No, it was not!

Do you see much in the way of reporting on this? No. And that is curious - because the announced news was that lending has been tightened across the spectrum, from mortgages to corporate credit to consumer loans.

Is the sphincter starting to squeeze on the credit markets? Maybe, maybe not. But if so, that's exactly the sort of trigger that can lead to a broad-based market selloff.

Many people thought that Daimler's unloading of Chrysler to Cerberus was some sort of "great" deal. The question is - for whom? DCX is basically paying Cerberus to take Chrysler off their hands! And there is no guarantee the deal will go either - the UAW is almost certain to be very, very loud on this one, perhaps demanding written job security guarantees - which I suspect Cerberus will be unwilling to provide. While the "game face" is that the UAW is on board, I still give this deal one chance in three of closing.

Not much else to say here. As a pure gamble I bought a small position in May 15 VIX calls this afternoon for 15 cents. They're either worth zero or a bunch - depending on how that CPI number looks. If we get a big selloff this week they'll pay big - but if the market continues upward they'll prove to be a big fat flush.

We shall see tomorrow!

One thing that was interesting - and has not been seen lately - dispersion (down dollar amount) on the S&P was ahead of capital on the upside by a significant amount. The A/D ratio was 17:32, but the down/up cashflow was a big deal, and the down volume was higher as well. This was not true on the DOW, where the AD was 17:13 and capital flows were 2:1 in favor of advancers. This sort of divergence is typically a bearish indicator, although it has low reliability. The Nasdaq 100 also had down capital flow FAR ahead of advancers, along with the ratio being an absolutely awful 27:71.

New highs AND lows on the Nasdaq hit a high level, which is also a coincident indicator and a bearish divergence from the NYSE, where the high/low ratio was close to 10:1.

Confidence in any of this, however, is not high. This is clearly a market that will be driven tomorrow by the economic data.

Note that the remainder of the week the blog will get fewer updates, next week only one a day (in the evenings), and the week following that I am likely to go "dark" entirely. No, I've not gone bust or jumped out a window - just a long-planned break from "reality".

PS: The Canary isn't inside the Cat yet....

See 'yall in the morning.