Sell the Rumor?

With the Fed meeting tomorrow, we are about as excited as mourners at a funeral.

That’s because the Fed really is in something of a no-win position.

As explained in yesterday’s column, the Fed is trying to navigate the same kind of seas that faced the 1928 Fed.  There were modest interest rates and pools of cash had piled up on the sidelines.  And bonds were hot, as well.  But the real place where the action centered was the stock market.

We seem to have overlooked the fact that since the market low in 2009, the Dow has screamed from a weekly close in March of 2009 of 6626.94 to almost three times that number before the current round of “second thoughts” popped up last summer.  Similar gains for the S&P, too.

From an Elliott Wave standpoint, that was where we start counting the current wave down from. The top on 4/15/2011 (on a weekly closing basis) was arguably the end of the Wave 1 up.  Then you run up to last summer.

I work all these numbers using something I call the Aggregate Index because you can’t trust only the S&P or Only the NASDAQ, or for that matter, only the Dow.  Not that they are not of high integrity as data points: they are. 

But what lacks integrity are the market players themselves.  Back in the days of the old University of Colorado Longwaves group, my consigliere (and others who pop up here from time-to-time) noticed the evolution of a phenomena called “hot money.”

This was wire-transferred all over the world and with computer speeds increasing, it became more and more evident that  the behavior of the markets became more like traffic on the freeway.  If there was an accident in Asia, things slowed down on that stretch of the financial highway.  Lookers, gawkers, and bottom-fishers duked it out there.

Halfway around the world, another batch of hot money might land in Europe.  So the markets there might be going up.  And in-between, the market could be going up, down, or sideways, here in the USA.

The ONLY SOLUTION THAT MADE SENSE to me, anyway (being of limited brainpower and all) was to build first a Global Index (which we present on the Peoplenomics side twice weekly) along with the U.S. Aggregate.  A lot of the money comes off the table for weekends, so that’s what matters in our studies.

Again, not that the S&P is bad, neither is the Dow, or for that matter the NASDAQ Composite.  But you see, it’s the fashion in investing that swells or fades.  That’s why in one period of time, say the week of July 23, 1999, the Dow was 10,910.96 while the NASDAQ was 2,864.48. 

If you divided the NASDAQ into the Dow at that weekly close, you’d see it took 3.809 times the NASDAQ to “buy the Dow.”

As always, the fashion in investing goes to extremes.  The the week of April 10, the following year, it took less than 2X the NASDAQ to buy the Dow.  1.96664 if you really want to know.

But you remember what happened next?  Somewhere between $5 and $8-trillion of market cap blew out of the NASDAQ  in The Tech Wreck also known as the Internet Bubble.

We’ve got a chart for Peoplenomics subscribers tomorrow, but if you’re wondering, tech is held today at about the same investing fashion {esteem} level that it was being held in winter of 2000 when the top was in and the big slide was beginning.

You can learn a lot by marking up your own charts.  You can ask logical questions, which we do, now and then.   There’s the ratio of one barrel of WTI (west Texas intermediate crude) to the Dow, for example.  With practice, charts will begin appearing in your head and trading decisions will become obvious. 

So back to the macro view of the run-up since 2009:  After 1 up topped, we did the required 2 down  from  Aggregate 8,816 the week of 8/15/2011,  Since then, our Aggregate screamed ahead to the high last summer to complete Wave 3 up.

Then along came wave 4 down, which to my eye looks like it may be done, but no market goes right to the top again.  We expect the familiar declines and pullbacks along the way.

Which gets us to today’s action.

The early futures were down (about –71 on the Dow) and that’s clearly the market trying a typical “sell the rumor” which should be followed by a “buy the news” by the weekend.

Amidst all this, Tech has been slowly gaining “respect” since 2003 in the aftermath of the Tech Wreck when it took about 6.7 “NASDAQs” to buy the Dow.  One thing you can take to the bank is that with all this hype about the IoT (internet of things) we should, over the course of Wave 5 up (if the Fed policy doesn’t pull the plug on that) witness a retest of the ratio extremes that we saw in 2000.

A student of investment would likely be well-advised to spend less time on the absolute notional values of stock indices, but rather, use them as comparison tools in order to infer what I think of as “standard accounting ratios” the same way one uses ratios – rather thank dollars – in objectified analysis of company financial health.

And that brother or sister, leads us into this morning’s real data.

Press Release Festival

No point me rewriting this…

The Producer Price Index for final demand fell 0.2 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today.

Final demand prices advanced 0.1 percent in January and declined 0.2 percent in December.

On an unadjusted basis, the final demand index was unchanged for the 12 months ended in February. (See table A.)

The decrease in the final demand index in February can be traced to prices for final demand goods, which moved down 0.6 percent. The index for final demand services was unchanged. The index for final demand less foods, energy, and trade services inched up 0.1 percent in February after increasing 0.2 percent in both January and December.

For the 12 months ended in February, prices for final demand less foods, energy, and trade services rose 0.9 percent, the largest 12-month advance since a 0.9-percent increase in July 2015.

Final Demand Final demand goods: The index for final demand goods fell 0.6 percent in February, the third consecutive decline. Most of the February decrease can be traced to prices for final demand energy, which dropped 3.4 percent. The index for final demand foods moved down 0.3 percent. In contrast, prices for final demand goods less foods and energy advanced 0.1 percent.

Product detail: Leading the February decline in prices for final demand goods, the gasoline index fell 15.1 percent. Prices for fresh and dry vegetables, diesel fuel, beef and veal, passenger cars, and industrial chemicals also moved lower.

Conversely, the index for pharmaceutical preparations climbed 1.2 percent. Prices for home heating oil and eggs for fresh use also increased. (See table 4.) Final demand services: The index for final demand services was unchanged in February following three consecutive advances. In February, a 0.3-percent rise in prices for final demand services less trade, transportation, and warehousing offset a 0.4-percent decrease in the index for final demand trade services and a 0.7-percent drop in prices for final demand transportation and warehousing services. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Among final demand services in February, prices for securities brokerage, dealing, investment advice, and related services moved up 4.8 percent. The indexes for machinery, equipment, parts, and supplies wholesaling; food retailing; guestroom rental; and outpatient care (partial) also increased. In contrast, the index for apparel, footwear, and accessories retailing declined 6.0 percent. The indexes for fuels and lubricants retailing, portfolio management, truck transportation of freight, and deposit services (partial) also fell.

More here.

OK, next press release, please?  Retail sales from here.

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $447.3 billion,  a decrease of 0.1 percent (±0.5%)* from the previous month, and 3.1 percent (±0.7%) above February 2015. 

Total sales for the December 2015 through February 2016 period were up 2.9 percent (±0.5%) from the same period a year ago.  The December 2015 to January 2016 percent change was revised from up 0.2 percent (±0.5%)* to down 0.4 percent (±0.3%).  Retail trade sales were down 0.3 percent (±0.5%)* from January 2016, and up 2.7 percent (±0.5%) from last year. Building material and garden equipment and supplies dealers were up 12.2 percent (±2.5%) from February 2015, while gasoline stations were down 15.6 percent (±1.6%) from last year. 

The advance estimates are based on a subsample of the Census Bureau’s full retail and food services sample.  A stratified random sampling method is used to select approximately 4,700 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms.   For an explanation of the measures of sampling variability included in this report, please see the Reliability of Estimates section on the last page of this publication. 

Most important part of this report is where business is coming from – the autos, looks like to me:

Market action suggests this should be turning upward shortly.

Last, but not least is the NY Fed Empire State Manufacturing report.  The NY Fed Website posts this summary:

The March 2016 Empire State Manufacturing Survey indicates that business activity steadied for New York manufacturers. The headline general business conditions climbed seventeen points to 0.6, its first positive reading since July of last year. The new orders and shipments indexes rose well above zero for the first time in several months, pointing to an increase in both orders and shipments. Price indexes suggested a slight increase in input prices and a small decline in selling prices. Labor market conditions were little changed, with employment and the average workweek holding fairly steady. The six-month outlook improved, with the index for future new orders rising to its highest level in more than a year.

All in all, not bad.  Still, look for the market to drop 100 as it tries to message the Fed Guvs meeting not to raise rates tomorrow afternoon.  But we will know more on them odds when the consumer price report comes out tomorrow morning.

And over here, Triple A shows the national gasoline price is about $1.95 and that is up from around $1.70 a month ago, so look for a big headline number in consumer prices, is how I’d be shading my bets.  (Not like I’m a gambler, mind you…)

Still, the Fed has previously disavowed food and energy.  Being immortals, I guess it doesn’t matter to them, but it does to us.

Super Tuesday 2

Who cares till the votes are counted?  Too damn much hype in the world already.

Microsoft DOES Take Bitcoin

Microsoft: Sorry, your bitcoin is still good here  Or, as Tech Crunch put it “Microsoft will continue to support bitcoin after ‘inaccurate information’ was posted online.”

When you’re on the edge, sometimes the edge moves.