Traders Mull the Data

Pre-market futures are down slightly on the SPX, and down sharper on the Naz. Tech will see some selling pressure this morning after the INTC earnings guidance (or lack thereof) yesterday. There was nothing inspiring about this morning's economic reports, but "nothing inspiring" means "maybe the economy is taking off" in Googly-Eye trader-ish. So the SPX futures are just hanging around waiting for more "evidence."

There was so much data to sift through and put together this morning, but here's a good look at what's going on. The CPI grabbed the headlines, just like I thought it would, and just like I thought yesterday, it's a fairly meaningless and even misleading report. The CPI reported a number of -0.1% vs. 0.1% expected. The "spin" on the number (see Googly-Eye trader-ish) is that the cost of living in the U.S. actually fell last month.....yayyy..... In addition, the Core CPI (excluding food and energy) reported 0.2% vs. 0.1%, which is being spun as good news because the economy is not "deflating" (which way do they want this, lower cost of living or not deflating, they can't have it both ways.....). Here's the really big red flag in this report for me. The biggest drop in the main CPI number, by far, is the motor fuel component at -4.3%. The next closest component drop is transportation at -1.1%. So what this report is telling us is that energy, by far (and it's not even close) was the biggest deflator in the CPI report. In addition, the report is telling us that when you strip out food and energy (the Core CPI) the average American actually experienced an increase in cost of living last month.

Now, I'm not done with this one.....raise your hand if you actually paid less per gallon for gas last month than you did in February.....uh huh, I thought so.....I know I didn't.....I actually paid as much or more per gallon of gas in March than in February. And if you have trouble remembering, look at the chart of the SPX, which had the biggest V-Bottom "recovery" in over 70 years (see yesterday's Excalibur' Sword chart). Now, go look at the price of oil all through the stock market rally, what did it do? If you smooth out the /CLK9 (May Oil Futures) to account for a little lag time for prices to reach the gas pump, you will see that the price of oil was about $45 per gallon early in March and then hung around the $50 - $53 area late in March. Now, I'm no math genius but.....isn't a higher number after a lower number an increase in prices? Honest to goodness, there are some days I just don't even know what to say anymore when it comes to the amount of misinformation that is pushed on the American public all the time. So this whole CPI and Core CPI showing a lower cost of living, hinging mainly on the motor fuel component is very smelly to me.....I won't be surprised at all if we see a "revision" to this report next month.

On to the other data.....The NY Empire Manufacturing index, which is a tier 3 level report at best, showed a much better than expected result of -14.65 vs. -35.00 expected. This regional manufacturing report gets way too much press, but then again, it's New York. Anyhoooo, the survey fluctuates wildly from month to month, and I don't pay much attention to it, but the Googly-Eyes will.

Finally, the number that should really matter, and is the best indicator of current economic activity is Industrial Production/Capacity Utilization. Industrial Production was -1.5% vs. -0.9%, and Capacity Utilization was 69.3% vs. 69.6%. This shows national manufacturing (not regional thank-you very much NY Empire State index) is still declining and grinding along, and the national manufacturing industry is not snapping back in some kind of exciting V-Bottom recovery.

I am working at not coming across as a bear when it comes to the news. I really do think that the min-refi boom in March will help the banks just like it did in January. And I think that as long as rates stay in the 4 5/8% - 4 7/8% area, the housing glut has a chance to get worked off a bit, which is great news. But I still don't think the U.S. and global economy is set up for a V-Bottom recovery. I think the continued slump in manufacturing, the lack of energy policy which is leading to gas spikes every time the market ramps up, and the fact that I see tons and tons of houses for sale all over the place that aren't being sold, are all indications that the economy is grinding and not recovering. UBS bank, one of the largest banks in Europe, gave another indication of the grind this morning when they announced another 7,500 job cuts, which was evidently shocking to many investors. "We are almost two years into the crisis and they still have seven-and-a-half thousand jobs to cut, I'm very surprised about that," said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt......I just can't even comment about this stuff anymore, it never ceases to amaze me that these industry "professionals" get surprised at this stuff, what do they do for a living?

8:30 am MT: Back to the market. The SPY (market) rallied right out of the gate, so the fundies "bought the dip" immediately after the open, just as I speculated last night. And just like I speculated, the market is rolling over and we are probably going to see some profit-taking amidst the pop and grind of the day.

Here is a daily chart of the SPY:
(click on image to enlarge)

Here is a 15m chart of the SPY:
(click on image to enlarge)

I really think the NY Empire State index, the CPI, and the fact that INTC beat last quarter's expectations (despite the lack of forward guidance), will give traders a reason to hang around the middle to upper gap on the SPY (the gap between 83 and 84). So I won't be surprised if there is some profit-taking followed by dip buying, and it cycles like this all day as traders continue to hang around and hope for more "good" news. As long as the SPY (market) stays in a Bull Flag on the daily charts, and has a fairly orderly consolidation, then traders will hope they get a catalyst to break out of the Flag and push the SPY to resistance at 88, which would complete Excalibur's Sword.

You can see the price action on the daily charts of the market, like the SPY, is starting to slow down and round over a bit. I speculate that the only way the Googly-Eyes let go of the V-Bottom is after a slow rounding over of the right side of the sword. And it will take a preponderance of uninspiring, cautious, and even bad news from corporate earnings and economic reports in April to do the job. So I will keep playing calls because the trend is up. And I will look more at individual momentum stocks each day and not so much the index ETF's for the majority of those calls. The market will consolidate and grind today, so the SPY for instance, doesn't look like a good momentum play. But if the SPY Bull Flags on the 15m charts right now and starts to pop, then I would look at calls on individual momentum stocks for a short swing.

Here are some bullish momentum stocks this morning: CSX (and the Railroads UNP, NSC etc.), DE, WLP, UTX, KMB, and MMM

In additon, WHR, HPQ, CLX, and HON are in Ascending Triangles or at least ok bullish consolidations.

Also: JPM, and PNC are in bullish short term consolidations.

I'm not ready to throw a parade for calls this morning, but CSX and some of the others may have decent short swings if the SPY holds the 83.75 - 84.00 area and tries to rally a little. Any drop below the lows of this morning (83.60 area) and you should just lay off the calls for the day. So be patient with your trades today and look for only the best signals.

9:05 am MT: The market is getting close to an important tipping point. If the SPY doesn't hold the 83.60 -83.75 area in the next hour, then don't even bother with the calls, and look for the market to roll down to the lower side of the gap in the 83.00 area. CSX continues to hang tough, it's one of the better looking opportunities if the market holds support. We shall see.....

I must work on the new service for a while now.

12:18 pm MT: Any bullish calls are done on the market right now, exit and walk away.

The last bounce on the 10m charts about 20m ago is a failed signal, so any calls you have left, if you played any, you should lock any profits and walk away.

I didn't like much in the way of call setups today anyway, but I wanted to throw that warning out to anyone who was playing calls. The SPY (market) formed a Head and Shoulders variant on the 15m charts across the gap, that just confirmed with the failed signal on the 10m charts.

Here is the 15m chart of the SPY showing the Head and Shoulders at this morning's Bear Gap:
(click on image to enlarge)

Traders are tossing in the towel a little bit right now. It doesn't mean they won't keep trying to bring the market back on dips, but today wasn't a very good day for bullish momentum. We got the obligatory Googly-Eye buying after the Bear Gap for the third day in a row, but the overall market is still stuck in consolidation mode.

Here is the 15m chart of the SPY showing the buying after every Bear Gap for three days in a row:
(click on image to enlarge)

The market is consolidating within the consolidation, which means that I definitely don't want to play index ETF's like the SPY, and any momentum stocks I might have played during daily consolidation have become fairly unplayable because of the intra-day consolidation (consolidation within the consolidation). When the market goes to two levels of consolidation, it usually doesn't leave much in the way of options.

Here is the 15m chart of the SPY showing the intra-day consolidation, which is inside the consolidation between the major gaps on the daily charts:
(click on image to enlarge)

You can see the clear resistance area in the 84.75 - 85.00 zone. At this point, because of the forming price action, and because of earnings season, you should just sit out any further call plays until the SPY can break out of the intra-day consolidation pattern (resistance in the 85.00 area).

The daily chart consolidation, which is still a Bull Flag, trumps the intra-day consolidation, so the bias on the daily chart intermediate term trend and the daily chart short term consolidation is still bullish. Traders still expect "good" news to propel the SPY up to the 88.00 area, otherwise they wouldn't keep hanging around, they would sell off the market. And remember, it doesn't matter whether the news is truly good or not, what matters is where all the fundies are going to push the market with all their money.

1:10 pm MT: The bottom of the intra-day Rectangle held and the market is bouncing on the 15m charts. The consolidation within the consolidation is still holding.

Here is the 15m chart of the SPY showing the latest move inside the consolidation:
(click on image to enlarge)

We'll see how long this goes, probably at least through the rest of today.

1:42 pm MT: It's too late in the day to play this attempted breakout of 85.00, especially knowing that tomorrow morning will probably bring us another gap, and it's a toss of the coin as to whether the gap is bullish or bearish. So it's been fun to watch the Little Bunny FuFu's play their little game right here, but no thanks.....

4:15 pm MT: Market Wrap: There was a late bullish burst into the close. Buying was focused on banks as traders positioned and speculated ahead of JPM's earnings tomorrow morning. The hope, obviously, is that JPM blows us all away with their earnings report. There are several other earnings reports in the morning that might move the market: HOG and ITW will give traders a small feel for cyclicals/manufacturing, CY and FCS will give traders a small feel for Chips as a follow-up to INTC, NOK will give traders a feel for wireless, and LUV will give traders a small sense for the airlines. In aggrigate, there's enough other earnings, taken together, to be as important as the JPM earnings by itself.

I speculate that part of the burst of buying also had to do with some traders trying to position ahead of the Housing Starts/Building Permits report tomorrow morning. Last month the numbers surprised to the upside due to a combination of the low mortgage rates and the ramp up in apartments and condos - as people walked away from their bank-owned houses and migrated to rentals and cheaper housing. The Housing Starts/Building Permits report was the one economic number that I thought had a chance to surprise to the upside this week (just like last month) due to the recent low mortgage rates part deux. So far, my speculation has been correct, and no other meaningful economic reports this week have given bullish readings.

The real focus tomorrow should be on Initial Jobless Claims, but traders will focus on JPM, Housing Start/Building Permits, and perhaps the Philly Fed if it surprises to the upside like the NY Empire State index. So no matter what the numbers portray, go with the flow of the fundies, because they're going to take the market wherever they decide to take it.