Friday, August 1, 2003
Issue Contents:
Happy Friday! We still have a few more numbers to come this morning on the U.S. Economic Calendar.
- 9:40 a.m. July ECRI Inflation Gauge.
- 9:45 a.m. Final University of Michigan Consumer Sentiment
We'll come back after they are released.
We marked out the immediate support and resistance points for the $SPX daily chart yesterday, and when the smoke finally cleared on the trading day, $SPX 1000 was where sellers came out. Interesting how we've seen the big U-turn two Thursdays in a row.
One would think that IF resistance overhead has been confirmed, THEN we should now be heading down to text $SPX 980, and see what its made of, as the congestion continues.
Attempts at the upside breakouts on the Dow Industrials and the NASDAQ 100 indexes were shut down in similar manner.
Well, it feels like we have dodged a hail of bullets over the past two days in terms of economic data. After the smoke cleared from this morning, the net result was that that jobless rate fell to 6.2% in July while payrolls dropped by 44,000 on factory layoffs. Manufacturing activity expanded for the first time in five months. Consumer sentiment increased.
Overall, the two-day report card has been decent, but the market is still rattled after the unexpected dip in consumer confidence earlier in the week while the bond crash is reverberating throughout the investment landscape. The reason is because the refinancing of mortgages over the past couple of years has put money in the pockets of consumers. As interest rates go up, that stops, and the fear is that consumers will run out of money to spend, and the economy will suffer.
[The Economy] Engine for Growth
Long-time subscribers will know that we have a certain long-term economic scenario. We believe that there is going to be a secular, perhaps a once in a generation, bull market top in bonds, and eventually, the aftermath will be an era of stagflation similar to the 1970s.
Many fundamental analysts are extremely concerned about consumer spending going forward, mainly because the consumer has been driving growth in the economy for many years. With the stock market a fraction of what it was three years ago, rising unemployment, and now a heavy household debt service burden compounded by rising interest rates, one must wonder if the engine for growth is about to blow up.
The population in general is quite a bit older than it used to be. The savings rate is growing, after decades of wild spending. Boomers are trying to fund college for their kids at the same time they are trying to cover off unexpected medical bills and retirement. It would not be surprising to see the consumer go back to retrench for the foreseeable future.
Where is growth going to come from? The era of technology is on hold for a while, as we have now arrived at the top of the S curve. Everyone has a computer. Everyone can get on the Internet. This week, we saw the economy grow at a 2.4% annual rate in the second quarter, above a 1.6% consensus estimate. Much of the increase came in defense outlays. With no end to the War on Terror, focus shifts to defense as individuals begin the big job of putting their financial houses in order. Feels like we have to brace for a change in fiscal policy, perhaps going back to deficits and government spending.
No wonder the bond market popped.
[LCQ3, Daily] August Live Cattle Futures
Normally, we would never bring this up, but take a look at the LCQ3 daily chart. There is a bull market in -- that's right -- bulls!
It's not any bull market. It's a rocket! What's going on?
I received a telephone call today from a friend who lives in Alberta. Things are grim there. There is an invasion of grasshoppers so bad that it's like rain hitting the windshield. They're harvesting hay as fast as they can ahead of the arrival of the insects. My friend says that, "farmers across the Prairies have to worry about how to feed the cattle they can't sell because the pasture land is being devastated by grasshoppers." This means that lots of cattle have to go to slaughter, and yet the price of live cattle is soaring in the U.S. It goes to show how the U.S. ban on Canadian beed is doing wonders for the supply/demand equation for U.S. ranchers!
EDIT: My friend just provided an update: "Go figure the logic here. Right now, there is a huge cattle sale going on in Red Deer, AB. Mostly U.S. buyers looking for a good deal. Presumably U.S. citizens can cross the border from Canada to the states with our (mad) cattle in tow."
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[SPU3, 15M] September S&P Futures
Most major market indices have spent the past few hours consolidating under a two-day high. Failure to turn around now will likely set up another push down into the close.
The pattern by the white arrow is a classic bear flag. We'll see if it breaks or not.
Mike and Craig will be back on Monday, so yours truly will be back to writing and filling this newsletter up with goodies.
This week, we got our Lists 1 to 9 all sorted out and they're being automatically produced each evening at ChartScreener.com. We'll be adding more lists as we approach August 15 when they "go live".
We've got a few more things to do before the website is 100%. As soon as Mike comes back, he's going to fix up the links on the calendar, so that you can access the newsletters from July. Also, we have to make the site know that July has 31 days. ;o)
Have a good and safe weekend. Enjoy the sunshine and fresh air while we have it!
Real-Time Trading Group Transcript