Global Markets in Review: Economy, Markets

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Let's get back to the stock market. Key resistance and support levels for the major U.S. indices are shown in the table below. All the indices are trading below their 50-day moving averages and the Industrial and Transportation Averages have also breached the December 1 lows. The all-important November 20 lows are now within close reach - already broken by the Transportation Average - and must hold in order to prevent considerable technical damage.

click to enlarge

Richard Russell (Dow Theory Letters), the 84-year old doyen of investment newsletter writers, interprets the technical situation as follows:

The Point & Figure chart below may currently be the most important single chart in the world. This is the DJ Industrial Average, and it’s in the act of testing its November 20 low. If the Dow violates its low, it will have confirmed the prior bearish penetration of the Transportation Average. If that happens, the primary bear market will be reconfirmed. But if the Industrials stubbornly refuse to break to a new low, then the inference is that something else is happening. The inference is that the bear market may be forming a temporary bottom.

Russell said:

What I think we’ve seen, so far, is the end of forced selling. At this point, professionals are trying to gauge whether the huge market collapse of 2007-2008 has discounted the worst to come or whether ‘the worst’ still lies ahead. The drama should be played out over the next week or so.

Given all the cross-currents, short-term movements are almost impossible to predict and traders will simply have to remain level-headed and wait for Mr. Market to show his hand, especially as far as the November 20 lows are concerned.

For more discussion about the direction of stock markets, also see my recent posts “Finally, the plan … sort of” and “Video-o-rama: Risk appetite fades on stimulus gloom.“

Economy

The latest Survey of Business Confidence of the World conducted by Moody’s Economy.com, said:

There is no let-up in the dark pessimism that engulfs nearly all businesses across the globe. Global business sentiment weakened again in early February back close to the record low set in mid-December. Confidence is poor across the globe; if there is a distinction it is that Asian businesses are a bit more upbeat than businesses everywhere else.

A snapshot of the week’s U.S. economic data is provided below. (Click on the dates to see Northern Trust’s assessment of the various reports.)

Friday, February 13

• Fiscal stimulus package in a nutshell.
• Federal budget deficit in turbulent times.
• Consumer sentiment remains gloomy.

Thursday, February 12

• Retail sales stabilized in January, future remains gloomy.

Wednesday, February 11

• Sharp drop in exports and imports reflects global recession.

Tuesday, February 10

• Geithner unveils financial stability plan.

Monday, February 9

• Market spreads are moving in the desired direction, but more is necessary in the mortgage market.

In last Sunday’s “Words from the Wise,” I referred to the surge in the Baltic Dry Index (BDI) - measuring freight rates for iron ore and other bulk goods. The Index has gained 188% over the past two months after plunging by 94% since its high in May. In my opinion, the rally in the BDI is in the expectation (or, should I say, “hope”) that the manufacturing Purchasing Managers’ Indices (PMIs) will start improving, i.e. moving closer to the neutral level of 50 (see graph below). This does not mean the global economy will expand, but merely that the trough of the logjam in international trade might have been reached. Not shown are the trends of the BDI and credit spreads, which follow a strong inversely correlated path.

click to enlarge

Source: Plexus Asset Management

Week’s economic reports

Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior
Feb 10	10:00 AM	Wholesale Inventories	Dec	-1.4%	-0.7%	-0.7%	-0.9%
Feb 11	8:30 AM	Trade Balance	Dec	-$39.9B	-$36.0B	-$35.7B	-$41.6B
Feb 11	2:00 PM	Treasury Budget	Jan	-	NA	-$75.0B	-$83.6B
Feb 12	8:30 AM	Initial Claims	02/07	623K	600K	610K	631K
Feb 12	8:30 AM	Retail Sales	Jan	1.0%	-0.6%	-0.8%	-3.0%
Feb 12	8:30 AM	Retail Sales ex-auto	Jan	0.9%	-0.6%	-0.4%	-3.2%
Feb 12	10:00 AM	Business Inventories	Dec	-1.3%	-1.2%	-0.9%	-1.1%
Feb 13	10:00 AM	Mich Sentiment-Prel	Feb	56.2	62.0	60.2	61.2

Source: Yahoo Finance, February 13, 2009.

In addition to Fed Chairman Bernanke speaking at the National Press Club in Washington (Wednesday, February 18) and the Bank of Japan’s monetary policy announcement (Thursday, February 19), the U.S. economic highlights for the week include the following:

click to enlarge

Source: Northern Trust

Click the links below for the following reports:

• Wachovia’s Weekly US Economic & Financial Commentary (February 13, 2009)

• Wachovia’s Global Chartbook (February 2009)

Markets

The performance chart obtained from the Wall Street Journal Online shows how different global markets performed during the past week.

click to enlarge

Source: Wall Street Journal Online, February 13, 2009.

Barry Ritholtz (The Big Picture), said:

It is the markets’ job to reallocate money from the ignorant to the intelligent, from the lazy to the hard working and studious, from the naive to the educated, and from the speculator to the investor.

Hopefully, “Words from the Wise” reviews offer assistance to Investment Postcards' readers about how not to be separated from their hard-earned funds in these taxing times.

That’s the way it looks from Cape Town (or, more accurately, from “gnomeland,” Switzerland, for the next few days).

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Feb 15 08:35 AM

[H. T. Love:]

Ed K,

Your "solution", and the governments, was the cause of the problems we now suffer. My solution and, in the long term, the market's, is "balance, balance, balance". What the politicos lack the guts to do, the populace and markets will do. Hope is provided by the recent increase in savings.

The consumer's (apparantly new-found) resistance to being cajoled into further fiscal irresponsibility (as evidenced by the lack of stimulative effects from last years "stimulus" checks and recent increase in savings) will force the reallocation of resources that is the solution needed to get the economy back on track.

The big question is whether or not this new attitude is enduring or short-lived. I feel for the pain of those so adversely affected by all of this, but I know in the long term it is better for all.

My only real uncertaintity is how much more pain than is really necessary the government is going to cause for the people.

HardToLove

Feb 15 09:36 AM

[know nothing:]

Look up Jim Sinclairs website, and Geleld Celente's website. They may give you some insight, oh yeah, don't for get Glen Beck, too.

Feb 15 10:01 AM

[HiSpeed:]

A plethora of data well presented.

Comm RE looks like it is among the next of major shoes in the process of dropping....

Feb 15 12:07 PM