Clues to the Next Market Move

Recently, there have been several reasons why we have been stubbornly looking at the markets as overbought and due for a correction/downturn. One issue has been the general complacency of traders as can be seen in the low price of the VIX (Volatility/Fear Gauge).

click to enlarge

Beyond this, we have been bumping along the 910-940 range on the S&P 500 and there is not much that investors have seen in the way of economics or earnings that have them inspired to push the markets ahead. Oil has been an issue and the world markets optimism/hope has had been pressing stocks higher.

As you have been following our Natural Gas/Oil Spread trade, below is information you may want to have a peek into. This morning, Natural Gas saw increasing stockpiles/storage but the actual number was better than estimated.

The Energy Department’s Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 70 billion cubic feet to about 2.72 trillion cubic feet for the week ended June 26.

Analysts had expected a boost of between 72 billion and 76 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos. (MHP).

One contributor may have been a heat wave that struck the South and Midwest, as people turned up the air conditioning.

The inventory level was 21 percent above the five-year average of about 2.25 trillion cubic feet, and 29 percent above last year’s storage level of about 2.11 trillion cubic feet, according to the government data.

We have also been looking at some of the make up of the recent rally and the total lack of any significant volume. The chart below shows us that conviction buying/selling has basically dried up and most of the action on a daily basis can be attributed to day traders and programmed trading.

Moreover, this story from Bloomberg has an interesting view that seems to be getting a good deal of play.

July 1 (Bloomberg) — Declines of more than 20 24 percent in regional banks and homebuilders and the failure of transportation companies to erase their annual loss may be signs the rally in the Standard & Poor’s 500 Index is about to fizzle.

Smaller lenders in the gauge lost 23 percent since climbing to a four-month peak on May 8, while builders tumbled 26 percent from May 4, when they reached the highest level since October. Concern that mortgage rates, credit losses and foreclosures are increasing spurred retreats in the companies forecast to be among the biggest beneficiaries of $12.8 trillion in government stimulus spending.

Slumps in bank stocks foreshadowed previous declines in the S&P 500 as investors focused on real-estate losses that curbed lending. Regional banks’ 51 percent plunge over 28 days starting Dec. 8 came a month before the S&P 500 began a 28 percent slump to a 12-year low of 676.53. The lenders’ all-time high in February 2007 occurred seven months before the S&P 500’s record.

“If housing and credit led us into all this, they will have to stabilize,” said Mark Demos, a Minneapolis-based money manager at Fifth Third Asset Management, which oversees $18.7 billion. “There’s a growing concern that they’re not out of the woods. Less bad does not equal good.”

Comments

[Prudent Man...:]

What happened to the "shovel in the ground" programs that were the reason for Congress to pass an unread "stimulus" program for which they do not have the money to pay for? It is either not working or a lie.

Now BHO is putting out feelers for another power grabbing "stimulus" program under the usual political theory if the money you have thrown at a problem doesn't work, throw more.

The fact of the matter is that these programs never worked, they are power grabs and they provide stimulation only to political contributors and special interests. But, can they go back to the empty well?

Step aside bureaucrats and politicians, who are the problem not the solution, and let what has always worked in the past to correct economic distortions and dislocations: The Free Enterprise System. Where has Socialism ever increased the standard of living of the middle class?

Jul 02 04:41 PM

[Fighting Yoda:]

Yeah I think the market will finally correct, green shoots are confirmed to be still born. Unabted foreclosures and job losses will finally convince even the die hards.

Jul 02 05:42 PM

[Fitz919:]

Prudent Man: I especially liked your last line. "Where has Socialism ever increased the standard of living of the middle class?"

Socialism isn't creeping into our political environment, it's roaring in.

Also remember when the stimulus plan was just 5 pages. Then in a few days Pulosi and a few friends had it up to 50 pages. Then about 2 weeks later it was 500 pages of pork attached to a bill that was 100% veto proof. That's the 787 Billion stimulus plan wrapped in bacon. Stick a fork in all of us...we're done.

Any ideas on what became of the "Births and Deaths" number that was added into the Unemployment Number last month...I don't see it anywhere this month? Do you suppose they weren't supposed to tell anyone about that number last month, and they're hoping nobody will ask about it this month? LOL They are so busted!

Jul 02 05:56 PM

[anarchist:]

Prudent Man say "Socialism ever increased the standard of living of the middle class? " echoed by Fitz919. Hand me the envelope please, and the answer is: England, France, Finland, Denmark, Sweden, Norway and China.

Jul 02 06:29 PM

[pete123:]

sancs-

"Finally we get a substantial sell off" ... i definitely agree that it's time, but one day isn't a trend. Could be just pre-holiday profit taking + reaction to the unemployment number. Plus maybe it's roll time for USO which knocked oil down some, though i'm not sure about that. I suspect the forces that be will resume holding up the stock market after the holiday weekend. [ i'm in cash, DUG, GLD, EEV. took a little profits on DUG today. ]

-pete

Jul 02 08:08 PM

[icutradin:]

I think you will find the economy turning up in the next couple of months.

Jul 02 09:31 PM

[Fitz919:]

I think you'd be hard pressed to find more than a handful of people from the countries you listed who would agree with you.


On Jul 02 06:29 PM anarchist wrote:

> Prudent Man say "Socialism ever increased the standard of living
> of the middle class? " echoed by Fitz919. Hand me the envelope please,
> and the answer is: England, France, Finland, Denmark, Sweden, Norway
> and China.

Jul 02 09:55 PM

[Northstar10000:]

Our Crack Pot System claims to be capitalism, practices socialism and hopes for communism. Than blame everything on unregulated markets when it is the regulated companies that are bringing the house down. Public school education at its finest.

Jul 02 10:52 PM

[taojaxx:]

I admire your certainties. Plus, based on ideas such as "the general complacency of traders as can be seen in the low price of the VIX". At 28. isn't the VIX at about 3 times its pre crisis level?
As to the natural gas play, the bounce after the EIA inventory statement lasted about 60 mn. NG contract ended the day at $3.65, about $.06 lower than the opening. Unfortunate illustration of the consistent failure of any bullish natural gas strategy. But maybe you use the ETFs rather than the futures contracts, in which case, I'd be interested in learning how you manage the added risk of the relative contangos.
Not disputing your bearish case. I'm just surprised how certain you are, especially as I'm not fazed by the arguments: the fact that home builders and regional lenders were early warnings in the recent past doesn't mean they're going to lead the market this time. They may, or may not. I too am skeptical about the green shoots theory, but for more fundamental reasons: Deleveraging doesn't stop in weeks as this is a structural shift. The US consumer retrenches for good and it's unclear to me who's going to pick up from them, certainly not the Chinese as they have no social security, no retirement benefits and no children to care for them in old age (one child policy) so they don't have a choice but to save like crazy, which is what they will keep doing.

Jul 03 04:20 AM

[poorman:]

Pauper the American people pauper the world. Doesn't anybody get that?

Jul 03 10:48 AM

[anarchist:]

I respectfully disagree. My wife is from England so I have been there numerous times, her family are working class people yet they just shake their head at Americans accepting a meager two weeks of vacation and outrageous health insurance cost. Their standard of living seems to be as good as the U.S.-ditto for friends in France. I worked three years with many people from all the other countries I mentioned except mainland China and, yes they complained about high taxes but none of them would considered living anywhere else.
Americans (the U.S.) in general have a very limited understanding of anywhere outside of their borders and live under the allusion that "everything is bigger and better here", it ain't necessarily so!


On Jul 02 09:55 PM Fitz919 wrote:

> I think you'd be hard pressed to find more than a handful of people
> from the countries you listed who would agree with you.

Jul 03 12:11 PM

[AndrewBaker:]

Some of the clues to the next market move are:

1) Jobs are still being lost.
2) Homes are still being lost.
3) Banks still have trillions in total of bad debt they are trying to hide.
4) The government is still inventing jobs that taxes have to pay for.
5) People are still scared to spend what they don't have.
6) Businesses are still going bust.
7) Property is still losing value.
8) Older people are still realizing they can't afford to retire.
9) Bail-out money is still doing the rounds and still doing no-good, except making the usual finance and banking suspects even richer.
10) ... do I need to go on?

Anyone else agree with my conclusion that the clues strongly suggest that the next market move is down?

Jul 03 03:33 PM

[Northstar10000:]

there is no proof the standard of living in any of the countries you sited had anything to do with socialism. the fact that you put England and France in there shows you complete mindless brain washed state. My son lived in France for 2 years from 2006-2008. Everyone there is screwed except the very rich. they complain non stop about the system but it never gets reported. As far as England goes your siting proves you know nothing. It is about to be down graded and can't afford its current health care system. My be the first major country to go bankrupt.

Jul 04 08:57 AM