Clues to the Next Market Move

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Includes: GAZ, SPY
by: Andrew Horowitz

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).

vix2

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.

7-2-2009 11-31-09 AM

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.

7-2-2009 11-31-09 AM

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.”