Friday Musing and Opening Viewpoint - 04/05/2013

Good Morning World :)  and a good day to my newest colleague from Australia (good day mate)...

Morning News

1. The labor report is due out this morning...  It is very disappointing.  Total payroll jobs (according to the BLS) rose a very small 88,000 after making huge gains (in the sense of the Great Recession) in January and February.  Analysts forecast 193,000 job rise in March, but they only increased 88,000. Worker Earnings were stagnate. Average hourly earnings were flat in March.  The average workweek edged up slightly.  
1. Folks, this is very bad news, and the futures market (and overnight trading in Europe) looks like we will have a down day.
2. Warning however:  The Federal Reserve will not like this report at all, and they may intercede with POMO (Permanent Open Market Operation) around 1:00 - 2:00 PM Eastern Daylight time.  What this means of course, is that the stock market can open down, stabilize and then rise substantially -- while still closing down from yesterday's close.
2. The SPX (S&P 500 Index) stopped right at 1550 on Thursday.  This (1550) can be considered a significant support level.  SPX closed at 1559.  Today, the futures market is way down, and you can expect SPX to open well below 1550.  
3. On gold:  The gold ETF to watch is GLD.  Around the world analysts, traders, and investors are watching GLD today after the employment report.  The level to watch is 150 (which at 6:24 PDT is where it is at the moment.)  We could see a big move either direction in Gold today.  At this point Gold futures are up.
4. Retail Traders are becoming more pessimistic according to the American Association of Individual Investors (AAII).  The Retail Traders have piled into the market driving it substantially higher along with the large traders.  Follow the Large Traders. The Commitment of Traders report came out last night.  I have not had time to analyze, but as Retail traders do, Large Traders can turn their viewpoint around very quickly, and the employment report may make them cover longs (rather than just taking profits.)  Let us wait and observe what happens today.
5. Crude Oil looks like it will drop again today.  There is every reason to believe Crude should drop (as discussed yesterday.  
6. The Fed Report on consumer credit is due out today.  Economists are forecasting a huge jump in consumer credit, but it will be on the non-revolving credit (autos and homes) and not credit cards (revolving credit).  Sadly (from my viewpoint), the consumer has increased their debt again to nearly the same levels as before the Great Recession started in 2007-2008.  

Things That Make You Go Hmmm!!!

8:21 AM PDT

• Yesterday, I wrote in this blog some pretty controversial things.  And then I found out, I'm not even in the league for controversy.  I received several comments (which I usually do not publish) yesterday - specifically from my German Colleagues. They were concerned with my viewpoint on the "rich" and the bankers.  Did I allude that Bankers had no feelings?   Well I have not met any with any human compasion except for those branch managers at regional banks who agonize over their local customers.  (And please don't assume that I believe Bankers should be forgiving regarding debt payments.  But neither should bankers be charging 30% interest on revolving loans like credit cards; knowing full well that is no different than usury and debt slavery. And no near colleague in NY, it is NOT acceptable behavior by banks to make loans to people who are desperate to receive money at any rate when you bankers know they can never ever pay it back; nor can they commit bankruptcy and clear that debt any longer.)
• Rich in Europe - and then there was this: http://www.nytimes.com/2013/04/05/world/europe/vast-hidden-wealth-revealed-in-leaked-records.html?nl=todaysheadlines&emc=edit_th_20130405&_r=0 And these guys are really controversial...  http://www.icij.org/  and here is the reporting NY Times is referring to: http://www.icij.org/offshore
• "And lifting the curtain on the identities of those who keep their money offshore is likely to cause particular anger in austerity-blighted Europe, where governments have been telling people to tighten their belts but have mostly turned a blind eye to wealthier citizens who skirt taxes with help from so-called offshore financial centers."
• OK, that confirms my comment about the uber rich in Europe.  However, as this controversial reporting shows, the issues is with uber-rich everywhere.  
• Then if you read about Russia, you will find almost all Russian's uber-rich in state-controlled giants set up secretive off-shore accounts.  However, in my opinion, that is business as normal in Russia; 'cause we are all aware that Russia's government on any given day will reach in and take your company and all your assets away.  
• Then should we support taking assets from people by the government just because the government thinks it should?  Come on Brits... You set up tax havens for your rich years ago.  Remember the Isle of Man?  There is nothing illegal in what has been noted in the report.  What appears to be illegal is the lying that takes place among highly-placed elected officials about whether they have offshore accounts like this.
• I'm am not a fan of arbitrarily removing wealth from the rich just because they are wealthy.  That is as insane as everything else governments are doing.   
• OIL --  I heard from several USA citizens about the energy exports, and that they were unaware that there were laws that stopped Oil Export.  They were adamant that our refined energy products were NOT being exported at the expense of the consumer (but at the profits expansion of energy companies).  Common folks, where have you been hiding.  You certainly know about Natural Gas (which is just getting started).
• So instead of me saying it, here is Briefing.com   "Trade Deficit Narrows on Strong Petroleum Exports in February"  
• Petroleum-based imports increase $1.1 billion to 10.9 Billion.  Or another way of viewing this is the USA is lowering the Oil trade deficit by exporting refined fuels. 
• You can view a summary of the numbers here: http://bloomberg.econoday.com/byshoweventfull.asp?fid=456103&cust=bloomberg-us&year=2013&lid=0&prev=/byweek.asp#top
• 9:23 AM PDT
• By the way, the DOW and the S&P500 fell significantly this morning starting at 8:30 AM EDT.  
• The market has been up ever since floor trading started at 9:30 AM EDT.  
• Now what did I say before the markets open?  That this may be choppy or even up day, even if the equity markets may close down for the day.  
• The Chicago Mercantile Exchange (and it may have been CBOT before CME merged with them) created something called Auction Market Theory and the creator Peter Steidlmayer called Market Profile. There is a huge amount of academic work created since then on Auction Market Theory..   The idea is that liquid and freely traded markets (such as the stock markets) act like auctions.  Things are bought and sold, and that buying and selling creates price exploration.  Fair Value (in the theory) is achieved when price is traded in a small range -- buyers and sellers cannot drive the price up or down.  You can find the extension (price exploration down) early this morning from the opening by looking at SPX (S&P 500) or DOW (INDU). You can look at the number of trades taking place at prices, and you would observe there were few trades at the bottom of that 5:30 - 6:00 range with most of the orders being buy orders.  As they market moved up, the buy orders increased, and the vast amount of contracts exchanged was between on the S&P futures was 1536.75 to 1540.00  If one looks at a 1/2 chart on SPX, the volume is on the buy side, and currently is still on the buy side
• SO what?  The long term traders are still pushing the market up.  You don't need to know why; it is what it is. As long as the long term traders (probably large traders) are willing to buy, unless there is new "news" entering the market, the market will not retreat much.  (Of course FUD can enter any moment, and then like a flock of starlings the whole flock of traders will change direction.  This also tells you something for longer term trading if it happens:  i.e. the short term trend (1 - 3 weeks) is down, but it says nothing yet about the intermediate term (is the stockmarket bull market over).  
• By the way there is a company that has software to track trades using this technique. I can't afford the software, but I programmed something like it using IB brokers data and the Excel API interface.  The companies name is "Market Delta" at http://www.marketdelta.com/  Very cool software...

Closing Look
2:00 PM PDT
I believe it is educational to look at the movement of the stock market since it opened today.  It is also educational to relate this movement to the news (which was awful).

1. The market closing price was down.  While the DOW (INDU) was down as much as 160 points, the DOW closed at 14565.25 or 40 points down from yesterday's close.  I have no idea what the news is going to say about this, but this does not look like a market that wants to make a big correction yet.
2. Notice what happened in the S&P futures at 8:30 AM EDT.  The market tanked, but that was the low of the day.
3. At 9:30 the NYSE opened up off the low, and the market really never looked back.  
4. At 14:00 EDT, the market closed way up off the opening.  (Because the futures market trades 24 hours per day now, when I say from the Open, I mean the NYSE opening.  
5. Finally, it is worth while to observe that the overnight trading (before the labor report) was down.  All the European stock markets were down.  I chose to only show what happened after a major economic report that was a major surprise.
6. Here is something that is controversial.   Notice that large "bar" down from 8:30-9:00 EDT.  That was a very wide range bar (for the current market.  When a trader sees that kind of volume on a wide range bar like this, there is a pretty good chance that will (in this case) be the low of the day.  Most of the sellers have sold, and the buyers are what is left.  
7. Finally note what I said at 6:00 AM PDT this morning.  "Warning however:  The Federal Reserve will not like this report at all, and they may intercede with POMO (Permanent Open Market Operation) around 1:00 - 2:00 PM Eastern Daylight time.  What this means of course, is that the stock market can open down, stabilize and then rise substantially -- while still closing down from yesterday's close."