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Tuesday June 22, 2010

Where we stand : leading economic indicators, S&P 500, crude oil prices and the economy

The economic recovery looks good, and the job market hasn't been anywhere as booming in a long time, albeit apparently limited to certain sectors of the economy. Crude oil prices have risen and have been gone over the $78-79 level in the past few trading sessions, and pump prices have gone up in recent weeks. Hopes are high that the European crisis has been resolved, with the EUR/USD bouncing off recent lows. But perhaps that is all it has been - just a bounce. Taking a closer look, this is where we stand in terms of some of the leading indicators for the economy :

1. Some of the published Leading Economic Indicators (LEI) are now rolling over and heading down. An example of which is the ECRI WLI (Weekly Leading Index), above, a composite index of a number of leading indicators, that has been falling since it hit a peak on 30 Apr 2010 of 134.7, and now it is down to 122.5, a fall of 9.06%. See here for more information and click here for the raw data. Although, besides a few voices in the contrarian community, the mainstream economists are not quite ready to call it a double-dip recession just yet.

2. Crude oil looks just days away from technical confirmation of a Death Cross (50/200-dma downside crossover). Stochastics are in overbought territory, and running into considerable resistance at the 80 level. In hindsight, the $87 level now looks like an ominously powerful triple-top formation. We might actually be able to start drawing a massive down channel through the $67 level, heading for $60, but that might be getting a little ahead of things. For the moment, the level to watch out for is the convergence of the 50- and 200-dma around $77.

3. The S&P 500, or SPX for short as some of us refer to it, is seemingly pulling off a nice double-bottom up from the 1040 level. This contrasts, however, with two other potential technical formations. One of which is of course the Death Cross downside crossover which could a couple of weeks to a month or so to confirm. The other is a potential down channel which could result in a slide below 1000. Of course it's not a hard and fast rule like having 2 bearish technical indicators outnumber 1 bullish indicator or something silly like that, we'll have to see how it plays out over time.

4. And finally there is the Baltic Dry Index, or BDI for short. This is a favourite indicator for some folks, who point out to the way the index is constructed, being based on a composite of actual shipping rates for various commodities and cannot be easily gamed. Based on this, the 11793 high reached around May 2008, or about 2 years ago, seems like a life-time ago. Compare this to the more recent 4209 local high in May 2010 and you can easily surmise that the world economy has not quite recovered to half of where it was 2 years back. A point which probably rings true for many people. And now, the worse thing is that the BDI seems to have started falling off a cliff since May 2010, violating both the 50-day and 200-day moving averages on the downside. A couple more months of this and we might see the dreaded downside crossover.

All the above could be considered as leading indicators for the economy at large, and add to these other items like M3 money supply contracting 10%, flat consumer spending, and a slowdown in growth of business expenditure (second order differentials), it does look like the economy is about ready to roll over. The short-lived enthusiasm for the long-awaited Chinese yuan float might also be another warning sign. The Second L, or second downleg could be at hand. On the other side of the argument are those who point at the market momentum indicators, or the concident economic indicators, or the job situation (which is a lagging indicator as explained earlier). Watch for an interesting second half of 2010 as we see events play out and watch for the technical formations above to either confirm themselves or be negated by other factors. For now, it might be a good idea to seek safety in cash and cash-equivalents instead of taking on risk in the markets. The more intrepid traders among us might consider opening, or holding on to short positions. The timeframe for a further evaluation of the macro situation will be around the end of Q3 to Q4 2010.

(2010-06-22 22:23:13 SGT) [Biz] Permalink

Saturday June 05, 2010

Nokia bicycle charger announced for Nokia phones with 2mm charging jack

news.yahoo.com :

The world's top mobile phone maker Nokia on Thu 3 Jun 2010 released details of 4 new cheap phone models and a battery charger powered by the energy generated from riding a bicycle. The charger, which can be fitted into any Nokia phone with a 2 mm charger jack, uses a dynamo to generate electricity from the movement of the wheels. The price of the charger kit, which also includes a holder for securing the phone to the bicycle, will vary according to market, but in countries like Kenya, where the product was introduced, it would be around 15 euros (US$18.43). To begin charging, a cyclist needs to travel around 6 km/h (4 mph). Charging times will vary depending on battery model - a 10 minute journey at 10 km/h produces around 28 minutes of talk time or 37 hours of standby time.

- This is a pretty good idea not only for developing countries, but also for places in developed countries like in Europe or say Portland, Oregon and elsewhere where cycling for work or leisure is becoming popular. The charging rate seems to be pretty decent as well. The only thing is, you'd need a compatible Nokia phone that uses their proprietary 2mm charger pin, a format which apparently they seem to be going back to, even for the upcoming Nokia N8 that is the current talk of the town for the Nokia crowd. But already, the forums are abuzz with talk of looking for a 2mm to micro-USB charger converter plug for the rest of the smartphone models out there.

(2010-06-05 17:38:10 SGT) [Energy] Permalink

Wednesday June 02, 2010

Watch China

Earlier, I was saying "Watch the Euro". Well, now might be a good time to watch China.

A couple of possibly correlated events happened in the past few days in China. Days after intense media attention on those 10 Foxconn suicides + 3 unsuccessful attempts at the huge 420,000-employee factory in Shenzhen China which churns out, among other things, Apple iPhones, Sony Playstations, and various gadgets for many other companies including HP, Nintendo, Motorola and Dell, it has been announced that the workers there have been given a 20% pay raise on Friday. Around the same time, workers at a Honda factory are still on strike, coming into its second week, even after it was announced that Honda would be giving out a 24% pay raise - inflation expectations, anyone?

Next, we've got Bloomberg reporting that : "Chinese manufacturing expanded at a slower pace in May 2010, adding to signs that growth may moderate in the world's third-biggest economy. The Purchasing Managers' Index fell to 53.9 from 55.7 in April, seasonally adjusted. A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe's sovereign-debt crisis could exacerbate a slowdown by cutting export demand. Comparable indicators in manufacturing around the world in May are forecast to indicate global output growth has peaked. Australia manufacturing growth slowed in May and economists say reports due today in the U.S. will show manufacturing cooled while activity in Europe was unchanged. The Shanghai Composite Index fell 9.7% in May - the benchmark has declined more than 20% this year." - economic recovery, anyone?

Rising inflation leading to increasing pressure to raise wages, economic recovery threatening to go off the rails, and add to that the Chinese government taking a pin to the China property bubble - all this makes for a pretty potent combination. Plus, we have the confirmed completion of the China Death Cross technical pattern, and we could be looking at progressively lower lows ahead. Might, or might not be, an outright crash since the crossover isn't quite as sharp as the one back in 2008, so we might be looking at a protracted decline. For the Shanghai stock index, or SSEC, now that we have achieved the 500-point drop (which as I had mentioned to fellow investors earlier could go 500 points either way, and likely down), the next obvious support levels are around 2400, 2000 and 1800, with the 2000 level being another 500-point drop down from the 2500 area (see chart above).

So the takeaway is this - watch the leading economic indicators, watch oil prices - and watch China.

(2010-06-02 08:29:50 SGT) [Biz] Permalink

Tuesday June 01, 2010

Job market / stock market outlook 2010

Like the chart says :

This is due to the observed effect that the job market lags the general stock market by around 6 months. The S&P 500 (aka SPX) is used as the benchmark stock index here since it is a broad-based index. Since the SPX has fallen quite a fair bit from its high of 1219.80 in Apr 2010, the clock is now ticking for prospective job-seekers. Now, 6 months is not quite a hard-and-fast rule, it's probably that, give or take a few weeks, and it has proven to be a pretty good rule of thumb historically.

As for the kind of defensive sector referred to, this could be among some of those that I have mentioned earlier, such as government, military, education, healthcare, utilities, consumer staples and so on. But with the sovereign debt crisis in full steam, and given that the contrarian roadmap points to a currency crisis ahead (and possibly worse stuff further afield), it could well be that this time might be different, and not necessarily for the better.

So, if you are thinking of moving to another company or organization, then move fast, move decisively, and move defensively. If not, then be prepared to stay put for some time, because the window of opportunity could well be closing in about 4-5 months' time : batten down the hatches, prepare for a deep dive. As always, I have to mention the possible negation of such a scenario - there are several alternatives : one could be a stunning stock market reversal above 1219 (if you'd believe that), another could be runaway inflation which would skew this indicator, and, lastly, well, this time might really be different.

(2010-06-01 23:45:34 SGT) [Biz] Permalink

Monday May 31, 2010

NYMEX crude oil prices fall on Spain downgrade after hitting $75.72 intra-day

reuters.com :

NYMEX crude oil futures ended lower on Fri 27 May 2010, posting the worst monthly decline since Dec 2008 at the height of the financial crisis, as a downgrade of Spain's credit rating sparked further euro zone worries and prompted oil traders to seek less risky assets. The day's retreat from a heady rally the day before accelerated past midday as Wall Street dropped sharply following news of the Fitch ratings agency's downgrade, stoking more worries that the euro-zone debt crisis would stifle global economic growth. NYMEX crude oil prices slid from $75.72 on disappointing consumer spending data and a report that business activity in the Midwest fell this month, overshadowing other reports that incomes rose and consumer confidence edged up.

- The sharp rise in crude oil prices in the past few sessions has been breathtakingly steep, but I'm not really buying it. Figuratively and literally. I've got about a couple of reasons for that, one fundamental and one technical. Fundamentally, while the US economy appears to be in the process of recovery, there are a couple of leading economic indicators that appear to have been rolling over in the past few weeks. Consumer spending had been flat in Apr 2010, while business activity has been growing less than expected.

On the technical front, you will see two opposing forces at work in the chart above. If we are looking at short-term trending (if you could call it that), then yes it appears that there has been a sharp upside reversal in the last few trading sessions, with oil prices hitting a local minimum in the $67 region, and they even seem to be on track to break above the 200-dma level. Which ought to be bullish. However, on a longer-term basis, there is a looming Death Cross in the process of formation, which is a 50/200-dma downside crossover. Now, as they all say, a technical formation isn't a technical formation until it is actually completed, but I wouldn't really want to bet against 50/200-dma crossovers if I could help it. Which is bearish, and further, that's on a longer-term basis.

Meanwhile, Business Week reports that : crude oil futures are "very weak" and are poised for a drop to $58, according to a technical analysis by Newedge Group. "The picture remains very heavy" for oil, and the trend is still down, said Veronique Lashinski, a senior research analyst for Newedge USA LLC in Chicago. After settling below $70, the next support level on a weekly basis is at $65.05 a barrel, and below that $58.32, according to Lashinski. - those support levels are roughly near what I've mentioned earlier. But of course, if it breaks the local high above $87, then the picture changes somewhat and we're back on track to $100 oil. Well, you never know.

(2010-05-31 12:39:55 SGT) [Energy] Permalink

Sunday May 16, 2010

NYMEX crude oil prices plunge to $70 on US supply glut, euro contagion fears

channelnewsasia.com :

NYMEX crude oil prices tumbled to 3-month lows on Fri [14 May 2010] at the end of a volatile week in which the market was hit by eurozone economic concerns and a strong dollar. NYMEX light sweet crude for Jun 2010 delivery closed at $71.61 per barrel. The price had tumbled to $70.83, the lowest level since Feb 2010, before recouping some of its losses. Prices fell when American crude stockpiles rose by 1.9 million barrels, more than double the amount forecast by analysts. Crude oil prices had already collapsed by more than 10% last week as the market was rocked by euro contagion fears about the Greek debt crisis, a stronger dollar and sliding global stock markets.

The oil market had begun the week on a bright note, soaring on Monday after a $1-trillion EU-IMF eurozone rescue plan eased market concerns over the eurozone financial crisis. However, prices have since fallen as market enthusiasm waned for the massive bailout plan, while concern grew about higher Chinese inflation that could slow global economic growth. Oil also took a major hit from a stronger USD. The EUR/USD forex rate tumbled under 1.24 on Friday, plagued by concerns about debt and deficits in the eurozone. The IEA cut its projection for global oil demand this year in the face of public finance pressures in Europe that could drown recovery "in an ocean of public debt."

- What a difference a few weeks make. When earlier, oil prices were hitting local maximums of over $87, the prognosis was for economic recovery and there was talk about crude oil options going into the $90's and $100's, but then oil failed to reach those levels when the euro crisis hit. The euro contagion fear has been driving, among other things, the huge Dow 1000-point fall, a flight of safety into bonds and treasury instruments, and it has taken oil down $13 in 2-3 days and now oil prices are down in a waterfall-like drop of over $16 in a matter of a week or so.

A huge fall, but now I am looking at the next possible support levels being $70, $65 and $60 respectively. In comments I made to fellow investors earlier this week, I noted the following : meanwhile oil is down and gold is up. When I issued the "sell everything call", it was way early but I did manage to sell off [much of my risk holdings]. So far, -1 for buying back oil though nobody could have predicted the Dow 1000 meltdown and $13 oil fall, +1 for buying back gold on an an up trend and breaking new records. By breaking below $80, oil is now on track to hit the $70 support level and if that fails $65 and $60 are next supports. Remember though that tar sands operations, a critical energy source now that light sweet crude has peaked worldwide since May 2005, start turning unprofitable below $80 and start outright shutting down below $60 so we could have some support there.

In the big scheme of things, the contrarian community has already worked out a road map on the transition from a sovereign debt crisis to a currency crisis, which we are now witnessing. The next few stages could be even uglier and it's not just me saying that. If the world continues to go in the same direction, we are headed for bankruptcies, defaults, interest rate surges, and possibly worse. $60-70 oil could look like pretty decent prices then.

(2010-05-16 10:59:32 SGT) [Energy] Permalink

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