Thursday, July 1, 2010

New quarter starts with same old economic problems

At the opening, stocks sank & are heading lower. Dow is down 119, decliners over advancers 7-2 & NAZ is off 29. Banks are leading the way down as the Financial index broke thru the important 185 support level.

S&P 500 FINANCIALS INDEX

Value 181.42 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change -4.22 (-2.3%)



After an excellent Q2, this is payback time for MLPs. The problem with being the darling of many money managers is they are fickle, as shown today. The Alerian MLP Index dropped 7½ to 301 & that 300 level is proving to be tough to break thru & hold. The REIT index fell 2 to the 185s. Junk bond funds fell maybe 1%. The VIX, volatility index, rose ½ to the 35s as investors are getting more nervous. But Treasuries are in demand. The yield on the 10-year Treasury note fell another 4 basis points to 2.91%. At the lows for that yield in early 2009, it was just above 2%.


Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




VIX --- 2 weeks




10-Year Treasury Yld Index - 2 weeks





Oil pulled back sharply like the stock markets. But this time gold was also dragged down. However it's above the key 1200 support level which bulls hope will hold.

CLQ10.NYMCrude Oil Aug 1072.11 ...Down 3.52
.......(4.7%)

GCN10.CMX...Gold Jul 10...1,216.90 ...Down 28.60
.......(2.3%)



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Initial claims for unemployment benefits rose last week for the 2nd time in 3 weeks. Meanwhile, more than 1M have lost benefits & more could be cut off now that Congress has failed to extend federal jobless aid. The Labor Dept reported new claims for benefits jumped 13K to 472K. The 4-week average rose to 467K, its highest level since Mar. Remember that $800B stimulus package which was supposed to cure economic problems because of all the jobs it added? Claims have remained stuck above 450K since the beginning of the year. The economy received more bad news when 2 reports showed the housing industry is struggling now that tax credits for homebuyers have expired. Still, the biggest problem for the recovery remains the number who are unemployed along with the growing number who stand to lose gov support while they search for work. More than 1.3M laid-off workers won't get their unemployment benefits reinstated before lawmakers go on a weeklong vacation. The numbers could reach 3.3M by the end of this month if an extension is not passed. The charts below show how dreary these numbers are.

Jobless Claims in U.S. Increased Last Week to 472,000


Weekly jobless claims - 1 year

One-Year Chart for Claims (INJCJC:IND)


4 week moving avg - 1 year

One-Year Chart for 4 Week Moving Avg (INJCJC4:IND)



General Motors said US sales rose 11% in Jun, below estimates. Buick sales gained 53%, while Chevrolet rose 32%, Cadillac added 39% & GMC rose 45%. Sales of other GM brands, including discontinued Pontiac & Saturn, dropped 98%. Since Jun last year was bad, increase sales of only 11% is rated poor. Industry deliveries in Jun were expected to reach an annualized rate of 11.2M, down from 11.6M in May. Annual auto deliveries averaged almost 17M from 2000 - 2007 & fell to 10.4M last year (lowest in 27 years). June sale from the competition should be reported in the PM.

GM June U.S. Vehicle Sales Rise 10.7%, Below Estimates



Q3 is starting off on the wrong foot. The economic news was dismal & the jobs report will be released tomorrow before trading. For what it's worth the € is strong gaining over 2¢ to $1.24¾, an interim high. But the most important statistics today are the sinking yields on Treasuries. For example, the yield on the 2-year Treasury note is a mere 61 basis points. When that is the driving force behind investment decisions, stocks are in very troubled waters.


Dow Jones Industrials --- 2 weeks








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