June 9, 2011
After six consecutive down days in the market, futures are bid up slightly this morning. History is on the side of the bulls today as there have been nine instances of the market declining for six days over the past 15 years, and on all but one instance the market rose on the 7th day. According to Bespoke Investment Group, if the S&P closes down for the week, it will be the sixth consecutive losing week for the market (the S&P is down 6% from its high), only the 17th time since 1928 that a losing streak has lasted that long.
Initial jobless claims missed the mark once again, coming in at 427K. Job openings are down significantly from historical levels, with only 3 million openings nationally versus 4.7-5.0 million under typical circumstances.
The trade deficit narrowed slightly for April, coming in at $43.7 billion, a decline of $3 billion from the prior month. Exports rose $2.2 billion while imports dropped by $1.0 billion on lower imports of automotive vehicles, parts and engines as well as a $2.4 billion drop in crude oil. The auto weakness is expected to be a temporary repercussion of the production disruptions caused by the Japanese earthquake.
A UN Food and Agriculture Organization report yesterday showed that global food prices have jumped 37% year over year. The “dangerous levels” of food prices has pushed about 44 million people into poverty since June 2010, according to the World Bank. Another 10 million may join them should the price index rise by another 10%.
Margin debt has been rising while the market weakens, and a further weakening could cause an unwinding of leverage that puts further pressure on the market. The chart below (www.kimblechartingsolutions.com) shows NYSE margin debt versus the S&P 500. As you can see, there have been two prior occurrences in the past decade of high margin debt and a technical breakdown in the market, albeit from more extreme levels. Both times occurred at market tops, just prior to bear markets.
Exxon announced a major oil and gas reserve discovery in the Gulf of Mexico. The company estimates the find could produce 700 million barrels of oil. The big question will be whether the Administration will actually let them develop those reserves.
Steven Eisman is leaving FrontPoint Partners as the firm liquidates his funds amidst client redemptions. The firm reportedly had $7 billion in assets in November, just before one of the firms portfolio managers was charged with insider trading.
APAC markets were weak last night on concerns about global economic growth. Japan reported that Q1 GDP was weaker than expected, falling by 3.5%. EMEA markets are up this morning.
Have a great day