Up Down and All Around

On Monday I posted an article that summarized the economic data we’ve seen over the past several weeks. Almost every single data point has been deteriorating since December/January. You can access the article here: 6% Down and Snapback to New Highs.

The data over the past two days has been somewhat confusing but still troubling…

The Richmond Fed Manufacturing Survey declined sharply with the headline number falling from +12 into contraction at -6. This marks the first time the region has been in contraction since July. The new orders component plunged from +14 to -9 and backorders slipped even further into negative territory falling from -2 to -8. The employment component fell from +14 in December, +6 in January to zero for February. The workweek component fell -13 points from +8 to -5 suggesting there was a shrinking of demand and worker hours were cut. The gap between new orders and inventories plunged from +2 to -22. Capital expenditure plans fell from 27 to 9.



Elsewhere, the housing numbers released today were some of the most confusing in recent memory. After a string of very poor US housing data in recent weeks, the January new home sales data came in much better than expected and saw home buys rise 9.6% y/y to their highest level in more than five years. Sales rose in the Northeast and South, but fell in the Midwest and West.

On the other hand, the MBA mortgage applications data for the week ending Feb 21st fell 8.5% to the lowest level seen in the series in more than 13 years (since late 2000). Something seems fishy in the new home sales as home builders just recently reported a big drop in confidence.

Still, even with all the disappointing data US equities remain near their all-time highs. This market is need of a catalyst and new Fed chairwoman Janet Yellen’s testimony in Washington on Thursday may provide the spark. It’s hard to believe new money will flood into the equity market with any conviction at these elevated price levels so we will be watching for false breakouts as possible shorting opportunities.

The bottom line for traders is to remain nimble. If the market fails here it could be a long way down, and eventually provide a great buying opportunity. I’ll be watching the following S&P 500 (ESH14) price levels for clues on direction: 1,830, 1815, and 1795/1800. A move below the latter with momentum should bring 1,765 into play and eventually the February low near 1,735.