Sunday, October 31, 2010

Itz Weekend Review: Trick-or-Treat

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The market has now priced in the election, a new Fed QE2 program and some pretty decent earnings surprises. Since Ben Bernanke announced QE2 on August 27th the S&P is up +13%. Now most expect the Republicans to win the house, the real unknown is can they take the senate too? One would expect selling into the news Wednesday or Thursday, but we could see a spike and selling hold off 'til Friday's Non-Farm Payrolls. The consensus estimate is for a gain of 62,000 jobs compared to the loss of 95,000 in September. Employment is about to get a lot worse but it won't show up in the payroll report. Currently a person can qualify for a total of up to 99 weeks of unemployment compensation when combining state and federal programs. Those extensions end on November 30th. Nearly one million people will stop receiving checks in December and another 3-4 million will lose benefits by April. Nearly five million people will no longer receive their weekly checks. The average check is about $300 that comes to a loss of $80 billion in spendable income over the next several quarters and could knock another sizable chunk off the GDP.
Bottom line, be prepared for some profit taking,however this will present an opportunity to buy.

This is the EIA chart of crude inventories for the last year. Note that crude inventories are at the high for the year. Last week saw a pickup in the pace of imports by nearly 1 mbpd. They went from 8.6 mbpd to 9.463 mbpd. Bearish signal for the energy bulls. The rise in inventory levels to 366.2 mb and closing in on the 22-yr high on May-1st 2009 at 375.3 mb makes it hard to be bullish about oil. Yes... global demand is rising but these are U.S. inventories and the WTI is priced based on U.S. inventory levels.

Oil going to $60 a barrell?

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