Chicago PMI: Trick Or Treat

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Chicago PMI, a gauge of manufacturing in the Midwest, surged to 65.9 in October, from 55.7.

This is the highest level since March 2011, and the biggest monthly increase in over 30 years.
This crushed expectations for 55. READ

The Chicago PMI roared higher as new orders hit 74.3 from 58.9 in a Halloween surprise. It’s the highest since 2004.
Back Logs & New Orders: LINK

Prior 55.7

New orders 74.3 vs 58.9 prior

Employment 57.7 vs 53.2 prior

Prices paid 56.7 vs 57.1 prior

Production 71.1 vs 58.0 prior

Huge jumps in all the segments except for employment which still posted a decent gain. Biggest monthly increase in 30 years, new orders highest in 9 years.
Order backlog rose to 61.0 from 46.7 which twinned with new orders means that businesses may look to new employees to clear backlogs or to increase capacity.

Santelli: The WOW! factor of the Chicago PMI

 

 

 

Currency Glance: Dollar, Yen & Euro

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The U.S. dollar swung higher against some rivals on Wednesday after the Federal Reserve held monetary policy steady, in line with expectations.

ITZ takes a look at some currencies charts:

Stock Market Valuation?

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Is the market under, over or fairly valued? ITZ takes a look at several charts and market views.

As of today, the Total Market Index - Wilshire 5000 $WLSH is at $18794.5B, which is about 112.8% of the last reported GDP. A ratio of 75% to 90% is fairly valued. Ratio = Total Market Cap / GDP
Current ratio suggests Over Valued.
Warren Buffett’s favored measure is “the market value of all publicly traded securities as a percentage of the country’s business–that is, as a percentage of GNP.”  LINK

Recently, legendary investors like Warren Buffett, Stan Druckenmiller and Carl Icahn have recently come out with cautious statements on the stock market (via Business Insider). Buffett echoed the views of private equity investors that he can't find much value in the market.

Ed Yardeni doesn't expect that the current Q3 earnings season will have much of an impact on earnings expectations for 2014 and 2015, which he remains quite bullish at $122.38 and 134.56 per share, respectively. So forward earnings, currently at a record $119.73, should continue to gain altitude, which is bullish for the flight plan mapped out by Blue Angels for the S&P 500, depending on forward P/Es, of course. The forward P/E of the S&P 500 is at the highest since January 19, 2010.
Earnings & Valuation: Yardeni Research

David Bianco, Deutsche Bank, and Barry Knapp, Barclays, discuss whether underlying market trends are getting better and how best to position your portfolio on a pullback.

 

Short The XLE

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ITZ is taking a full position in Direxion ETF (ERY), which is leverage 3xs Inverse to the Energy Select Sector SPDR Fund (XLE).

XLE largest positions   XOM   CVX  SLB    daily charts 

Metals Update: Gold, Silver, Copper SLW FCX

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Gold rose over 2% to three-week highs on Tuesday as weak U.S. jobs figures raised expectations the Federal Reserve will continue into next year its massive stimulus program that has bolstered bullion prices.

ITZ noted Gold was heading higher back in September READ

Crude Testing ITZ Target Level

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WTI Crude Oil is now testing ITZ $99/$98 downside target. READ Oct 9th Post

Below Chart: December Crude chart up against Proshares Ultrashort Crude Oil (SCO) ITZ has entered Three 1/4 positions $27.80; $27.25 & $30.75 LINK

ITZ suggests using an 8-ema on the daily chart as a trailing stop currently $30.75

Link to Weekly CLZ13 and COT

Dennis Gartman: noted on CNBC that WTI Crude is heading to $85 LINK

More Upside For Apple (AAPL)

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Apple's last 12 months have been challenging, shares have dramatically underperformed the market with the it's stock price falling from over $700 to under $400. Earnings in April showing the first year-over-year profit decline in more than a decade.

Carl Icahn revealed a major stake in Apple stock, a $100 billion buyback and dividend program has stabilized AAPL shares. Calling the stock a 'No Brainer'!

iTunes Radio: Launched at the end of September, iTunes Radio is a streaming option akin to Pandora.

Dueling iPhone Sales: It’s still early, but initial reports indicate that Apple made a mistake with its move to split pricing up into a cheaper iPhone 5C line and the iPhone 5S built in the typical way.

iPad Refresh:The company is planning to make those announcements during a Tuesday October 22nd event in San Francisco.  Apple Event Link

Global Growth: Apple continues to push forward with a mission to gets its iPhones on the world’s largest telecom — China Mobile.

The Next Big Thing: From wearables to an Apple flat screen television to other hardware or software that exists only in rumor on random AAPL blogs, it’s reasonable to expect Apple will finally show us something beyond its flagship iPhone and iPad lines. After all, Mac sales are pressured by the move to mobile just like PCs, and the iPod has become a redundant device in an age when just about anything can play digital music. Apple stock can’t afford over reliance on legacy products, so whatever else we see in the near future from Cupertino could be a tell as to how things will shake out in the product development queue for years to come.

27 STUNNING Apple Concept Products From The Future

Apple plans to announce its fourth fiscal quarter results immediately following the close of the stock market on October 28. Apple  revised guidance upward last month... Read

ITZ forecasts a Q413 earnings per share of $7.75 and revenue of $36 Billion. With a price target of $550 by Jan 2014 & a 12 month objective of  $650.

click on charts to expand images

 

Buffett sides with Apple against Icahn's call for buyback. LINK


 

Consumer Sentiment At Nine Month Low

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U.S. consumer sentiment deteriorated in October to its weakest in nine months as the first federal government shutdown in 17 years undermined Americans' outlook on the economy.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 75.2 in October, down from 77.5 in September. This was the lowest figure since January.

Consumer confidence posted a surprisingly small decline in early October despite widespread awareness of the government shutdown. The survey showed a modest pickup in household plans to buy cars and homes. However, things can quickly change if the impasse continues... further deterioration in consumer sentiment is possible.

It is important for investors to pay attention to these potential risks that are on the horizon.
Considering the tight correlation between consumer confidence and equity market returns in recent years, any event that has the potential to erode consumer confidence could result in losses in the equity market as well.

 

 

Is Crude Oil Set To Break Below $100 Soon?

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Crude oil & gasoline inventories in the U.S. moved up during the week ended October 04, official data showed Wednesday.

The U.S. Energy Information Administration in its weekly crude oil report said U.S. commercial crude oil inventories increased 6.8 million barrels to 370.5 million barrels last week, and are above the upper range for this time of year.

The week before, crude oil inventories increased 5.5 million barrels to 363.7 million barrels.
Moreover, total motor gasoline inventories moved up 0.10 million barrels last week, after adding 3.5 million barrels in the prior week, and are at the top of the average range.

Analyst expected crude oil inventories to add 1.4 million barrels last week.

Meantime, U.S. crude oil imports during the week averaged about 8.0 million barrels per day last week, down by 320,000 barrels per day from the previous week, official data revealed. Over the last four weeks, imports have averaged just under 8.0 million barrels per day, 5.5 percent below the same four-week period last year.

Year-to-date, oil futures have gained around 9%, but strategists at Bank of America Merrill Lynch reiterated their view that West Texas Intermediate crude prices will fall below $100 a barrel this quarter. Read

ITZ is currently short WTI Crude Oil via Proshares Ultra Short Crude Oil ETF (SCO) see comments section LINK or follow up to date posts on TWITTER

Indicators Give Overbought Signals

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Each month, the New York Stock Exchange (NYSE) releases data on the customers of clearing firms overseen by the NYSE. This data includes that of margin debt and free credit balances. NYXdata website

The value of credit balances, which represents free credit in investor cash accounts, plus credit balances in margin accounts, less margin debt. Net credit balances can be positive or negative.

 When credit balances are positive, investors have surplus cash to invest, or dry powder.  Extreme negative credit balances mean investors are significantly overextended, suggesting that investors are “irrationally exuberant.”  The most extreme negative credit balance levels observed in 2000 and 2007 coincided almost exactly with cyclical market tops, which preceded periods of devastating losses for equity investors.

One has to ask if the markets are now approaching a cyclical top?

The first chart shows the percentage growth of the two data series from the same 1995 starting date, again based on real (inflation-adjusted) data. Over the 250% level raises a warning flag, the market even by Warren Buffett's standards is fairly valued link

Investors are overextended and leverage has hit levels not seen since the 2000 tech bubble.  Equity prices and earnings have recently diverged (negatively), the S&P 500 price-to-sales ratio has climbed to extreme levels, and sales growth has stalled.  The market is overbought (long-term not short-term), overvalued and investors are overextended.  Does this mean the market cannot continue to climb higher?  Of course not.  All experienced traders know the market can stay irrational longer than we can stay solvent.

However, for prices to continue to advance, the market must become more overbought, more overvalued, and investors must become even more overextended.  In the current environment, the odds are clearly stacked against equities and the risk of a pullback is elevated.


Margin Debt:  Provided they are approved to do so, a customer may borrow funds from a brokerage firm.  The brokerage firm will not do this unless the customer has existing collateral (i.e. stocks) in the account against which the customer can borrow.
Free Credit:  When a customer sells stock in a margin account (or a cash account), they are considered to have a free credit.  This is essentially just another name for cash.
Available Cash:  The difference between free credit balances in cash and margin accounts and debit balances.  Customer accounts can be thought of as a balance sheet, with liabilities (margin debt) and assets (free credit balances). 

Granted, the above charts are compelling and raise a caution flag, however this is just on measure. ITZ asked, what about Price Earnings (PE) for the S&P500?

Is the market over valued here? 

Here is a new update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly averages of daily closes for the past month. PE10


 

Crude Oil Update

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ITZ continues to target the $98/200ma level on WTI Crude Oil.

The American Petroleum Institute reported a climb in crude supplies that was much more than expected. The API said supplies rose 4.5 million barrels for the week ended Sept. 27 >Read

As far as ITZ knows, EIA reports tomorrow 10:30am.

Oil Futures Fall on U.S. Government Shutdown >Read

ITZ had entered 3 (1/4) position trades see more @ LINK