Forex Fundamental Reviews

Consumer Spending

2008-08-17T19:45:00.000-07:00

The U.S. economy is relaying mixed messages. The rest of the global economies have shown vibrancy and the dollar has remained weak, which in turn has supported exports from the U.S. An increase in exports is a positive for growth. That said, retail sales growth forebodes troubles on the consumer front.

Specifically, spending on high-value consumer discretionary items is on the downhill. Retail sales fell 0.1% in July, with the decline spearheaded by a 2.4% drop in motor vehicle sales. Sales excluding autos rose 0.4%, partly benefiting from higher gasoline sales. The core retail sales, which exclude autos, gasoline and building materials, rose 0.3%.

Food and gas have used much of the economic stimulus due to the fact that energy and food prices have risen significantly.
Wachovia Securities expects consumer spending for the second-half of the year to show a decline, primarily due to a decline in real household income growth and difficult credit market. Nevertheless, consumer sentiment seems to be making a turn for the better.
The preliminary reading of the University of Michigan`s consumer sentiment index for August edged up slightly to 61.7, although the increase was less than what many economists were predicting. Wachovia is of the view that the worst of the credit crisis is behind us, although it expects the workout to last for quite some time - at least till the end of the year.

However, one can derive some comfort from the recent steady descent in oil prices. Although falling energy prices could mitigate some downside risks to the economy, their impact on inflation environment is yet to be manifested.
The Labor Department`s inflation report for July showed that consumer prices rose 0.8% on a monthly basis, lifting the annual inflation rate to 5.6% from 5% in the previous month. Energy prices climbed 4% and food prices escalated 0.9%, with the increases in these categories due to higher gasoline prices and prices of food away from home, respectively.
The core consumer price index rose at a monthly rate of 0.3%, marking an annual increase of 2.5%. Meanwhile, another report released by the Labor Department showed that import prices rose at a staggering 21.6% year-over-year rate in July, marking the biggest increase since 1980.
Among the other important economic reports released during the bygone week, the Commerce Department`s trade balance report for June showed a narrower deficit of $56.8 billion compared with a deficit of $59.2 billion in May. Exports increased 4% on a monthly basis due to strong performances of capital goods, industrial supplies and auto-related products. Meanwhile, imports increased 1.8% in nominal terms, with the increase primarily due to an increase in oil prices. In real terms, imports declined 0.6%. The improvement in the trade deficit bodes well for second quarter growth.
Hopes of growth holding up well on the support provided by exports may evaporate, as most economies turned in dismal GDP data in the second quarter. The Japanese as well as the euro area economies showed a contraction in GDP.

The upcoming week`s economic calendar is fairly light, with only a very few market moving economic reports scheduled to be released. Traders are likely to focus their attention on the two housing market report for the week, namely housing starts for July and the National Association of Homebuilders` housing market index for August.
Additionally, some interest may be evinced on the results of the Philadelphia Fed`s manufacturing survey for August, the Conference Board`s leading indicators index for July and the producer price index for July.
Housing Starts, which were inflated in June due to a change in the building codes in New York City that forced builders to start multi-family constructions before July 1st, could see a reversal. Likewise, building permits for the month of July are also expected to see weakness.
According to Global Insight`s Brian Bethune, the supply cut in response to still relatively high inventories of unsold homes will continue to generate a large negative drag on overall growth in the second half of 2008.

The producer price inflation report is unlikely to generate much interest, given the fact that it is due to be released after the consumer price inflation report. Producers are not very successful in passing the higher input prices to consumers due to weak domestic demand. Economists expect a modest increase in the producer price index for July, as they expect seasonal factors to nullify much of the increase in gasoline prices. The pullback in gasoline price happened in late July to be reflected in the month`s producer price index.

Meanwhile, the leading indicators index is likely to continue to decline for the third consecutive month due to negative contributions from initial claims for unemployment benefits and stock prices. The coincident index, which measures current economic activity, is expected to remain in the same tight range it has been nestling in.

Monday
The National Association of Homebuilders` is scheduled to release the results of their survey on homebuilders` confidence on Monday.
The housing market index for July declined to a new record low of 16. The component indexes, namely the indexes gauging current sales conditions, sales expectations and buyer traffic also hit record lows.

Tuesday
A report on housing starts, which refer to the number of privately-owned new homes on which construction has been started over some period, and building permits, which is the number of permits issued for new housing units each month, is slated to be released at 8:30 AM ET on Tuesday. Economists estimate housing starts for July of 963,000 units and building permits of 949,000.

Housing starts rose 9.1% in June to a seasonally adjusted annual rate of 1.066 million units from a revised rate of 977,000 units for May. Economists had estimated housing starts to come in at an annual rate of 960,000 units compared to the initially reported reading of 975,000 units.
However, on a year-over-year basis, housing starts declined 26.9%. Building permits, a leading indicator to housing starts, rose at a monthly rate of 11.6%, but they were down at a year-over-year rate of 23.9% to 1.091 million units.

The U.S. Labor Department is scheduled to release a report on the producer price index for July at 8:30 AM ET on Tuesday. The index measures the average change over time in the prices received by domestic producers of goods and services. Economists expect the headline index for July show 0.6% growth and the core reading to show 0.2% growth.
Producer prices for June showed a 1.8% increase, while the core producer price index increased 0.2%. Economists had expected the headline index to show 1.3% growth and the core reading to show 0.3% growth.

Food prices rose 1.5%, while energy prices showed 6% growth. On a year-over-year basis, the producer price index rose an unadjusted 9.2%.

Wednesday
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 AM ET on Wednesday.
The weekly petroleum inventory report for the week ended August 8th showed a 0.4 million barrel-drop in crude oil inventories to 296.5 million barrels. Crude oil stockpiles are now in the lower half of the average range for this time of the year. Gasoline inventories and distillate inventories also declined by 6.4 million barrels and 1.7 million barrels, respectively. Refinery capacity utilization averaged 86.8% over the four weeks ended August 8th compared to 87.7% in the previous week.

Thursday
The Labor Department is due to release its customary weekly jobless claims report at 8:30 AM ET on Thursday.
The number of individuals claiming unemployment benefits declined 10,000 in the week ended August 9th to 450,000 from the previous week`s revised average of 460,000. Economists had expected claims to have eased to 436,000 from the originally reported 455,000 for the previous week.

The four-week average that removes volatility rose 19,500 in the recent week to 440,500 from the previous week`s revised average of 421,000. Continuing claims, which is calculated with a week`s lag, rose 31,000 in the week ended August 2nd to 3.417 million.
The Conference Board is scheduled to release a report on the U.S. leading index for July at 10 AM ET on Thursday.
The consensus estimate calls for a decline of 0.2% for the month.
In June, the U.S. leading index declined 0.1%, in-line with expectations, and marking the second consecutive month of declines. The board revised the May month`s small increase to represent a small decline. While the coincident index rose 0.1%, the lagging index fell 0.3%. Four of the 10 indicators that make up the leading index, namely building permits, interest rate spread, index of supplier deliveries and manufacturer`s new orders for consumer goods and materials contributed positively to growth.

Meanwhile, the largest negative contributors were stock prices, average weekly clams for unemployment benefits, average weekly manufacturing hours, the index of consumer expectations and manufacturers new orders for non-defense capital goods.
The results of the Philadelphia Federal Reserve`s manufacturing survey are due out at 10 AM ET on Thursday. Economists expect the diffusion index of current activity to show a reading of -14.1 for August, an improvement over the previous month`s -16.3.

The July survey showed that the manufacturing sector continued to contract. The diffusion index of current activity rose 0.8 points to -16.3 in July. Among the sub-indexes, the new orders index was unchanged at -12.1 and the shipments index fell 1.3 points to -8. Readings on pricing spelt trouble, with the prices paid index rising 6 points to 75.6, marking its highest level since March 1980. The future business activity index, though declining 3.3 points, remained comfortably in positive territory at 18.

Consumer Prices Increase By 0.8%

2008-08-15T19:49:00.000-07:00

Consumer Prices Increase By 0.8% In July

Consumer prices increased much faster than expected in the month of July, according to a report released by the Department of Labor on Thursday, with the price growth reflecting a continued increase in energy prices.

The report showed that the consumer price index rose 0.8 percent in July compared to an unrevised 1.1 percent increase in June. Economists had expected a more significant slowdown in the pace of price growth to 0.4 percent.

The Labor Department added that the core consumer price index, which excludes food and energy prices, rose 0.3 percent in July, matching the increase that was seen in the previous month. Core prices had been expected to increase by a more modest 0.2 percent.

PBR - Darvas Box

2008-07-26T14:54:00.000-07:00

PBR - NYSE. Petroleo Brasil SA Petrobras has formed a Darvas box entry at an all time high following a recent volume spike we had in April. The buyers are well in control of this stock as can be seen by the steadily rising OBV. Using the Darvas Trading Method, I would place a buy stop order to purchase the stock if it breaks out of its box, above the 77.61 high. I would place a tight Darvas stoploss just below the box, around 67.50 to protect the position.

ZOLL - Darvas trade

2008-07-26T14:53:00.000-07:00

ZOLL - Nasdaq. Zoll Medical Corp has formed a Darvas box near a previous historic high. The stock is rising in price and the buyers are well in control here as can be seen by the strong, rising OBV and recent volume expansions. This suggest a likely further move to the upside. A breakout of the box on expanded volume would certainly signal an opportunity to become involved in this stock. Potential target price of around $54.

CWTR - Turning Around

2008-07-26T14:51:00.000-07:00

CWTR - Nasdaq. Coldwater Creek Inc has been bottoming for most of this year after being sold off from its highs near $30. The buyers are now coming back as can be seen by the turn around in the OBV since mid January 08. A health sign of early accumulation taking place. A breakout of 7.00 on increased volume, perhaps ~ 10 or 15m would constitute an entry. Has gaps to fill at around $11 and the $17 so a lot in favor here for the medium or long term.

ROYL - Flag Up

2008-07-26T14:50:00.000-07:00

ROYL - Nasdaq. Royale Energy has formed a Flag Up following a sharp rise in price on a large increase in volume. The pattern has a measurable target price of around $15 that can be obtained by adding the height of the flagpole ($5.50) to the potential point of breakout ($9.50).

ACOR - Darvas Box entry

2008-07-26T14:48:00.000-07:00

ACOR - Nasdaq. Acorda Therapeutics has formed a Darvas box entry at a new high following a large expansion in volume. Rising OBV shows us the buyers are in control of this stock. A breakout of the top of the box ($33.00) would constitute a valid entry. A tight Darvas stoploss should be placed just below the $29.00 and raised up after a valid breakout occurs.

FRPT - Head and Shoulders Bottom

2008-07-26T14:46:00.000-07:00

FRPT - Nasdaq. Force Protection has completed a Head and Shoulders Bottom after breaking out above resistance yesterday. I would like to see the volume expand more, perhaps to around the 3-4m before getting involved. There’s a lot in favor here - OBV is rising since the March low implying the buyers have resumed control of the stock. The target price for the pattern is around 9.00 and there’s a pretty big gap to close around the 15.00 so a good stock to keep an eye on.

EXAC - Darvas box trade

2008-07-26T08:02:00.000-07:00

EXAC - Nasdaq. Exactech Inc has formed a Darvas box at a brand new high following a large change in trading volume. This stock is showing rising on-balance volume since the start of the year, which suggests accumulation. A breakout of the top of the box would signal an entry into the stock. A protective stoploss should be placed just under the 28.91 low, and trailed up as the trade unfolds.

FLIR - Darvas Box trade

2008-07-26T08:00:00.000-07:00

FLIR - Nasdaq. FLIR Systems, Inc. has formed a Darvas box at a new all time high following a series of large volume expansions. On-balance volume is rising and the recent volume change suggests something could be brewing. A breakout into fresh highs would signal an entry into this stock.

DR - Darvas Box trade

2008-07-26T07:58:00.000-07:00

DR -NYSE. Darwin Professional Underwriters Inc. This stock has formed a Darvas Box in blue sky following a large expansion in volume and is beginning to trend. Another example of a setup Nicolas Darvas discusses in his famous book, ‘How I Made 2 Million Dollars in the Stockmarket’. On-Balance Volume (OBV) has been rising since the start of the year showing us that the buyers are in control of the stock. A breakout into fresh new highs would no doubt signal an entry into DR. Protective stops should be placed as the Darvas Method tells us, that is a tick or two under the $30.00 low. Hold for upside on trailing stop.

AZZ - Darvas Box

2008-07-26T07:56:00.000-07:00

AZZ - Nyse. AZZ Inc. has formed a Darvas Box at a new yearly high following a large volume expansion. Since the sell-off in early April, OBV has been rising showing buyers interest in the stock. A breakout of the top of the box would signal an entry into AZZ. Following the Darvas Method, protective stops should be kept just under the 39.00 and raised accordingly once the trade moves into profit. There’s a gap to fill around the $58 level so should be of interest to the short to medium term trader.

RAME - Darvas Box Trade

2008-07-26T07:53:00.000-07:00

RAME - Nasdaq. RAM Energy Resources Inc. has formed a Darvas box at a new historic high following a couple of recent large volume expansions. This is the classic pattern that Nicolas Darvas constantly looked for and eventually made his fortune with. When trading the Darvas Method, we place a Buy Stop order with the broker to purchase the stock the moment it pushes through the top of the box, in this case 6.84.
Automatically upon being filled, a Stop Loss is entered a fraction below the bottom of the box to protect the position, here just under the 5.90 low. This stop is then trailed upwards to lock in profits as the trade unfolds.

APPX - Darvas Box

2008-07-26T07:51:00.000-07:00

APPX - Nasdaq. APP Pharmaceuticals, Inc. has formed a Darvas box at new yearly high. On-Balance Volume (OBV) has been rising since the beginning of the year. This suggests the stock is being accumulated. A breakout of the top of the box ($17.00) would signal an entry into the stock. When trading the Darvas Method, a stoploss should be automatically placed just under the bottom of the box, in this case, a tick or two under $15.50 to protect the position.

DMLP - Pennant Up

2008-07-26T07:50:00.000-07:00

DMLP - Nasdaq. Dorchester Minerals, L.P. has formed a potential Pennant Up following three days of strong rising prices accompanied by large volume. The best Pennants to trade are often those that form tight and fast following a good breakout. As is the case with any chart pattern, the volume must expand on the breakout with a decisive closing price above resistance. Measurable target based on the height of this formation is around the $42.00.

BUD - Darvas Box

2008-07-26T07:48:00.000-07:00

BUD - Nyse. Anheuser Busch Cos, Inc. has formed a Darvas Box entry at an all time high, following two large expansions in trading volume. Strong rising OBV shows the buyers well in control of this stock. A breakout of the top of the box would constitute a valid entry into BUD. Stop loss a tick or two below 59.00 should be used to protect the position.

ANPI - Head And Shoulders Bottom

2008-07-26T07:45:00.000-07:00

ANPI - Nasdaq. Angiotech Pharma Inc has formed a Head & Shoulders Bottom after a long down slide from highs near $30. OBV is beginning to turn around which suggests the stock is no longer being sold off. Again, I’d like to see a bit more volume on the breakout, perhaps 2m or more to confirm the validity of the pattern. There’s a big gap to fill around the 7.50 so could get interesting.

COT - Resistance and Rising Volume

2008-07-26T07:39:00.000-07:00

COT - Nyse. Cott Corp. There’s a number of ways to make money in the stock market. One is to buy cheap and sell dear. If you’re going to buy cheap, make sure your stock has formed some sort of a bottom and is beginning to turn around, preferably attempting to break resistance of at least a few months. Volume and on-balance volume must be rising to show that the buying pressure has resumed.

COT would fit such a category. Here we have a stock that’s been sold off from around $33 four years ago to below $2 after the final smash in late Feb 08. Since March this year, we’ve had a large change in volume and OBV has been rising ever since. A nice medium term resistance has also emerged. A breakout of this resistance could interest traders looking to take profit around the 5.50 level.