- Economic data, post-Bernanke blues, general market weakness lead to a renewed selloff, but then the indices post a rather impressive reversal.
- US and a few others pony up 60M bbl of oil from the reserves . . . right after oil broke its trend.
- Jobless claims continue their rise.
- May New Home sales fall 2.1%, but not as bad as expected.
- Bernanke, Part 2: What the Fed chairman doesn’t know can hurt you.
- Market reversal puts the upside back on, but until proved otherwise, any upside is still a relief move.

MARKET SUMMARY

Market battles through many undercurrents, reverses off key levels, trying to resurrect the relief move.

Even BEFORE the economic data and the announcement the Obama Administration would play the Strategic Petroleum Reserve (SPRO) political card and release 30M bbl of our oil, stock futures were lower and oil prices were $4 lower. It appeared the relief rally was dead as SP500 was falling away from the 1295 resistance once again. China and the EU both reported weak manufacturing data, China logging its slowest pace in 11 months. Be careful what you wish for China; central banks have more wrecks to their credit than a Bangkok intersection at rush hour.

When the weak jobless claims hit, futures sank even lower. Then a crazy story hit the wires: the US along with a handful of other nations, was releasing 60M bbl of oil from their strategic reserves. As is usual the US is footing most of the bill, releasing 30M from our strategic reserve.

As a senator Obama said the SPRO should only be tapped for a ‘cataclysmic’ events such as a terrorist attack our serious supply disruption. Hmmm. Does that include the Administration halting drilling and production in the Gulf of Mexico? Apparently not. How about Libya going offline at 2M bbl/day and the US prolonging that with an unauthorized war? Again, apparently not. Does oil breaking its trendline and falling $115/bbl to $94/bbl along with gasoline falling from $4/gallon to $3.60/gallon nationally BEFORE the oil release announcement constitute a ‘cataclysmic’ event? Apparently so.

It is also apparent this is wholly politically motivated for the very reasons cited above. Less than two days of US oil consumption and a week of US imports (at 9.5M bbl/day) is insignificant. What is significant are the policies that are causing the spike in gasoline. A purposeful gutting of the US dollar is the headliner as the dollar has declined 20% on Obama’s watch, pushing oil, denominated in dollars, higher by a commensurate amount. Then there is the closure of the Gulf of Mexico to drilling and only a begrudging restart to permitting. Other areas are completely cordoned off. Coal plant regulations are made so onerous that coal plants are falling offline just as Obama said his plan would require. Less coal fired plants means more reliance on oil and its by-products, increasing the price. Then there is that pesky war that isn’t a war in Libya. It isn’t helping get the 2M bbl/day back online one bit.

Did any real event cause the release? Yes. It was Ben Bernanke stumbling through his press conference on Wednesday, admitting that the Fed was just not sure WHY what they thought would be a transitory slowdown and bounce in inflation was not so transitory, forcing the Fed to lower its economic forecast and raise its inflation forecast. It was another string of pathetic economic numbers that again remind all thinking, coherent citizens that economists still holding onto Keynesian economic theories should NEVER be appointed to governmental positions. The President’s fiscal policies and economic theories have not worked. Or they have worked depending upon what you believe the agenda is. Either way the US populace is burdened with an ongoing depression that is still eroding the foundations of our economy even as the popular press reports it is recovering. Obama is a political animal, so he understands this. If only he were a leader with the US’ best interests as his best interests then we might get out of this.

The irony of all of this: we are willing, once again, to give up some security in order to lower the cost of oil temporarily, but we refuse to drill our own massive reserves of oil and natural gas to work a long-term decrease in price. If we had started 20 years, 10 year, even 5 years back we would have a BIG say in the price of world oil. Now all we do is bow to foreign oil sheiks and feebly release a few million barrels of oil when politically necessary, claiming we are getting back at the oil ‘cartel.’ Again, you want to ‘get back’ at the cartel? Drill and prove up several billion barrels of oil reserves and work at converting your land-based vehicle fleet to natural gas. Then we could drop kick the OPEC countries wherever we wanted.

But, I digress.

As I was saying, futures were already disturbingly low before the economic data, fell on the data release, and the news of the oil release didn’t help. Investors figured something must really be bad for the release. They were right: Obama’s poll numbers. The last time the SPRO was tapped was after Katrina and the decimation of Gulf oil production and many refineries. Compare that to the current situation. What tragedy or shock is out there? Oh yes, Obama seeing that his poll numbers of those who would not vote for him no matter what rising to 50%.

But there I go again.

Commodities, including oil, were in the toilet and stock futures were pointing to a sharp downside gap. They did. After a selloff and more bad data from new home sales, however, stocks managed a bounce. SP500 found its 200 day SMA again while NASDAQ tapped near its March low once more. Both found purchase there and climbed off the lows. That bounce steadily recovered through lunch, but then stocks sold again; looked as if the sellers were back on their game, ready to drive stocks lower.

Then a new bid entered with just over 1 hour left. Stocks jumped and within 5 minutes had recaptured the session high. They rallied into the close with NASDAQ, SP600 and SOX turning positive. We saw the move and issued some bonus alerts on SSO and SMH positions. If the relief rally wanted to try again, we were more than willing to play along given we were getting very good risk/reward entry points.

No new ground broken but the reversals were impressive, occurring on stronger volume as buyers piled in at those support levels. It certainly looks as if the relief rally wants to try its hand once more. With this second try that spit in the face of the downside, perhaps the move travels farther than thought, maybe approaching that February peak. It will have to prove it. After all, this is still just a relief rally unless and until it proves otherwise. Of course we are not picky with whom we dance with; we just want to get in on good dances.

NASDAQ 0.66%; SP500 -0.28%; DJ30 -0.49%; SP600 +0.13%; SOX 1.47%

On Friday there is more important economic data. It is the third reading of the Q1 GDP. It was 1.9%, and it was originally reported over 2%. It is expected to come in at 1.9% on the final. Most of the data is in, so it will probably hit it. If anything I would say it might bump up a bit because of the crazy export versus import data. It does have potential to be less as well. A lot of smart economics not those at the Fed or those that follow the Keynesian and Phillips Curve economic theories are looking at the numbers and what real growth is. They say we will be damn lucky to come in with 2.2 or 2% in Q2, Q3. Some are saying not even damn lucky.

Perhaps the administration wanted to get out ahead of the numbers and announce the release from the SPRO in order to generate some positives. If GDP comes in less than 1.9%, this will be one of the ugliest strings of economic data we have had in a long while. We are in the last part of June, and things are getting worse and worse. If we had 1.9% in Q1 and things have steadily eroded in the economy since then, why are economists, brokerage houses, and other analysts saying that we will have somewhere in the neighborhood of 2.5-3% growth for Q2?

It is all because of export/import balance. They are saying that because the exports rose a bit unexpectedly and imports fell a bit unexpectedly, that will change the GDP outcome. Maybe it will, but historically, if we export more and import less it means our economy is not performing well. It would be doing well if you are for the exporting economy where we do not grow our own small businesses, technologies, and new services (and therefore new jobs and a higher standard of living). For a lot of us, that is the American Dream. That is what we are all about. I know that things are not really good if you are just basing your analysis of economic health on our exports versus imports.

We will have some economic data, but the technical picture is also very important right now. There is a general sense that the economy is in dire condition. The market stock indices are showing that to be the case with this rounded topping pattern. The question now is whether we get the bounce that has been trying to form since the market failed on this late-May rally. Then it tumbled down to the 200 day EMA and the March low on the SP500. It rallied last week, and it sold back this week but there was a massive reversal. It either goes up from here or it reverses. If we do not get some kind of rally out of this reversal, then the tank is empty and it will head lower.

What will we do tomorrow? It is Friday and we have had a tremendously volatile week. We will see if there is a continued rally. If there is, we let it go. Hopefully we will get a nice, strong move up near the 50 day EMA for the SP500. That is a hell of a move. It will require about 20-25 clicks, and it can do it. The market reversed 20 points from low to close on the session. It can do it, but it is a question of whether there is enough momentum to carry it that high.

I would love to see a rally up to the 50 day EMA and maybe even beyond maybe to the early-March peak. That would give us nice gain on our upside plays. We took some off the table yesterday. I am happy we did this morning, and I am still happy even though we had the reversal. Now if we get more of a gain to the upside, we can ride those further and bank gain on them. We are not going to risk them falling off the cliff. As I said, this is a relief bounce until it proves otherwise. Nothing has really changed. The economic data is still terrible, and the stock patterns are still terrible. A lot of stocks are showing that they are in trouble and eroding. Yet there are still some plays and stocks that look very good. Many retail stocks still are moving higher, coming off of good tests of support. DDS is just one of many showing this kind of action. With retail moving up, there is still some leadership out there that we can ride to the upside. That provides hope for the market overall.

Again, it will have to prove it has that kind of strength. Frankly, I do not see it from the patterns and the economic data. We have a serious problem when our Fed chairman says they do not really know why the slowdown is as slow as it is and will not pick up steam. We have the wrong man at the helm for the Fed. It is a bad situation to have the wrong man at the helm of the economy and of the government based on the economic policies that are being promulgated.

It reminds me of a Star Trek episode. Spock was having a command argument with the captain of another ship that had taken charge while Captain Kirk was lost. Spock was ultimately going to relieve the captain from his command because, based on the facts, what he was ordering was suicide. When you promulgate the same policies that did not work in the Great Depression (and extended it) and promulgate the same fiscal and monetary policies that helped lead to a decade of malaise in the 1970′s, you are effectively committing economic suicide.

I will not be the one to say that is grounds for removal. Under our Constitution, it is not. But when it comes time to think about whom we want leading, either he will have to get someone who understands economics in there, or just give it up. I do not know how else to put it. In any event, things do not look that great economically. As I have said over the last couple of days, and it has helped out, I am open to change. That is one thing the market has taught me over the years. Watch what the market does. Watch the trends moving, and when the market moves you go with it instead of fighting it.

It has been choppy lately, but we have been able to ride through it with some profit. We will see if we can make more to the upside if this reversal continues. Then we will keep the same game plan. We will look for a turn to the downside after the market rallies back up to levels that we think are logical resistance points where it could stall out. If it does, we will take gain and be ready for the downside.

Jon Johnson