Keystone's Evening Nightcap 9-30-11

Some quickie notes to close the week out. The preannouncements were nearly non-existent except for the large egg dropped by IR at the open this morning with cutting sales and profit forecasts. This is a problem since it is such a noteworthy bellwether for not only the U.S. but the whole planet. 40% of their business is overseas so the sad news means the China bubble popping sound is getting louder. China is becoming a greater concern with each passing day because of the collapse in copper. What happens when you allow a building boom to get out of hand with the final stage using copper as collateral on mortgage loans?  The leaders are hoping for rural folks to magically pack up and come to the city immediately, to inhabit the 65 million living spaces available now. This is going to end badly. The China real estate bubble will make our housing bubble, which popped July 2005 and we continue to work thru currently, look like child's play.  China has uninhabited brand new cities for gosh sakes!

Retail, RTH, closed above its critical level tracked by Keystone's algo on Thursday but this quickly gave way at the open today. The RTH did regain the 103.75-ish level once today trying to ignite the market bulls but that petered out quickly. Then, late day, SPX 1140 finally gave way, the 1139 handle opened up the drop down to the closing print at 1131. For Monday, retail and utilities will remain the key drivers of the broad markets; we can review the specific levels as the weekend continues. Utilities are the only major sector that is helping to support the bulls, everything else is whoopin' it up at the bear camp.

The University of Michigan Consumer Sentiment data shows something very interesting. From Keystone's archived data, this sentiment reading number at 59.4, in the 50's, only had four other consecutive numbers in the 50's back in February/March of 2009, the market bottom.  Keystone tracks the preliminary and final numbers, so four numbers corresponds to two months of data. Today was the final monthly number.  The sentiment posted a 57.3 on 3/27/09, then on 4/17/11, posted a 61.9, moving back into the 60's. This exact period is when the markets made the March 2009 bottom back then, and now we see the same two-month stretch of sentiment in the 50's again.  Will a bottom happen again?  Thus, something to simply log into the noggin.

The CRB, commodities index, losing the 300 level is a very big deal today. This reflects the drastic drop in copper as well as other commodities, corn, and most every commodity is hit since the global recovery is in stall speed and China has all appearances that their major real estate bubble is about to pop.  Keystone's work shows that we are now in Disinflation, and with the lower CRB numbers coming, the path into Deflation is coming faster.   

Add to all this the Euro situation that continues along. Next week the ECB meeting will be important on Thursday morning and the Jobs Report on Friday.