Thursday, March 22, 2007

Friday Curtain Raiser

10:00 ET features the release of important economic data - Existing Home Sales, or sales of used homes. Sales for February are expected to fall to annual rate of 6.26 mln after rising in January to 6.46 mln. This is a data series is produced by the National Association of Realtors so no matter the outcome, we can expected good ole' David Lereah, the NAR's chief economist, to spin it some in way to make it seem as if we're in real estate nirvana. Lereah could have found good spin following that shooting incident at Ford's Theater back in 1865 if he were spokesman for a guy with the last name of Booth. By the way, there is actually a good blog that covers the ridiculous things that Lereah says called, David Lereah Watch. It's worth checking out.

I don't like what I'm seeing on the rail data front. For half a year the rate of growth in total rail traffic has been coming down. Last year it had been growing by as much as 5% over the previous year, now traffic contracting by a little more than 2-1/2%. Figures as of 3/17 provided by show an alarming statistic: Intermodal traffic contracted by nearly 6% last week versus the year before! Intermodal which is largely a reflection of imported goods in trailers that are offloaded directly from ships at port onto rail cars and then transferred to rigs and trucked to their final destinations had maintained a fairly robust pace with a 4-week rolling average of 4.8% growth rate. This is definitely a development to watch and something that will keep my trigger finger itchy on the SPY calls; weather may have played a role, but other already weak catagories were actually showing improved growth rates over their 4 week rolling averages.

Let's talk gasoline. Gasoline is early this year - early to its seasonal rally.

Even during last year's high falutin' action, gasoline gave us a V-bottom in mid-February '06, in '05 gasoline was actually late and didn't surge until mid-May. This year the seasonal move started in late January and is hasn't looked back. Why? The answer is fairly simple: strong domestic gasoline demand. Inventories have been down six weeks in a row and we're a little more than 10 mln barrels above the alarm bell 200 mln barrel storage mark. There's no doubt that we're starting to look on the overbought side here, though MACD still leaves room from an extreme spike. As refiners complete maintenance and gear up for summer demand production one of a few things is going to happen: either crude oil is going to rise as crude stocks are drawn upon to make more gasoline, or the price of gasoline is going to fall as that new production hits storage. The higher crude option makes sense to me. Stephen Schork of the Schork Report points out that the crack spread - now at astounding heights above $20 - will one way or another be coming down.

Natural gas had its first injection of the year with 17 bcf going into underground, a draw of 2 bcf was expected. That should have been bearish, but nat gas maintained a bid through the day on worries this year's hurricane season will be active.

A few other evening developments...

Blackstone Going Public—Its Own Way

Nike may move lower Friday morning after margins disappointed.

Palm (PALM) earnings beat street estimates, but the company guided to a lighter revenue outlook; the net effect was a 14-cent after hours rise. Management staunchly refused to answer several questions posed by analysts during the conference call about a possible takeover of the company. It was a tension filled CC; the refusal to answer has left everyone guessing.

Since Sabre (TSG) is being bought Kraft (KFT) is being added to the S&P 500.
Since Lenox Group (LNX) no longer qualifies, it's being booted from the S&P 500 and Newport Corp (NEWP) is being added. Both sets of changes effective end of business day 3/30.

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