• According to the Department of Labor, the figure for seasonally-adjusted initial jobless claims for the week ended June 9 was 386,000, an increase of 6,000 from the prior week's revised figure. The four-week average of 382,000, about 7,000 higher than the prior month's tally. It appears that initial claims are beginning to increase again as more people are re-entering the labor force. About 3.28 million people continue to collect unemployment insurance, a small drop from he prior month.
• Non-farm payroll employment in May was much worse than expected, posting a very disappointing increase of only 69,000 jobs as the economy continued to slow. Modest gains were reported in healthcare, transportation, wholesale trade and manufacturing, while construction suffered the biggest losses. Revisions subtracted 11,000 jobs in March and an additional 38,000 in April, making a bad report even worse. The total number of workers counted as unemployed increased to 12.7 million, which helped move the unemployment rate to 8.2%. The more comprehensive U-6 rate, jumped from 14.5% to 14.8%.
• Adding to the woes, 5.4 million people were unemployed longer than 27 weeks. The seasonally adjusted number of people who could only find part-time work rose to 8.1 million and the number of marginally attached workers held at 2.4 million. The number of people holding multiple jobs inched up to 7.17 million. The average hourly wages for blue collar workers actually fell to $19.71 and the average work week fell to 33.7 hours. On balance, this was a surprisingly bleak picture. There simply was nothing good about this report; no silver linings.
• The Congressional Budget Office (CBO) estimated that on a net present value basis, the Treasury reported a federal budget deficit of $129 billion for May and $845 billion for the first eight months of fiscal 2012, which was about $80 billion less than the same period a year ago, thanks primarily to higher tax receipts.
• The Census Bureau reported that the U.S. trade deficit of goods and services was $50.1 billion in April, down a bit from an upwardly revised March figure. I still expect the deficit to shrink a bit over time as we grow less dependent on foreign oil.
• The Census Bureau reported that privately owned housing starts reversed the losses in March, rising 2.6% in April. Housing starts are now 30% higher than a year ago, to a seasonally adjusted annual rate of 717,000 units. Also positive is that the results for the prior three months were all revised higher. New building permits were down 7% from the prior month but remained 23.7% higher than the year before. These are inconclusive, and mixed, messages.
• The National Association of Homebuilders/Wells Fargo Confidence Index gained a point in June to 29. This marks two months in a row of gains in builder confidence and marked the index's strongest reading since May 2007. While the June HMI is in keeping with our forecast for gradually improving single-family home sales this year, recent economic reports that have shown some weakening in the pace of recovery likely factored into the marginal gain, said NAHB Chief Economist David Crowe.
• The Census Bureau reported that on a seasonally adjusted annualized basis, sales of new homes in April rose 3.3%, and at 343,000 units, were 9.9% higher than a year ago. The estimate of homes for sale was 146,000, which represents only 5.1 months at the current rate of sales. The median sales price of $234,700 was the same as last month and about $8,500 higher than the rising 12-month moving average price of $226,208. For the second straight month, the reported number of sales for the prior three months were all revised slightly higher, so things continue to get a bit better.
• The National Association of Realtors reported that on a seasonally adjusted annualized basis, sales of existing homes were 3.4% higher in April to 4.62 million units, and remained 10% higher than a year ago. The estimate of 2.54 million homes for sale means there's an estimated 6.6 months supply on the market. The median sales price rose to $177,400 is well above the 12-month average of $166,000. Acute inventory shortages in certain markets (Miami, Phoenix, Orange County, North Dakota and Seattle) is helping to propel the average sales price higher.
• The bad news continues as the S&P/Case-Shiller Home Price 10-city index, which uses a three-month moving average to track the value of home prices across the US, slipped for the seventh straight month in March. The index is at its lowest level since the housing crisis began in mid-2006. The only silver lining is that the month over month change was relatively small. It's possible that we are approaching the bottom in existing home prices.
• The Institute for Supply Management (ISM) index of manufacturing activity was 53.5 in May, down from April. This marks 34 consecutive months of expansion in the manufacturing sector. New orders, production and employment all grew in May. The ISM index of non-manufacturing activity was 53.7, up a bit from April, which marked growth in the service sector for 29 consecutive months. These numbers continue to demonstrate that while slowing a bit, the business sector continues to expand.
• The Conference Board reported that it's index of Leading Economic Indicators decreased by 0.1% in April, a large decrease over the past two months. Says Ataman Ozyildirim, economist at The Conference Board: "The LEI declined slightly in April. Falling housing permits, rising initial claims for unemployment insurance and subdued consumer expectations offset small gains in the remaining components. The LEIs six-month growth rate fell slightly, but remains in expansionary territory and well above its growth at the end of 2011."
• According to the Bureau of Economic Analysis, the "second" estimate of GDP growth for Q1 2012 was 1.9%, which is down from the "advance" estimate of 2.2%. This further demonstrates the growing weakness in our economy, which is already down from the Q4 2011 GDP growth rate of 3%. The GDP growth rate was 1.8% in Q3, 1.3% in Q2, and 0.4% in Q1. The increase in real GDP in Q1 primarily reflected positive contributions from personal consumption expenditures (PCE), exports, private inventory investment, and residential fixed investment that were partly offset by negative contributions from federal government spending, nonresidential fixed investment, and state and local government spending.
• The Federal Reserve reported that in February the amount of outstanding consumer credit was $2.55 trillion, up 0.3% from the prior month. This is the slowest month over month rate of growth so far this year. Low interest rates leave Americans with no reason to save, creating more incentives to borrow and spend. But increasing concerns about employment will naturally inhibit consumers from taking on additional debt. This could hurt the retail business.
• Not surprisingly, according to the Census Bureau, retail trade and food service sales were down 0.2% in May, the first negative figure for the year, but still 5.3% higher than a year ago. While auto-related, clothing and electronics enjoyed the biggest gains, gas stations, building materials and general merchandise retailers reported the greatest losses. If consumers retrench in any meaningful way, it will have a very deleterious effect on the economy.
• The Federal Reserve reported that in May the six month rate of growth in the supply of M-2 (a broader view of money) was 6.3% after 6.7% in April. The supply of M-1 (the most narrow definition of money), on the other hand, rose "only" 7.7%. The rate of increase in the money supply has slowed the past two months. Is it any wonder that the stock market has fallen over the same period of time?
• It is no surprise that the Conference Board's Consumer Confidence Index fell again in May to 64.9 from 68.7 in April, given the terrible performance in the stock market in May, coupled with a slowdown in job growth and uncertainty throughout Europe. Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook. However, consumers were more upbeat about their income prospects, which should help sustain spending."
• According to the FDIC, only 2 banks failed in May, bringing the total number of bank failures in the first five months of 2012 to 24, which is a big improvement over 2011. It's clear that there will be far fewer bank failures this year than the 90 banks that failed in 2011, which was a big improvement over the record 160 banks that were either closed or merged into healthier banks in 2010, and 140 in 2009. By comparison, only 26 failed in 2008 and a negligible 3 in 2007.

Trends To Watch

It's no surprise that the dollar is so strong. Fears of the possible dissolution of the Euro is driving investors into the safety of the dollar. The temporary reprieve in Greece should temporarily halt the gains, but the situation in Europe will only get worse before it gets better. The question is can we have a strong dollar and gains in the energy and commodity space, and equities in general? The answer to this question will likely determine the direction of the market for the rest of the year.

The next three charts all show a similar declining wedge pattern with strong support. As the wedge tightens it creates pressure which hopefully will result in strong upward movement. First up is gold, which has been mired in a downward trend for about 10 months now. Note the the recent low of $1,526 is slightly higher the the prior low of $1,523. That could be important. I'd want to see action that not only takes the price of gold above the falling wedge, but also eventually above the last high of $1,792. Then the pattern will be broken. In the meantime, it would be very constructive if the price could move higher than both moving averages, and if the 50-day could move higher than the 200-day. Eye-balling the chart, the next resistance looks to come in right around $1,700.

The chart for silver is an even better example of the falling wedge as it has formed over the past fourteen months. Three times support has held just above $26 and the wedge has become very narrow, suggesting that the price move in silver could come sooner than for gold. Taking a position right now is very contrarian, and not for the faint of heart, yet it could pay off handsomely if/when the price again heads higher.

The action in copper isn't very dynamic right now, and the wedge hasn't tightened sufficiently to create much pressure. There is very strong support around $3.00 and resistance just below $4.00. To move the price much higher, we'll need to see some positive news out of China and a stronger GDP number domestically.

In May the price of West Texas Crude plunged $25 per barrel, or almost 23%, in a harrowing month of trading during which it blew right through support around $90 before halting the decline at $81. The question one must ask is whether the decline is over or will it fall further to seek support around $76. This is a horrible looking chart. The current price is well below both moving averages. RSI is just now working off a very oversold position. In the short run, a lot will depend on the dollar and global economic stability. Longer term, I think the price of oil is headed inevitably higher from here and therefore investors with some gumption can make some money by investing in the oil sector.

After a frightening two month decline, the financial sector has recovered somewhat in June, along with the rest of the market. Resistance around $16.50 survived one attack, can another be coming up? In the short run, I think that would require general bullishness in the market to continue. Longer term, the housing market must demonstrate a real recovery and jobs growth must again be north of 125,000 per month. For now, I remain wary of this sector. 

After making impressive gains from October through February, the housing sector has moved sideways over the past five months while carving out a clear trading channel between 110 and 135. I'm worried that the gains are precarious, dependent too much on wishes and hopes to prop up expectations, which I think are too far ahead of reality. To me, while the news is certainly better today than it was a year ago, it's only "less bad", rather than truly good. So I'll continue to sit things out.

Support at 46 barely held firm in the face of the recent selloff of the EAFE index. The current price is approaching both moving averages and RSI has recovered from a very oversold position. While there could be a short term bounce from the Greek elections, it's hard to see the bullish case for investing in Europe any time soon as the rest of the EU lines up in front of Germany seeking a handout. 

Although it shouldn't be, the chart of the emerging markets is almost identical to that of the developed markets. This makes no sense. The countries that make up the emerging markets are growing much faster than the stagnant developed world, yet they are treated with equal disdain. This disconnect creates an investment opportunity for the brave. Eventually, rational investors will dedicate a greater percentage of their international exposure to those markets with growth at the expense of those with none. At that point, the relative performance of these two sectors should begin to diverge.

China is beginning to carve out its own trading range between 2,200 and 2,500. As you can see below, since bottoming at the end of last year, the Shanghai Index moved up a bit, with slightly higher lows. I've noted many times how important a growing China is to the rest of the world. If the index can someone pierce resistance at 2,500, it would be bullish all the stock markets around the globe.

According to the NYSE Bullish sentiment index, the market is mildly bearish right now. RSI is recovering from a hugely oversold position (see the red circle). Last month I wrote that "if sentiment goes much lower we'll be set up for a nice rally." That's exactly what has come to pass. Given this picture, I'd say the current rally has room to continue.

This chart shows that less that about 40% of stocks traded on the New York Stock Exchange are currently trading above their 50-day moving average. This is just at the bottom edge of the productive trading area. As with the sentiment index, I'd say the current rally can extend further before too much exuberance will again knock the market back down.

The May selloff saw the volatility index surge from around 15 to almost 28, which almost landed it in the "fear" range. That can be a good time to buy for those with some cash and fortitude. Almost on cue, the market rallied, causing the VIX to fall back to around 17. These last three charts are often very good indicators of short-term market moves.