PPI, inflation at the wholesale level, came in a little hot up .4%.  The core index, a measure that strips out food and energy, rose a mere .1%.  Food costs were the culprit, rising 1.2%.  The gain can be linked to commodities, especially grain, corn, cattle, etc. which have been on a stealth rally, right along with the entire commodities basket.  Given the very real threat of deflation, the report is actually a positive for the economy.

Weekly Unemployment Claims were also on the docket, rising 13K to 462K.  Just when we though the employment picture looked to be improving, reality is telling us that a sideways move with little improvement is probably the correct call.  Continuing Claims were the bright spot, falling 112K to the lowest level since November 2008.  Yesterday’s price action was somewhat of a surprise as late in the day, notes, bonds, and mortgage backs made a comeback.  Not sure why, given an as expected 10 year note auction and positive stock market.

Seems as though the reason has to do with QE2, the 600 pound quantitative easing gorilla that is still in the picture.  Tells us two things; one is that the market will (should) be supported on pullbacks until details are released.  Two, the market is trading only on this, so to speak its a one trick pony.  Austin mortgage borrowers need to be careful.

Currently, the 10 year note is off 5/32’s, mortgage backs are down 3/32’s, and stocks are off 20 something on the Dow.  Yesterday, I talked about the Elliott Wave chart and the high probability of a new A wave beginning.  Notice how the uptrend has been broken yet needs confirmation.  Now look at the bearish cross on the RSI oscillator.  These are good early signals of a market that is in transition, moving from bullish to neutral/consolidative or possible bearish given a shift in economic fundamentals.  Similar patterns are showing up on the candlestick chart.

Austin mortgage borrowers: best to take a conservative approach given the amount of volatility we expect.