Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.10 in November from –0.64 in October. Two of the four broad categories of indicators that make up the index increased from October, but only the production and income category made a positive contribution to the index in November.

Available here.

From Jan Harvey, Reuters:

A rise in real interest rates is perhaps the biggest threat to stronger gold prices as they increase the opportunity cost of holding the metal rather than higher yielding instruments. In a note this month, Goldman Sachs said a stronger U.S. growth picture may prompt just such a rate rise, and  consequently a turn in the gold market cycle, next year.

“Our… modeling suggests that the improving U.S. growth outlook will outweigh any Fed balance sheet expansion, and that the cycle in gold prices is near an inflection point,” it said.

The latest report by the World Gold Council (WGC) shows data that the speculative money has been rallying gold via ETFs and that an actual, physical demand for the metal is negligible, if that. The most often cited reason for such speculation has been a belief that Fed’s QE is somehow bullish for the metal.

“The environment for gold is good, but it isn’t improving further by the day, so some slowdown in the uptrend in gold should be expected. The days of very easy gains, when you could just buy gold, hold it, and see it rise 10, 11, 12 percent each year are over,” says Credit Suisse analyst Tobias Merath.

Meanwhile, many have forecasted some sort of a blow-off rally in gold, similar to the one in oil in 2008, as a culmination of the gold bubble. It may turn out, regrettably, that no such repetition could clearly mark the end of the rally.

Instead, the slowly creeping rise in interest rates – as is foreshadowed by the move in the bank stocks and the turn in their long-term moving average curve -  could grind out the gold bugs into slow losses and continuing whining.

A better than expected number will fuel the debate with the vocal skeptics who believe that housing stocks are overpriced and, with yesterday’s break out in some names, would argue that these are even more so.

Based on any one of the metrics in the above table a case for (or against) one stock or another could be made convincingly.

All of those metrics, however, are backward looking and do not reflect the individual dynamic of the sector nor of each individual name.

For example, Lennar is vested in places where home price appreciation is the greatest. It has a slew of developments in California, Texas and New Jersey so it is clocking a nice 34% revenue growth.

 Faced with price appreciation and rising sales, how realistic is it to assume  that the pricey forward PE will stay there if some of these housing names are clocking revenue growth above 30% and a double digit profit margin?

More from Zacks:

Moreover, the median sales price of new houses sold in October 2012 was $237,700; the average sales price was $278,900 up 8.0% year over year.

The data also shows that there are currently 4.8 months of supply of new houses (thanks to strong sales) on the market at the current sales rate and 5.4 months of supply of existing homes. For reference, a healthy market would be between 5 and 6 months of supply.

Inventory levels for October 2012 were also low. Five-year data also suggests that inventory for new homes as well as existing homes has been declining.

Anyway, the price action in Lennar suggests that it is in the breakout mode, that the next likely stop is $43 which is around the bottom of the right shoulder set in April of 2007. The right shoulder from 2007 has a top around mid-50s so depending on risk-reward having these ranges in mind is helpful.

The 60-minute chart is suggesting that equities could move on to capture 12,588, the level from the October. The concerning thing is that the momentum trend line is diverging from the price movement on this chart, suggesting that eventually there will an end to this strong move higher and a sell-off-phase could begin.

With banks and housing names clocking strong gains the break-out towards 13,588 looks very probable by the end of the week. BAC, C and LEN look the best in this group.

EBAY and Visa (V) look most attractive on any pullback.

“It comes back to the uncertainty about the economy, and the government policies that are going to be enacted or potentially changing over the next year. That’s why you’re seeing that disparity in the outlooks of many of these forecasting firms,” says Peter Jankovskis of Oakbrook Investments.

“It won’t be a straight line higher, but there’s a pretty good undertow for commodities. Commodities in general will trend higher the next few years, but there’s room for selectivity,” says James Paulsen of Wells Capital Management.

With SEC giving approving the JPMorgan copper ETF, hedge funds just got themselves another instrument to speculate on.

But will these instruments be appealing in a rising interest rate environment?

So far, parking cash in non-income earning things like the metals was profitable because, with a 0% yield, such instruments yield better than the negative real yield on, say, bonds.

However, if and when the bond yields turn higher, the cash holding paper commodities will seek a quick exit out of the crowded door.

In fact, if we are to gage the forward bond-yield trajectory by the long-term moving average on some major banks we could well conclude that the bottom in yields is well behind us.

Of course, time will tell.

From this morning’s report:

The December Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline at a modest pace.

The general business conditions index was negative for a fifth consecutive month, falling three points to -8.1.

The new orders index dropped to -3.7, while the shipments index declined six points to 8.8.

At 16.1, the prices paid index indicated that input prices continued to rise at a moderate pace, while the prices received index fell five points to 1.1, suggesting that selling prices were flat.

Employment indexes pointed to weaker labor market conditions, with the indexes for both number of employees and the average workweek registering values below zero for a second consecutive month.

Indexes for the six-month outlook were generally higher than last month, although the level of optimism remained at a level well below that seen earlier this year.

Full report here.

“There is also a problem of collective action: while each individual country may in principle increase aggregate demand for its goods and services by exporting more, not all countries can do so at the same time. The world economy as a whole is a closed economy. If competitive wage cuts or wage moderation policies are pursued simultaneously in a large number of countries, competitive gains will cancel out and the regressive effect of global wage cuts on consumption could lead to a worldwide depression of aggregate demand,” says the report.

Wages now account 43% of the GDP, a 10% drop since 1970, while corporate profits doubled to 12% of GDP since 2005.

While wage drop trend looks sustainable on the downward course that could be further stumulated by more stringent “right-to-work” laws,  it is less likely, however, that corporate profits could register another 100% gain in next 7 years, and this can have an impact on the stocks.

Austerity is but one example of the longer road of deliberate policy to accrue an ever larger share of productivity gains onto corporate profits ledger thus delinking wages from productivity gains.

“Since 1980 hourly labour productivity in the non-farm business sector increased by around 85 per cent, while real hourly compensation increased by about 35 per cent,” notes ILO.

Full report here.

If so, how much lower could we plunge?

Given that the equities have been trading in a rather technical manner,  we could retrace back down to 12,900 on the Dow down into the indicated region on the graph above.

The 60-minute daily chart confirms the downtrend probability on the momentum with a support level at around 13,000.

If we are looking for culprits to take us lower, than tomorrow’s retail sales number, jobless claims and business inventories may suffice.

Folks are particularly worried about any substantial rise in business inventories because that is a drag on sales, future production and future jobs. Inventories come out at 10, so more meaningful fireworks could occur after that report.

In fact, the reversal in the equities today could have been predicated on a bad inventory number or why else would Fed come out today with more of the stimulus force.

Friday’s PMI report could simply validate any bad inventory number.

This scenario takes us to the issue of how long will a sell-off last?

Well, if we take the June-August price action as the model, than the tremors that maybe ahead of us could last for 4-5 days, which takes us through much of the next week. Only by Wednesday we get a chance at some decent numbers when housing starts get their update.

Keeping some ready cash on the side is a good idea and deploying it once the dust settles is swell as well.

Things that should be looked at that point are Ebay, IP or Visa (V) in case it sells off on sympathy from any bad earnings from Discover (DFS) next week.

“We believe that fundamental drivers will improve over the course of 2013 as U.S. gas prices stabilise at a higher level and Chinese economic activity accelerates towards the trend rate of growth in the second half of the year,” Deutsche Bank says.

Nat-gas prices in US should go higher in 2013 which would make the switch to coal, as an alternative, much more attractive says Deutsche Bank.

“Therefore, while the outlook in the next month is ambiguous, the second half of 2013 provides clearer signals for an improvement in thermal coal fundamentals next year,” the bank said.

Goldman Sachs analyst Andre Benjamin, however, says that coal will not return to normal until second half of 2014 instead of Q4 of 2013 as he previously thought.

Benjamin expects demand from China, Europe and Japan to be lower than he previously predicted which will hurt coal producers in US and Australia.

In the coal space, Benjamin likes SunCoke and Consol and has a sell rating on Arch Coal and Walter noting that these have weak fundamentals.