Keystone's Key Events and Market Movers 5-1-11

To capsulate into a Reader's Digest version, for this week, watch copper and financials to forecast market direction, POMO pumps every morning favor bulls, Congress back in session favors bears, negative divergence for sectors says trouble is ahead for indexes, Trichet's comments on rates will carry huge clout on Thursday morning--or any press leaks ahead of time, and jobs report on Friday.

1.      POMO Pumps for QE2:  Markets receive bullish pumps between 10 AM and 11 AM each day favoring market bulls. Solid pumping each morning this week.  Pumps continue thru 5/11/11 when the next schedule into June will be announced.  N-D 75, D-J 75, J-F 80, F-M 80, M-A 80, A-M 80 B, projection M-J 80, J 50.  Thus, POMO pumps should stay at this current pace for the next 10 weeks. POMO pumps=bullish equity markets.

2.      Japan Quake-Tsunami-Nuclear Disaster; Currency Intervention:  The disaster continues without any end in sight but the global markets are largely ignoring the situation. Supply concerns will start to hit now, however, especially automobile parts and technology markets.  Additionally, Japan is performing policy manipulation and currency intervention to keep the dollar/yen in the 85-86 target zone.  Below 83 now towards 81 so expect further intervention now. Possible effect dollar/yen up=dollar index up=equities down=euro down.

3.      Ongoing Wars: Libya, Iraq and Afghanistan. Libya not a big deal concerning oil, Saudi’s can easily step up production.  A premium is now built into gold, silver and oil markets.  The ME premium in gold is about 15%, oil and silver ME premiums are over 35% now.  Any positive resolution to the Colonel Gaddafi situation, or ME tensions in general, will cause this premium to come back out super fast.  Rational price of oil is low to mid 80’s but rationality never matters in trading.  Silver and gold rising on pure speculation with ETF’s buying and simply stockpiling commodities.  Wars and ME unrest continue=bullish for commodities, and visa versa.

4.      Continuing Geopolitical Events other than Ongoing Wars such as Egypt, Syria, Saudi Arabia, Bahrain, N. Korea:  Dollar bullish and equity bearish.  Gold, silver and oil bullish.  Bahrain is the big worry; this will seriously affect oil supply.  Yemen as well since it is a southern border. Bahrain news impacts commodities in real time.  Any bad Bahrain news=higher gold, silver and oil prices, and, visa versa.

5.      State and Muni Crisis; Union Busting:  Muni’s should experience pain first.  Muni’s rely on State funds.  Many State budgets turn over in June and July, we are now entering this zone.  Colleges relied on State funds. Lingering unemployment lessens government tax inflows. Multiple U.S. cities now experiencing pro and con union busting protests.  There simply is no money in Federal, State or Local coffers to handle years of promises.  Meredith Whitney continues to receive a lot of heat from her 60 Minutes projections concerning Muni’s but this story will not play out until the second half of 2011. California financial decisions will occur from May on.  Will these decisions spook the country?

6.      Europe Crisis Continues:  Portugal, Ireland, Italy, Greece and Spain, the PIIGS.  Italy’s close ties with Libya are strained which may expose Italy’s bad paper. Italy is shaky and may provide negative shock value to the markets, evne more so than Spain.  Greece is a lost cause now.  Weaker euro=stronger dollar index=weaker U.S. equities.

7.      ECB Rate Hikes:  Trichet announces rate decision Thursday, 5/5/11, no change in rates is expected although all traders wait for the Trichet Press Conference and any change to the ‘strong vigilance’ wording.  Trichet raised rates 25 bips on 4/7/11.  ECB expects additional measured hikes to occur moving forward but was quick to say no firm plan is in place.  Trichet raised rates in July 2008—exactly at the wrong time—when the commodities bubble popped. Is Trichet unknowingly calling a top again in commodities? Currently, strong euro=weak dollar=strong commodities=strong equities, but, if Trichet softens the hawkish tone in any respect, a weaker euro will reverse all markets in a heartbeat.

8.      China Property Bubble and China Contagion:  When it pops, anytime now, it will be extremely negative on global markets causing contagion in Asia and elsewhere. China has built uninhabited cities to fuel their explosive growth during this century. Some evidence of Chinese now using hoarded copper supplies as collateral to continue the building.  This is going to end very badly.  China bubble pops=global markets down.

9.      PBOC, China Rate Hikes:  First hike 10/19/10, 25 bips; second hike Christmas 12/25/10, 25 bips; third hike at end of China New Years on 2/8/11; fourth hike 4/5/11.  China said in 2010 that it will project about five hikes into June 2011 so projection for next hike is June.  Hikes have occurred October, December, February, April so the pattern reinforces the June hike next.  Bank reserve requirements are now ratcheting up continuously to slow down inflation.  Rate hikes cause commodities, gold, silver, PM’s and copper to sell off although the 4/5/11 effect was muted.  Chairman Bernanke’s hot easy QE2 money is more powerful. Typically, rising rates reflect a countries currency, economic and market strength, but, China growth is slowing now, not increasing, which is a different twist to the equation.  China raising rates, or reserve requirements, and hawkish policy=lower commodities=lower US equities.

10.  India, Brazil, Taiwan and other Emerging Market Rate Hikes:  Same effects as China rate hikes; commodities will sell off.  China, India and Brazil hikes are most important to global markets.

11.  Congress:  Market bullish when not in session, market bearish when in session. The debt ceiling is the next crisis to play out by mid May.  Congress now back from break, so market bearish.

12.  Strategic Oil Reserve:  The talk of using the reserve is moot since about 7 million bbls over next few months will be drained for SOR renovations anyway; say one million bbls per month oil supply will hit the market now into the Fall.  Higher oil supply=lower oil price. Oil, gold and silver experiencing uber speculation currently; this always has a cliff ending.

13.  Wiki Leaks:  Embarrassing bank information rumored to affect BAC most of all.  This may be partially the blame, as well as lackluster earnings, for the financial sector languishing now. Weak financials places a cap on broad market upside. Technology and financials move together so one of them is wrong. Financials turned bullish over last couple days but is tenuous.

14.  5/2/11:  Earnings APC, ADP, CHK. ISM data so watch reaction in energy sector.

15.  5/3/11:  Earnings AVP, CLX, LVS. New Moon.

16.  5/4/11:  Earnings AGN-will the results cause or help a migraine?, MGM, WFMI-the shorts are circling like buzzards. Fed talk.

17.  5/5/11:  Earnings GM-lots of eyes will be watching this, FLR.  Trichet rate decision will have major market impact.  Interestingly, Bernanke speaks at 9:30 AM EST, at the opening bell.  What are these guys up to?

18.  5/6/11:  Jobs Report.

19.  5/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market selloff area.

20.  5/16/11 and on:  Congress to Raise Debt Ceiling. This may be another down-to-the-wire fight like the budget crisis was.  Interesting that this deadline coincides with the eclipse sell-off projection. Geithner says May 16th deadline but drop dead date to raise ceiling is July 8th.

21.  June 2011:  PBOC (China) Rate Hike. Probably 25 bips again but perhaps 50 bips which would shock markets.

22.  June 2011:  EU Bank Stress Test Results.

23.  June 2011:  QE2 Ends.  See the POMO information above.

24.  6/15/11:  Bradley Turn date.

25.  6/22/11:  Bradley Turn date.

26.  7/15/11: Eclipse Sell-off Technique targets this time frame as a potential large market selloff area.

27.  7/29/11 and 7/30/11:  Major Bradley Turn date.

28.  2012:  China chooses a new Premier, smooth transition?