2011 Year in Review -- From the Traders' Perspective

© 2012, 2011 The Keystone Speculator. All Rights Reserved.

·         Chairman Bernanke’s QE 2 was in full force pumping the commodities, equities, gold, silver and oil markets creating asset bubbles.

·         Markets are bullish thru January and February 2011.

·         In January 2011, Tunisia and then Egypt demonstrations occur, the start of the Arab Spring.

·         The Arab Spring sends commodities, gold, oil and food higher in price. Mother Nature creates havoc around the world at the same time further pumping food inflation.

·         Chairman Bernanke says that the inflation is transitory in nature and remains more worried about disinflation and deflation. As the year progressed, Keystone showed this to be correct thru the Inflation-Deflation indicator.

·         In February 2011, the financials, technology, semiconductors and copper charts topped and rolled over indicating big trouble ahead.

·         On 3/11/11, Japan is hit with an earthquake and tsunami. The disaster impacts technology and auto parts distribution networks.

·         On 4/18/11, S&P rating agency lowers the U.S. credit rating to negative from stable.

·         On 4/29/11, the SPX closes at the high for the year at 1363.61.

·         On 5/2/11, the SPX prints an intraday high at 1370.58, the tippy top for 2011.

·         From late April to early May, silver goes parabolic to $50, then is slapped down hard as the CME raises margin requirements, dropping 35%, to $33.

·         From February thru July 2011, Keystone’s secular and turn signals, as well as charts and analysis, were forecasting a major top in the equities markets.

·         On 7/7/11, a Dow Theory Non-Confirmation signal is flashed.

·         On 7/11/11, Keystone’s proprietary algorithm, Keybot the Quant, a long-short algo, turns bearish, shorting the SPX at 1324.

·         On 7/12/11, Keystone’s 2-10 Spread Indicator signals that the yield curve is no longer advantageous to banks, thus, Keystone calls for serious downside in the financials.

·         On 7/21/11, the SPX prints a HOD at 1347.00. This is the start of the waterfall crash.

·         On 7/22/11, the SPX closes at 1345.02. This is the start of the waterfall crash.

·         On 7/26/11, Keystone’s SPX:VIX Indicator signaled a large down move in equities is imminent. On 7/26/11 and 7/27/11, the SPX fell 2.5% and the Dow Industrials lost 2.3%

·         On 7/29/11, the SPX closes under 1300. President Obama and Congress biker like school children over raising the debt ceiling. AAPL now has more cash at $76 billion than the U.S. government at $74 billion.

·         On 8/1/11. Congress votes to raise the debt ceiling but confidence is lost in the politico’s.

·         On 8/2/11, President Obama signs the bill to raise the nation’s multi-trillion debt ceiling. The markets sell off large. SPX goes negative on the year, dropping under 1258.

·         On 8/2/11, Keystone’s Secular Signals are all triggering that the markets have fallen into a Secular Bear Market pattern (and remain in a Secular Bear to start 2012).

·         On 8/2/11, the Dow Industrials drop under 12000.

·         On 8/3/11, copper collapses. Switzerland steps in to defend the franc.

·         On 8/4/11, Japan intervenes in the currency markets to defend the dollar/yen.

·         On 8/4/11, utilities collapse signaling for traders to run for their lives.

·         On 8/4/11, the SPX loses 60 points, or 4.8%. The Dow drops 513 points, or 4.3%.

·         On 8/4/11, Dow Theory confirms a market sell signal.

·         On 8/5/11, Friday, a rumor circulates the trading floors that S&P has notified the U.S. Treasury that it wa planning to downgrade the U.S. credit rating. A draft document was given to the Whitehouse. Mathematical errors were identified but S&P said the errors have no impact and after the markets closed for the week, S&P downgraded the U.S. A watershed historic event. The weekend was tense as all traders feared Monday’s open. (Keep this paragraph in mind as we wait for the coming France downgrade, probably within the next couple weeks. It will probably follow a similar methodology, that is why many traders look for news on Friday after the markets close (1/6/12 or 1/13/12) and will also listen for when S&P provides warning to the France government ahead of the release)

·         On 8/7/11, Sunday evening, Asia markets selloff and U.S. futures plummet.

·         On 8/8/11, Monday, equities markets collapse. The SPX drops 80 points, 6.66%. Media writers highlight the infamous satanic 6-6-6. The Dow Industrials plummet 635 points, or 5.6%. A blood bath.

·         On 8/9/11, Keystone’s Inflation-Deflation Indicator is flashing Disinflation.

·         On 8/9/11, the Fed promises to hold short-term rates near zero thru at least the middle of 2013. The economic expansion is not strong enough to drive up wages and prices.  The economic recovery is dying.

·         On 8/9/11, a snap-back rally occurs with the SPX regaining 4.7%. after the SPX prints a LOD of 1101.54, thus the move from 1347 to 1101 is a whopping 246 handles, or 18.3% drop in only 13 trading days. Any thoughts of summer vacations disappear as the markets languish.

·         On 8/9/11, the transportation index, German DAX, the Russell 2000, industrials sector, semiconductors and financials charts all have fallen in excess of 20% verifying a bear market.

·         On 8/11/11, a short-selling ban on financial stocks is instituted for France, Belgium Italy and Spain.

·         On 8/16/11, Germany’s Merkel and France’s Sarkozy move to the front of the political spotlight. The term “Merkozy” is coined in the media.

·         On 8/18/11, European banks are tumbling on news that the ECB dollar facility was tapped for the first time since 2/23/11 with one bank borrowing $500 million. Markets sell off.

·         On 8/18/11, the 10-year yield falls under 2% reinforcing the move towards disinflation. Traders seek safety in bonds and gold.

·         On 8/19/11, BAC has lost 40% of its value in the last five weeks. Rumors are rampant concerning an emergency Fed meeting. JPM and C lower their GDP estimates.

·         On 8/22/11, GLD, the gold ETF, now surpasses SPY, having the largest assets of any ETF.

·         On 8/23/11, gold peaks at 1918 in the overnight session and sells off from here.

·         On 8/23/11, Keystone’s algorithm closes out the SPX short from 1324 at 1146 for a gain of 178 handles, or 13.4%. The SDS play results in a 25.6% gain in five weeks.

·         On 8/25/11, Warren Buffett provides $5 billion capital injection into BAC.

·         On 8/26/11, the GDP is 1.0%. Hurricane Irene fears are rampant but the storm is downgraded.

·         On 9/1/11, Brazil lowers rates. Fed announces actions against GS. Federal Housing Finance Agency, which oversees Fannie Mack and Freddie Mac, filed lawsuits against the largest banks; JPM, GS, BAC, C and DB, 17 in all.

·         On 9/2/11, the yield on the Greek 2-year note hits a ridiculous 50%.

·         On 9/7/11, the German high court votes to accept the actions taken thus far for the European debt crisis.

·         On 9/8/11, Chairman Bernanke begins speaking driving equity markets off the cliff. In the evening, President Obama addresses Congress, interrupting the start of the NFL football season.

·         On 9/9/11, BAC plans to cut 40,000 jobs. Solyndra, the solar company funded by the President’s energy plan, goes bankrupt.

·         On 9/10/11, the G-7 finance ministers attempt to calm the markets.

·         In September, conditions deteriorate as French banks need recapitalized. BNP Paribas falls 6%. The ‘break the buck’ talk heats up just like in 2007 and 2008 that accelerated the panic. Merkozy meetings now receive global attention. Many statements are made by European leaders, China leaders and the U.S. leaders each moving markets up or down as the news warrants.

·          On 9/15/11, just before the opening bell, a coordinated effort is announced between the ECB and other central banks providing liquidity by offering dollar loans to Euro countries thru the end of the year. Markets rally.

·         On9/18/11, Sunday evening, the Eurozone finance ministers end the weekend meeting without any statement released or any resolution to the ongoing Greek tragedy. Markets lose confidence and futures plummet.

·         On 9/20/11, S&P downgrades Italy’s credit rating citing weak economic growth. Concerns over French banks continue. Chinese state banks have stopped trading currency swaps with some Europen lenders indicating an unwillingness to support Europe, further exacerbating the Eurozone banking issues. IMF says the world economy has moved into a dangerous new phase.

·         On 9/21/11, Moody’s rating agency downgrades rating son BAC, WFC and C, banks plummet.

·         On 9/21/11, Bernanke announces Operation Twist.

·         On 9/22/11, the Drudge Report headline is “Global Meltdown: Investors Dumping Everything.” Markets are selling off large since the Europe problems grow without any solutions. G-20 Finance Ministers say they will take all necessary actions to preserve financial stability and the central banks stand ready to provide liquidity.

·         On 9/25/11, G-20 leaders promise action by 11/3/11.

·         On 9/29/11, Germany votes to support the EFSF. Copper prints a 13-month low.

·         On 9/30/11, the CRB drops under 300 verifying disinflation.

·         On10/2/11, the Occupy Wall Street movement is 16 days old and gaining traction and media attention.

·         On 10/3/11, China data is worsening, Chinese companies are going bankrupt. Weak financials continue to lead markets lower. The SPX is down 2.9% and the Dow loses 2.4%. SPX closes at the low for the year at 1099.23.

·         On 10/4/11, the Kospi tumbles 8%. Euro Finance Ministers say they will recapitalize the banks in a coordinated effort. Europe forms a bad bank to handle Dexia. SPX prints the intraday low for the year at 10774.77.

·         In early October, Moody’s downgrades Italy banks and 12 U.K. banks. Fitch downgrades Italy and Spain debt. Fitch downgrades UBS, Royal Bank of Scotland and Lloyds as well as others such as BAC, GS, MS, etc…

·         By mid-October, traders are more hopeful so a strong rally envelopes the month.

·         On 10/20/11, Colonel Kaddafi is killed.

·         On 10/27/11, Europe provides a triple resolution after a 10-hour marathon Summit session.  Futures markets leap higher. The SPX gains 3.4% and the Dow jumps 2.9%.

·         On 10/31/11, futures weaken on news of a bankruptcy of John Corzine’s MF Global. This disaster continues to cast a shadow over world markets as 2012 begins. The SPX loses 2.5% and the Dow drops 2%.

·         On 11/2/11, China pledges to provide billions to the EFSF.  Occupy Wall Street protestors assemble outside a hotel where Jamie Dimon, CEO of JPM was speaking.

·         On 11/3/11, Occupy Wall Street protestors start a large bonfire in Oakland, California forcing the closure of one of the U.S.’s busiest ports.

·         On 11/7/11, Berlesconi will resign.

·         On 11/8/11, Ohio voted in favor of the unions and against the republicans trying to reduce costs.

·         On 11/9/11 Italy bond yields break up and thru 7% while the yield curve inverts signaling a recession.

·         On 11/9/11, Jefferson County, Alabama, files for bankruptcy.

·         On 11/15/11, Occupy Wall Street protestors are evicted from Zuccotti Park, the movement is losing steam.

·         In November, new governments are forming for Greece and Italy. European contagion worries dominate the news. Italy and Spain are too big to fail and too big to bail.

·         On 11/18/11, further evidence that China’s real estate bubble is popping.

·         On 11/21/11, the super committee bickering is escalating, a solution is not in sight. Missing MF Global funds worry markets.  The markets drop 2%.

·         On 11/22/11, Merkel says there is no new bazooka.

·         On 11/24/11, Fitch downgrades Portugal and Hungary.

·         On 11/25/11, Black Friday retail sales day kicks off with robust sales. The Italy yield curve is clearly inverted signaling recession.

·         On 11/27/11, Belgium is downgraded.

·         On 11/28/11, markets bounce higher in this continual choppy market action, the SPX and Dow gain 2.6% and the Nasdaq over 3%.

·         On 11/29/11, S&P rating agency continues to warn about an impending France downgrade and also lowers ratings on several banks such as BAC, C, GS, MS and WFC.

·         On 11/30/11, the Fed steps in and orchestrates a global liquidity intervention with the ECB, BOJ, SNB and Bank of Canada to provide support for the global financial system.  BAC is automatically saved from losing the five dollar level. The rumor that a large European bank was about to fail prompted the move. Equities markets rally with a wild upside orgy. The SPX finishes the day up 52 points, or 4.3%. The Dow regains the 12000 level, up over 4%. The Nasdaq was up 105 points, or 4.2%. The RUT gained 6%.

·         On 12/1/11, China PMI numbers are under 50 indicating contraction. Draghi, the new ECB head, says do not look to the ECB to bail out Europe. Merkel tempers expectations saying it will take years to resolve this crisis.

·         From late November into December markets rally strongly.

·         On 12/5/11, S&P places European countries, including France and Germany, on a warning for possible downgrades. European leaders are in discussions that say the ECB mandate of ‘monetary stability’, in a deflationary environment, means that Europe can act like the Fed in the U.S. did during the Lehman failure. This interpretation of the mandate would allow Europe to provide easy money policies more easily rather than having to amend treaties and laws. Remember that the Fed has a dual mandate, for price stability and employment, whereas the ECB only has the monetary stability mandate (to fight inflation as required). Keep this paragraph in mind for 2012.

·         On 12/9/11, China’s Shanghai Index closes at a 33 month low.  Platinum loses the 1500 level. Moody’s downgrades French banks. Cameron (U.K.) opposes treaty changes. The remaining 26 of 27 Euro nations agree to forge a tighter union that includes strict fiscal rules.

·         In December, markets are dominated by European news flow.

·         On 12/13/11, the Fed makes no mention of further quantitative easing, as traders expected, so markets sell off.

·         On 12/14/11, the selling continues with the retail sector collapsing. Commodities collapse. Copper falls 5%.

·         Into the Christmas, Hanukah, New Years and other holidays, to finish the year, a Santa Claus Rally appears for the bulls. In the final minutes of trading for 2011, however, the SPX closes negative on the year.  The Dow was up 5.5% for 2011.  The SPX was flat.  The Nasdaq was down 2%.  The small cap RUT was down 5.5%. Note how money is chasing the blue chip dividend stocks and avoiding the riskier more speculative small cap stocks.  Broad markets have no hope of extended upside with weak semiconductors and technology.

·         The European bond market is a major focal point as 2012 begins.  The first drama for the year occurs with the Jobs Report on Friday 1/6/12, the coming France downgrade over the next couple weeks potentially after the close on 1/6/12 or 1/13/12 and the ECB rate decision and conference on 1/12/12.