Keystone's Key Events and Market Movers Week of 1/17/12

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Keystone presents the following underlying market currents, sometimes subtle, sometimes turbulent, that move global markets in real time.  The key dates and times below typically correspond to market pivot points.

Summary for the New Trading Week Ahead:

The first event of the year on tap was the S&P downgrade, which occurred on Friday, so 2012 is officially off and stumbling.  The market needs to digest the S&P downgrade news and assess the impact to the EFSF and other entities over the weekend.  The U.S. markets have an extra day to consider the ramifications of the S&P downgrades since trading begins on Tuesday in the States. 

The ongoing European crisis, the China real estate bubble popping, and the incompetence in Washington D.C. are providing a trilogy of drama for 2012.  The S&P downgrade of France debt hit on Friday in line with Keystone’s projections. Continue watching the Italy, Spain and France 10-year yields to gauge the creeping contagion. Use the 7% level for Italy, 6% for Spain and 3.3% level for France as signals of trouble. The break off of Greece negotiations is another fly in the ointment so watch that situation as the sides return to the table on Wednesday.  The German, U.K., and U.S. 10-year yields show money seeking safety in these countries. The Germany 10-year yield dropped under 1.80% (as demand increases price moves up on notes and bonds, and yield moves opposite to price; up price=down yield). The effects of the S&P downgrade on the loan capabilities of the EFSF is very important, keep an ear alert for this news since it will impact equities markets.

Continue to watch the following asset relationship which is now under scrutiny, but appears to remain in place; euro higher=dollar lower=commodities higher=gold higher=U.S. equities higher=treasuries price lower and yields higher, or, the visa versa, euro down=dollar up=commodities down=gold down=U.S. equities down=treasuries price higher and yields lower.  As long as the U.S. 10-year yield stays under 2%, disinflation remains a threat.

Many bullish traders are licking their chops over the prospect of China easing.  In late November, China announced a cut in the triple R requirements which led to a recovery from the November market selloff. Thus, the timing of the upcoming cut is critical since it should impact commodities and equities markets positively. Keystone is currently projecting that China announces the next lowering of the triple R’s on target dates of 1/25/12, 1/28/12, 1/30/12 or 1/23/12, suffice it to say the window from the start of the Chinese New Year, on 1/23/12, thru 2/8/12.  Therefore, if markets decide to sell off strongly, the China triple R announcement should serve as the catalyst to identify a temporary bottom. Keep this in mind as a mosaic is painted for the trading path ahead.

The U.S. political drama will crank up the following week, 1/23/12 and on, when Congress returns. The two-month deadline for kicking the can down the road is hallway gone already while the big-wig politico’s enjoyed a drunken vacation in the sun. In one more week, the clowns return to Washington, D.C., and the circus will be back in town. Markets are typically bearish when Congress is in session and bullish when Congress is out of session.

An earnings lollapalooza occurs this week.  Banks and technology, the main drivers of any economic recovery, are front and center.  The pre-announcement season provided the most negative guidance in the last six quarters.  This opens up the possibility for companies to perform a kitchen sink release, where they pile in all the negative news (sandbagging) to allow lower future comps for the next year. Whereas the lower expectations typically lead to companies beating the revised target, much like Q3 earnings, but perhaps for the Q4 earnings, the actual numbers will miss the lowered expectations. Kitchen sink releases have some shock value to them and should weaken markets even if the affect is only temporary.

The heavy-hitters releasing earnings this four-day week include  C, WFC, EBAY, GS, PNC, STT, USB, AMD, AXP, BAC, BBT, FCS, FCX, GOOG, HBAN, INTC, IBM, ISRG, JCI, MS, PPG, SWKS, LUV, UNP, UNH, GE, SLB, STI. The too big too fail banks such as C, WFC, GS, BAC and MS report this week and will impact broad market direction. EBAY, AMD, FCS, GOOG, INTC, IBM shed light on the tech sector and will also impact market direction. GE reports on Friday morning which provides insight into the industrial as well as financial sectors.

The important economic data releases this week include the PPI on Wednesday; CPI, Housing Starts and Jobless Claims on Thursday morning; and Existing Home Sales Friday morning. Housing Starts are a key metric that Keystone monitors each month so pay close attention, the futures will move on the news and Starts will set the tone for the day.

SPX price overtook the 12-month MA at 1280-ish which represents a sea change for the broad markets, from a secular bear market for the last five months, back into a secular bull market. The secular bulls have taken charge and this week we find out if the SPX stays above the 12-month MA at 1281, or not. A failure of 1281 should be viewed as extremely bearish for markets. If the SPX remains above the 1281 during the week ahead, the market bulls will rule.

Seasonality-wise, markets tend to be bullish on Opex Monday’s as well as the trading action from OpEx Tuesday into Wednesday. The holiday throws a wrench into the works since no trading occurs on Monday so the simple conclusion would be that some market buoyancy would be expected as the new week begins.  However, on the heels of the S&P downgrade news and considering all the ongoing market turmoil, do not hang your hat on the seasonality this week.

Keystone’s Eclipse indicator targets this period, for about one more week, as having a high potential for a large market selloff. Since the window is now closing, pay very close attention to the markets possibly falling thru a trap door in the days ahead.  Use Keystone’s algorithm call on the markets, shown in the left margin as a key signal.  If you see that turn red and go short, that will probably signal the start of a substantial down move. If Keybot remains long, all is right with the world.

A major Bradley turn date occurred on 12/28/11 which resulted in only a minor market stutter step as the year changed over, but, the markets moved directly into another Bradley turn window based on the 1/11/12 Bradley turn date last Wednesday.  Thus, a market trend change window remains open for a couple more days.  The confluence of this and Keystone’s eclipse indicator says that that if the market bears plan on bringing game to the markets, they better do it now, this week.

Continuing with the more esoteric indicators, the full moon last Monday resulted in buoyant markets the days before and after.  Typically, the market action is buoyant into the full moon but bearish into the new moon.  The new moon occurs on 1/23/12 hinting that some market weakness would be anticipated Wednesday thru Friday this week, another indicator pointing towards this week as the week for the bears to make a charge to send the markets south, or, they retreat back into their dens for the rest of winter. This holiday-shortened week will provide ample drama. Extreme caution is warranted.

Key Dates and Times for the Week Ahead:

·         Monday, 1/16/12: U.S. Markets are Closed in Observance of Dr. Martin Luther King Day.  Markets remain at the mercy of Europe news moving forward.  Watch for the continued effects of the S&P downgrades as well as the ongoing Greece impasse.  Watch the 10-year yields for Europe nations as described above.  Keystone’s Eclipse Indicator identifies this period now, about one more week, as having a high potential for a large market selloff.

·         Tuesday, 1/17/12: Empire State Mfg Survey 8:30 AM.  Earnings: AMTD, CHKP, C, CREE, DAL, FRX, MTB, MMR, EDU, NWPX, SEED, WFC.

·         Wednesday, 1/18/12:  Greek talks resume. Mortgage Purchase Applications 7 AM. PPI 8:30 AM. TIC Data 9 AM.  Industrial Production 9:15 AM.  Housing Market Index 10 AM.  Earnngs: BK, SCHW, EBAY, FFIV, FAST, GS, FUL, KMP, KMR, PNC, ZZ, SLM, STT, USB, XLNX.

·         Thursday, 1/19/12: France and Spain Bond Auctions. CPI, Housing Starts and Jobless Claims 8:30 AM.  Philly Fed Survey 10 AM.  Natty Inventories 10:30 AM. Oil Inventories 11 AM (one day delayed due to the holiday). 10-Year TIPS Auction 1 PM. Fed Balance Sheet and Money Supply 4:30 PM. Earnings: AMD, AXP, BAC, BBT, BLK, COF, FCS, EZPW, FCX, GMT, GOOG, HBAN, INTC, IBKR, IBM, ISRG, JCI, MS, PPG, SWKS, LUV, UNP, UNH.

·         Friday, 1/20/12: E.U. Summit.  Existing Home Sales 10 AM. OpEx Friday.  Earnings: FITB, GE, PH, SLB, MOBI, STI.

Key Dates and Times for the Month Ahead:

·         Monday, 1/23/12:  Congress returns so negativity will likely creep into markets.

·         Monday, 1/23/12:  The target area for China lowering the triple R requirements to provide easing is 1/23/12 thru 2/8/12 with specific target dates for the announcement 1/25/12, 1/28/12 or 1/30/12. The easing announcement should bounce commodities and equities markets.

·         Tuesday and Wednesday, 1/24/12 and 1/25/12:  FOMC Rate Decision and Press Conference

·         Thursday, 1/26/12: Italy Bond Auctions.

·         Monday, 1/30/12:  Italy and Belgium Bond Auctions. E.U. Summit.