Keystone's Key Events and Market Movers Week of 1/23/12

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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 bullish 2012 action continues with China playing a much larger part than many realize.  The January rally is more due to the anticipated China easing than anything else, including Europe.  Look no further than the end of November where the first ease of the triple R’s by China resulted in a temporary bottom for the markets.  Traders are anticipating the easing move by China in the coming days and the markets are already pricing in the boost that would be expected.  Markets love quantitative easing, money printing, stimulus, whatever you want to call it, and the lowering of the triple R’s boost copper prices, commodities, and equities.

The projection would be if the broad markets sell off early this week, the China announcement, when it occurs which is anytime over the next two weeks (Keystone is thinking middle to late this week after the Fed; China New Year begins now), will result in a temporary market bottom with markets then rallying back up to the current highs.  If the broad markets instead move sideways to sideways up thru the SPX 1314-1318 resistance cluster, as the new week begins and moves forward, and China announces the triple R ease, it may develop into a sell the news event and broad markets will leak lower.

The S&P downgrades, especially of France, had little effect on our friends across the pond last week.  The bond markets calmed down although Portugal did rocket higher in yield, 100 basis points for the 10-year, but no one wanted to call attention to this 900-pound gorilla sitting on the sofa.  The boost to the equities markets from the coming China easing far outweighed the negative aspects from the expected S&P downgrade of France.

The markets appear to be pricing quantitative easing measures in before they even happen these days, an acceleration in response time perhaps due in part to technology.  When QE2 was announced in August 2010 in the States, the markets rallied from there forward.  You have to wonder if the rally would have occurred sooner in today’s environment of instant-everything. Interestingly, if the benefits of various governmental stimulus measures are now realized quicker in time, by the commodities and equities markets, that means that they also will peter out sooner in time. This conceptual thought will have to be explored further in future writings.

For the ongoing European crisis, continue watching the Italy, Spain and France 10-year yields to gauge the creeping contagion. Use the 7% level, 6%, and 3.3%, respectively, as signals of trouble. Greece promised a resolution with bondholders by Friday, then by tomorrow, but now, who knows?  The German, U.K., and U.S. 10-year yields show money seeking safety in these countries.  Italy bond auctions are important on Thursday morning as well as next Monday leading into the E.U. Summit.

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.  The previous chart posted shows the relationship of oil and the SPX. As long as the U.S. 10-year yield stays under 2%, disinflation remains a threat moving forward.

The Congress clown shows returns to Washington, D.C. this week.  Seasonality-wise, markets are bearish when Congress is in session and bullish when Congress is out of session. Witness the last three weeks with the market upside orgy as Congress was away on a drunken vacation, but, starting this week, the markets must listen to the steady drumbeat of political negativity once again.  The two-month deadline from December for kicking the can down the road is halfway gone already.

The earnings lollapalooza continues this week. With the absence of economic data on Monday, the week begins with the Greece debt talks and U.S. earnings as the major focus.  GHL will provide insight into the M&A sector. HAL will tell everyone about all the money they make off the wars. KSU sheds light on the railroads, the railroad-coal theme will be big this week, since these two sectors are linked at the hip. PKG supplies information to gauge the cardboard boxes needed, and hence the strength of the economy, while Monday’s standout release is in the chip sector with TXN.

On Tuesday, The two-day Fed meeting begins.  The IMF report may be interesting at 10 AM and the 2-Year Note Auction at 1 PM. President Obama will be busy all day practicing for the State of the Union speech at 9 PM. Tuesday’s earnings are a huge tech day with AAPL, AMD, EMC and YHOO.  EXM provides information on the shipping sector especially important as the Baltic Dry Index collapses.  JNJ, MCD and VZ will impact the Dow Industrials, BTU provides more coal insight, STLD steel, and WAT water.

On Wednesday, leaders trying to resolve the European debt mess will instead focus on snow bunnies in Davos, Switzerland. Housing data hits at 10 AM which will create a market pivot point. The homebuilders have enjoyed a nice bull run and the majority of pundits have now announced an all-clear for the housing market.  This week the data will either show these brave bullish souls to appear visionary, or, stupid. DHI earnings will hit on Friday.  Keystone’s housing indicator shows that the housing sector remains in a continual funk, who knows, perhaps over time it will turn bullish? Not yet, however. 

A 5-Year Note Auction occurs at 11:30 AM. The big excitement on Wednesday is the Fed announcement at noon time.  The FOMC will also release two charts for the first time that will provide insight into future rate changes.  Chairman Bernanke conducts a press, or more correctly, desk, conference at 2:15 PM so Wednesday afternoon may be a wild ride. The Wednesday earnings provide a cavalcade of industries including biotech, oil, defense, tech, utilities, security, and healthcare, something for everyone.

On Thursday, the rooster will crow early for U.S. traders since Italy bond auctions will dictate the day’s mood from the start.  Durable Goods and Jobless claims hit at 8:30 AM before the open.  So futures will have a lot to digest in front of the bell. The big data day continues with New Home Sales and Leading Indicators at 10:00 AM, and Natty Inventories at 10:30 AM. Lots of earnings releases on tap including CAT that provides a key barometer of the global economy. On Friday, GDP is released pre-market and Consumer Sentiment will create a market pivot point at 9:55 AM.  MO will cough up earnings.

SPX is chomping away at the strong 1314-1318 resistance cluster.  SPX is now indicating a secular bull market is in place as long as price stays above 1283 thru the month-end print on 1/31/12, seven days away.  A failure of 1283 should be viewed as extremely bearish for markets. If the SPX remains above 1283 during the week ahead, the market bulls will rule.

The energy trade will come into play over the next couple weeks since the ISM number will be released on 2/1/12, so mid-week the energy long, or short plays, should be considered.  Another interesting news event may be S&P or other rating agency downgrades of Japan and how this may throw a wrench into the global economic and currency machine.

Seasonality-wise, markets tend to move opposite in direction as compared to the way the markets moved on OpEx Friday.  Friday ended the day higher with the late day melt-up so some give back would be expected for Monday morning based on this seasonality factor. Keystone’s Eclipse indicator targets this period, now, in January, as having a high potential for a large market selloff, but this window is closing now.  If the markets do not sell off early week, this indicator window will close. Keystone’s algorithm is posted in the left margin on this site so any move to the short side for the markets will show up there. For now, Keybot the Quant motors along on the long side since 12/20/11, about five weeks.

A major Bradley turn date occurred on 12/28/11 but after a small stutter step, the broad markets melted up.  A Bradley turn occurred on 1/11/12 with the same result, another melt-up. The next Bradley turn is 1/28/12.  Therefore, a new Bradley window opens from now thru 2/3/12 for  a market turn to occur and, considering the two previous turns that resulted in melt-ups, one would suspect that a turn down would surely be in order for markets this time? Interestingly, the New Moon is tonight into Monday and this usually occurs in concert with weak markets while the full moon, which last occurred on 1/9/12, two weeks ago, typically occurs in concert with bullish markets.

What does all this mean?  My head is spinning from all the moving parts!  Simply put, the market bulls have made serious gains in the broad markets over the last month, overtaking the moving average lines as well as key levels indicating a secular move back into more steady bull markets.  The bulls are in good shape as long as they stay above SPX 1283 and NYA 7690.  The dollar dictates the markets, up dollar = down markets and down dollar = up markets.  Pay extremely close attention to the utilities, the UTIL 439 level.  If lost, the markets are in serious trouble.  If UTIL stays above 439, the bulls will be fine.

The extreme level of uber bullishness lately and absence of market sellers opens the markets up to a potential dramatic downward whoosh.  Any market weakness may receive a bottom if the China easing news is announced.  If the markets continue floating sideways to sideways up, the China easing will probably be a sell the news event. Any market pull back will probably result in one more exhaustion move back up to the current price highs again, then a roll over, but, as always, take these markets hour by hour.  An intense week of trading is ahead.

Key Dates and Times for the Week Ahead:

·         Monday, 1/23/12: New Moon.  Markets remain at the mercy of Europe news moving forward.  Watch for a resolution, or not, with Greece bondholders.  Watch the 10-year yields for Europe nations as described above.  Watch for a China easing of the triple R’s, anytime over the next couple weeks. Keystone’s Eclipse Indicator identified this period in January as having a high potential for a large market selloff, that window is closing now. A Bradley turn window, however, opens today thru 2/3/12 for a market turn to occur, especially between 1/25/12 and 2/1/12. Congress returns to Washington, D.C.  Earnings: AEP, GHL, HAL, HBI, KSU, PKG, PLCM, STBA, TXN.

·         Tuesday, 1/24/12: Richmond Fed Mfg Index and IMF Report at 10 AM. FOMC Meeting begins. 2-Year Note Auction 1 PM.  President Obama State of the Union speech 9 PM. Earnings: AMD, APD, AKS, ALTR, AAPL, BHI, COH, DD, EMC, ETH, EXM, HOG, IGT, JNJ, KEY, KMB, MCD, NSC, OSIS, BTU, DGX, RYN, STLD, VZ, WAT, YHOO.

·         Wednesday, 1/25/12: World Economic Forum Annual Meeting 2012 begins in the Swiss Resort of Davos, Switzerland, now thru the weekend, the big-shots enjoy fun on the slopes. Mortgage Purchase Applications 7 AM.  Pending Home Sales and FHFA House Price index 10 AM.  Oil Inventories 10:30 AM.  5-Year Note Auction 11:30 AM. FOMC Rate Announcement and release of Two New Charts 12:30 PM. Chairman Bernanke ‘Desk’ Conference 2:15 PM  Earnings: ABT, ATI, BA, ELY, CTXS, COP, GLW, CCI, DAL, ETFC, EXC, GD, HES, HCBK, JEC, LRCX, LSI, MUR, NFLX, NYB, NE, OXY, PX, QTM, SNDK, SO, STJ, SWK, SWFT, SYMC, TER, TXT, VAR, WLP, XRX.

·         Thursday, 1/26/12: Italy Bond Auctions. Durable Goods and Jobless Claims 8:30 AM.  New Home Sales and Leading indicators 10 AM.  Natty Inventories 10:30 AM. Kansas City Mfg Index 11 AM. 7-Year Note Auction 1 PM.  Fed Balance Sheet and Money Supply 4:30 PM. Earnings: MMM, ARG, ALK, AMGN, T, BAX, BMY, CRR, CSH, CAT, CELG, CPHD, CB, CRUS, CL, CNX, CY, COV, DV, EMN, ETN, EQT, FICO, FSL, JBLU, JNPR, KMT, LMT, MWW, MMI, NUE, POT.TO, QLGC, RMBS, RTN, RVBD, RYL, SBUX, TSRA, TZOO, UA, WERN, ZMH.

·         Friday, 1/27/12: GDP 8:30 AM.  Consumer Sentiment 9:55 AM.  Earnings: MO, CVX, D, DHI, F, HON, IDXX, IMGN, LM, PG, SCCO.

Key Dates and Times for the Month Ahead:

·         Monday, 1/30/12:  Italy and Belgium Bond Auctions. E.U. Summit. China trading resumes as the New Year holiday fun continues in Asia.

·         Tuesday, 1/31/12:  EOM

·         Friday, 2/3/12: Monthly Jobs Report