Keystone's Trading Week in Review and Path Ahead 6/9/12

On 6/1/12, Friday, the Germany 2-year note goes negative so investors are actually paying Germany to hold their money. China PMI disappoints, the HSBC China PMI is showing contraction in China for seven months in a row.  China exports are falling.  There is very little demand for lending from banks inside China verifying the slowdown. The U.K. 10-year note (gilt) drops to 1.50%. Brent Oil drops under 100. The Bloomberg website displays the “Greek Drachma (Post EUR) Spot” listing on a currency page. Bloomberg removes the listing and says it was only a dry run as they make contingency plans for any outcome. Reality sets in that the drachma may be here a lot faster than anyone thinks.  Futures are red ahead of the Jobs Report released at 8:30 AM that reports a paltry 69K job gain and 8.2% unemployment rate.  Futures markets immediately plummet with the S&P’s down 27, the Dow Industrials down 200 and Nasdaq down 50 points.  The 10-year yield collapses to a 1.45%.  Not only did the 69K number miss the 150K consensus estimate, but the prior month’s number, 115K, was lowered to 77K as well.  There are no jobs and there is no economic recovery. The opening bell rings and the SPX immediately collapses thru the critical SPX 12-month MA at 1290-ish indicating that markets have fallen into a bear market.  The SPX then falls thru the 200-day MA at 1284, a technical break down. The Dow turns negative on the year losing the 12218 level.  The ISM Manufacturing Index hits a three-month low. The day ends with the Dow down 275 points, -2.2%, to 12119. The SPX loses 32 points, -2.5%, to 1278.  The Nasdaq loses 80 points, -2.8%, to 2747. The 10-year yield is 1.46%.  Oil is 83.26. VIX is 26.56. Dollar 82.909. Euro 1.2342. Dollar/Yen 78.12. The CRB is 268.38 signaling deflation firmly in place and that an announcement for quantitative easing is imminent and should occur anytime now thru 6/20/12, the FOMC meeting date.  Gold is one of the few winners, up 59 today to 1633.  Copper is 332.  After the close, Egan-Jones rating agency downgrades Italy.

On 6/2/12, Saturday, Egypt’s former President Mubarak is sentenced to life in prison for his crimes against the people but his sons are acquitted. A scuffle results in the courtroom and riots begin on the street since the sentences appear too lenient. This adds to further Middle East instability potentially affecting oil and PM (precious metals) markets. The weak jobs report dominates the weekend news cycle.

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On 6/3/12, Sunday, the cable news outlets broadcast special Sunday evening shows to monitor the Asian markets and prepare traders for the intense week ahead. Merkel rejects Euro debt sharing. Nein to Eurobonds! George Soros says there is less a three-month window to solve the Euro crisis.  Aussie 3-year note drops under 2%. Brazil’s growth experiences a dramatic slowdown. China data shows a further slowdown in growth. JPM cuts its China growth forecast to 7.7%.

On 6/4/12, Monday, Japan TOPIX index is now down over 20% from the top and in a bear market, printing 28-year lows! Also the HK China ‘H’ Shares index is now in a bear market. The Asian markets tumble 2% or more to start the week to catch up to the U.S. market move lower on Friday. Commodities continue lower.  Dollar/yen pushes down to a 78 level increasing the likelihood of Japan performing currency intervention to slow the strengthening of the yen.  The Japan intervention is important since it may pave the way for a global quantitative easing program involving the Fed, ECB, China and others. U.K. markets are closed today and tomorrow for Queen Elizabeth’s Diamond Jubilee. Rumors develop that Europe officials are working on a master plan behind the scenes and Germany may be more agreeable to a united solution if some control over the management of the accountability of countries moving forward is handed over to Germany.  The U.S. markets drift weaker all day long only to return to the flat line at the close.

On 6/5/12, Tuesday, RBA (Australia) lowers rates by a quarter points which was expected.  The G-7 ministers conduct an emergency meeting and provide a statement that they are monitoring the Euro situation ahead of the G-20 Summit.  In other words, no one knows what to do.  The broad indexes move higher as the day moves along. The SPX fights over the 200-day MA at 1285-ish all day long.

On 6/6/12, Wednesday, Moody cuts ratings on German, Austrian and Greece banks.  Australia GDP is far better than expected.  The ECB leaves rates as is and Draghi’s press conference is a yawner where he says the ECB is “ready to act” but he does not provide any details.  Markets are encouraged by the quantitative easing talk and launch higher at the opening bell.  The retail sector moves higher adding bull fuel.  The Beige Book is another yawner with the Fed commenting on moderate growth and not offering anything new.  Markets continue rallying and close at the highs.  The SPX is up 30 points, 2.3%, to 1315.  The Dow Industrials are up 287 points, 2.4%, to 12415.  The Nasdaq is up 67 points, 2.4%, to 2845. The SPX regains Keystone’s critical 12-month moving average indicator at 1292-ish which is very bullish.  Gold is flat at 1625; odd behavior since the hint of QE should send gold higher.  Oil is at 85.  During the evening, Chairman Bernanke’s #2 person, Yellen, provides a speech suggesting the need for more quantitative easing moving forward as well as a global coordinated intervention. She says the ‘scope to provide further accommodations’ is on the table. This is no surprise considering that Bernanke and Yellen are strong doves.  The futures like the news and remain solidly green thru the overnight session.

On 6/7/12, Thursday, Australia announces encouraging employment data adding to the happy GDP yesterday.  European leaders say Spain is to get a bailout with no additional conditions besides austerity measures already implemented. The futures remain positive. The BOE (England) holds off on more QE.  China says they will not buy Euro sovereign debt but would be willing to buy hard physical and commodity-type assets.  This news dampens the markets and futures drift lower to the flat line.  At 7 AM EST, as the futures start to go negative, China announces a quarter point rate cut, the first cut in four years, and futures immediately launch higher, the S&P’s gaining ten handles. The move sets a happy tone ahead of Chairman Bernanke speaking at 10 AM but also signals that China Is likely headed for a hard landing. The coming days will show to what extent China’s move is part of an overall global coordinated intervention coming. The markets are reacting purely to the headline news stories now with fundamentals thrown out the window. The ECB happy talk, Chinese rate cut, and Yellen’s comments set the markets up for a large pop at the open.

On Thursday, the opening bell rings and markets perform a rocket launch higher, with the SPX tagging 1329, but then as Chairman Bernanke’s speech notes are released and he begins talking at 10 AM EST, the markets pivot and head lower.  Bernanke says the “situation in Europe poses significant risks” moving forward.  Bernanke does not mention QE3 and simply parrots the ECB from yesterday saying “we stand ready to act”. Without firm QE details and direction supplied by Bernanke, the markets sell off. Fitch downgrades Spain three notches, only two notches above junk, and remains on negative outlook. This action fuels the market negativity and stocks sell off into the close. Spain is now lower credit quality than Ireland.  Fitch says in a worst-case scenario that Spain may need as much as 80 billion dollars and that recession will likely linger into 2013. The markets finish flat on the day giving up all the large gains early in the session. The utilities sector closes at a 3 ½ year high. Traders continue to seek perceived safety in utes and divvy stocks; the divvy stock bubble is ready to pop. Gold drops back under 1600 and heads lower.

On 6/8/12, Friday, Spanish banks are down about 3%. An Italian bank is suspended from trading since it falls too far too fast.  The China rate cut did not help the Shanghai Index since it closed down today.  China is to release economic data on the weekend and rumors say the data is bad and China needed to act quickly. Analysts say this is why China announced the rate cut mid-week rather than waiting for the weekend which is typically the time that these moves occur.  ECB’s Nowotny says banks have the ability to cut rates if the European debt crisis worsens.  U.S. futures are lower in front of the open but improve slightly as news that a Spain bailout may occur as early as this weekend.  A Twitter hashtag #StopMerkel experiences strong popularity as sides square off over the Spain drama. Before the opening bell, MCD warns on earnings resulting in a drop of 3%--the divvy bubble is popping. Markets drop at the open bouncing off of SPX 1307 support and travel higher all day long closing at the highs at 1326 resistance. President Obama performs a midday speech to explain the economy and mistakenly says the “private sector was fine.”  The broad markets finish the day up almost one percent and finish with the best week of the year.  For the week, the SPX finishes up 4% gaining almost 50 points.  Ditto for the Dow Industrials, up 4% gaining 440 points. The Nasdaq also gaining 4% with 110 points.  The small cap RUT jumped over 4% this week. After the close, the S&P rating agency said the outlook for the U.S. remains negative because of political and fiscal risks.

On 6/9/12, Saturday, traders await China economic data and Spain bailout developments this weekend which will surely set the trading tone for Monday. The size of the potential bailout is important since if it is only a small bailout directly targeting specific Spanish banks, this will not be as well received as a large bazooka bailout, a la TARP in the U.S., which will catapult equity markets higher, thus, size does matter. Of course, more indecision and no action by European leaders will likely result in a market selloff. The headache for Europe in real-time is how to contain Spain, since it has now jumped the tracks, before the Greece elections.

On 6/10/12, Sunday,…….

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On 6/11/12, Monday, the Spanish bank audits are released and……….  Spain bailout announcement? Considering the Greece elections are now only a few days away, the equity markets may favor a trading range this week, up large one day, down large the next, and so on, traveling sideways overall (a trader's heaven), awaiting Greece election results Sunday evening.

On 6/12/12, Tuesday, a major Bradley turn date occurs forecasting a market turn.

On 6/13/12, Wednesday, PPI, Retail Sales, 10-Year Note Auction. JPM’s Dimon testifies about the firm’s trading debacle.

On 6/14/12, Thursday, BOJ Meeting begins. CPI, 30-Year Bond Auction.

On 6/15/12, Friday, BOJ Meeting. OpEx.  Consumer Sentiment.

On 6/17/12, Sunday, Greece elections. The U.S. Supreme Court rules on Obamacare any day over the next two weeks—healthcare stocks will react violently.

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On 6/18/12, Monday,……markets tend to sell off into the new moon.  This week after OpEx in June the broad markets are down 90% of the time in recent years.

On 6/19/12, Tuesday, Housing Starts, FOMC Meeting begins. New moon.

On 6/20/12, Wednesday, FOMC Rate Decision and Press Conference-is there any mention of QE3 if it has not already occurred? If so, a rip-roaring equity rally will begin.

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On 6/26/12, Tuesday, Consumer Confidence.

On 6/28/12, Thursday, Euro Summit. GDP.

On 6/29/12, Friday, EOM. Consumer Sentiment.