On 7/27/12, as the session ends, the TICK prints near +1500, an obscene high, the NYAD is over +2000, the TRIN prints an uber low 0.2’s number, all these parameters verifying the off-the-charts bullishness now in place for markets. The VIX is under 17 and the CPC is low indicating market complacency. Markets are not climbing a wall of worry but traders are rather relaxed and complacent knowing that the Fed and ECB will always be there to save the day—next week actions must back up the talk. At the close, the SPX is up 26 points, 1.9%, to 1386. The Dow Industrials are up 188 points, 1.5%, to 13075, closing above 13K for the first time since May. The Nasdaq jumps 65 points, 2.2%. For the week, the SPX gained 23 points, 1.7%. The Dow gained 253 points, 2%. The Nasdaq gained 33 points, 1.1%. After all the smoke clears, realize that the SPX is simply a smidge above where it was seven days ago, at the 1380’s. The Nasdaq did not take out the previous July highs, neither did the small cap RUT. Thus, the SPX and Dow jumped this week with tech and small caps less enthusiastic. Traders ran to dividend stocks further stoking the ongoing Dividend Stock Bubble. Something must have really scared the central bankers into action this week, either Greece is completely over the cliff now, or a major negative event has occurred in the Spanish regions, or other European debt situation. Geithner is flying over to meet with European officials. The last three days of events smack of desperation.
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On 7/30/12, Monday, Spain’s recession deepens. Euro-area confidence numbers are worse than expected. More European leaders praise the central bankers coming intervention. Geithner meets with Germany’s Schauble and the ECB’s Draghi but the meetings are downplayed saying that markets should not expect any major news announcement and that Geithner was actually planning these meetings for weeks and simply wanted to meet before the August European holidays. Markets are discussing ‘parallel intervention’ where joint action is performed in the markets. Markets spend most of the day on the sell side and finish down slightly. The Dow Industrials are now down the last nine Monday’s in a row.
On 7/31/12, Tuesday, EOM today. Global bank earnings are weaker than expected. China hints at further stimulus measures, especially to spur domestic growth, but the futures markets do not react. The Italy unemployment rate is 10.8%, the highest in 13 years. The Germany unemployment rate remains at 6.8%. Euro officials vote down an ESM banking license so this is a negative for markets. European markets weaken on the news. The U.K. PMI is the lowest since 2009. The two-day FOMC meeting begins. Pimco’s Bill Gross says that ‘the cult of equity is dying, the equity markets are a Ponzi scheme’. Germany’s Weidmann says that “governments overestimate the ECB” and that “Germany has a larger say in the decisions concerning Europe.” The SPX tests the 1392 resistance and pulls back down.
On 8/1/12, Wednesday, a flood of bad trades occur at the opening bell at Knight Capital, KCG, which handles from 10 to 20% of the trades on the exchanges, a very large player. KCG fumbles for answers and says that a rogue algorithm created the mess. Markets are flat into the FOMC Rate Decision where Chairman Bernanke delivers a goose egg. Bernanke down plays the recent talk of stimulus and simply repeats the same line that the Fed 'stands ready'. Markets tank. In the evening, rumors surface that KCG is having funding issues and a sale is needed in light of the trading fiasco; the company opens its kimono and invites suitors to review their assets. The markets develop a jumpy, nervous vibe ahead of the ECB in the morning.
On 8/2/12, Thursday, the BOE rate decision occurs without market reaction. The PBOC (China) talks about stimulus measures but in broad generalities. This is the second month in a row that China has released news in concert with the BOE and ECB rate decisions. There is obviously global central banker coordination ongoing. The markets are anticipating action from the ECB such as lowering rates, providing a long-term LTRO program, or ramping up an Italy and Spain bond-buying program. Draghi surprises the markets providing nothing except words about a vague plan moving forward. Germany likely made demands that Draghi could not resolve. Merkel, donning her dominatrix outfit with whip in hand, neutered Draghi, bringing him to submission. The European bond market does not appreciate the inaction. The Spain 10-year yield moves back above 7% and the Italy 10-year yield moves above 6%. Keystone’s algo, Keybot the Quant flips to the short side at SPX 1360. KCG says the trading loss from the debacle is 440 million dollars far above even the highest estimates. KCG stock tumbles into free fall dropping from 10 to 2.27 in two day’s time. The media talks about the loss of investor confidence as these events become common place in markets; the Flash Crash, BATS, FB fiasco, and now KCG. The day ends with markets recovering half the losses from earlier in the session. The SPX loses 10 points and the Dow Industrials lose 92 points.
On 8/3/12, Friday, China and U.K. manufacturing data remains in a funk. Overnight, Spain warms up to the idea of asking for a bailout. This has been a barrier to finding solutions in Europe (Spain providing a formal request) so the futures markets ramp higher on the happy talk. The S&P futures are up over 12 points. The Monthly Jobs Report blows away the estimates on the headline number with 163K jobs, but the unemployment rate climbs a tick to 8.3% and the average hours worked and earnings remain lackluster, showing that employers will be in no rush to hire additional employees. The futures prefer the happy headline number and increase about three S&P points but the encouraging news concerning Spain asking for a bailout is creating the bulk of the bullish move. After the gap up open, markets continue higher and finish at elevated levels. Keystone’s algo, Keybot the Quant flips back to the long side reversing yesterday’s move to the bear side at SPX 1377. Keystone’s SPX 30-minute chart with 8 MA and 34 MA cross flips to the bullish side. The SPX is up 26 points, 1.9%, to the important S/R level at 1391. The Dow Industrials are up 217 points, 1.7%, to 13096. The Nasdaq is up 58 points, 2%, to 2968. The RUT is up 20 points, 2.6%, the tech and small caps outperforming today, to 788. Despite the uber bullish day today, for the week, the SPX, Dow and Nasdaq finished flat, and the RUT actually finished down a percent. The VIX prints a 15 handle showing that traders are uber bullish, complacent and without fear or worry about markets going down (think about this from a contrarian perspective). Later in the day, after the markets close, Spain’s Rajoy says he has not made a decision on whether to ask for help from the European rescue funds. S&P ratings agency downgrades 15 Italian banks. The banks’ assets have weakened in recent years and a severe recession will increase the problem assets that are on the books as time moves along.
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On 8/6/12, Monday, Bernanke speaks. Spain in focus. There are limited economic data releases this week so Europe and earnings will steer the ship.
On 8/7/12, Tuesday, DIS. Bernanke speaks.
On 8/8/12, Wednesday, Productivity and Costs. 10-Year Note Auction.
On 8/9/12, Thursday, Jobless Claims. International Trade. 30-Year Bond Auction.
On 8/10/12, Friday, Import and Export Prices.
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On 8/14/12, Tuesday, Retail Sales. PPI.
On 8/15/12, Wednesday, Spanish stress test results are due from an independent auditor. CPI. Industrial Production.
On 8/16/12, Thursday, Housing Starts. Jobless Claims.
On 8/17/12, Friday, Consumer Sentiment.
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On 8/22/12, Wednesday, FOMC Minutes.
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On 8/28/12, Tuesday, Consumer Confidence.
On 8/31/12, Friday, EOM. Consumer Sentiment. Jackson Hole conference begins-listen for the Bernanke speech for hints of QE3, or not.
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On 9/3/12, Monday, U.S. Markets are Closed in Observance of Labor Day.
On 9/4/12, Tuesday, U.S. Markets Reopen for Trading.
On 9/6/12, Thursday, ECB RateDecision and Press Conference.
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On 8/22/12, Wednesday, FOMC Minutes.
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On 8/28/12, Tuesday, Consumer Confidence.
On 8/31/12, Friday, EOM. Consumer Sentiment. Jackson Hole conference begins-listen for the Bernanke speech for hints of QE3, or not.
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On 9/3/12, Monday, U.S. Markets are Closed in Observance of Labor Day.
On 9/4/12, Tuesday, U.S. Markets Reopen for Trading.
On 9/6/12, Thursday, ECB RateDecision and Press Conference.
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On 9/12/12, Wednesday, FOMC Rate Decision and Press Conference. AAPL releases new iPhone details.
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