Keystone's Trading Week In Review and Path Ahead 10/6/12

On 9/28/12, Friday, Japan economic data is weak showing a continued funk in this demographically-challenged country. Today ends September and Q3; EOM, EOQ3. Futures drift lower into the U.S. open. The Spain 10-year yield moves above 6% again.  The Chicago PMI drops under 50 for the first time in three years. Markets sell off at the opening bell.  Keystone’s SPX 30-minute chart shows the 8 MA stabbing down thru the 34 MA at 12:30 PM EST indicating bearish markets for the hours and days ahead. The Spain stress tests are in line with estimates, seven banks have needs and seven do not. The euro pops and markets float upwards after the news but fade into the close. Keystone’s SPX 30-minute chart reverses the lunchtime move and shows the 8 MA piercing up thru the 34 MA at 1:30 PM EST indicating bullish markets for the hours and days ahead.  For the week, the SPX loses -1.3%. The Nasdaq loses -2%. The Dow Industrials -1.1%. The small cap RUT is down -2.1%. The SPX is exploring the same levels that were in place when the Fed announced QE3 twelve days ago.

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On 9/29/12, Saturday, the China HSBC PMI is 47.9 indicating contraction. Manufacturing activity has steadily decreased in China for almost one year.  Protestors take to the streets in Portugal and Spain to protest austerity measures. Protests begin in Paris, France. Anti-American protests and riots continue across the Middle East and Northern Africa nations.

On 9/30/12, Sunday, China’s Golden Week holiday celebration begins. In the evening, the futures are negative with oil and PM’s negative. The euro falls thru the important 128.30 level printing down towards 128.00 on rumors of a potential Spain downgrade imminent.

On 10/1/12, Monday, today is the first day of Q3. Japan’s Tankan survey is weak.  Encouraging news about a Greece bailout boosts global markets. The Eurozone PMI is weak but a touch better than expected which moves the euro back up to 129.  Euro zone unemployment is at 11.4%, the highest since data collection began in 1995. C and MSFT are downgraded.  Markets bounce at the open and then catapult higher on positive ISM Manufacturing data but then leak lower all day long as the higher VIX drags markets lower. Trannies remain weak. Tech is lagging the broad markets with AAPL turning negative.   Keystone’s algorithm, Keybot the Quant, flips to the long side at SPX 1453 at 10 AM.  Chairman Bernanke speaks at lunchtime repeating the same mantra about supporting markets at all costs. GOOG prints an all-time high and surpasses MSFT in market cap taking over the number two position behind AAPL. The broad indexes finish flat to slightly up.

On 10/2/12, Tuesday, futures markets are higher on rumors that Spain is about to ask for a bailout. The RBA (Australia) lowers rates by a quarter point which sends commodities higher. The race to the bottom continues with competitive currency debasing occurring for all nations around the world.  Volker says the Fed’s QE3 will not cause inflation—in the short term.  Moody’s rating agency says Spain’s banks need twice the capital that is currently estimated. The markets drift lower all day long.  Keystone’s SPX 30-minute chart shows the 8 MA stabbing down thru the 34 MA at 11:30 AM EST indicating bearish markets for the hours and days ahead.  In the final hour of trading, AAPL makes a strong move higher taking tech and the markets higher into the closing bell.

On 10/3/12, Wednesday, the late day market buoyancy yesterday continues into today despite the ongoing global turmoil. Iran’s currency is collapsing causing increased instability in the region. Shortly into trading, KFT experiences a wild price swing which fuels worries of a flash crash.  The ‘erroneous’ trades occur over eight different exchanges. This is a game-change since prior problems have always pinpointed a single exchange as the culprit.  It now appears that all stock exchanges are tainted with the HFT (high-frequency trading) stink. Keystone’s SPX 30-minute chart shows the 8 MA piercing up thru the 34 MA at 11:30 AM EST indicating bullish markets for the hours and days ahead. In the middle of the day, oil collapses in price falling four dollars dragging the markets lower.  HPQ lowers guidance which weakens the tech sector and the markets further.  Overall, the markets are in a sideways malaise thru SPX 1432-1460 for the last two weeks.

On Wednesday evening, the President and candidate Romney square off in the first presidential debate at 9 PM EST in Denver, Colorado.  Romney was the clear winner.  The President appeared flat and disinterested while Romney dazzled the crowd with his business and finance acumen, as well as confidence and steady eye contact. The President looked down all evening and appeared like a student that was making excuses for not doing his homework.

On 10/4/12, Thursday, the media is all a flutter over the debates but the buoyancy in the euro has more to do with the elevated futures rather than the presidential debates. The ECB decides to keep the benchmark rate unchanged which results in an immediate bounce in the euro taking it up towards 130.  The futures, gold and commodities all run higher with the higher euro. Draghi says the European economy remains weak, but apparently not weak enough since he did not cut rates.  Retailers report slower sales growth ahead. The back-to-school sales met expectations but surprisingly the retailers are not all that positive. The SPX runs into the mid 1460’s after the opening bell. The markets ignore the news that Turkey is now firing into Syria.  The coal sector catches a bid on Romney’s debate victory since he is coal friendly and the President dislikes coal and natty gas. Hospital stocks run higher and HMO stocks are beaten badly since Romney would repeal and replace Obamacare.  The markets remain elevated all day long with the SPX flirting with the strong S/R level at 1460.  The FOMC Minutes are released at 2 PM and do not affect markets.  The minutes show Fed concern over using exact dates for guidance such as ‘extending the low rates into 2015’. Some members want to connect the Fed actions to schedule dates and economic data levels, but others do not.  Members worry about destabilizing markets by their actions.  The European debt crisis and the fiscal cliff coming in America are major problems that are holding back economic growth.

On 10/5/12, Friday, the Nifty Index (India) is halted for 15 minutes after it plummets 16% in a heartbeat, a mini flash crash.  These flash crash events are becoming more and more frequent and are now global; the KFT debacle occurred this week.  Riots in Iran increase as the international sanctions cut deep. World leaders say that the Iranian government mismanagement is to blame.  Iranian inflation is starting to escalate exponentially now running at 25% and one analyst says the inflation rate has actually jumped to 70% per month. The Spanish Finance Minister Luis De Guindos says “Spain does not need a bailout.” The audience in the room laughed. Guindos made the case that it is a question of scale where small help is welcomed but not the full-fledged bailout. The global news wires, however, simply pump the news that ‘Spain says no to bailout’ which creates jittery markets. Italy and France leaders are meeting with Spain to convince them to take a bailout. Obviously, they are more concerned about their own skin. If Spain requests a bailout, the ECB will institute bond-buying so the yields would drop, benefiting Italy and France. Rajoy’s (Spain) popularity drops ahead of the Galicia and Catalonia regional elections this month.  A Spain bailout request is not likely until late this month after the elections.  The Monthly Jobs Report shows that 114K jobs are created with a 7.8% unemployment rate. The consensus was 115K jobs and 8.2% rate. The 7.8% rate sends shock waves around the country and on trading floors. The lower rate ends the 8% plus number for the last 44 months in a row. The conspiracy theorists have a field day since the sub 8% number helps the President’s reelection campaign. The rate is now below when the President took office and is also under 8% so a republican talking point can no longer be used.  Former GE CEO Jack Walsh sends a tweet feeding the conspiracy talk; “Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers.”   The conspiracy talk continues all day long into the evening about the fixed numbers that come from the BLS (Bureau of Labor Statistics). The jobs report today lived up to its billing as the most important economic data release for the whole entire year. The November jobs report is only three days in front of the presidential election so all eyes will be watching the rate number. S&P futures are up seven points.  Germany’s Merkel announces a trip planned to Greece for Tuesday, 10/9/12.  That is a brave woman heading into the hornet’s nest. Obviously, her trip signals that she wants Greece to remain in the euro, and perhaps she is concerned about her reelection possibilities next year, and also, to add to the drama, she is concerned about her legacy and wants to be known as the Iron Lady of Europe, not the lady that took down Europe.  Greece Prime Minister Samaras warns of societal disintegration without urgent financial aid and says Athens will run out of money by the end of November if it does not receive the next bailout. Greek rioters attack and break thru the Defense Ministry grounds. Greek farmers use their tractors to block an airport in Crete. Rioters say that demonstrations will be planned to protest Merkel next week. The broad indexes bounce higher at the opening bell on the happy 7.8% unemployment rate. The SPX punches up thru the closing high for 2012 at 1365.77, however, the markets leak lower closing flat on the day and the SPX cannot print a new closing high.  For the week, the SPX is up 1.4% to 1461. The Dow Industrials are up 1.3% to 13610. Tech is lagging the broad markets with the Nasdaq up 0.6% on the week to 3136.  Note the lag in small caps as well with the RUT up only 0.7% on the week to 843. Also, traders are reluctantly buying the markets as evidenced by a preference to buy utilities, healthcare and consumer staples. This is not a healthy stock market.

On 10/6/12, Saturday, students clash with riot police in Italy taking to the streets to protest austerity.  In one incident, rioters attempt to take over a police van resulting in many injuries.  Three major cities erupt in violence. 

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On 10/7/12, Sunday, Venezuela elections occur with Chavez expecting reelection.

On 10/8/12, Monday, Columbus Day. U.S. banks and bond markets are closed but the stock market is open. Eurozone Finance Ministers meet to discuss Greece aid. ESM Inaugural Meeting. .      Markets will be listening for a potential Moody’s downgrade of Spanish debt. The Spain bailout drama is ongoing but a request will likely not occur until later in the month. Troika Report on Greece is due this month (this is needed for leaders to make a decision on Greece) and has been continual delayed since the original due date in early September. Euro leaders probably want to produce a package deal to address Spain, Greece and Cyprus all together.

On 10/9/12, Tuesday, Merkel travels to Greece. 3-Year Note Auction.  AA. YUM.

On 10/10/12, Wednesday, 10-Year Note Auction. Beige Book. Treasury Budget.

On 10/11/12, Thursday, International Trade and Import and Export Prices. 30-Year Bond Auction.  First and only Vice Presidential Debate Biden v. Ryan.

On 10/12/12, Friday, PPI and Consumer Sentiment. WFC. JPM.

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On 10/15/12, Monday, Retail Sales.

On 10/16/12, Tuesday, CPI and Industrial Production. Second of three Presidential Debates Obama v. Romney.

On 10/17/12, Wednesday, Housing Starts.

On 10/18/12, Thursday, ECB/Euro Summit (Merkel may continue to avoid a decision on Greece until an entire package can be developed to address Spain, Greece and Cyprus all at the same time. Merkel wants Greece to stay in the euro since she makes a special trip there, probably attempting to prevent things from falling apart before her reelection campaign next year as well as her working to maintain a future legacy as the Iron Lady of Europe not the lady that collapsed the euro. Is the banking union outline acceptable?).  Philly Fed.

On 10/19/12, Friday, Existing Home Sales.

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On 10/21/12, Sunday, Spain regional elections.

On 10/22/12, Monday, third and final Presidential Debate Obama v. Romney.

On 10/24/12, Wednesday, FOMC Rate Decision.

On 10/26/12, Friday, Consumer Sentiment.

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On 10/30/12, Tuesday, Consumer Confidence.

On 10/31/12, Wednesday, Halloween. EOM.

On 11/2/12, Friday, Monthly Jobs Report—last report before the election.

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On 11/6/12, Tuesday, U.S. Presidential Election Obama v. Romney, the result will be known in the evening from 9 PM thru 12 PM EST.

On 11/8/12, Thursday, the new China Premier Xi Jinping is officially selected and named the Head of Party, but, where is he?  The transition of China leadership begins with China holding the 18^th Party Congress.

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On 1/1/13, Tuesday, ESM is officially up and operating.

On 1/2/13, Wednesday, if Congress does not act, the U.S. hits the ‘massive fiscal cliff’ (a phrase coined by Chairman Bernanke in early 2012) that will cut the GDP, increase unemployment and immediately launch the country into recession, but, on the positive side, the nation’s debt will decrease. Bernanke states on 9/13/12 that the Fed does not have tools to handle the fiscal cliff, should it occur.

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In February or March, new China Premier Xi Jinping is named Head of Government and takes over complete control.