Saturday, November 17, 2012

Keystone's Trading Week in Review and Path Ahead 11/17/12

On 11/9/12, Friday, France business confidence drops. The Troika report and vote on providing funds to Greece next week appears to be delayed. The euro is 1.2742 continuing to weaken on Greece upheaval, Spain refusing to ask for a bailout and lackluster economic data.  The U.S. 10-year yield places a low at 1.57% and then recovers back above 1.60%. The markets drop after the opening bell but the Consumer Sentiment data is at a five-year high which pushes the broad indexes higher. At least folks will be happy when they are careening off the fiscal cliff. Speaker Boehner, on the republican side, holds a press conference stating the same ideas about resolving the fiscal cliff that were said before the election. Dueling press conferences occur with President Obama repeating the same positions as before the election as well, and then releasing a statement afterwards to clarify that the administration wants to put the screws to people making over 250K per year (the people that create jobs), so there is no mistake on interpretation.  In other words, after the presidential elections, nothing has changed, all the gridlock and bipartisanship in Washington, D.C., remains, perhaps only worse now.  Traders wasted no time in selling the markets; the SPX dropped ten points as President Obama spoke. In the three days following the president’s re-election, the broad markets have lost over -4% and 100 billion in market cap. Coal companies and numerous large and small companies that held on until the election have now given up issuing mass layoff notices due to the president’s reelection.  The SPX moves back up thru the 10-month, 150-day and 200-day MA critical moving averages today only to close back underneath which is a very bearish signal. For the week, the SPX is down -2.4%, the Dow Industrials are down -2.1%, the Nasdaq is down -2.6% and the RUT is down -2.4%. Tech and small caps continue to lead the broad indexes lower which is a bearish signal. The major indexes have their worse week of trading in the last half year. Volatility continues to move higher. Keystone’s Inflation-Deflation Indicator signals that the country is in Disinflation on the verge of falling into Deflation. General Patraeus resigns due to an extramarital affair which is odd timing since he was scheduled to testify on the Bengazi scandal next week. A predator drone was also shot at by the Iranians which should be perceived as an act of war. Both these events occurred before the election but the news was withheld by the administration until after the elections.  This behavior encourages stock traders to be more mistrustful moving forward.

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On 11/12/12, Monday, Veteran’s Day Observed. The stock market is open but the bond market is closed today.  Japan’s economy is the weakest since the horrible earthquake, tsunami and nuclear accident. Rajoy (Spain) rushes to develop new eviction procedures as individuals are committing suicide when their homes are seized. Greece passes a new budget and protestors take to the streets. Greece needs funding this week but the talks are not going well. The Troika report will be delayed a couple weeks but it is needed to make a decision on Greece funding. The euro is at 1.2708. AAPL and HTC settle their patent disputes over cell phones.  The markets are flat all day, the SPX moves above the 150-day and 200-day MA’s but close back below continuing to signal bearishness ahead. The volume is very low, fumes, on track for the second lowest trading day of the year due to the holiday. Volume will pick back up tomorrow. The utilities sector continues to collapse, UTIL has fallen from 488 to 44, -9%, in only fifteen days.  The markets have lost one trillion in value since President Obama was re-elected.

On 11/13/12, Tuesday, Juncker (Head of Euro Group) and LaGarde (IMF) clash on providing more time for Greece to meet its obligations (the 120% GDP loan goal moving from 2020 to 2022). The riff between the IMF and Euro Finance Ministers is in full public display and due to the IMF wanting some Greece loans to be written down but Juncker, if he is speaking for the group, disagrees.  The spat turns the recently calm Europe into turmoil. Greece protestors direct their anger at the German’s yelling “Throw the bums out!” The rioters throw cups of coffee and water at German leaders showing up for meetings, the scene across Europe becomes increasingly tense.  Merkel is confronted by protestors in Portugal with signs and shouts such as “Hitler Go Home!”  The trouble in Europe drops the euro under 1.27 and sends global markets lower. The S&P futures are down over ten.  The morning is developing a negative tension and tone as Europe now appears disjointed. NFIB Small Biz Optimism Index is flat continuing to verify the confusion and negativity among business leaders due to the fiscal cliff, higher taxes, higher health insurance costs, more regulation, etc.. Companies choose to tread water and not hire anyone or expand due to all this uncertainty and anti-business environment.  HD earnings beat which improves mood.  The markets languish sideways all day long drifting lower into the closing bell. Portugal, Spain and Italy riots continue. The Fed’s Yellen says the Fed will be accommodative into 2016 with monetary easing.  Her words do not stop the late day market slide. The Fed’s talk of QE measures appear to have less and less an impact. The new moon weakness appears into the close and the SPX is moving thru a range of 1369-1391.  After the bell, CSCO blows out earnings and catapults higher encouraging the beaten-down tech sector. The solar eclipse occurs in the evening with Australia the best viewing area. Humans may behave oddly in markets during these celestial and metaphysical occurrences.

On 11/14/12, Wednesday, China selects the new President Xi Jinping and new Premier Li Keqiang, Xi and Li, as the week-long 18th Party Congress convention wraps up this week, and the ten-year transition of power continues. The BOE cuts their economic outlook moving forward.  Germany 2-year auctions go off with a negative yield indicating that people are willing to give up on a return and are actually willing to pay out some money in return for having their principal kept safe.  Retail Sales are weak feeling pain from Hurricane Sandy. The markets drop at the opening bell and drift lower.  Israel conducts an airstrike killing a Hamas leader saying this is the start of an offensive to address the recent bombings and rocket attacks. The Israeli Defense Forces video shows the air strike on television which creates nervousness in the markets. WTIC and Brent oil price moves higher but not excessively so.  Egypt protests the Israel strike increasing the tensions and worry that a major Middle East war is on tap, even WW III. Hamas proclaims “The Gates of Hell Have Now Been Open.” President Obama begins speaking at 1:30 PM but the same rhetoric occurs, a willingness to compromise as long as you agree with him.  The republicans and democrats are in the exact same place as before the election but the fiscal cliff drama is now in the news daily and traders are becoming increasingly concerned.  The first question the president receives is concerning the General Patraeus sex scandal now unraveling instead of the far more important fiscal cliff dilemma. The FOMC Minutes favor more easing moving forward which is no surprise.  The president may want to avoid microphones since his re-election resulted in a large selloff last week, his speech late last week caused a ten-handle selloff in the SPX and today’s speech is causing a 15-handle sell off.  As a result of President Obama’s re-election, the SPX has now sold off from 1435 to 1355, 80 points, a drop of -6%, in only six trading days after the results; the markets are selling off one percent per day, each day, on average. Traders worry that the tax-the-rich mentality will only serve to worsen the economy since these are the folks that actually create jobs. Today is a Bradley turn date and markets take a sharp move south. The Dow has now dropped 1000 points from its top only about one month ago. The Nasdaq is now in correction mode since it is down over 10% of its top. The technical damage in the markets is severe.  Keystone’s SPX 12-Month MA Cross Indicator signals a Cyclical Bear Market ahead.  Keystone’s NYA 40-Week MA Cross Indicator signals a Cyclical Bear Market ahead. The SPX drops 19 points, -1.4%, to 1355.  The Dow Industrials drop 185 points, -1.5%, to 12571.  The Nasdaq drops 37 points, -1.3%, to 2847.  The RUT drops 16 points, -2.0%, to 773. Weak small caps indicate weak markets moving forward.

On 11/15/12, Thursday, France, Germany and Italy GDP are a hair better than expected but Spain, Austria and the Netherlands are worse. The Netherlands is particularly worrisome since they appear headed for a triple dip recession but they are AAA rated and one of the countries expected to help Europe grow out of the debt mess.  Spain riots are escalating in several regions of the country as citizens protest austerity and clash with police. Barcelona police are firing rubber bullets into the crowds.  Ollie Rehn (European Commissioner) says the European economy is turning the corner and paints a rosie picture that helps the euro remain steady at 1.2760.  The Euro economy GDP shrinks in Q3 and now prints two quarters in a row of negative growth, the commonly accepted guideline that verifies a recession.  The Eurozone enters a second recession in four years, a double-dip. WMT earnings surprise to the downside and take the Dow Industrials lower. TGT, however, provides positive earnings. On balance, the earnings are terrible this morning with companies missing and top line estimates not matching.  People are simply not spending money as they were in previous months, a sign of a sick global economy.  The Philly Fed Survey is far lower than expected but it is chalked up to Hurricane Sandy. The markets move sideways with a downward bias and take out yesterday’s lows at SPX 1348. Right on cue, Chairman Bernanke runs to a microphone proclaiming that the Fed can provide more easing programs, especially for housing.  The markets jump higher on the Fed’s money-pumping talk; the SPX climbs ten handles to 1358 in quick order.  President Obama is touring the Hurricane Sandy damage on Staten Island, New York, and provides a speech which is carried on television. As soon as the president appears on tv, the markets begin selling off. The market bull’s best keep the microphone away from the president since this is the fourth time the president has talked on tv since the reelection and the markets tank each time. Traders are like Pavlov’s dog, the minute they see the president they hit the sell button.  Do you think Wall Street and businessmen are disappointed in the reelection? Traders know that the political gridlock over the fiscal cliff, the wealth-bashing mentality, anti-business sentiment, increased taxes and regulations, and higher health insurance costs due to Obamacare, all add up to a sick economic environment for months and years to come.  The broad indexes finish slightly down on the day. The 10-year yield is under 1.60% at 1.59% showing a move by investors out of stocks and into notes and bonds to seek perceived safety. The Fed’s verbal market pump today faded away. The central banker emperor’s are exposed and not wearing any clothes (reference Hans Christian Anderson). In prior months, when the Fed would pump the markets with QE promises, the SPX would pop 25 handles and not give it back. Today, Bernanke’s verbal pump created a ten-handle bounce that quickly faded. The Fed is out of bullets.  Worries escalate over the Israeli-Hamas conflict at Gaza. Israel is moving equipment and forces in to begin a ground war. One missile launch against Israel appears to have come from Egyptian territory. Air raid sirens not heard since the Iraq War began in 2003 are now sounding daily. The world must pray.

On 11/16/12, Friday, OpEx. An independent audit of the FHA (Federal Housing Administration) reveals that this agency remains highly in debt and a future bailout by the American people will be required. The dollar/yen continues to climb strongly higher on expectations of further yen weakening programs by the BOJ.  The euro drops overnight to 1.2738. European leaders say a decision on Greece will be provided on Tuesday.  LaGarde says, however, “it is not over until the fat lady sings.” The Greece problem is punted down the road more than a football during an NFL game. China expects growth to slow in 2013. Traders are skeptical about China’s non-performing loan ratio by banks which remains low; the numbers are obviously fudged trying to hide the oncoming China hard landing.  This behavior is similar to Japan fudging the non-performing numbers (hiding how many loans are defaulting) in the early 1990’s as their economy and markets went off a cliff. Once the true realization hits that businesses and folks cannot repay loans in China, the end game is at hand, just as it occurred in Japan two decades ago. The 10-year yield is 1.58%. Gold is at 1700-ish.  Israeli troops take positions on the Gaza border. Rockets are firing into and thru Israel and Gaza.   Brent oil moves up over 108.  The news wires confirm that two missiles landed in Tel Aviv but no casualties are reported. WTIC oil is 86.23 not feeling the same impact as Brent.

On Friday, at 8 AM EST, the futures leap higher from down five to up five S&P’s on news that the Whitehouse is putting together a compromise plan for the fiscal cliff.  The broad indexes move lower after the opening bell until 11:30 AM when Speaker Boehner exits the Whitehouse proclaiming that the fiscal cliff can be avoided. A photo-op occurs showing the President and Speaker shaking hands, and Reid, Pelosi, Boehner and McConnell all talk happy talk. The markets sky rocket higher, the SPX moves from 1343 to over 1358, 15 handles, in less than one-half hour’s time.  Volatility moves lower with the VIX dropping under 17. Keystone’s SPX 30-minute chart shows the 8 MA moving up thru the 34 MA indicating bullish markets for the hours and days ahead. Trannies, utilities, telecom and copper all remain weak. Traders are selling dividend stocks due to the higher taxes coming. The broad indexes finish the day on the plus side due to fiscal cliff happy talk but are down for the week.  For the week, the SPX lost -1.5%, the Dow Industrials lost -1.8%, the Nasdaq lost -1.8% and the RUT fell -2.4%. Note that tech and small caps lead the weakness which is bearish for markets. AAPL drops under 500 billion in market cap.

On 11/17/12, Saturday, the Israel-Hamas War heats up. Rocket fire continues and Israeli troops and equipment is staged at the Gaza border ready to begin a ground war.

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On 11/19/12, Monday, Existing Home Sales. Holiday-shortened week.

On 11/20/12, Tuesday, a Greece decision is promised for the umpteenth time.  Housing Starts. Chairman Bernanke speaks.

On 11/21/12, Wednesday, Flash PMI. Consumer Sentiment. Leading Indicators.

On 11/22/12, Thursday, China Flash PMI. Thanksgiving Day holiday, U.S. markets are closed. EU leaders Summit. Eurozone PMI’s.

On 11/23/12, Friday, markets are open but only until 1 PM, typically a very low volume day.

Europe continues to dictate global market direction with several moving parts;
·         The Spain bailout request must occur before the ECB OMT bond-buying program can occur. Spain must formally request the bailout since it shows a willingness to give up some sovereignty and accept oversight and conditionality. The Spaniards are proud folks so they keep trying to hang on without requesting a bailout. Italy tries to convince Spain to request the bailout since the bond-buying would help Italy’s debt mess. Rajoy likely has no plans to ask for a bailout anytime soon since the Catalonia regional elections are 11/25/12, and it appears Spain will not request a bailout until December or later. The Spain 10-year yield is approaching 6% but do not look for a Spain bailout unless the 6.25-6.50% and higher yields occur. The euro weakens (equity markets weaken) with no bailout but will launch higher with a bailout request.
·         Troika is scheduled to make a decision on Greece’s debt mess on Tuesday, 11/20/12, but do not hold your breath; the schedule is continually pushed forward.  The euro will weaken as the Greece mess continues but the euro will jump higher if a solution occurs, which would send equity markets higher as well. Greece will likely stay in the euro until the Merkel election occurs in Germany in the Fall 2013.
·         Cyprus needs aid. Perhaps the European leaders are working on a package approach where a Spain, Greece and Cyprus aid package will be announce all at once in December or early 2013.
·         Italy, Ireland and other Euro nation’s ongoing individual debt drama’s.
·         Fiscal Union and Banking Union. Merkel is pushing the fiscal union. The banking union is to start up January 2013 but will not be fully functional until January 2014. The schedules and dates continue to slip forward.
·         The Draghi put supporting the markets is the announcement of the OMT program on 9/6/12 at SPX 1403. The SPX 1403 failed so traders have lost confidence in waiting for a Spain bailout and are growing tired of the continual European can-kicking with no solutions.
·         ECB Rate Decision and Press Conference Thursday, 12/6/12. Europe must lower the value of the euro to increase growth thru manufacturing and exports. If the ECB cuts, the euro will drop and bring down equities. If the ECB stands pat the euro will move sideways or up which will help support equities markets

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On 1/1/13, Tuesday, ESM is officially open but will not be fully operational.

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. On 9/13/12, Bernanke says the Fed does not have tools to handle the fiscal cliff.

In March, the National People’s Congress convenes.  China President Xi Jinping and Premier Li Keqiang take over complete control and the ten-year transition of power is finished. China now sets inflation and budget targets moving forward. China will push to a domestic-led economy, private consumption, rather than an export-led economy, but a domestic economy will grow at a slower pace.

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