Saturday, December 1, 2012

Keystone's Trading Week in Review and Path Ahead 12/1/12

On 11/23/12, Friday, German business confidence is much better than expected which launches the euro above 1.29. S&P rating agency provides clarity on its current banking ratings across Europe, especially Spain, and the outlook on all the Spain bank ratings is negative moving forward. The Spain 10-year yield moves higher to 5.69%. The Greece 10-year yield is moving higher to 16.44%.  Draghi speaks providing pats on the back for everyone including himself, trying to foster stability in markets. Draghi makes the case for the ECB becoming the banking supervisor.  European leaders cannot agree on the EU budget so a decision will be pushed off until the New Year.  The Euro leaders are very skilled at can-kicking. Merkel takes a laissez-faire approach to the budget impasse saying that they can handle the budget next year.  Of course, Merkel’s goal is her re-election in September so anything that keeps the European debt mess together until then is fine by her.  In shocking news out of left field, Argentina may default. There is a debt dispute going thru the courts that involves billions of dollars and Argentina does not have the money. Egypt erupts in violence with protestors setting fires after the Egyptian leader Morsi declares his words as the law of the land moving forward. Morsi was elected but now moves towards dictatorship and many label Morsi as the “New Pharaoh.”  The rioters chant “down with Mohamed Morsi Mubarak,” making reference to the 2011 riots that ousted the Mubarak dictatorship.  Oil price remains buoyant as the global problems grow. Black Friday shoppers are out in force after Thanksgiving dinner shopping thru the night; the great American consumer cannot be stopped. The media reports a robust day of shopping and the sight of the lines at electronics retailers excite the technology sector.  The broad indexes jump at the open and accelerate higher as the session moves into the early close. The positive German sentiment, China PMI from yesterday, seasonality, and the gains in the retail and financial sectors all push the markets higher.  Keystone’s 60-Minute Chart with 200 EMA Cross Indicator signals bullish markets for the hours, days, perhaps weeks ahead. A feeding frenzy in the final minutes sends the SPX over 1400 (up for five days in a row) and the Dow Industrials over 13K.  The SPX adds 18 handles, 1.3%, to 1409, on light volume as would be expected for this day. The Dow gains 173 points, 1.4%, to 13010.  The Nasdaq adds 40 points, 1.4%, to 2967. The RUT is up 9 points, 1.1%, to 807.  Tech (Nasdaq) did not overly outperform the broad indexes and the small caps (RUT) lagged all day, not a ringing endorsement of the rally. For the week, the major indexes gained a huge 4%. The VIX fear gauge drops from over 18 to 15 in the last few days. The euro is at 1.2970.  The 10-year yield is at 1.69%. Brent oil is 111.

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On Monday, 11/26/12, the Catalonia elections show a strong preference by voters to succeed from Spain in the years ahead.  Euro leaders promise a decision on Greece for the umpteenth time. A Finland official hints that the Greece decision will be delayed until next week. If Euro leaders cannot handle Greece, which is too small to fail, how do they handle Spain and Italy that are too big to fail?  Egypt is tense with ongoing protests and riots in the street. The U.S. pulls back from the embassy. Tomorrow tens of thousands of protestors, both for and against Morsi, will meet in the streets with a potentially disastrous outcome.  The BOJ plans on more easing which should keep the dollar/yen buoyant.  Italy consumer confidence drops and sets a negative tone for the week. The U.S. market open and move lower giving back some of the holiday gains. Markets move flat all day long.  Keystone’s 60-Minute Chart with 200 EMA Cross Indicator signals bearish markets but the bulls recover by the close to maintain the bullish forecast for the hours, days, perhaps weeks ahead. After the close, Morsi reaches an agreement with the Egyptian judges and the pro-Morsi demonstrations scheduled for tomorrow are cancelled.  The euro moves above 1.30 on the news.

On Tuesday, 11/27/12, at 3 AM EST, a Greece decision is announced, finally.  The euro enjoys buoyancy above 1.30 but within an hour starts to peter away.  The Fed’s Fisher says that QE should be reduced which boosts the dollar and applies further pressure on the euro, now dropping to 1.2945. Finland and Sweden business confidence numbers are weak. The OECD (Organization for Economic Cooperation and Development) lowers global growth forecasts again. The CPC put/call chart signals extreme fearlessness and complacency in the markets which typically identifies a significant market top. The Consumer Confidence number is the best in over four years but markets pivot and sell off. Television screens show anti-Morsi protestors in Egypt but the crowds are currently non-violent. At 2 PM, the Senate Leader Harry Reid steps to a microphone and says he is disappointed in the progress the republicans are making with the fiscal cliff negotiations and that the happy talk they had must turn into action.  The news wires flash “Harry Reid says negotiations are not making any progress and the happy talk is over.”  The stock market drops like a stone on the news. The SPX finishes the day at 1399.

On Tuesday, at 3:56 PM EST, Keybot the Quant algorithm flips bearish at SPX 1399 signaling serous market trouble ahead.

On Wednesday, 11/28/12, Greek workers protests are ongoing.  Egypt unrest continues with 200K people in the streets. The Swedish Index is halted due to technical difficulties. The euro drops under 1.29 and the futures weaken.  New Home Sales are weaker than expected and analysts quickly blame Hurricane Sandy. Gold falls out of bed to the low 1700’s. The markets drop at the open and the day looks bleak. The SPX falls thru important support levels. As the markets continue to collapse, Speaker Boehner speaks optimistically about the fiscal cliff negotiations. The SPX catapults higher.  The euro jumps higher to 1.2948.  At noon, President Obama speaks and promises a solution to the fiscal cliff by Christmas.  The markets move higher. The Beige Book at 2 PM is uneventful but markets pivot slightly lower.  A WSJ article is released by Jon Hilsenrath (who is thought to always have an inside track on the Fed), and as typically is the case, results in the markets jumping wildly higher. This news always pumps the bond-buying, money-pumping, and QE and the market bulls love their crack cocaine.  The SPX runs higher into the close from an intraday low at 1386 up to 1410, a phenomenal intraday recovery. The Dow Industrials move over 200 points off the intraday bottom. Retail, semiconductors, financials and lower volatility fuel the bullishness.  Keystone’s 60-Minute Chart with 200 EMA Cross Indicator signals bearish markets but the bulls recover by the close to maintain the bullish forecast for the hours, days, perhaps weeks ahead. Keystone’s SPX 30-minute chart shows the 8 MA moving down thru the 34 MA indicating bearish markets but the bulls recover by the close to maintain the bullish forecast for the hours and days ahead.  The SPX is up 11 points, 0.8%, to 1410.  The Dow Industrials are up 107 points, 0.8%, to 12985.  The Nasdaq was up 0.8% and the RUT is up 0.7%. Tech and small caps lagged the broader market, a bearish signal. A full moon and lunar eclipse occurs in the evening.

On Wednesday, at 3:51 PM EST, in a whipsaw move, Keybot the Quant algorithm flips bullish at SPX 1409 signaling good times for the bulls ahead.

On Thursday, 11/29/12, the euro moves up towards 1.30. The European 10-year yields are printing multi-month lows. The Spain yield is 5.22%, the lowest in about eight months. Italy is 4.50%. France 2.03%. U.K. 1.78%.  U.S. 1.63%.  Germany 1.39%. Europe is calm as traders believe the backstops provided by the ECB and other programs will improve conditions. Global optimism spreads after Wall Street’s dramatic reversal yesterday. Copper is up strongly.  Brazil adopts a low rate policy for the foreseeable future following the Fed’s game plan.  The race to the bottom with all nations devaluing their currencies continues. The GDP is 2.7%, the strongest in recent months, but expected due to all the spending ahead of the elections. TIF, a bellwether for luxury spending and the global economy, misses earnings by a large margin. Fed’s Dudley provides dovish comments which signals more quantitative easing crack cocaine on the way and the markets move higher at the opening bell;  the SPX prints over 1420. The markets are supported purely by Fed stimulus. At 11:40 AM, Speaker Boehner says “No substantive progress has occurred concerning the fiscal cliff negotiations over the last two weeks. The democrats have to get serious.”  The SPX drops five handles immediately; the Dow drops 60 points.  Boehner says the meeting with Geithner was cordial but direct. Minutes later, Harry “Happy Talk” Reid says that the time for the republican happy talk is over and both sides must work on solutions. Reid says an agreement should be reached soon but in the next sentence he says there are no guarantees.  The markets languish sideways until Senator Schumer says that a deal will be reached by Christmas. Those are the magic words and the markets recover back up to the SPX 1418 intraday highs. The political words concerning the fiscal cliff negotiations are moving the markets in real-time. Leader Pelosi delays her speech until after the markets close at 4 PM EST, since she does not want associated with the market volatility. The republicans cry foul when the Geithner plan is revealed since the president is asking for 50 billion in spending when the spending was supposed to be reduced. McConnell laughs out loud when Geithner presents the plan in a closed meeting. Speaker Boehner says the president’s plan “is not a serious proposal.” After the bell, YUM, a bellwether for the China economy, reports disappointing earnings and lowers guidance moving forward, a major blow to the idea that China will avoid a hard landing.

On Friday, 11/30/12, EOM. German retail sales disappoint showing continued weakness.  France consumer spending is worse than expected.  Europe’s third largest economy, Italy, announces a 13-year high in unemployment at 11.1%. The Eurozone unemployment rate approaches 12% with youth unemployment in Spain at 50%, depression levels. LaGarde (IMF) and Draghi (ECB) are at a conference where Draghi says “Spain and Portugal are showing strong export growth.”  This statement hints that Draghi does not want to lower rates at the ECB meeting next week. Draghi says “Euro area is making progress on internal balances.” He says that Europe has been living in a “Fairy World.”  Draghi talks in broad terms but does not provide details. European stock markets are at 16-month highs.  The euro is at 1.3000. The U.S. broad indexes drift sideways all day with a downward bias due to volatility rising. Just before 1 PM, Speaker Boehner walks to a microphone and says “Who are we kidding, we are at a stalemate,” and, “the talks are going nowhere.”  The markets drop on the negativity but recover quickly and continue along sideways. This behavior hints that the markets are now willing to wait and see how the coming days play out concerning the fiscal cliff negotiations.  Late session a rebalancing occurs bringing in strong volume which floats the broad indexes higher into the closing bell.  The day ends flat overall.  For the week, the broad indexes were flat while the Nasdaq and RUT, tech and small caps were up 1.5% and 1.8%, respectively, which is encouraging for the bulls.  For the month of November, the SPX, COMPQ and RUT were flat while the Dow Industrials printed a negative month. After the bell, Moody’s rating agency downgrades the ESM (European Stabilty Mechanism), which was anticipated, however, the euro takes a hit from over 1.3000 dropping to 1.2985 on the news. This will create negativity to start the new week.

On Sunday, 12/2/12, Secretary Geithner appears on the Sunday morning political television shows This Week, Meet the Press, Face the Nation, State of the Unioin and Fox News, and says…………..

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On Monday, 12/3/12, ISM Manufacturing Index, watch the energy markets.

On Tuesday, 12/4/12, Motor Vehicle Sales.

On Wednesday, 12/5/12, ADP Employment report provides a hint for Friday. Factory Orders.

On Thursday, 12/6/12, ECB Rate Decision and Press Conference. If no cut, the euro remains flat with some buoyancy, ditto the markets. If Draghi cuts, euro drops and so will the broad indexes. Jobless Claims.

On Friday, 12/7/12, Monthly Jobs Report. Consumer Sentiment.

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 begin. 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 10-year yield is now well under 6%.  Do not look for a Spain bailout unless the 6.25-6.50% and higher yields occur, unless, major problems develop in the broad indexes and Spain is forced to take the bailout so the bond-buying can save the markets. The euro weakens (equity markets weaken) with no bailout but will launch higher with the bailout request. Up euro = up markets.
·         Greece, Cyprus, Italy, Ireland, Portugal. Greece will likely stay in the euro until the Merkel election occurs in September. Cyprus needs aid. Greece will need more aid. Riots and unrest continue across Europe.
·         Fiscal Union and Banking Union.  A monetary union cannot exist without a fiscal 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.
·         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 and up which will continue to support equities markets.  The past week Draghi mentioned that Spain and Portugal are showing slight growth which hints that he will likely  not cut.

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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.

In September, Merkel (Germany) seeks re-election and will not want to see Greece exit the euro before the election but will not care afterwards. Perhaps Greece and Germany will both exit the euro in the future.

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