Keystone's Trading Week in Review and Path Ahead 1/26/13

On Friday, 1/18/13, China GDP is 7.9% reversing the seven-quarter down trend. Oil, copper and commodities markets move higher on the news as well as the Aussie miners. U.K. retail sales are much weaker than expected. OpEx today. GE, a global bellwether, beats on earnings.  GE’s CEO Immelt is providing the president business advice daily, and likely washing his car each weekend, which results in lucrative government contracts.  MS also beats so the bulls are further encouraged. CAT receives an upgrade, no doubt due to positive China GDP, which now sets the long traders on an unstoppable path higher.  Consumer Sentiment is 71.3, the lowest reading since December 2011, but all bad news is ignored now in the markets, the sound of the negative sentiment data is muffled due to all the popping champagne corks on the trading floor. A late-day melt-up occurs into the close where the SPX prints new 2013 and multi-year highs at 1485.98. The RUT and Trannies (TRAN) are at historic highs. Strong transportation stocks and small caps are a very bullish indicator.  The volume picked up strongly on Thursday and Friday as well, another feather for the bulls cap. A three-day holiday weekend begins. The SPX is up one percent this week. AAPL drops 4% this week closing at 500, but the broad indexes move higher anyway. Late Friday night, under the maximum cover of darkness, CAT releases news of accounting misconduct at its China operations. Part of Friday’s market rally was due to the upgrade of CAT in the morning and rosie talk about blue skies ahead.

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On Sunday, 1/20/13, BOJ meeting begins to decide on the stimulus path forward. The global currency wars are underway. Merkel loses a portion of her power base in the Lower Saxony elections. Europe is hit with serious winter weather affecting travel and business. Ditto across the northern U.S. Natty gas continues to receive a bid.

On Monday, 1/21/13, U.S. Markets are Closed in Observance of Dr. Martin Luther King Day. The Presidential Inauguration takes place in chilly Washington, D.C.

On Tuesday, 1/22/13, U.S. Markets Open for Trading. The BOJ disappoints targeting an inflation rate of 0.4% this year, 0.9% in 2014 and 2% in the long run. The BOJ central bank and Japan government officials appear together for photo-ops signaling a united front to weaken the yen moving forward. The yen weakening measures may proceed a bit slower than anticipated. Trader’s were all bulled up on the dollar/yen which drops on the news (stronger yen). The new Japan path, to try and escape two decades of deflation, is dubbed ‘Abenomics’, an open-ended monetary easing policy moving forward. On earnings, DD beats, VZ misses. CAT is hit on the negative news released Friday night. The 787 Dreamliner bucket ’o bolts remains on the ground since engineers are having trouble figuring out the battery problem. BA is sold off. Markets move sideways after the opening bell. On Bloomberg television, David Tepper of Apaloosa Management is a raging bull saying buy with both hands. In Fall 2010, after the QE2 money pump was announced by Chairman Bernanke in August 2010, the markets were continuing to chop along not fully convinced of the power of the money printing. Tepper, a well-respected hedge fund manager, appeared on television back then and said ‘do not fight the Fed’, buy with both hands, and the obscene money printing will create a huge rally, get in while you can. After that, to finish 2010 and move into 2011 the broad indexes catapulted higher and the market move was dubbed the ‘Tepper Rally’. Therefore, traders listen when Tepper talks and the markets are responding today.  Everything is blue skies and champagne for the bulls.  Existing Home Sales disappoint since less house inventory is available for sale. Foreclosures are tied up in bank paperwork. The low inventory will increase house prices which is not good for a floundering housing market and may create a flame out in the housing sector.  Slow steady growth is needed not a jack-rabbit recovery that dies. Markets ignore bad news and finish higher on the day with the Dow Industrials now taking out all intraday highs going back to five years ago. The Dow, SPX, RUT, Trannies and mid-cap indexes are all now at five-year or all-time highs. 

On Wednesday, 1/23/13, U.K’s Cameron announces intent to hold a referendum vote, up or down, on whether or not to stay in the euro. The vote would not take place until a few years in the future. Cameron said he does not want to leave the euro but he would support the referendum vote to occur.  The futures and other markets drop on the news, the euro falls under 1.33, but recovers. The IMF lowers growth forecasts which is becoming a regular occurrence. COH (high-end retail bags) disappoints with earnings and is pummeled over 16%. MCD beats on earnings and provides slight lift to the Dow Industrials. The markets begin the day flat but the 10 to 11 AM Fed money pump occurs as it does every day, and the broad indexes float higher testing the strong SPX 1496 resistance. Markets are simply pumped higher on easy money and not fundamentals or earnings. The House approves the vote to shamefully kick the can down the road with the debt ceiling limit now pushed to mid-May. The political Kabuki Theatre is an embarrassing display of incompetence in Washington and very harmful to the U.S. moving forward.  Markets float upwards on the vote but had most of this move already priced in. Traders are fully convinced that politicians will continue with the can-kicking and are not pricing in any market downside for the political theatrics upcoming.  The SPX fills the last remaining gap from the 2007 highs so price no longer has a reason to move higher based on gap fills alone. The SPX closes at new five-year highs day after day. After the bell, the much-awaited AAPL earnings are disappointing. The iPhones, iPads and Mac’s all fell short of sales goals. The bottom line EPS beat but the top line revenue was shy. Apple also said that their guidance forward would target their actual expected numbers in the future, not the game from the last decade where they sandbag lower and then blowout the numbers each quarter to the upside. This means the guidance just provided is even less optimistic moving forward. Also of interest is that the consumers are buying the less expensive products which are cannibalizing the more expensive devices (iPad Mini’s instead of an iPad and iPhone 4 and 4s instead of 5). Apple plummets 10% to the 460’s in the AH’s trading and the Nasdaq futures dive as well. AAPL makes up about 3 to 5% of the SPX and about 18 to 20% of the Nasdaq. Last year, the blowout Apple earnings catapulted the markets higher for the large springtime rally, this year, an earnings miss. On the plus side, NFLX reports blowout earnings and its stock jumps 30% higher AH’s.

On Thursday, 1/24/13, the disappointing Apple news is a wet blanket on global markets. China Flash PMI shows another improvement in manufacturing expanding to a two-year high. Surprisingly, the copper and commodities markets are unenthusiastic.  The France PMI drops signaling continuing manufacturing woes in a high-tax environment. Germany, however, improved slightly.  North Korea rattles a saber overnight threatening to conduct a nuke test. The World Economic Forum in Davos, Switzerland, continues.  Jobless Claims surprisingly drop for another week to a five-year low which hints that a sustainable recovery may be in place. Leading Indicators are stronger than expected. AAPL drops 10% to 450 at the opening bell.  The SPX and Dow Industrials, however, move higher and at 10:05 AM EST, the SPX punches up thru 1500, the first time in five years. The utilities are moving higher which are helping to elevate the markets. Ditto oil, copper and commodities. The broad indexes continue higher all day long with the SPX now up six days in a row. After the bell MSFT earnings beat.

On Friday, 1/25/13, the European banks handily meet LTRO requirements and refunding creating market optimism. German sentiment is better than expected. Draghi is interviewed in the morning and says 2012 was the rebirth of the euro.  The euro rallies higher, now well over 1.34, which sends futures markets higher.  The European debt crisis remains under the surface but the perception that things are improving is calming the markets. PG and KMB earnings beat. New Home Sales disappoint with lower than expected numbers but the prior month revisions are higher. The 10-year yield hits 1.95% with money moving out of bonds into stocks.  CAT and JOY, two China bellwethers sell off strongly.  Copper, oil and commodities move lower. Perhaps all is not as well in China as thought? The markets continue to ignore any bad news and move higher into the afternoon from the 10-11 AM free money pump that occurs each day.  AAPL continues to drop falling under 440 intraday. XOM overtakes Apple as the largest market cap stock reclaiming the top spot. The tried and true old school company (Exxon) retakes the flashy company (Apple) after the sizzle flames out. The SPX is up eight days in a row, a pace not matched for five years.  The SPX closes above 1500, a key psychological level, and now the focus is on new all-time highs. For the week, the SPX is up 1.1% to 1503.  The Dow Industrials are up 1.8% this week to 13896. The RUT is up 1.4% to 905 and the Nasdaq is up a paltry 0.5% to 3150 on the week. Note how the small caps and tech are not showing strong leadership. Apple continues to sell off AH’s.

On Saturday, 1/26/13, violence escalates in Egypt on the two year anniversary of the initial demonstrations.  Seven people are killed. Geopolitical risk is not priced into the markets.  

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On Monday, 1/28/13, a huge economic data and earnings week is ahead. Durable Goods. Pending Home Sales. CAT-China proxy. YHOO-tech.

On Tuesday, 1/29/13, Case-Shiller Home Price Index. FOMC meeting begins. Consumer Confidence. PFE-pharma.

On Wednesday, 1/30/13, GDP. ADP Jobs Report. FOMC Rate Decision. BA-airplanes. FB-social.

On Thursday, 1/31/13, EOM. Jobless Claims. Personal Income and Outlays. Chicago PMI. MO-cigs. MA-credit cards. UPS-shipping.

On Friday, 2/1/13, Monthly Jobs Report. PMI Mfg Index. Consumer Sentiment. ISM Mfg Index. Construction Spending. MRK-pharma. XOM-big oil.

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On Monday, 2/4/13, Factory Orders.

On Tuesday, 2/5/13, ISM Non-Mfg Index.

On Wednesday, 2/6/13, Oil Inventories.

On Thursday, 2/7/13, Jobless Claims. Productivity and Costs.

On Friday, 2/8/13, International Trade. Wholesale Trade.

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On Tuesday, 2/12/13, President Obama’s State of the Union address.

On Wednesday, 2/13/13, Retail Sales. Business Inventories.

On Friday, 2/15/13, Industrial Production. Consumer Sentiment.

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In February, Italy elections.

In February or 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. The GDP projections are of particular interest, 2012 grew at an average 7.8% rate.

On Friday, 3/1/13, the Sequestration hits with one trillion in automatic spending cuts for government.

On Wednesday, 3/27/13, the Continuing Resolution (CR) is required to fund the government.

In March and April, the BOJ head’s will be replaced so stronger QE will continue. Perhaps a low in the Nikkei in January or February may provide an attractive entry for a long trade once the money-printing begins (weaker yen) in earnest.

On Sunday, 5/19/13, the 16.4 trillion Debt Ceiling hits.

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.