Saturday, February 16, 2013

Keystone's Trading Week in Review and Path Ahead 2/16/13


On Friday, 2/8/13, China CPI shows inflation pulling back and the trade data provides upbeat numbers. Copper and commodities push higher. The week-long Chinese New Year’s celebration for the Year of the Snake begins.  The Nikkei ends a 12-week winning streak, the longest streak in over fifty years, all due to the weakening yen. Japan’s Aso says the yen weakened more than intended in the short term but he is likely playing politics ahead of the G20 meetings. Dollar/yen hovers at 92.50 after hitting 94. Gold remains flat at 1670. Brent oil is 117.61 moving higher indicating turmoil in the Middle East. The Syria situation is out of control and the refugee’s may collapse neighboring countries, hence, Brent climbs and the WTIC to Brent spread increases. Thyssenkrupp steel company announces 2000 job cuts in Europe.  Peugot will likely need a bailout in France showing that automobile sales are weak. Obviously, growth is weak if steel is not in demand.  Draghi “warns against complacency in the Eurozone crisis.”  A snow blizzard named Nemo  is targeting the East Coast; airline flights are cancelled ahead of time and preparations are underway. GNRC jumps in price as folks buy generators. The retailers will lose sales overall as folks plan to stay indoors for a few days.  MCD, a Dow component,  reports weak sales.  Trade data is better than expected and hints that the -0.1% GDP would be revised up to about +0.7%. The futures gain upside into the open as the bad news is ignored and good news embraced.  The opening bell rings and the broad indexes leap higher, then move flat the remainder of the day. At 10:00 AM, Keystone’s SPX 30-minute chart 8 and 34 MA cross indicator shows the 8 piercing up through the 34 MA to signal bullish markets for the hours and days ahead. Crude oil drops 2% this week to settle at 95.72 but  Brent oil closes at a 9-month high at 118.90, and pierced through 119 today. The WTIC/Brent spread is a historic wide 23.18, representing a weakening global economy attempting to bring oil lower, but severe turmoil in the Middle East that is sending Brent oil higher.  Gold closes at 1667 in very lackluster trading this year. Interestingly, the 10-year yield is at 1.95% dropping another tick late day showing that money is staying firmly in notes and bonds, despite the markets buoyancy today. The euro drops through 1.34 but the equities markets remain elevated, one of them is wrong. The trading volume is extremely thin as traders sneak out the back door to beat the snow storm. Bank data shows a surge in home equity loans, with the dollar amount of loans rising as well, reminiscent of the 2005-2007 housing bubble top, using the house as a piggy bank, but still well under those very high levels. Initial indications are that money is going towards home repairs, although this would be the safe answer to place on the application, but, perhaps much of the money is actually used on everyday living expenses, to finance a child through college, or to help support one of the 25 million underemployed or unemployed people now creating a structural employment problem in the U.S. The SPX prints a new intraday high for 2013 at 1518.31 and a new closing high at 1517.93. The Nasdaq prints a new twelve-year high, going back to late 2000.  For the week, the SPX finishes up 0.3% (up six weeks in a row—a down week has not occurred yet this year), the Dow Industrials are down a smidge on the week to 13993, the Nasdaq is up 0.5% to 3194 continuing on a six-week winning streak, and the RUT is up 0.3% to 914 also on a six-week winning streak. The blue chips lagged this week. Tech and small caps were leading much more strongly to the upside, which is a bullish indication, in early January, but are now moving more coincidentally with the broader markets. After the close, noted cycle follower Peter Eliades says today, 2/8/13, marks a significant market top, like October 2007.  When asked what he would name the current market rally, Peter comically replied, “the bitter end.”  In the evening, under the cover of darkness, GOOG’s chairman Schmidt plans to sell over $2.5 billion stock (3.2 million shares), one of the many insiders throwing their stock overboard during the last two months. Watch Google on Monday.

On Saturday, 2/9/13, snowstorm Nemo hits the East Coast. New York and New England declare states of emergency. About 500,000 folks have lost power as two to three feet of snow fell in Connecticut, Boston, and the eastern seaboard. The new moon and Lunar New Year occurs.

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On Monday, 2/11/13, Asian markets are closed as the Year of the Snake celebrations continue. The India markets continue to fall, the IFN losing 6% over the last few days.  France production data is weak.  Pope Benedict resigns his position due to health reasons. Italy elections draw near and tension is building in markets as Berlusconi’s popularity increases. The euro drops under 1.34. Snow storms are now hitting the northern Midwest U.S. The northeast U.S. is buried in snow and begins a long dig out.  WTIC oil drops to 95 and Brent oil drops under 118. Gasoline prices jump 25 cents in two weeks which will hurt retail sales. Gold weakness continues now at 1650. The broad indexes close flat on the day. Interestingly, the SPX is down five Monday’s in a row. MAS earnings beat which encourages the housing recovery.

On Tuesday, 2/12/13, India industrial output falls. North Korea conducts an underground nuke test. The Kospi (S. Korea) sells off. The G7 seeks to defuse the currency war tensions but the Japanese yen further weakens. U.K.’s bank Barclays announces 3.7K layoffs coming. The restructuring is greeted with optimism and the European banks in general float higher. The euro moves above 1.34. Oil is rising again.  Higher gasoline prices create worry among consumers. Copper recovers from yesterday’s weakness. Markets are flat as trading begins.  Draghi says the ‘currency war rhetoric is way overdone’.  The euro moves higher to 1.3456. Markets move higher all day long and continue to print higher highs. In the evening, President Obama provides the State of the Union address and Marco Rubio provides the response.  The administration-friendly press laughs at and ridicules Rubio for taking a sip of water during his talk and ignores the substance of his intelligent speech. Markets show a lackluster response to the president’s speech.

On Wednesday, 2/13/13, Ash Wednesday. BNP Paribas (bank) reports weak earnings but the stock jumps on promises of a higher dividend. Rio Tinto (commodities) reports the first full year loss in the company’s history. Levy of Publicis (an ad agency) says that Europe itself is now the “sick man of Europe.”  SocGen (France’s #2 bank) reports losses twice as large as estimated.  Eurozone industrial production falls. Peugot (auto’s) reports big losses and weak sales. ING (insurance) is cutting 2.4K jobs due to lower profits. Lloyd Blankfein of GS says the “markets are beginning a long bull market.”  Retail Sales are in line with estimates.  DE earnings beat but the results are not met with optimism. Three key China bellwethers, YUM, CAT and DE, all show a less than enthusiastic picture despite all the rosy predictions in the media. The SPX prints a new intraday high for 2013 at 1524.69 but markets trail lower as the day moves along. After the bell, CSCO earnings beat and CEO Chambers says the economy remains in a slow growth phase with Europe hurting, specifically southern Europe. CSCO will expand in other countries as long as the U.S. tax rules remain unfavorable.

On Thursday, 2/14/13, Valentine’s Day. The G20 Conference and three-days of meetings begin in Russia. The 10-year Treasury yield hits 2.06%. European GDP numbers are worse than expected. Europe is in far worse shape than anyone thought. Italy is particularly disturbing since the weak economic numbers occur as the election approaches. The euro drops through 1.34. The utilities sector weakness creates broad market weakness today but as the day moves along the markets recover and close flat on the day. The CPC put/call drops to 0.83 continuing to show that traders are complacent without any fear or worry. This is odd behavior considering the sequestration is now only 13 days away. Traders know the Fed is printing money so there is no reason to study company fundamentals and also no reason to worry, simply buy stocks, which creates a very sick economic environment.

On Friday, 2/15/13, a meteor, the size of a bus, lands in Russia injuring over 1000 people. Another meteor the size of a twelve-story building thankfully sails by Earth without incident. The planet remains in a period of increased meteor and solar activity for 2013. CCL’s floating toilet docks and passengers that were stranded at sea for day’s dash for the showers.  CCL is down over 5% in the last three days.  Weidmann, Germany’s central banker (Bundesbank), and also ECB council member,  says the “ECB will not cut rates.” Remember, however, that Germany’s perspective will always be towards a strong euro currency not a weak one.  The euro jumps higher towards 1.34.  A short time later Draghi says the ECB will remain accommodative providing a counter balance to Weidmann’s words, so the euro tumbles lower. The comments only serve to create mixed messages and confusion. Currency wars are becoming a larger worry as the G20 leaders meeting in Moscow struggle to develop a communiqué.  The nations that are devaluing their currency are experiencing huge stock market jumps such as the U.S., Japan and Brazil at the expense of other nations.  Of great interest are the disinflationary and deflationary winds blowing in Australia with their dollar falling as commodities languish.   Soros, Julian Robertson and other big shots cut their gold positions as gold struggles at 1620JPM announces 2K job cuts adding to the tens of thousands of job losses in financial and insurance industries globally over the last couple months.   Empire State Mfg Survey is better than expected so futures return to the flat line.   Copper weakens. The markets open flat.  Consumer Sentiment is better than expected but markets sell off. At 10:30 AM, gold falls under 1600. Markets appear tired and leak lower all day long. At 2:00 PM, a WMT executive memo is leaked to the news outlets that says “February retail sales are a disaster.” WMT falls 3%. Other retailers such as TGT are thrown overboard. The RTH tumbles lower and the broad indexes weaken. The markets settle and move higher into the close on the pre-holiday lift. The SPX finishes at 1520, up a tiny two points for the week but that is enough to log seven winning weeks in a row without any down weeks in 2013. The Dow Industrials are down a smidge on the week. Ditto the Nasdaq which ends its six-week winning streak. The RUT is the winner on the week up one percent continuing a seven-week winning streak like the SPX. Small caps leading the broad market is encouraging for bulls, however, much of the push is money-pumping short squeezes in the speculative stocks, created to a large part by the Fed’s easy money intervention. After the close, the SEC announces an investigation into unusual trading around Buffett’s HNZ trade this week. Three traders cleaned up on the announcement since they purchased HNZ calls ahead of time—they are either extremely lucky, or psychic, or insider trading with information available to no one else. FB is hacked with a sophisticated cyber attack but say that information was not compromised.

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On Sunday, 2/17/13, Cyprus elections.

On Monday, 2/18/13, U.S. Markets are Closed in Observance of President’s Day.

On Tuesday, 2/19/13, U.S. Markets Open for Trading. Housing Market Index—housing is a key focus this week and the economy needs to see stellar data. DELL, HLF.

On Wednesday, 2/20/13, Housing Starts. PPI. FOMC Minutes. FLR, LL, OC, TOL.

On Thursday, 2/21/13, CPI. Existing Home Sales. Philly Fed. Leading Indicators. Fed talk form noon time into the evening. CHK, FLS, HPQ, JWN, MHK, NEM, WMT.

On Friday, 2/22/13, Fed’s Powell speaks.

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On Sunday, 2/24/13, Italy’s two-day national election begins. Congress returns from vacation to address the Sequester five days away.

On Monday, 2/25/13, Chicago Fed and Dallas Fed Mfg data. The results of the Italy election are expected. Full moon.

On Tuesday, 2/26/13, New Home Sales.  Consumer Confidence. Chairman Bernanke speaks.  5-Year Note Auction.

On Wednesday, 2/27/13, Durable Goods. Chairman Bernanke speaks. 7-Year Note Auction.

On Thursday, 2/28/13, GDP. Chicago PMI. EOM.

On Friday, 3/1/13, PMI. Personal Income and Outlays. Consumer Sentiment. ISM. Construction Spending.  The Sequestration hits with one trillion in automatic spending cuts for government. An 85 billion hit occurs immediately which should cut 0.7% off the GDP. An estimated 400K to 750K job losses should result moving forward.

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Moving into 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 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 pull-back and low in the Nikkei in February and March 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.

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