Keystone's Trading Week in Review and Path Ahead 3/16/13

On Friday, 3/8/13, China export data is twice as good as expected but import data is twice as worse as expected.  Crude oil imports are at a 5-month low.  Japan’s GDP is beginning to grow again. The Nikkei prints 12284 at a high not seen in five years, back when the 2008 crash was occurring.  The dollar/yen is 95.57 the highest in 3 ½ years. European markets are firmly higher in front of the U.S. jobs data. There remains no government in Italy. The 10-year yield is over 2% and the dollar is higher.          The Monthly Jobs Report blows out to the upside with 236K jobs and the unemployment rate drops from 7.9% to 7.7%. The consensus was 165K jobs and 7.9% but the professional traders expected over 200K and that occurred. The move up in the 10-year yield today to 2.08% verifies the strong jobs number.  Hours worked and wages were flat so folks looking for work may have to continue looking despite the encouraging headline number.  The futures jump higher on the news.  At the opening bell the broad indexes move higher with the Dow printing a new all-time high and the SPX printing a new 2013 high, but the sellers come in minutes later.  The VIX drops under 13 which helps the bulls. The DAX Index (Germany) prints 8K for the first time since 2008. As the morning continues the markets recover and the SPX plays around at the strong S/R at 1548. Fitch downgrades Italyciting political uncertainty at lunchtime which drops the SPX about five handles. The downgrade brings Fitch in line with Moody’s and S&P rating agencies so it was not unexpected. Italy is now only one rating level better than Spain and these countries are too big too fail. The euro plummets over the last couple hours from over 1.31 to now under 1.30 at 1.2988. Financials are weak today, after the stress test results last evening, with JPM, MS and GS selling off over one percent but C maintains gains.  The broad indexes move higher into the close and the Dow prints a new intraday all-time high at 14413.17 and new closing all-time high at 14397.07. The SPX prints a new intraday high for 2013 at 1552.48 and new closing high for 2013 at 1551.38, but remains 25 points under the all-time high.  The NYA closes above 9K. The broad indexes were up about 2% this week with the RUT (small caps) up 3%. Volume is light. Traders remain complacent fully expecting markets to move higher due to the Fed pumping.

On Saturday, 3/9/13, China says inflation is at multi-month highs and consumer spending and factory output data are weaker than consensus. China is off to the slowest economic start since 2009. The data casts doubt on the projected recovery in China. Middle East turmoil continues as protestors in Egypt attempt to disrupt shipping on the Suez Canal and an Afghan bombing threatens the new Secretary of State Hagel. Brent oil price remains flat.

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On Monday, 3/11/13, Japan machinery orders tumble an unexpected 13% compared to last month. The Fitch downgrade on Italy debt weighs on the Italian banks as they sell off from 0.5 to 2.0%. Germany production data shows an improvement but France is weaker. The Saudi’s boost oil output so this should maintain a soft oil price. The pound continues to weaken with sterling at 1.4872, now a 1.48 handle. The Sequester drama continues on Capitol Hill and the CR deadline is only 15 days away. The markets are weak at the opening bell but quickly recover as the central banker’s liquidity enters the market between 10 AM and noon each day.  The VIX drops under 12 printing numbers not seen since April 2007, six years ago.  Complacency rules and there is no fear in the markets. The low VIX and low CPC put/call (in the 0.7’s) signal that traders fully expect the Fed to support markets forever and the politicians will kick the can each time a deadline looms. The low volume days continue. The Dow Industrials print new all-time highs. The SPX prints new highs for 2013 at 1556 now only nine points from the all-time closing high at 1565.

On Tuesday, 3/12/13, India’s industrial production data is better than expected. U.K. industrial production data is far weaker than expected. The pound/dollar is at a multi-year low at 1.4861 which is a stunning move in sterling, the data simply provides an excuse to pound the pound further. The Spain 10-year yield is 4.73% and Italy 10-year yield is 4.65% with the spread narrowing. Italy is under pressure and their yield may move above Spain’s indicating further trouble for Italy moving forward, which is a nation too big to fail. The market bears flex their muscles today but the SPX 1548 support holds so bulls are not concerned. The Dow Industrials print new all-time highs once again.

On Wednesday, 3/13/13, Euro area industrial output is weak. The eruo falls through 1.30. Retail Sales surprise to the upside. Half of the improvement is due to higher gasoline prices but the markets are encouraged on the news. The markets open and move sideways. Business Inventories are better than expected which keeps the broad indexes buoyant. Fannie and Freddie are providing mortgage loans with down payments as small as 3% reminiscent of the real estate bubble. The broad indexes float upwards for another day but it is surprising that positive data provides such a muted response unlike the whole year thus far. David Tepper of Appaloosa Management says the rally has 20% more upside by the end of the year so the SPX moves higher. A new Pope, Pope Francis 1 is selected. At the same time, Speaker Boehner conducts a short press conference on the upcoming CR deadline now only 13 days away.  The Dow Industrials are up for nine days in a row and print the sixth new all-time highs in a row at 14472.80 (intraday) and 14455.28 (closing). The SPX closes at 1552 unable to place a new high for 2013 and remaining under the all-time highs. Oil, copper and commodities are weaker on slowing China, Asia and emerging markets but the equity markets in general float higher on central banker stimulus. The Nasdaq (tech) lags the broad markets but small caps remain strong.  

On Thursday, 3/14/13, Euro leaders meet in Brussels for a two-day Summit and hint that austerity requirements may be relaxed while focusing more on growth. European stock markets rise on the news with the DAX printing over 8K.  PPI data is in line. The Dow Industrials place another new all-time high now up ten days in a row a streak not seen since the 1990’s. The Dow closes at its intraday high at 14539.14.  The SPX prints new multi-year highs and is now only a couple points from the all-time closing high at 1565.  The market bulls are relentless. Traders are euphoric and all-in on the bull side. The VIX moves lower, under 11.50, at six-year lows. The CPC put/call ratio is 0.73 indicating a significant market top is now occurring. The bank stress test results after the bell show that Ally and BB&T banks fail but the others pass. JPM and GS are targeted by the Fed’s with conditional approvals. BAC is the big winner announcing a larger than expected buyback.  C and BAC are up AH’s while GS and JPM are down. JPM is hit with a double-whammy as the London whale inquiry paints CEO Dimon and JPM in a very negative light. India’s Central Bank launches an investigation into the three largest banks, ICICI, HDFC Bank and Axis Bank, on potential money-laundering allegations. The Samsung Galaxy S4 is released. Consumers love the bigger screens on the smaller devices which is currently hurting AAPL due to the narrow iPhone screen. The phablet, a combination of a phone and tablet, are gaining popularity.

On Friday, 3/15/13, Euro leaders discuss the Cyprus bailout. The banking sector is key to Cyprus’s economic health and any changes to bond holder guidelines would ripple through the Eurozone. To add to the drama, a large amount of Russian money is involved in the Cyprus banks.  Italy is meeting to decide if a coalition government can be formed, or, if a new vote is required in May-June. Former Fed Head Greenspan appears on television and says ‘irrational exuberance’ is not in the markets (Greenspan used this phrase in December 1996 waxing worry over the elevated equity markets. The Dow ended up running 1,000 points higher into the dotcom bubble top defying Greenspan).  Interestingly, will Greenspan now signal a market top, since he was wrong last time, and may now be wrong in the opposite direction this time?  CPI and Empire State Mfg Survey data are inline.   Industrial Production data is better than expected.  Consumer Sentiment is far weaker than expected.  Perhaps the high gasoline prices are weighing on consumers. The broad indexes sell off to start the day but then move flat into lunchtime.  Another Carnival ship is having troubles and CCL stock drops 4%. GS says that for the SPX to print above 1600 the GDP would have to be at 4% and higher, over double where it is at currently (the markets are ahead of themselves). The JPM London whale hearings begin on Capitol Hill and are shown on television.  Talented and pretty Hollywood actress Mila Kunis comments about how she once preferred safe investments like CD’s but is now getting involved in the stock market. Professional trader’s chuckle since this may be the sign of a market top. Just prior to the 1929 crash, the shoe shine boy was getting involved in the market which turned out to call the top (the inexperienced money shows up serving as the bag holders as the markets top and roll over). The markets travel sideways into the close with the Dow ending its ten-day winning streak and streak of eight days of new all-time highs. The Dow closes at 14514.11. The all-time closing high is 14539.14 with the all-time high at 14539.29. The SPX closes at 1560.70 remaining under its all-time closing high of 1565 and all-time high at 1576.  For the week, RUT (small caps) are up about one percent, the broad indexes, SPX and INDU (Dow), are up about 0.7% and the Nasdaq (tech) is up the least, flat at +0.1%. Tech is not leading the markets higher.  

On Saturday, 3/16/13, Euro leaders agree on a bailout for Cyprus. Cyprus agrees to reduce its deficit, downsize the banking sector and increase taxes. In addition, a one-time depositor’s fee of 6.8% to 9.9% will be charged. Cyprus authorities are making arrangements to place this plan in affect before depositors have a chance to withdrawal their money. Will such a move encourage bank runs in Europe? This is an interesting glimpse into the U.S.’s future.  Russia may also aid Cyprus since large amounts of Russian money is involved with the Cyprus banks. Italy struggles in developing a new government. The voting for leaders continues today and all sides will attempt to form a new government next week. The Italy debt is at all-time highs.

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On Monday, 3/18/13, NAHB Housing Index. Italy continues to try and form a government. The CR is now only 9 days away.

On Tuesday, 3/19/13, Housing Starts.

On Wednesday, 3/20/13, Spring begins, Vernal Equinox.  FOMC Meeting Announcement, Forecasts and Press Conference. China HSBC Flash PMI.

On Thursday, 3/21/13, Eurozone Flash PMI’s. Jobless Claims. Flash PMI. Existing Home Sales. Philly Fed.

On Friday, 3/22/13, …………..

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On Tuesday, 3/26/13, Durable Goods. New Home Sales. Consumer Confidence.

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

On Thursday, 3/28/13, GDP.  Jobless Claims. Chicago PMI. EOM. EOQ1.

On Friday, 3/29/13, Personal Income and Outlays. Consumer Sentiment.

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On Monday, 4/1/13, ISM Mfg Index. Construction Spending.

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

On Wednesday, 4/3/13, ADP Employment Report. BOJ meets with new members for two-day meeting; the money pumping and yen weakening will continue.

On Thursday, 4/4/13, Jobless Claims.

On Friday, 4/5/13, Monthly Jobs Report. International Trade. Consumer Credit.

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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.

In Q4 2013, European bank stress tests will occur.

On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed, unless there is news during Q4 2013 that he will stay on.