Keystone's Trading Week in Review and Path Ahead for Markets 5/18/13

On Friday, 5/10/13, the G7 meeting begins. The dollar/yen jumps through 101 to 101.60 with analysts now targeting 105-110 by the end of the year. The Japanese are debasing the yen and traders are jumping on the momentum trade. Fed’s Plosser voices concern over too-big-to-fail banks but this would be expected since he is a hawk. The futures are higher following the path of the dollar/yen (the BOJ money pump). Italy manufacturing data is weak but the MIB rocks over one percent higher since weak data means more central banker easy money (bad news is good news). Markets have become completely dependent on the central bankers money-printing policies. Marty Feldstein, noted economist, says the Fed’s policies have hit a dead end. Chairman Bernanke speaks but the comments are not market-moving. The markets meander sideways to begin the day. Keystone’s 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours ahead.  The new moon and an eclipse occur last evening and the SPX is weaker through the new moon, as would be expected, dropping from a 1635 high to a 1623 low this morning. In the afternoon, volatility drops lower and commodities run higher adding bull fuel to the broad indexes. The indexes fly higher into the closing bell to end the week on a happy note. Short sellers avoid the market, long players have no intent on exiting the market, and the retail investor is sucked in on the late day bullish euphoria. The SPX ends the day with a new all-time closing high at 1633.70 but does not print a new intraday all-time high.  The Nasdaq and RUT print new all-time highs at 3436.58 and 975.16, respectively, showing a push higher in tech and small caps today. Traders rotate from the utilities sector into tech, industrials, materials and financials.  For the week, global indexes are all up from one to two percent on the central banker easy money. Gold drops -1.5% this week to close at 1448. The Benghazi terrorism scandal continues to unravel with a testy press conference occurring at the Whitehouse.  The president’s spokesman attempts to handle the discrepancies in documents and whistle blower testimony weighted against the Whitehouse’s actions, especially Secretary Clinton, but things are not adding up. Traders are not paying attention to this drama right now but if the scandal unravels further, affecting the negotiations over the debt ceiling, sequester and ongoing fiscal mess, Benghazi-gate, as the republicans call it, will become a problem for markets. Further complicating the political atmosphere, the IRS issues an apology stating that they had singled-out and targeted the ‘Tea Party’ and other groups with words such as ‘patriot’ in their returns, which is obviously unconstitutional.  Morality is thrown out the window in the States ever since the banks were bailed out in 2009. The U.S. and U.K. withdraw diplomatic staff from Libya. The northern Africa and Middle East turmoil increases and traders do not have any geopolitical risk priced into markets currently. At 7 PM, under the cover of darkness, Jon Hilsenrath, who many believe has the inside track at the Fed, releases an article about the Fed tapering QE. The rumor of this pending article is what caused the big drop in the SPX on Thursday afternoon but all was forgotten for the Friday session. The article rehashes what is already known but it will be interesting to see if the markets react negatively next week as traders hear the word ‘taper’. The CPC put/call ratio prints 0.75 showing complacency and fearlessness in markets indicating a significant top is occurring in the broad indexes right now.

On Saturday, 5/11/13, Barron’s front cover reads “This Bull Has Room to Run.”  Also on the front cover, “Why Jeremy Siegel says the Dow could hit 17,000 by the year end.” Turn only two pages to move past the full page ads and the Table of Contents hits you square in the eyes, “This Bull Shows No Sign of Slowing.” Turn a couple more pages and read “…..if the unstoppable S&P 500 reaches 1700—now just 4% away—or 1800, or 1900, …..”  You get the idea. Typically, bullish magazine and newspaper covers and headlines are signs of a market top.

--------------------------------------------------------------

On Sunday, 5/12/13, a scandal surfaces at Bloomberg where allegedly reporters have been monitoring investment bankers and other high profile individuals’ data terminals to gain information not otherwise available. The breach opens a door to insider trading concerns or other potential nefarious activity. At 7:20 PM, the dollar/yen punches up through 102 (weaker yen continues due to G7 leaders providing a nod), however, falls back under in short order. Standard Charter bank is sold off on news that Carson Block, noted short-seller, is shorting the bank. France continues to assess a SARS virus case finding that the virus can be passed between humans after extended contact.

On Monday, 5/13/13, the sun erupts with X1.7-class and X2.8-class (strongest flare of 2013 so far) solar flares and two coronal mass ejections (CME). The sun’s solar cycle peaks this year and activity may be ramping up strongly which will affect electronics, communications, satellites, and of course markets if the solar flares and ejections score a direct hit on earth. The dollar/yen is sticky at 101.80-ish after last evening’s breach of 102. Futures are lower on weaker China industrial production data.  Retail Sales are slightly better than expected which sends futures higher. Markets open and drift lower but Business Inventories at 10 AM create a low print for the day. Keystone’s SPX 30-minute chart shows the 8 MA moving up through the 34 MA signaling bullish markets for the hours ahead. Copper is weak. Volatility is flat. The Bloomberg data terminal scandal grows. Prime Minister Cameron (U.K.) meets with President Obama at the Whitehouse but only two questions are allowed preventing reporters from gathering details on the Benghazi scandal as well as the IRS scandal. Morality has taken a hit over the last few days with corruption in markets, media, government and politics occurring at all levels.  The SPX eeks out a new all-time closing high at 1633.77 seven cents above Friday’s closing high at 1633.70. The SPX prints a new all-time intraday high at 1636.00.

On Tuesday, 5/14/13, Fed’s Plosser says lower inflation is not a concern, perhaps running cover for Chairman Bernanke, a scholar of the Great Depression, who is fearful of deflation. The Fed likely realizes that more harm than good is now occurring with QE (with the markets melting-up) and does not want traders to pump equities higher at the current rate.  Dollar/yen is moving lower to 101.40 (stronger yen). German ZEW sentiment is weaker than expected. A PEW study shows European social mood is becoming gloomier, especially in France. The Italy 10-year yield moves above 4%. Spain’s 10-year yield is also up to 4.35%. The euro/dollar is flat at 1.2981. A second SARS virus case is discovered in France. The Federal government may now probe Bloomberg over the alleged spying of customer accounts; the situation is now dubbed ‘the Bloomberg Breach’.  Copper is weak. Futures are negative until David Tepper, Appaloosa Management, talks bullishly and the markets immediately move higher. Tepper, a native Pittsburgh boy, is known for his bullish call in late 2010 after QE2 was announced, which resulted in the ‘Tepper Rally’, so traders listen when he talks.  Tepper warns that the “short-sellers better have a shovel to dig out of their graves.” Markets open and march higher with a mini Tepper Rally.  The SPX prints a new all-time closing high at 1650.34 and new all-time high at 1651.10. The Benghazi and IRS scandals continue to unravel for the Whitehouse.

On Wednesday, 5/15/13, JGB (Japan) bond yields are jumping higher. The BOJ is buying over 70% of bond issuance so the JGB yields should remain flat. The Nikkei prints above 15K, a 5-year high, on the power of BOJ central banker easy money. German and Italy GDP’s are weaker than expected. Italy is negative for seven consecutive quarters the longest period since records began in the early 1980’s. France slips into recession. There is no growth in Europe since September 2011, about two years ago. Euro-area GDP declines -0.2% in Q1 worse than expected. In this age of central banker intervention, however, traders realize that more quantitative easing will occur (bad news is good news) and instead of markets selling off the European markets actually move higher with indexes printing at new highs. The euro drops under 1.29. HSBC is considering 14K job cuts.  Mortgage Applications drop with less refinancing occurring as well as less general loans to home-buyers. The hedge funds and cash buyers are creating the housing sector push higher hoping to cash-in on a generational bottom in real estate, however, they are likely all premature.  Global bellwether DE lowers guidance moving forward with lower equipment sales expected.  Empire State Mfg Survey disappoints. Industrial Production is weaker than expected declining buy the most in 8 months. Markets do not care about weak earnings and data, however, since it only means the Fed will provide more QE and send stocks higher. Bad news is truly good news in these bazarro markets. The markets open and the broad indexes move higher to print new all-time highs again. Oil and gasoline inventories increase so oil sells off with WTIC crude oil dropping under 95. Copper, metals and commodities are all weak. The Whitehouse scandals continue to make news. President Obama summons Treasury officials to meet and discuss the IRS investigation. GOOG moves above 900. Gold loses the 1400 level. The SPX closes at a new all-time high at 1658.78 and new all-time intraday high at 1661.49. After the close, CSCO beats on earnings which will likely provide the tech sector a strong boost tomorrow. President Obama announces the firing of the IRS chief due to the ongoing IRS scandal where conservatives and republican organizations were targeted and held back ahead of the presidential election while democratic organizations were provided a free glide path. The credibility of the IRS and U.S. government is at risk since the power of the IRS was apparently used against American people for political gain. By also factoring in the Benghazi-gate scandal that played down the 9-11 terrorism attack ahead of the election, folks are becoming disappointed that the Fall election was manipulated. The Whitehouse is now spending all its time handling the scandals with future legislation taking a back seat.

On Thursday, 5/16/13, crude oil drops under 94 to 93.75 but markets show little concern over weak commodities. Hedge funds are dumping large amounts of AAPL stock in 2013 (no doubt the surrogates were on television telling you to buy as they sold).  Fed’s Plosser says the Fed is not good at predicting asset bubbles, the benefits of QE are small and the labor market is the key metric for the Fed.  JPM pressures Bloomberg to provide details over the computer terminal breach.  RBS plans to lay off 1400 employees. WMT earnings miss on top and bottom lines and guidance is lowered. Fed’s Rosengren urges less fiscal restraint until the economy approves.   S&P rating agency lowers Buffet’s Berkshire-Hathaway rating.  Jobless Claims jump a large 32K to 360K.  Housing Starts drop to 853K after over one million last month.  Philly Fed is weaker than expected continuing the ongoing weak manufacturing theme.   Futures drop only slightly on the news, however, since bad news is good news and traders believe the poor data and news will only lead to more QE. Traders are addicted to the QE crack cocaine and ignore all other market parameters.  The markets move flat all day with volatility creeping upwards. At about 3 PM, Fed’s Williams (a dove) says the tapering of QE should be considered moving forward and traders sell the market during the final 45 minutes.  The 10-year Treasury yield falls from 1.95% down to 1.88%. The broad indexes end the day near the lows. After the bell, DELL misses on earnings but surprisingly beats on top line revenue, a rare occurrence nowadays since many companies are reporting lower sales. JCP reports further losses. Soros is reducing his position in AIG.

On Friday, 5/17/13, a large X-class solar flare erupts and the most active sunspot the last several days is now aligning with the Earth. European auto sales slightly improve mainly due to U.K. sales. Fiat reports weak sales. Euro-area construction data is weaker than expected. Today is OpEx. The shamed IRS head is grilled by politicians concerning the IRS scandal.  Bullish traders cast away the QE tapering remarks from yesterday since the Fed will more likely continue QE indefinitely moving forward.  The S&P futures are up six.  The markets open and move higher. The dollar/yen moves above 103+ creating the bull fuel (weaker yen due to BOJ pumping). Volatility collapses lower creating further market upside. Consumer Sentiment is better than expected adding rocket fuel. The broad indexes travel flat for much of the day after the initial push higher and then at 2 PM Fed’s Kocherlakota says “the Fed has not lowered interest rates enough” and is stating the case for more QE. A buying frenzy occurs creating a melt-up into the closing bell. Shorts are throwing in the towel adding more bull fuel along with the volume push for OpEx.  New all-time highs are printed again in the Dow, SPX; Trannies, and RUT. Nasdaq remains far below the dotcom bubble top. The SPX closes at a new all-time intraday and closing high at 1667.47. The indexes have gone near-parabolic over the last four weeks. The Fed and BOJ central bankers are pumping equity markets higher day after day and ‘they are the market’.  Stocks remain ovebot and signals indicate topping action but the central bankers are overpowering market fundamentals and technicals. For the week, the RUT is up +2.2%, SPX +2.1%, Nasdaq +1.8% and Dow +1.6%. XLI (industrials sector) outperformed to the upside at +2.3%.  Gold drops over 100 in the last seven days closing at 1358. The NYSE cancels trades in APC in the final minute as a mini flash crash occurs taking the stock from the 90’s down to 20 in a heartbeat. The computer glitches and software malfunctions in the exchanges continue to occur with regularity. The BPSPX, SPXA150R, CPC and CPCE put/call numbers, CRB Rind Index, and other market signals indicate a significant market top is at hand but the Fed and BOJ money printing continues to distort price discovery.

On Saturday, 5/18/13, the U.S. Treasury begins measures to extend the 16.4 trillion debt ceiling limit which hits tomorrow.  The government is taking in more revenue than expected, the deficit is lower and the sequester cuts are in place, all helping Secretary Lew to extend the Debt Ceiling deadline to after Labor Day into September.  The can will be kicked down the road again. The politicians are trying to line up all the problems (debt ceiling, fiscal cliff, and CR resolution to fund the government) for a combined September deadline thus providing this summer as the time to conduct a knock-down drag out political fight to set the U.S. on the correct fiscal path forward. This political behavior is similar to the summer of 2011 which did not receive a happy ending.

---------------------------------------------------------------

On Monday, 5/20/13, Chicago Fed Activity Index.

On Tuesday, 5/21/13, …

On Wednesday, 5/22/13, Existing Home Sales. Chairman Bernanke speaks. Oil Inventories.  FOMC Meeting Minutes.

On Thursday, 5/23/13, HSBC China PMI. European PMI’s. Jobless Claims, PMI Mfg Index. FHFA House Price Index.  New Home Sales. Kansas City Fed Mfg Index. 10-Year TIPS Auction.

On Friday, 5/24/13, Durable Goods Orders. Three-day holiday weekend ahead. Full moon and eclipse.

--------------------------------------------------------------

On Monday, 5/27/13, U.S. Markets are Closed in Observance of Memorial Day.

On Tuesday, 5/28/13, U.S. Markets Open for Trading.  Consumer Confidence. 2-Year Note Auction.

On Wednesday, 5/29/13, 5-Year Note Auction.

On Thursday, 5/30/13, Jobless Claims, GDP. 7-Year Note Auction.

On Friday, 5/31/13, EOM. Personal Income and Outlays. Chicago PMI. Consumer Sentiment.  Farm Prices.

----------------------------------------------------------------

On Monday, 6/3/13, HSBC China PMI. European PMI’s. PMI Mfg Index. ISM Mfg Index. Construction Spending.

On Tuesday, 6/4/13, International Trade.

On Wednesday, 6/5/13, ADP Employment Report. Productivity and Costs. Factory Orders. ISM Non-Mfg Index. Beige Book.

On Thursday, 6/6/13, Jobless Claims.

On Friday, 6/7/13, Monthly Jobs Report.

---------------------------------------------------------------

In September, the Debt Ceiling limit is reached along with the CR resolution to fund the U.S. government.  Can the politicians reach an agreement this summer to set the U.S. on the correct fiscal path forward to avoid these deadlines? The summer showdown is similar to the set-up in the summer of 2011 which did not end happily for markets.

In September, Merkel (Germany) seeks re-election and will not want to see Greece or other nations exit the euro before the election but will not care afterwards. Perhaps Greece and others, or Germany, may 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. Will Yellen, even more dovish and likely wanting to see QE on steroids, take the reins?

In March 2014, the ESM is officially “fully operational.” The banking union schedule has been delayed from January 2013 to January 2014 and now to March 2014.