Monday, July 15, 2013

Keystone's Morning Wake-Up 7/15/13; Retail Sales; C

China massaged their data so it was Goldilocks, not too hot, not too cold, the growth rate at 7.5% exactly at consensus. Same ole story. Lots of fear about the numbers ahead of time but China simply writes in the number that will make everyone happy. The real growth in China is likely 4 to 6%. Interestingly, in the fine print, consumption is down. This is troublesome since China hangs its entire economic hat on the domestic economy saving the day. As our friends in Brooklyn say, "Good luck wit dat." Commodities are leaking lower so traders are not buying the news that China is selling. Drama continues in Europe with Hollande and Rajoy promising green pastures and rainbows ahead, obviously trying to instill confidence in their sick economies.  Germany slams the EU proposal over the banking resolution since they will be on the hook for other nations' debts. Merkel is sailing to an election victory in two months so she does not want to make waves before then but will not care afterwards.

Earnings season kicks into high-gear with about one-third of the Dow stocks reporting. Lots of heavy-hitters are on tap including C, GS, JNJ, KO, BAC, IBM, INTC, GOOG, MSFT, PM, VZ, GE, HON and many others. C continues the bank earnings this morning and, along with Retail Sales at 8:30 AM, will set the market tone today. Empire State Mfg Survey also hits at 8:30 AM.  Business Inventories are 10 AM so expect a market pivot point. CTAS earnings are a great uniform indicator that will show the strength, or lack thereof, in manufacturing and healthcare industries. JBHT and WERN trucking companies will provide more input into the shipping sector, and thus overall economic health, especially in light of UPS's bombshell negative news last Friday morning.

Volatility runs the show these days. The Fed has crushed volatility to create the upward thrust in equities. The Fed has made it loud and clear that their sole mandate is to keep the stock market elevated. VIX 14.27 determines market direction. If the VIX stays under 14.27, the bulls will float the markets higher today. If VIX moves above 14.27, extended market selling will begin. For the SPX starting at 1680, the bulls only need to see a smidge of green at the opening bell and the SPX will run several more handles higher. The bears need to push under 1672 to regain their mojo. A move through 1673-1679 is sideways action today. The SPX all-time closing high is 1680.19 and the all-time intraday high is 1687.18. The 50-day MA is 1632.92.

The bulls are driving the bus and seasonality is on their side this week. Markets are typically bullish during OpEx week on the Monday's, today, and from a Tuesday low to a Wednesday high. In addition, as the prievious post this morning highlights, Chairman Bernanke's congressional testimony typically results in bullish markets. If the markets are bearish this week that would be a very negative sign moving forward. The NYMO, SPXA150R, SPX:VIX and other charts indicate that another significant market top is at hand or in the process of topping out. There are many interesting days and weeks ahead. Watch VIX 14.27 and SPX 1680 and 1672 to determine broad market direction.

Note Added 8:31 AM:  Empire State Mfg is better than expected but Retail Sales are weaker than expected. Weakness is in the ex-auto area, in general, lackluster sales overall, and should lead to a weaker GDP. Futures are unaffected and remain mildly positive, but, factoring in fair value, point to a flat open. Traders likely figure that bad news is good news since the Fed will simply print more money, as sick as all this is.


  1. Hi KS.

    C beats the expected numbers but one problem arise with the results:
    - Citi Q2 net credit losses $2.6 billion, down 25%


    1. It's trading up a couple percent and added a point or two to the S&P's, but there is a long day ahead. Retail Sales are only minutes away and that will carry a lot of clout.

  2. KS, on a morning such as this, when S&P futures are up over four but the fair value is basically flat, is that telling us something? Does it mean any opening bounce will be sold? Thanks as ever.

    1. Nope, do not pay attention to all that. As the ole joke goes, the futures will tell you exactly the direction of the markets at the opening bell--for the first fifteen seconds. LOL

      Since the SPX closed at the highs at 1680 on Friday, the futures were important since any smidge of green would lead to an upside acceleration (since the Friday high would be taken out). The SPX sneaks up though but is unable to hold it as yet. Today was not the usual set up since the S&P's were +4 but fair value at +4 so that equates to a flat open. So only pay attention to the daily highs and lows, especially the following day using the previous days high and low as a guide.


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