Saturday, July 6, 2013

Keystone's Trading Week in Review and Path Ahead for Markets 7/6/13

On Friday, 6/28/13, EOM, EOQ2, EOH1. The dollar/yen moves up through 99 overnight which pumps the Nikkei Index up +3.5%. China is cracking down on the wealth management products and other shady investment schemes, which many hold gold, creating part of the recent gold selloff as positions are liquidated. China’s PBOC says a variety of tools will be used to adjust market volatility. In other words, they will step in to save their markets, as evidenced this week, just like the Fed, ECB and BOJ. The central banker action and news controls the equity markets. Beijing citizens stay indoors today since the air pollution is at hazardous levels. Egypt protestors are ongoing with increased turmoil expected on the weekend.  German retail sales are better than expected.  Gold logs the worst quarterly decline in 90 years hovering around the 1200 level. Equities run higher after the opening bell. BBRY is bludgeoned dropping near 30% since the Blackberry sales are not meeting expectations. PC shipments drop on lower sales.  Chicago PMI is worse than expected indicating a weak economy. Consumer Sentiment is in line with the consensus. The broad indexes move sideways.  The Fed’s heads are out in force again today continuing to pump the pro-QE talk and keep markets buoyant. Fed’s Williams says it is best to ‘wait a bit’ to taper QE.   The SPX drifts through 1609-1616 all day long and then in the final one-half hour of trading, due to the Russell rebalancing, drops from 1616 to end at 1606.  The SPX 20-day and 50-day MA’s at 1620 serve as a resistance ceiling for price. For the week, the SPX is up +0.9%, the Dow is up +0.7%, the Nasdaq up +1.4% and RUT up +1.4% so tech and small caps lead the way higher with a recovery week appearing after extended selling from the 5/22/13 market top. “Sell in May and go away,” is working, so far. For the month, the SPX, Dow and Nasdaq finally log a negative month after seven up months. S&P rating agency downgrades the Cyprus credit rating and the U.S. remains at AA-. Fitch and Moody’s ratings for the U.S. remain at AAA. The Egypt turmoil continues as an American is murdered as he takes pictures of the protests.

On Saturday, 6/29/13, the ECB says Cyprus’s bonds are ineligible as collateral now that both S&P and Fitch have cut the credit rating. Europe remains in a quagmire. Cyprus will be broke again by the end of the year; the country is bankrupt. Greece is in bad shape and getting worse each day. Retail sales are weak. Greece needs another injection of money to stay afloat.  France has raised taxes to 75% and is burdened by a huge social system and excessively-large government employment and has driven companies out of the country. France’s debt-to-GDP ratio is particularly worrisome. Student loan interest rates in the U.S. will increase on Monday since Congress did not pass legislation to prevent the jump from 3.4% to 6.8%. Congress will discuss the matter 7/10/13 and perhaps tie the rate hikes to the Fed rate and make any decision retroactive. Student loans are another debacle dragging the country lower since young folks are tens of thousands of dollars in debt from attaining an education that does not result in a job. The U.S. is hit with excessive heat in the southwestern States and storms and floods in the middle and northeastern States. China’s banking regulator says there is no liquidity shortage in the banking system. Be wary of denials.


On Sunday, 6/30/13, Snowden remains at a Moscow airport as the U.S. continues to try and return him to the States. Snowden says he will release all information in his possession, which documents the spying of Americans by the government, if he is captured by the Feds. NSA documents show that the U.S. was spying on the E.U. who are now very upset and demand answers. The Muslim Brotherhood headquarters is attacked by protestors in Egypt.

On Monday, 7/1/13, Australia drops -2% and miners are beaten. Japan Tankan manufacturing survey data shows optimism for the first time in two years and cap ex spending is better than estimated.  The news is not surprising considering the BOJ money-printing that weakens the yen. South Korea exports unexpectedly drop. China PMI drops to 50.1 barely above contraction verifying recent growth worries. Oil price drops and gold and silver move higher.  Europe PMI’s are slightly improved but remain under 50 showing continued contraction in manufacturing.  Italy is mired in record unemployment as is Europe as a whole.  Carney, the first person to head two G7 central banks in history, takes the helm at the BOE.  As many as 14 are killed in Egypt during protests. Hundreds of thousands are in the streets both pro and anti-Mursi. Protestors are giving Mursi one day to step down but he is dismissing the notion. 20 million people have signed a petition to oust Mursi. The Army is standing down which provides a subtle symbolic backing to the anti-Mursi movement. Egypt needs an IMF loan and the unrest is not helping. Mursi should be very worried. The Egypt army gives a 48-hour deadline to Mursi to bring the situation under control and aligns with the anti-Mursi protestors. Mursi should now be extremely worried. Russia pokes a stick in the U.S.’s eye with Putin saying he “will never hand over Snowden.”  The heat wave in the western States is historic and dangerous. Airlines are delaying flights. Forest fires are ongoing and tragically 19 firemen die while fighting a fire in Arizona.  Natty gas jumps +0.4% in price as the air conditioning units are running at full speed. At the opening bell, the broad indexes leap higher and the SPX moves above the 50-day MA at 1623. The Dow is up over +170 points. Tech and small caps lead the way higher; however, the volume is light. Oil price recovers higher due to the Egypt turmoil along with all commodities moving higher today. Copper recovers +3.5%. Utilities weaken as the day moves along.  The broad indexes drop into the closing bell with the SPX up only 0.5% after up well over one percent earlier in the day, to 1615, closing under the important 50-day MA at 1623.  The Dow is up 0.4% to 14975. The Nasdaq is up +0.9% to 3434 and RUT up +1.3%. Traders are tripping over themselves to buy small caps believing a sustainable rally is underway.

On Tuesday, 7/2/13, Shanghai and Nikkei indexes are higher. Ecuador backtracks from providing asylum to Snowden; the U.S. likely told Ecuador that trade will suffer if they allow Snowden asylum. Snowden remains at the Moscow airport and now applies for asylum in 15 different countries. European nations, especially France, are very upset about the U.S. spying, and the growing scandal may negatively affect trade talks next week. The Portugal finance minister quits due to a lack of support for austerity programs, and is replaced. Greece has to meet loan requirements within three days or they jeopardize future bailouts. Europe appears to be slipping away again.  Egypt turmoil continues with millions in the streets shouting ‘Mursi Leave!’ The dollar/yen moves above the 100 level to 100.29.  Marty Feldstein, noted economist, says the Fed should taper now since the QE is probably doing more harm than good. The markets run higher after the opening bell with the SPX above the 50-day MA at 1624 again but equities then leak lower just like yesterday’s pattern. WFC is downgraded. JPM is upgraded. Gold, silver and miners are weak. JEF downgrades the gold miners including ABX, GG, NEM and KGC which crushes the mining sector today. GDX and GDXJ are down over -4%. The SPX ends flat on the day at 1614. Keystone’s 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours ahead.  The Fed approves the capital reforms recommended by the Basel Committee and Dodd-Frank Reform Act. The rules ensure that banks have adequate capital available in a crisis. The Fed says additional rules are under development to place limits on the larger more complex banks in the months ahead. The IMF cuts Indonesia’s growth rate. The Egyptian army is planning to oust Mursi and suspend the Constitution. President Obama announces a delay in implementing the troubled Obamacare health insurance program.  Businesses are reducing headcount because of the new law increasing the ongoing structural unemployment problem.

On Wednesday, 7/3/13, at midnight Egypt time, Mursi provides a televised speech where he rejects the army’s ultimatum.  The deadline is only hours away. Will the army drag Mursi out of the office? A darker and perhaps more violent phase occurs in economically-troubled Egypt as over 20 people are killed in the riots overnight. The army says ‘Mursi is in his final hours’. Oil jumps with WTIC crude printing over 100 on its way to 101 as trader’s factor in geopolitical risk to the Suez Canal. S&P cuts ratings on three large banks; Barclay’s, Credit Suisse and Deutsche Bank.  Two Portugal ministers resign as the country suffers from austerity fatigue. The Prime Minister vows to stay in office. At 2 AM EST, the 10-year Portugal bond yield jumps over 7%. Portugal banks are sold off in excess of -10%. The Portugal Index plummets -6%. Portugal citizens may become victims of a bail-in a la Cyprus where regular citizens’ bank deposits are confiscated to handle the debt. The Euro crisis is on the front burner again with turmoil in Greece and Portugal. At 3:30 AM EST, the Portugal 10-year yield moves above 8%, the first time since November 2012.  S&P futures are -9 and the Dow is -90.  At 4 AM EST, the S&P’s are -13, Dow -110 and Nasdaq -26. There is growing fear that the Portugal government may collapse.  European markets are selling off in force with Spain down -2%.  The dollar/yen drops back under 100. WTIC crude oil is over 101 and Brent oil is 104.76 on its way to 105.  Fed’s Powell says the Fed will provide stimulus for “quite some time.”  The ADP Jobs Report is 188K jobs which points towards a more positive jobs number for Friday. S&P futures recover to -3. The broad indexes sell off early in the session but pre-holiday buoyancy lifts markets into the close with the major indexes ending generally flat on the day.  Markets close early at 1 PM EST for the July 4th Independence Day holiday. Oil Inventories unexpectedly drop which pushes oil prices to the highs of the day with WTIC crude oil hitting 102.18 and Brent oil nearing 106. The markets are awaiting news from Egypt. At 3 PM EST, a coup occurs in Egypt and Mursi is ousted by the military.

On Thursday, 7/4/13, Egypt names Mansour as the new interim president. The Egypt stock exchange is halted as stocks jump +5% on optimism. The markets reopen and move above +7%. The U.S. is prohibited from providing aid to any country taken over by a coup. Portugal’s bonds recover with the 10-year yield dropping to 7.2%. The BOE leaves rates unchanged as expected but BOE Head Carney, for his first statement, hints that a policy change is coming in August (more QE). The pound weakens over one percent and the FTSE jumps nearly 2% on the dovish talk. The Portugal 10-year yield jumps higher to 7.60%. The ECB Rate Decision results in no change to the 0.5% rate. At the press conference, Draghi talks dovishly saying that ‘rates will stay low for an extended period’ so the euro drops and dollar spikes. The BOE and ECB central bankers save the global equity markets with QE happy talk.  Obviously, the markets are a junkie only able to function with continued QE heroin.  FTSE and European markets jump higher and U.S. futures leap higher with S&P’s at +15 and the Dow +130.  Markets are closed in the U.S.

On Friday, 7/5/13, the futures remain elevated with the S&P +17, Dow +156 and Nasdaq +33. China will no longer report industry-specific data for the PMI. Obviously, this change serves to hide the ongoing weakness in the economy. Samsung S4 sales fall short of estimates and guidance is lowererd hinting that the high-end Smartphone segment is becoming saturated. German factory orders unexpectedly fall. Steven Cohen of SAC Capital is not charged with any criminal wrongdoing. The ECB and Fed central bankers warn traders to not react so dramatically based on every word said.  These are hollow words since these officials created the current marketplace conditions with their four-plus years of intervention.  An NYSE ARCA computer glitch occurs between 7:29 AM EST and 8:41 AM causing sporadic interruptions to the quote system. Futures drift lower as the morning proceeds. The Monthly Jobs Report is 195K jobs and the 7.6% rate remains unchanged, a Goldilocks report, not over 200K jobs to worry about the Fed tapering QE, while at the same time showing that the economy may be slowly healing. The futures catapult to the overnight highs again with the S&P +18, Dow +161 and Nasdaq +28. The U.S. markets reopen for trading after the holiday and leap higher.  The SPX moves up through both the 20-day and 50-day MA’s. Keystone’s 60-minute chart with 200 EMA cross and 30-minute chart with 8/34 MA cross signal bullish markets for the hours and days ahead. The SPX finishes the day up +1.0% to 1632. The Dow is up +1.0%, Nasdaq +1.0% and RUT +1.4%.  For the week, the SPX is up +1.6%, Dow +1.5%, Nasdaq +2.2% and RUT +2.9%. Tech and small caps lead which is a bullish signal for markets; however, the volume today is the second lowest of the entire year. The dollar index finishes at a 3-year high at 84.71. Treasury yields take the largest daily jump since 2010. The 10-year yield is at 2.72%; the highest level since July 2011. WTIC crude oil ends at 103.63 up +7.3% this week on the Egypt turmoil, the highest levels since April 2012. Brent oil nears 108. Gold is punished 39 bucks today ending the week at 1213.

On Saturday, 7/6/13, Egypt turmoil increases and turns deadly as the army opens fire on Mursi supporters. 30 people die in clashes throughout Egypt and fear is growing that a civil war is breaking out. A Christian priest is shot and killed. The Suez Canal is on alert but remains open and operating. Venezuela and Nicaragua offer asylum to Snowden, the U.S. whistleblower that exposed the spying that is occurring on all American citizens. San Bernardino, California, USA, continues to seek Chapter 9 bankruptcy protection from the courts.


On Sunday, 7/7/13, ……...Egypt ……. China ……..Europe …….. U.S. ….

On Monday, 7/8/13, Consumer Credit data. AA kicks off Q2 earnings season.

On Tuesday, 7/9/13, First of Ramadan. NFIB Small Biz Optimism Index. JOLTS Report. 3-Year Note Auction.

On Wednesday, 7/10/13, BOJ Policy-Board meeting. Wholesale Trade. Oil Inventories. 10-Year Note Auction.  FOMC Minutes. Chairman Bernanke speaks.

On Thursday, 7/11/13, BOJ Policy-Board meeting. Jobless Claims. Import and Export Prices. Natty Gas Inventories. Fed’s Tarullo speaks.  30-Year Bond Auction. Treasury Budget.

On Friday, 7/12/13, Producer Price Index (PPI). Consumer Sentiment. Fed’s Bullard and Williams speak. WFC kicks off bank earnings.

On Saturday, 7/13/13, ….


On Sunday, 7/14/13, ……….

On Monday, 7/15/13, Retail Sales. Empire State Mfg Survey. Business Inventories. C earnings.

On Tuesday, 7/16/13, Consumer Price Index (CPI). TIC data. Industrial Production. Housing Market Index. Fed’s George speaks. CSX, GS, JNJ, KO earnings.

On Wednesday, 7/17/13, Housing Starts. Chairman Bernanke speaks (House testimony). Oil Inventories. Beige Book.  BAC, INTC, IBM, USB earnings.

On Thursday, 7/18/13, Jobless Claims. Chairman Bernanke speaks (Senate testimony). Philly Fed Survey.  Leading Indicators. Natty Gas Inventories. 10-Year TIPS Auction. GOOG, MSFT, PM, UNP, UNH, VZ earnings.

On Friday, 7/19/13, OpEx. GE, HON, IR, SLB earnings.

On Saturday, 7/20/13, …………..


In September, the Debt Ceiling limit and CR resolution to fund the U.S. government deadlines occur.  Can the politicians reach an agreement during July and August to set the U.S. on the correct fiscal path to avoid disaster? The summer showdown is similar to the set-up in the summer of 2011 which resulted in a market crash. The Whitehouse scandals are distracting politicians from properly addressing the countries financial problems.

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?

On Friday, 2/7/14, Winter Olympics begin in Sochi, Russia, through 2/23/14.

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.


  1. KS,
    10-yr treasury is 2.74 on Friday, I thought as 10-yr yield moves higher, market will be lower?

    1. Things are in a state of flux for the last couple months. Signals, indicators, asset relationships, all are mixed these days due to the central banker intervention. The CB's have twisted markets into a knot and currencies, commodities, bonds and equities are all sorting the mess out. In February, Dr. Copper failed along with commodities and nine times out of ten markets should sell off. Instead, the BOJ pumped the markets with easy money creating the new all-time highs in the SPX, Dow and other indexes and also creating faux calm in Europe since the easy money pumped the European bond and equity markets.

      For a long time the relationship was euro up = dollar down = copper, oil, commodities up = equities up = yields up (Treasury prices down). And conversely, euro down = dollar up = copper, oil, commodities down = equities down = yields down (Treasury prices up), deflationary and disinflationary type behavior. With the BOJ intervention, the dollar/yen is now a major player and dollar/yen higher = equities higher and dollar/yen lower = equities lower. This relationship is in flux now as well since it depends if the yen, or the dollar, is the main component causing the movement in the dollar/yen currency pair. For the most part, you can see from last week that the stronger dollar is continuing to apply pressure on commodities with copper, gold and silver slapped hard late week. The commodity/equity relationship has to return in sync, either commodities recover to reinforce higher equity markets forward, or, the 3 or 4 month of commodity weakness finally overtakes the central banker pumping and equity markets reverse.

      Typically, when money leaves the stock market it goes to notes and bonds so the Treasury prices rise on the demand and yields fall. When money leaves Treasuries, like now, the price drops and yields rise, and stocks rise, which is reflective on an economy recovering. Once the 10-year yield moves above 3 or 4%, however, this will create a lag on equities but we are not there yet.

      Traders are buying banks based on the 2-10 spread widening but they are likely premature since Keystone uses a 255 number for this spread and the 10-year will need to move above 3% to guarantee the banks juicy profits. So the interest in banks right now may be unwarranted. The short answer is that the relationships are all skewed now and markets are sorting things out. With a different Fed head commenting daily, and the other CB's such as BOJ, BOE and ECB, and China, all stirring the pot as well, it is a mess. Keystone is way behind in charts but perhaps if the storms come back in today there will be more time to catch up and identify the path ahead.


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