Sunday, July 21, 2013

Keystone's Trading Week in Review and Path Ahead for Markets 7/21/13

On Friday, 7/12/13, the China finance minister says growth may be under 7% for this year. S&P downgrades the Portugal bank sector. The Portugal 10-year yield starts moving higher now at 7.56%.  Egypt turmoil continues with the Muslim brotherhood calling for demonstrations today. Brazil tensions rise and protests turn violent with police using tear gas on the crowds. JPM and WFC kicks off bank earnings with both reporting numbers in line and the stocks move higher pre-market. Global shipping bellwether UPS drops bombshell news lowering forecasts due to a slowing world economy. If business contracts, parts and products are not shipping, that tells you the global economy is in sick shape. UPS drops over -5% pre-market and other shippers such as FDX fall in sympathy.  Market bulls do not care, however, since this means the Fed will pump more easy money crack cocaine into the markets’ veins. The stock market opens and drifts along the flat line with an upward bias un-phased, and perhaps encouraged by, bad economic data, as sick as this is. BA, a Dow component, drops -7% on news that a fire has occurred on a Dreamliner 787. BA creates about 40 Dow negative points on the news but trader’s slough it off since the Fed will continue to pump markets higher.  Fed’s Bullard and Williams speak contradicting each other but Bullard’s dovish comments carry far more clout and help create an upside market thrust into the closing bell. The Fed controls the markets. Volatility drops with the VIX falling under 14 creating upside market fuel.  The SPX prints a new all-time closing high at 1680.19 but not an all-time high. The Dow prints a new all-time closing high at 15464 but not a new all-time high. The Nasdaq closes at 3600 a 12-year high. The RUT prints a new all-time closing high at 1036.52 and new all-time high at 1038.27. For the week, the SPX is up +3.0%, Dow is up +2.2%, Nasdaq is up +3.5% and RUT is up +3.1%. Tech and small caps slightly lead the parade which is bullish but the two-week rally is purely the result of central banker intervention and Fed pumping. The Fed’s central mandate is to keep the stock market elevated. Trader’s voice concern over the China data coming on the weekend but past history shows that lots of negative hype occurs in front of the data release but the numbers are massaged to print better than the expected. The 10-year yield drops to 2.59% well off its highs. France is downgraded by Fitch to AA+ from AAA due to its excessive debt.  After the close, T plans to acquire LEAP so this may pump the telecom sector on Monday. Snowden, the whistleblower that informed America that they are being spied upon through computers and cell phones, is seeking temporary asylum in Russia until he can find safe passage to South America.

On Saturday, 7/13/13, unions, that were instrumental in passing the new healthcare law, now voice concern over Obamacare saying it will ‘destroy the middle class’. Obamacare is causing employers to reduce hours to avoid the high costs of the new program turning the U.S. into a part-time work force. The big jump in oil price due to the Middle East violence will hit American shores with higher gasoline prices. Gasoline has already jumped about one nickel over the last day and a price jump of from 10 to 30 cents is anticipated in the coming days. Fill your tank asap. Italy considers proposals to increase taxes on the wealthy. Italy’s fragile coalition government is becoming shakier each day as the economy continues to fall apart. Beppe Grillo says that Italy is headed for catastrophe and needs new elections as quickly as possible. Portugal 10-year yield hit 7.84% and settles at 7.51% exploding higher as economic turmoil increases. The bond market obviously recognizes that Portugal needs another bailout.

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On Sunday, 7/14/13, China walks back the talk about sub 7% growth last week. The China economic growth data is in line with estimates at 7.5%. The data is massaged, as expected, to manage the markets. Actual China growth is more likely at 4 to 6%. Interestingly, a decline in domestic consumption occurs, the exact opposite of what China needs. Asia markets move higher on the news with basic materials stronger.

On Monday, 7/15/13, India’s inflation is running hot at near 5% annual rate.  Merkel says “Germany can only prosper if Europe is doing well.” Polls show that Merkel should win the election in two months.  Hollande says the ‘French recovery is here’. Ditto Rajoy that says Spain can ‘see light at the end of the tunnel’. Hold back your laughter since both of these nations remain in dire economic trouble.  Leaders are simply trying to instill confidence.  Germany says the EU proposal on the bank resolution is unrealistic and lacks legal, political and economic reality (Germany is not willing to give up any sovereignty and become liable for debts of other countries). U.K. house prices rise to a record high jumping 3% over the last month creating concern over a housing bubbleEgypt’s Muslim Brotherhood calls for mass protests as a new cabinet forms. Earnings season kicks into high-gear with one-third of the Dow stocks reporting this week. C earnings beat which provides a lift to markets setting a positive tone.  Retail Sales are weaker than expected. BBRY slashes cell phone prices as early trends show folks returning the BlackBerry Z10. MSFT cuts tablet prices. Price cuts are deflationary trends. Traders ignore bad news since it simply means the Fed will supply more crack cocaine easy money to pump the stock market higher. The markets drift sideways to sideways up in a low volume up day. The SPX prints a new all-time closing high at 1682.50 but not a new all-time intraday high.  The Dow prints a new all-time closing high at 15484.26 but not a new all-time intraday high.  The Nasdaq is at 3607.  The RUT is pumped +0.6%, 7 points to a new all-time closing high at 1043.30 and new all-time intraday high at 1043.92. Traders are chasing into small caps thinking that if the economy is recovering, growth stocks should be favored. Utilities bounce a strong +1.6% on lower Treasury yields with UTIL closing at 506. Volatility, VIX, remains under 14 so the bulls keep equities elevated.

On Tuesday, 7/16/13, Japan’s Nikkei is up but the dollar/yen remains under 100 at 99.58. European auto sales fall -6.3% over the last month to a 17-year low. Folks cannot buy cars with record unemployment. German investor confidence falls for the first time in three months.  The Germans grow more concerned over U.S. spying since they know first-hand about what happens with a totalitarian government.  Rajoy faces corruption allegations from cash payments in 2008-2010 but he vows to fight the charges and says he will complete his term. The Euro politics become a deeper quagmire.  Euro is 1.3080. U.K economic data is weak so this will open the door for more easing from Carney (bad news is good news) and the pound/dollar currency pair falls to 1.5080. European equity markets are negativeKO earnings miss and guidance drops due to a slowing global economy so the stock is hit pre-market. GS and JNJ beat on earnings and both stocks move higher pre-market.  Consumer Price Index (CPI) continues to show a lack of inflation. TIC data shows continued less foreign interest in buying U.S. debt.  The markets begin the day flat and then weaken as the day continues.  Fed’s George speaks hawkishly which creates further market downside but this is not surprising since she is a hawk. Markets drift lower into the closing bell and finish down on the day stopping the three-day streak of new all-time closing highs. After the bell, YHOO earnings are in line with estimates and CSX beats. Healthier rails will encourage the coal sector. CTAS earnings are lackluster showing lack of demand for uniforms which indicates a sick, slow-growth economy where hiring is not occurring.

On Wednesday, 7/17/13, BAC earnings beat on EPS but miss slightly on the top line revenue. Treasury Secretary Lew speaks at 8:30 AM and says he will speed up the implementation of Dodd-FrankChairman Bernanke’s comments are released ahead of his testimony and immediately create a six-point bounce in the S&P futures. The Fed supplies the crack cocaine feeding the equity markets. The central bankers are the markets. The 10-year yield drops from 2.54% to 2.49%. Housing Starts are weaker than expected and Mortgage Applications continue a downward trend but long traders embrace bad economic data since it means more Fed easy money in these twisted markets. Equities jump higher at the opening bell.  At 10 AM, Chairman Bernanke’s testimony is delayed due to a microphone problem. During the easy Q&A, Bernanke talks dovishly keeping the stock market buoyant. Perhaps the Senate tomorrow may ask more challenging questions. In the afternoon at 2 PM, after the release of the Beige Book, markets drift lower but end the day on the plus side.  The SPX finishes at 1681 and Dow at 15471.  TSLA collapses over -15% and closes down -7.5% on a downgrade by GS. Ironically, Tesla was just added to the Nasdaq so if this Elon Musk electric car maker stumbles it will only serve to hurt the Nasdaq moving forward. After the bell, INTC earnings are weak and projects a slump in PC sales due to a lack of cap ex spending (businesses are not buying computers since they are not hiring) so the stock is sold off.  AXP also misses and drops in the AH’s.  IBM beats on EPS, misses on the top line, but reports strong guidance and is rewarded with a big bounce.  EBAY disappoints and is sold off -5% AH’s. Nelson Peltz, a hedge fund guru, announces a large position in DD (paint and chemicals). Obviously he is banking on a strong global economy since chemicals, resins and paints are the building blocks of a global recovery, however, the DuPont charts are weak as well as global economic data. Jim Chanos, a hedge fund guru, and the largest short-seller in the world, voices concern over CAT since China and mining sector weakness should continue to hit this stock moving forward, and the descending triangle on the weekly chart reinforces this view.

On Thursday, 7/18/13, the BOJ weakens the yen and, along with the stronger dollar, sends the dollar/yen back up and over 100 and the Nikkei strongly higher. The remainder of Asia markets, however, are lower, as China weakness starts to cut deeper into the surrounding Asian economies. Samsung is sold off -3% due to INTC weak earnings last evening. SAP (tech) cuts software outlook for the entire Asian region amid a weakening global economy.  Ericson (cell phones) reports weak sales and guidance.  AKZO, a huge chemical company, reports a weaker global economy moving forward (contradicting Peltz’s view on DD yesterday).  ECB’s Asmussen says the ECB is not an all-purpose solution to all problems. German Finance Minister Schauble visits Athens as austerity fatigue causes continued rioting in the streets. Germany offers money to aid Greece but the offering is very low and only serves to fuel resentment by Greece citizens. A nationwide heat wave continues in the U.S. with oppressive humidity four consecutive days. MS and UNH earnings beat and set a happy tone.  VZ earnings miss but traders ignore bad news. Markets open and in quick order the Dow, SPX and RUT all print new all-time highs. Chairman Bernanke provides testimony in front of the Senate and it goes smoothly as politico’s toss soft ball questions.  The markets finish the day with the SPX printing a new all-time intraday high at 1693.12 and new all-time closing high at 1689.37. The Dow prints a new all-time intraday high at 15589.40 and new all-time closing high at 15548.54. The Nasdaq is at 3611 and the RUT prints a new all-time intraday high at 1052.46 and new all-time closing high at 1050.27.  After the closing bell, GOOG and MSFT both miss earnings and take the pipe each dropping -5% or more. The burrito business is good as CMG reports strong earnings and its stock pops over +6% in AH’s. Detroit files Chapter 9 bankruptcy so the courts will make some tough decisions over the next month. Bond holders, businesses, individuals, pension-holders, city services, and everyone in Detroit will suffer from blind politicians that did not lead a transition from automobiles and Motown into the new economy. The real estate data shows that house flipping is in vogue again. Hedge funds continue to buy up any available property thinking they will make a killing in the rental and resale market over the next couple years. Traders are tripping over themselves to buy RLGY, Realogy, the latest hot-shot mortgage stock. All this behavior rhyme’s with the housing bubble topping action and trouble in 2005-2007.  BA leaks slightly lower in the AH’s as a Japan Dreamliner has to dump its fuel and return to the airport after receiving an emergency warning light. Thank you for flying Bucket-o-Bolts Airlines. Business grow more pessimistic over Obamacare with two-thirds saying the new healthcare law makes it less likely that they will hire new workers. The CPC and CPCE put/call ratio’s signal uber complacency in markets. Traders are fully convinced that markets cannot sell off anymore because of the Fed’s support. Low put/calls indicate that a significant market top is at hand.

On Friday, 7/19/13, Asian markets are weak in light of the GOOG and MSFT earnings disappointment. G-20 leaders meet in Moscow.  Italy’s ruling coalition is fraying as the finance minister says the economy will turn around this quarter. Spain protests turn ugly as rioters clash with police. Merkel says stabilizing Europe will take years. Treasury Secretary Lew urges Europe to spur growth. Today is OpEx. Bellwether GE earnings beat on EPS but miss on top line revenue. HON beats and guides higher.  China will allow banks to set lending rates, a major policy change, which immediately sends futures higher from negative to flat. The markets drop at the opening bell but volatility is crushed hinting that markets will recover. Sure enough, the drop in the VIX allows markets to recover to the flat line.  The Fed can stick-save the markets by crushing volatility. The SEC files a civil law suit charging SAC’s Cohen with failing to properly supervise traders. The intent is to push Cohen into a family fund situation where he will not trade with client’s money ever again. MSFT is beaten mercilessly today losing -11%.  The SPX finishes the day at a new all-time closing high at 1692.09 but not a new all-time high, up +0.7% this week. Equities receive the expected push this week from Chairman Bernanke’s Congressional testimony. The Dow is up +0.5% this week to a new all-time closing high at 155543.74 and new all-time intraday high at 15589.40. RUT (small caps) print a new all-time closing high at 1050.48 but not a new all-time high, up +1.35% this week. The Nasdaq is down -0.4% this week. Trannies are printing new highs with the Dow Industrials which is bullish from a Dow Theory perspective. Small caps are leading higher which is bullish but tech is sick which is bearish and indicates potential trouble ahead for financials. Traders are likely chasing into small caps since they perceive a new bull economic cycle beginning, which would typically be a smart play, however, the economic data shows the opposite, and it may be a case of the tail trying to wag the dog.

On Saturday, 7/20/13, G-20 leaders pledge to emphasize growth over austerity moving forward. PBOC says China’s growth this year will be around 7.5% amazingly (said cynically) the same number that they predicted months prior. A bomb explodes at Beijing airport.

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On Monday, 7/22/13, Existing Home Sales. Listen for any political posturing ahead of the August recess for Congress.

On Tuesday, 7/23/13, 2-Year Note Auction (important for 2-10 spread).

On Wednesday, 7/24/13, Flash PMI’s. New Home Sales. Oil Inventories. 5-Year Note Auction.

On Thursday, 7/25/13, Jobless Claims. Durable Goods. 7-Year Note Auction.

On  Friday, 7/26/13, Consumer Sentiment.

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On Monday, 7/29/13, Pending Home Sales.

On Tuesday, 7/30/13, FOMC Meeting begins. Consumer Confidence.

On Wednesday, 7/31/13, EOM.  ADP Jobs Report. GDP. Chicago PMI. Oil Inventories. FOMC Meeting Announcement.

On Thursday, 8/1/13, BOE Rate Decision. ECB Rate Decision and Press Conference. Jobless Claims. PMI Indexes.  ISM Mfg Index.

On  Friday, 8/2/13, Monthly Jobs Report. Personal Income and Outlays. Factory Orders.

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On Monday, 8/5/13, ISM Non-Mfg Index.  Congress is in recess until 9/6/13. Watch for potential market turmoil late July and as August begins as politicians rattle swords ahead of vacation.

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In September, the Debt Ceiling limit and CR resolution to fund the U.S. government deadlines occur.  Can the politicians reach an agreement within 9 weeks, while they are on vacation recess for 4 weeks during the month of August?  The Whitehouse scandals and Obamacare problems 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.

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