Keystone's Trading Week in Review and Path Ahead for Markets 7/27/13

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%.  WTIC crude oil and Brent oil reach parity at 108.70 for the first time in 3 years. WTIC briefly moves above 109. Moody’s rating agency downgrades Chicago’s debt rating with a negative outlook. 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 Sunday, 7/21/13, over 80 people are killed in escalating violence in Iraq.

On Monday, 7/22/13, the Fed and CFTC (Commodity Futures Trading Commission) begins an investigation into the warehousing of metals such as aluminum and copper by the Wall Street banks and other large trading organizations with the intent to manipulate price. No wonder average investors view the stock market as a corrupt casino. Japan’s Abe wins election so the move to weaken the yen will continue.  The dollar/yen pair, however, drops under 100, reflecting a stronger yen.       The markets start the day by printing new all-time highs. Existing Home Sales are weaker than expected questioning the strength of the housing recovery but traders ignore bad news since it means the Fed will always print more easy money. Copper jumps sharply higher and volatility drops which send equities higher. The day ends with the SPX at a new all-time closing high at 1695.53 and new all-time intraday high at 1697.61. Gold has its best day on a year moving above 1330. After the closing bell, NFLX earnings beat but new subscribers are far less than expected and guidance is reduced. NetFlix is beaten -6%. TXN sys it will beat estimates this earnings season so that helps minimize the tech damage from NFLX.

On Tuesday, 7/23/13, Japan finally admits that there is radioactive water leaking into the Pacific Ocean as a result of the Fukishima nuclear disaster.  China says they will maintain a 7% growth rate and will not tolerate slower growth. This hints that the PBOC will support the markets moving forward just like any other central banker, with easy money policies, so the S&P futures move higher on the news. Telecom M&A occurs boosting this sector. France business confidence hits a 15-month high. The Pope arrives in Brazil amidst the protests and riots. DD earnings are in line but the stock receives a sharp pop on news they may sell one of their units. Shipping bellwether UPS earnings are in line with their lowered preannouncements. UTX disappoints and is sold off. The top line revenue misses continue among the blue chips and stocks in general. Stocks jump higher at the opening bell with the SPX printing a new all-time intraday high at 1698.78 but the opening is sold. UTX recovers and drives the Dow higher. Markets finish flat on the day awaiting AAPL results. Global bellwethers DD and UPS both finish down after this morning’s optimism. After the closing bell, AAPL beats on earnings due to better than expected iPhone sales. iPad sales are far lower than expected. On closer inspection, the 4 and 4s iPhones account for the robust sales rather than the more expensive iPhone 5. Consumers prefer the less expensive phones. Apple jumps about +3% after hours. T earnings are in line; it trades flat. BRCM and JNPR sell off. PNRA misses and is sold off.

On Wednesday, 7/24/13, China Flash PMI contracts much more than expected showing that the slowdown is gaining momentum. Manufacturing hits an 11-month low. Banks and commodities are sold. Copper drops.  France PMI shows continued contraction. Germany, however, surprises with a 50.3 PMI, above 50, showing expansion.  Euro zone PMI is 50.1 also showing a hair of expansion. The euro pops to 1.3238 and copper recovers. S&P futures jump from flat to +4. The broad indexes pop at the open but within minutes reverse course to the downside falling on their sword. New Home Sales blow-out expectations but the sector and markets continue selling off.  Traders are likely thinking that the healthy numbers may bring on Fed tapering sooner than expected. Copper traded strongly earlier this morning but rolls over to the downside and takes the equity markets lower. The 10-year Treasury yield jumps above 2.60% so utilities, telecom and REIT’s are all sold off. President Obama speaks mid-day in front of a friendly crowd in a long rambling talk about the economy but offers nothing new. The markets weaken further for another leg down into the closing bell. The SPX drops about one-half percent today to 1686.  Congress prepares for a fight over raising the debt limit which is required in September.  Leaders Boehner and Reed begin saber rattling. QCOM reports blowout earnings and catapults higher in AH’s trading.  FB shocks the analysts with a beat on earnings and big gains in mobile advertising. FaceBook jumps +17%. V beats to complete a trifecta of bullish earnings after the bell which may add positivity to the markets tomorrow. The courts rule that public unions cannot pursue lawsuits concerning the Detroit bankruptcy. This frees up the bankruptcy proceedings to proceed forward in what may take one year to sort out. SAC Capital faces more charges which will likely lead to closure of the hedge fund. Interestingly, SAC accounts for huge amounts of daily trading volume (in this low volume environment) and its closure and wind-down may affect the stock market negatively as positions are exited in the coming weeks.

On Thursday, 7/25/13, German business confidence is up three months in a row. Spain unemployment falls for the first time in a couple years but a move to 26.3% from 27.2% is nothing to get excited back. Spain remains in depression. U.K. GDP is 0.6% showing growth for two consecutive months and hinting at a potential recovery beginning.  Dollar/yen is 99.63 dropping under 100 in tune with the S&P futures at -10 in the early morning hours on the East Coast. Copper is weak. The 10-year yield is 2.60%. The futures recover to -3 on positive earnings from DOW, GM and others. The broad indexes move higher at the opening bell but pivot lower on the better than expected Durable Goods numbers. The numbers are robust but upon closer inspection the BA airplane orders are the cause for the big jump, not the broader economy.  Markets produce a low at 11 AM when the daily Fed purchases take affect and send markets higher into the closing bell. Homebuilder’s are a casualty today on weaker than expected earnings and higher yields. PHM, DHI and others are bludgeoned from -5 to -10% and more. The SAC Capital indictment dominates the afternoon news. Traders discuss the negative affects anticipated with the loss of the SAC trading volume.  The SPX closes at 1690. After the bell, AMZN disappoints reporting a loss rather than a positive EPS. In addition, the top line is a shade light and Amazon guides lower. Three strikes and yer out; AMZN tumble -5% initially but then recovers to -1%.  SBUX results are better than expected and it jumps +6%.  ZNGA disappoints and it is bludgeoned AH’s.

On  Friday, 7/26/13, China cuts manufacturing capacity so copper takes a -1.1% dive. Japan data shows a hint of inflation. The Nikkei drops -3% and the dollar/yen pair drops under 99 to 98.69 showing that traders think the BOJ may pull back slightly on QE due to the inflation improvement. Global markets clearly move according to central banker actions.  GS’s Blankfein says the Fed stimulus will continue for a ‘considerable time’.  The weaker dollar and higher euro keep the stock market elevated in recent days.  UBS Bank pays a 900 million settlement to Fed regulators for missteps during the 2008 housing and financial bubble.  The new Fed Chairman talk increases with Yellen favored over Summers currently. The Whitehouse tries to tamp down all the talk as it takes on a life of its own, releasing a statement that a list of potential candidates to replace Bernanke has not been finalized and the selection will not be until the Fall.  S&P futures steadily drift lower all morning long to -7 one hour before the opening bell.  Equities sell off at the opening bell.  Consumer Sentiment is better than expected, at a six-year high.  Markets drift lower but at 11 AM, just like yesterday, recover and move higher into the closing bell. The Fed POMO pumps kick in at that time. The Fed is the market. Semiconductors and copper are very weak today. Europe approves 4 billion more in aid for Greece which will keep them afloat until Fall when they will need more money.   The SPX finishes at 1692 and Dow at 15559, flat on the week. The Nasdaq (tech) is up +0.6% for the week. Trannies (TRAN), RUT (small caps) and financials (XLF) are all down on the week from -0.6% to -1.8% and should be up like the Nasdaq for a robust market rally. Equities are now rallying for about 1600 days, almost 4 ½ years, the fifth longest bull market in history. At 6 PM EST, midnight Cairo time, riots continue in Egypt.  The streets are filled with protestors, both for and against Mursi, and vehicle traffic is unable to move. The army continues to detain Mursi and is on the side of the anti-Mursi protestors. Many street battles develop with the pro and anti-Mursi protestors fighting one another setting the stage for a civil war. The army drops leaflets on the pro-Mursi protestors requesting restraint from any violence and states a deadline for tomorrow evening where these protestors must ‘calm down, or else’. Oil price has dropped in recent days. JPM announces plan to sell its commodity business as regulators scrutinize the operation. Detroit retirees request help from the president but any city bailout or aid package will set a precedent for all the other cities facing bankruptcy.

On Saturday, 7/27/13, 16 people die in Egypt violence overnight.

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On Sunday, 7/28/13, …

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

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

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

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

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 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. Yellen and Summers are the front-runners; Yellen is very dovish and will likely continue QE.

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

In February/March 2014, the new Fed Head testifies before Congress.

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.