Keystone's Trading Week in Review and Path Ahead for Markets 8/24/13

On Friday, 8/16/13, shenanigans occur in the China stock market with the Shanghai Index popping, then dropping, in what appears to be market manipulation although others are saying it was a fat finger trade. The erratic behavior is the largest swing in 4 years. Authorities are investigating. The Indian Rupee hits all-time low against the dollar. The BSE Sensex (India) crashes -4%. Tanks seal off Tahir Square, the epicenter of political change in recent years, the center of the city of Cairo, to prevent protestors from entering. The Muslim Brotherhood calls for a Million-Man March today, after Friday prayers, calling for a ‘Friday of Anger’. There are now over 600 dead and thousands wounded in the violence. Companies such as Shell are now pulling out of Egypt as conditions deteriorate. Oil prices remain elevated. European markets trade flat. Merkel says “the EU debt crisis is not over.”  Today is Opex. YHOO’s Marissa Mayer appears on a sexy Vogue magazine cover lying seductively across a lounge chair.  Housing Starts are in line now setting up a sideways range through 850K-950K for the last year. Thus, the housing recovery will be real if Starts print above 950K moving forward but troubling economic times are ahead if sub 850K Starts begin printing next month and beyond.  Markets drop at the open with dip-buyers jumping in to create a bounce into noon time. Consumer Sentiment is weaker than expected. Financials and utilities roll over to the downside and volatility spikes higher, sending markets down to the LOD at 1653. The SPX closes at 1656 under the 50-day MA at 1657. For the week, the SPX loses -2.1%, the Dow drops -2.2%, the Nasdaq -1.6% and RUT -2.3%. The Dow records the worst week of the year. Financials, XLF, that have led the markets higher, drop -2.0% this week.  The retail sector, RTH, was bludgeoned -3.1% since the low-end (WMT), middle (M) and high-end (JWM) consumers are all decreasing their spending. The 10-year yield is 2.83%. Fed’s Fisher says yields are rising as the economy improves and traders realize that QE Infinity will not last forever.  Utilities lost their 50-week MA (UTIL 483) which signals extended and serious broad market selling ahead. Gold is 1375. AAPL has the best week in two years. Traders remain complacent and not particularly concerned about the market selloff (this typically indicates further downside ahead).

On Saturday, 8/17/13, Egypt prepares for more violence and bloodshed as conditions deteriorate.  Oil prices remain elevated which will keep gasoline prices elevated. GM recalls 300K Chevy Cruze models. The new Steve Jobs movie is released, starring Ashton Kucher, and is slammed by critics with lousy reviews.

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On Sunday, 8/18/13, Glenn Greenwald, the journalist who broke the stories on Snowden and the NSA leaks, vows to write more aggressively about government snooping into everyone’s lives. Greenwald’s civil union partner, David Miranda, is detained at the Heathrow Airport (London) under anti-terror legislation. Big Brother (1984) is not happy that the common population has discovered the governments spying, therefore, the governments of the world seek retaliation against the whistleblowers.

On Monday, 8/19/13, the Shanghai Index erratic behavior on Friday is traced to a computer glitch at Everbright Securities, China’s State-owned brokerage. The frequency of trading disruptions continues and negatively impacts investor confidence. China property prices continue to rise. The Indian rupee crashes to a record low of 62.45 against the dollar; the RBI tries to avoid a currency crisis. Japan exports rise the most in 3 years on the BOJ easy money policies. Asia and emerging markets are flat to down. The dollar/yen is 97.63 remaining under 98.  A probe opens into bribery charges against JPM for employing sons and daughters of Chinese big-shots which resulted in favorable business treatment for JPM. The Egypt violence continues with death count now surpassing 1,000.  25 police are murdered in an ambush attack of two mini-buses by radical Muslims.  Congress is divided over supplying further aid to Egypt. The euro is 1.3333. European markets are down. Mining and resource stocks are weak after Glencore says it will take a $7.6 billion hit on its Xstrata assets. European yields are up with the Germany 10-year yield at 1.89%, a 13-month high. The 10-year Treasury yield jumps to near 2.86% and prints a new 2-year high at 2.90%. Equities move flat all day with a downward bias and then a wave of selling hits into the closing bell. The SPX loses 10 points to close at 1646. Both the SPX and Dow are down about -0.6% with the small caps RUT losing -1.1%. The SPX and Dow are down about -4% off the 8/2/13 tops two weeks ago. INTC and AAPL finish up on the day, opposite the broader market, with Apple stock now above 500.  After the bell, URBN earnings beat and the stock bounces strongly higher AH’s which will help the retail sector. Wall Street regulators meet with President Obama to discuss ways to speed up financial reforms.

On Tuesday, 8/20/13, India continues to try and stabilize the rupee as the dollar/rupee currency pair moves above 64. Indonesia and Thailand currencies are selling off. The Indonesia Jakarta Index is crashing -10% in the last two days. Fear grows over a currency crisis in India or Brazil. The Sensex loses another one percent. The India contagion is spreading across emerging markets with Asian indexes down from 1 to 2% or more overnight. Traders are exiting commodities and basic materials. BHP loses -3.2%.  Glencore drops -4.0%. In Egypt, the Muslim Brotherhood leader, Mohamed Badie, is arrested for insighting violence. The Army continues to crackdown on the Mursi-supporters. Hedge funder Kyle Bass goes long JCP.  The 10-year yield drops to 2.81% losing 10 bips in the last few hours. HD earnings beat but S&P futures are flat to down. BBY earnings beat on top and bottom lines and it jumps +10%. DKS and BKS earnings miss. So the retail earnings provide good and bad news. S&P futures are jumpy, now at +2 in front of the opening bell. A GS trading glitch occurs in the opening minutes of trading that will likely cost Goldman about 100 million dollars. The computer glitches and flash crash behavior for the exchanges continues. The SPX moves higher as trading begins and plateaus during lunch time but then collapses into the close. The SPX back kisses the 50-day MA at 1658, fighting for a couple hours, and fails.  Equities finish mixed with the SPX and Nasdaq up but the Dow down for five days in a row. The SPX is 1652.  Retail and financial sectors recover.  HD, with a 20 P/E, ends down -1.2% on the day in contrast to the happy move higher after the earnings report.  BAC Intern Moritz Erhardt, only 21 years old, dies after working 3 consecutive days. JPM is targeted with further legal actions by the DOJ.  The DOJ sends a message to all banks that a five-year lapse of time means nothing as far as the statute of limitations and that any financial institution that did wrong would be prosecuted. Tough hollow words considering that no one has been held accountable for the 2008-2009 financial crisis, the bankers are wealthier than ever, the banks are bigger than 2008, and all were bailed out and paid for by Joe Sixpack who remains out of work.

On Wednesday, 8/21/13, a new leak is discovered at the Fukishima nuclear plant; the tragedy does not end. iPad sales drop in China. The Russian markets are struggling. Germany is in a tizzy knowing that Greece will need another bailout this year. Heineken sales miss expectations and the stock loses -4%. The Vine video app gains popularity. As people exit Detroit, packs of dogs roam the once-great city. LOW earnings beat which is expected considering HD yesterday. TGT beats on EPS but is a bit light on top line revenue. AEO provides weak guidance. SPLS has lousy earnings and guidance showing that small business is not recovering. The retail sector is weak except for LOW.  Mortgage Applications are down again now falling 13 of the last 15 weeks. Rising rates are taking a bite out of housing and mortgage refi’s are waning. Markets move flat to begin the session. Existing Home Sales are robust with the best numbers since 2009.  Markets are sideways into the 2 PM Fed announcement. The FOMC Minutes do not add any clarity to the Fed position.  The consensus remains that a 20 billion taper will likely be announced in September that will begin between October and January, which will reduce the current QE from $85 billion in purchases per month down to $65 billion. The Fed would like to begin tapering but it is data dependant; same-o rhetoric. Equities sell off on the news with the SPX dropping to 1639 bouncing directly off the 20-week MA. The SPX then catapults wildly higher as volatility is crushed lower. The VIX is smashed from 16.30 to under 15 in 28 minutes sending equity markets higher. The SPX then collapses into the close to 1643.  The SPX travels 56 points distance up and down today but only moves from the 1651 open to the 1643 close, -0.6%. The higher volatility creates larger and larger intraday and day to day point swings. The Dow drops -105 points, -0.7%, now under the psychological 15K number, down 6 consecutive days. XOM is down 20 of the last 21 days dropping from 95 to 86, -9.5%. After the bell, HPQ reports disappointing earnings and the stock is beaten as much as -8%. UPS will no longer provide health insurance to working spouses of employees. This action opens the floodgates for other companies to announce similar measures to avoid the high Obamacare costs. The Federal Reserve is appealing the debit card swipe fee ruling that allows for further increases in fees that banks charge retailers. The Fed wants the cap on fees to remain in place. The Snowden accusations are proven correct that the NSA unlawfully spies on U.S. citizens, violating the Constitution. Plain and simple, Big Brother (1984) is here and all electronic communications including cell phones, computers, Internet and email, are monitored and archived by the government.  More proof emerges that chemical weapons are used in Syria. A gas attack occurs near Damascus killing hundreds of people, perhaps as many as 1400, in the largest use of chemical weapons since Saddam Hussein gassed the Kurds 25 years ago. Brazil central bankers cancel their trip to Jackson Hole due to their ongoing currency problems.

On Thursday, 8/22/13, China Flash HSBC PMI is 50.1, as compared to last month’s 47.7, indicating expansion in manufacturing activity. Weak futures markets bounce higher on the news. Oil, copper and commodities move strongly higher despite a stronger dollar. Copper leaps +1.7%. Materials, coal and steel stocks rise. The dollar/yen is 98.68 up big with the dollar while the euro drops. Euro-zone and Germany PMI’s are better than expected hinting at a recovery in place.  France PMI remains weak. European equity markets bounce from 1 to 2%. YHOO tops GOOG in Internet traffic (non-mobile) for the first time in years. The World’s top central bankers convene in Jackson Hole, Wyoming, U.S.A., to discuss global economics and policy. Ms. Yellen, a candidate for the Fed Chairman job along with Summers, moderates a panel. Consensus believes that Summers, who is not attending Jackson Hole, will be the president’s pick as the new Fed head. Fewer banks are borrowing in the overnight market from the Fed reminiscent of the period leading into the 2008 market crash. WFC cuts 2300 mortgage-related jobs. Mortgage refinances are dropping. The folks buying the houses these days are speculators and hedge funds paying cash and not newly-married Jim and Jane seeking a first mortgage.  The 10-year yield continues to climb to 2.92%. S&P futures are +7. SHLD and ANF earnings are misses. ANF is bludgeoned -19% pre-market. Markets jump higher at the opening bell with the SPX moving into the 1650’s. HPQ is down -9%. SHLD drops -8%. LTD loses -2%. HAIN beats on earnings and it jumps +13%.  At 12:20 PM EST, the Nasdaq halts all trading in Tape C securities (Nasdaq). Tape A is the NYSE and Tape B is the AMEX. The failure occurs as AAPL stock falls through 500.  The Nasdaq is frozen at 3631.17.  There are 110 Nasdaq stocks in the S&P 500, about 22%, so the outage affects all markets. At about 1 PM EST, the Nasdaq releases a statement that “trading should resume shortly.” Activist investor Icahn tweets that he will attend dinner with AAPL CEO Cook in September to discuss the magnitude of a stock buyback.  At 1:33 PM EST, the Nasdaq says “trading will reopen at a time to be determined.” Equities move sideways with the SPX at 1654 and Dow at 14955.  At 1:45 PM, traders hear the Nasdaq may open within one hour or so but no can confirm the statement.  Obviously, the Nasdaq is having trouble identifying the problem.  At 2:22 PM, Nasdaq says trading will resume at 2:30 PM on a quote-only basis and then full trading will begin at 2:45 PM.  At 2:34 PM, Nasdaq intends to reopen ‘limited’ trading at 2:45 PM testing a few stocks first. At 2:49 PM, Nasdaq intends to reopen the system for quotes at 3:10 PM and full trading should resume at 3:25 PM. Nasdaq is fighting to reopen the trading before the closing bell. The Nasdaq resumes trading at 3:25 PM.  Oddly, the bid and ask on AAPL is reversed, with sellers asking for 499 but buyers paying 501; after 5 minutes the bid and ask line out properly. The Nasdaq says all systems are operational but the NYSE ARCA reports sporadic outages in Nasdaq-listed stocks continuing.  The Nasdaq debacle is dubbed the “Flash Freeze.”  The broad indexes recover into the closing bell ending near the day’s highs. The SPX closes at 1657 one-point shy of the 50-day MA at 1658.87. The Nasdaq closes at 3639 eight points above where the shutdown occurred. HPQ closes down -12.5%. After the bell, ARO, GPS and P earnings are lackluster and all three stocks are sold off.  In the evening, the financial community is all abuzz about the Nasdaq shutdown. The Nasdaq CEO, Robert Greifield, says “our systems, and the industry’s, have to get to a higher level of robustness.” Isn’t that an understatement considering the mini flash crashes, technical problems and computer glitches that occur frequently? Greifeld will likely lose his job since he was in charge during the FB IPO debacle as well. Greifeld blames a connectivity issue at NYSE Arca (without specifically naming Arca). The finger-pointing begins. SEC Chairman Mary Jo White says she will continue to push for automated-trading rules. Treasury Secretary Lew tries to play down the Nasdaq trading glitch. Moody’s rating agency is reviewing the big banks such as GS, JPM, MS, WFC, BAC and C for downgrades. JPM faces fines within the next few weeks for the London whale debacle.

On Friday, 8/23/13, Indonesia growth will fall under 6% this year. LLY is under bribery investigation in China. The dollar/yen rises to 99 as the dollar strengthens and the euro drops to 1.3347. Asia markets are up but finish the week down overall. The pro-Morsi supporters call for a ‘Friday of Martyrs’ so violence may increase after Friday prayers. U.K. GDP is better than expected so the pound moves higher. European stocks are flat to down and experience the worst week in two months.  The forensics on the Nasdaq Flash Freeze begins with a focus on the trading action at 10:19 AM EST yesterday when problems may have began. Greifeld defends not talking to the press yesterday and says the ‘professional community’ was updated during the shutdown. There is outrage over this comment since it unequivocally says there are two sets of rules in the rigged market game; the large players are given trading information but the retail trader and Ma and Pa is not. Greifeld says that ‘those that needed to know the status, knew’ driving the point home that the stock market is a good ole boy’s insider game.  Brazil launches a $60 billion currency intervention to defend the real and stop the outflow of capital.  The markets drift lower at the opening bell. At 10 AM, the New Home Sales lay an egg, dropping -13.4%, the lowest numbers in 3 years.  The sick home sales, however, tell traders that the Fed will now have to delay tapering and instead supply more easy money crack cocaine. Bad news is good news. Thus, the dollar drops, gold sky rockets, the 10-year yield plummets from 2.92% to 2.80%, a 12-bip move, and the stock market bounces higher, moving higher all day long. The home builders and ITB index move lower while utilities, telecom and REIT’s, the interest rate sensitive stocks, move higher. The Jackson Hole symposium continues but the big-wigs, Bernanke (Fed), Draghi (ECB) and Carney (BOE), are not attending. Kuroda (BOJ), however, is attending. ECB’s Nowotny says “we have to be cautiously optimistic.” Jackson Hole is a yawner. MSFT CEO Ballmer announces his resignation in the coming months and Microsoft stock jumps wildly higher. Traders do not mince words saying ‘don’t let the door hit you’ and ‘good riddance’ but Ballmer does not deserve all the criticism. After all, he took the position over from Bill Gates at the exact top of the Nasdaq bubble. Ballmer will not shed any tears due to the +9% jump in MSFT today since he benefits from owning a huge amount of stock. In the final one-half hour of trading, volatility collapses, the VIX drops under 14, utilities jump higher, and financials and retail sectors move higher pushing the SPX from 1660 to 1665, closing at 1664. For the week, the SPX is up +0.5%, the Dow down -0.5%, the Nasdaq (tech) +1.5% and RUT (small caps) +1.4%. Tech and small caps leading is a plus for bulls but the lag in the Dow is very troubling. As noted technician Acampora quips on a business television interview, “never forget Papa Dow.” Acampora has turned bearish in recent days, reversing his bullish call when the SPX moved above 1700, and looks for a continued lower move for stocks ahead citing the weakness in Dow and emerging markets. Gold ends the week at 1396. The 10-year yield is 2.82%. The Dow ends the week above 15K at 15011.

On Saturday, 8/24/13, Jackson Hole Summit ends without fanfare. California and western U.S. wild fires burn out of control. U.S. warships move towards Syria for a potential cruise missile strike.

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On Monday, 8/26/13, Durable Goods.

On Tuesday, 8/27/13, Consumer Confidence. 2-Year Note Auction.

On Wednesday, 8/28/13, Oil Inventories. 5-Year Note Auction.

On Thursday, 8/29/13, Jobless Claims. GDP. Natty Gas Inventories.

On Friday, 8/30/13, EOM. Chicago PMI. Consumer Sentiment. Holiday weekend ahead.

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On Monday, 9/2/13, Markets are Closed in Observance of Labor Day. China and Asia PMI’s.  European PMI’s.

On Tuesday, 9/3/13, Markets Reopen for trading. Congress returns from recess to address the fiscal problems within the next 4 weeks. ISM Mfg Index.

On Wednesday, 9/4/13, Beige Book.

On Thursday, 9/5/13, Jobless Claims. Factory Orders. Natty Gas Inventories. Oil Inventories.

On Friday, 9/6/13, Monthly Jobs Report.

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On Monday, 9/9/13, …

On Tuesday, 9/10/13, …

On Wednesday, 9/11/13, Anniversary of 911. Wholesale Trade. Oil Inventories. 10-Year Note Auction.

On Thursday, 9/12/13, Jobless Claims. Natty Gas Inventories. 30-Year Bond Auction.

On Friday, 9/13/13, PPI. Retail Sales. Consumer Sentiment. Business Inventories.

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On Monday, 9/16/13, Industrial Production.

On Tuesday, 9/17/13, FOMC meeting begins as traders listen for ‘QE taper’. CPI.

On Wednesday, 9/18/13, Housing Starts. Oil Inventories. FOMC Meeting Announcement, Forecasts and Chairman Bernanke Press Conference.

On Thursday, 9/19/13, Jobless Claims. Philly Fed. Leading Indicators. Existing Home Sales. Natty Gas Inventories.

On Friday, 9/20/13, OpEx Quadruple Witching.

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On Sunday, 9/22/13, Germany reelects Merkel and now there is no longer a need to keep countries like Greece or Cyprus in the euro, or even Germany itself.

On Monday, 9/23/13, Flash PMI’s.

On Tuesday, 9/24/13, Consumer Confidence. 2-Year Note Auction.

On Wednesday, 9/25/13, Durable Goods Orders. New Home Sales. Oil Inventories. 5-Year Note Auction.

On Thursday, 9/26/13, Jobless Claims. GDP. Natty Gas Inventories.

On Friday, 9/27/13, Consumer Sentiment.

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On Sunday, 9/29/13, the Debt Ceiling Limit and CR Continuing Resolution to fund the U.S. government deadlines occur. Perhaps last minute antics occur today which is typical for the politicians. The Whitehouse scandals are distracting politicians from addressing the fiscal problems.

On Monday, 9/30/13, EOM. EOQ3.

On Tuesday, 10/1/13, Q4 begins. China and Asia PMI’s.  European PMI’s. Construction Spending. ISM Mfg Index.

On Wednesday, 10/2/13, ADP Jobs Report. Oil Inventories.

On Thursday, 10/3/13, Jobless Claims. Factory Orders. Natty Gas Inventories.

On Friday, 10/4/13, Monthly Jobs Report. European bank stress tests will occur in Q4.

----------------------------- 2014 ----------------------

On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed. Yellen, Summers and Kohn are candidates. Summers is the front runner, especially since President Obama referred to Ms. Yellen as 'Mr.' Yellen. Long traders prefer Yellen since she has a reputation and history of dovishness which would keep the QE party going.

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.