Keystone's Trading Week in Review and Path Ahead for Markets 10/26/13

On Friday, 10/18/13, China economic data is much better than expected with a strong 7.8% growth rate. Recent stimulus packages (targeted QE-type easy money) are creating the activity. Copper moves higher.  GOOG is up +10% pre-market setting a positive mood. MS earnings beat. Markets leap higher at the opening bell with the SPX now above 1740. Leading Indicators data is cancelled due to the shutdown. GOOG hits the 1000 price level (PCLN punched through 1K one month ago). The broad indexes move flat in the afternoon and start to leak lower but the bulls crush volatility in the last fifteen minutes of trading to finish the week with an upward market thrust. The bulls are running. Fed’s Evans says that the FOMC meeting in 11 days does not have enough data to consider tapering QE so the bulls run higher off this happy news that the Fed booze will flow forever. The SPX ends up 11 points, +0.7%, to a new all-time closing high at 1744.50 and new all-time high at 1745.31. The Dow is up only 28 points, +0.2%, to 15400. The Nasdaq explodes higher due to GOOG (up +13%), up 51 points, +1.3%, to a 13-year closing high at 3914.28 and new 13-year high at 3914.93. Traders are abuzz as to when the Nasdaq 4K level will be achieved only 86 points away. The RUT is up 13 points, +1.1%, to a new all-time closing high at 1114.77 and new all-time high at 1115.04. The 10-year yield drops to 2.59%. Interestingly, money is not moving from stocks to bonds but rather both stocks and bonds are moving higher.  In a pure risk-on environment, and after the political clowns came to an agreement this week, the expectation would be for the 10-year yield to creep higher (prices down yields up). Instead, folks continue to seek the perceived safety of notes and bonds (prices remain high yields drop). Gold is 1317 well off the lows a couple days earlier. Utilities are breaking up and out of a long-term sideways symmetrical triangle which will help the market bulls moving forward, as long as it is not a false breakout. Health insurance companies are complaining that the information they are receiving from the Obamacare websites are riddled with mistakes. The U.S. debt moves up over $17 trillion but the politicians kick the can down the road and do nothing. This encourages the Fed to continue the reckless QE program. The Washington, D.C. clown circus is whistling past the graveyard. BART (Bay Area Transit System) union workers go on strike crippling travel in San Francisco.

On Saturday, 10/19/13, a ruling by a Milan court prevents Berlusconi from holding public office for 2 years but in Italy, decisions and appeals continue indefinitely. A Senate vote on Berlusconi’s fate takes place in November and may dramatically affect Italy’s politics and government stability. More and more detractors slap the Obamacare websites holding it up as a shining example of government incompetence. The fine print on the Affordable Healthcare websites says the government can use your personal information however they see fit. The Whitehouse is scrambling to find a solution to the debacle deciding to either pull the Obamacare websites off line to fix the problems, or, continue to try and fix the car while it is moving. Two BART workers are killed in a train accident as they inspect the tracks. The CPC and CPCE put/call ratio’s print multi-year lows verifying the uber complacency and lack of fear in markets. Nearly all traders expect stocks to go up into next year and are giddy with excitement. It is likely that equities are printing a significant market top over the coming days perhaps a la 2000 and 2007.

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On Sunday, 10/20/13, the Whitehouse says 476K applications were filed on the Obamacare web sites but refuses to say how many actually signed up. Independent estimates say that only a paltry 36K have signed up so far for this $500 million debacle. The Whitehouse needs 7 million people to sign up within the next 8 weeks.  JPM racks up the legal fees nearing a $13 billion settlement on a civil action concerning mortgage-backed securities but remains open to further criminal charges. Congress plans on holding hearings this week on the Obamacare debacle but Health and Human Services Secretary Kathleen Sebelius, spear-heading the roll-out of Obamacare, says she will not attend.  Australia wild fires continue to burn out of control.

On Monday, 10/21/13, Asia markets move higher to begin the week with the Shanghai Index up 1.6%. Japan’s export growth surprisingly slowed. Dollar/yen is 98.05. EDF will build the first nuclear plant in the U.K. since 1995 with Areva receiving the contract. Anti-austerity protestors clash violently with police in Rome.  ECB’s Draghi warns about the trend with bank bail-ins (where bank deposits can now be confiscated to cover the debt of a bad bank) since it will destroy confidence in the banking system. Merkel is nearing completion of a coalition government after her successful election. The euro is well above 1.36.  WTIC oil briefly drops under 100. The 10-year yield is 2.59%. GOOG and FB join forces to increase ad revenue. One-quarter of the S&P 500 stocks report earnings this week. MCD misses on earnings. Fed’s Evans keeps promising QE indefinitely. The broad indexes are flat to begin the day. Existing Home Sales drop for the first time in 3 months. President Obama speaks about the Obamacare web sites debacle but will not provide details on the problems or the number of folks that have signed up. He provides a toll-free telephone number to use instead of the web site but operators say sensitive personal information cannot be transferred over the telephone and others seeking healthcare are told to visit the web site, but comically, the failed web site is why they are using the telephone. Markets are flat all day long in dull trading. After the bell, NFLX quadruples its earnings hitting a grand slam of earnings. Netflix is the best performing stock in the market this year and increases +11% AH’s. HHS Secretary Sebelius, in charge of implementing Obamacare, agrees to testify before the House next week.

On Tuesday, 10/22/13, house prices in China continue to climb higher in 69 out of 70 cities surveyed. When the China housing bubble pops, anytime, it will make the U.S. housing bubble look like child’s play. The Monthly Jobs Report is 148K jobs well under the 180K consensus. The unemployment rate drops a tick to 7.2% but this is due to folks simply giving up at finding a job. Average hourly earnings are up a touch at +0.1% with average weekly hours flat.  Thus, there is no pressure for employers to add jobs; the current work force appears adequate. The labor participation rate is flat but remains at multi-year lows verifying the ongoing structural unemployment problem. There are over 6 million idle American youth between 16 and 24 years of age, about 50% of this demographic. The U.S. is adopting European socialism moving forward so it is no surprise to see the same affects develop. The bad job news is great news for equities since traders assume the Fed will supply more easy money QE as far as the eye can see. The S&P futures pop from flat to +6.  The 10-year yield drops to 2.55%. NANEX reports unusual trading action in the euro futures one-half second before the jobs report release at 8:30 AM. The euro bounces with the dollar moving lower and Treasury yields lower so it is easy to make money via HFT (high-frequency trading) if you know the answer milliseconds ahead of time. Nowadays, whoever has the fastest algo wins.  DD beats on EPS earnings but top line is flat. Chemicals and resins are a key indicator of economic health; DD hints at lackluster activity. WHR earnings beat so the stock pops +6% and is encouraging for the housing sector. UTX earnings beat by a penny on EPS but misses on top line revenue and it drops one percent pre-market. One-half of the companies reporting this morning missed on top line revenue. The broad indexes jump higher at the opening bell fueled by hopes of QE Infinity forever. The SPX pops to 1754 printing more new all-time highs.  Construction Spending numbers are better than expected. Good news is good news and bad news is good news.  NFLX drops -4% as traders sell all the high-flyers like FB, LNKD and AAPL after the opening bell.  The SPX prints a new all-time high at 1759.33.  Equities fall on their sword moving into lunch time with the Dow dropping almost 100 points off the top. The SPX drops from 1759 to 1748 and then moves sideways. UTIL moves above 500 as utilities gain on the lower Treasury yields.  COH pukes -7%. Economist David Rosenberg, typically known as a bearish-leaning strategist, throws in the towel and becomes bullish and constructive on the markets. Banks and analysts say QE tapering will likely not occur until March 2014 or later since the political drama is not over in Washington, D.C.  The easy money bull fuel for equity markets will continue.  AAPL unveils a thinner iPad with retina display and faster processor, as expected, but thinner, faster and lighter equates to Apple stock selling on the news. The session ends with the SPX printing a new all-time closing high at 1754.67 and new all-time high at 1759.33. The SPX gains +0.6%, Dow +0.5%, Nasdaq +0.2% and RUT +0.3%. Tech and small caps are not leading the broad market higher. The euro prints a 2-year high at 1.3782. The talk of delaying the QE tapering slaps the dollar lower and sends the euro higher. After the bell, AMGN blows the cover off the ball with earnings. The biotech and pharma sectors are hot this year. AMGN was up over 2% in today’s trading and another 1% AH’s. PNRA misses on earnings and it is slapped -5% lower. Troubled SAC (Cohen) shuts down its London unit.

On Wednesday, 10/23/13, bad loans are rising in China. China and Japan markets are selling off. AAPL’s Asian suppliers trade lower overnight down from -0.5% to 6.0%. The dollar/yen drops to 97.30. ST Micro drops -7% on weaker Asia demand for chips. Copper is weak. Spain grew at +0.1%, a hair positive, technically ending the prolonged 2-year recession. Rabobank faces a $1 billion fine to settle the Libor rate fixing scandal. Heineken drops -5% as sales forecasts are cut. ECB announces stress test guidelines for 128 banks that will shamefully take one year to complete. European banks are trading lower. The stress tests can be performed in a matter of 2 or 3 months so this is more gamesmanship to keep stretching time out in the hope that the global economy recovers improving the troubled banks’ positions. Peugeot misses on earnings which now jeopardizes its GM alliance. The euro is at a lofty 1.3760 nearing 1.38.  GS joins the chorus of banks not expecting the Fed to taper until March 2014 or later. The banks want to keep stock prices elevated so they can distribute stock to Joe Sucka now chasing the upside. Futures are weak overnight with S&P -11, Dow -80 and Nasdaq -22.  The 10-year yield is 2.49%. WTIC oil drops to 97.20. JPM nears a $6 billion dollar settlement with other banks over the bad mortgage paper from the financial crisis. JPM legal costs continue to rise. The Detroit courts will determine the legality of the Chapter 9 bankruptcy. This is important since it will set precedent for all the other U.S. cities in financial trouble.  HHS Secretary Sebelius says President Obama did not know anything about the problems with Obamacare until the first day of the roll out. She is running cover to help the president avoid embarrassment on his signature legislation but it is worrisome that he can be so detached from any negative news events that occur, even events fully under his control. A television ad runs that promotes Obamacare and says the web site is easy to use when the site is actually becoming more of a joke as details surface. Insurance companies meet at the Whitehouse to discuss the mess. LLY earnings beat. CAT earning miss and guidance is lowered for this key global bellwether. CAT dumps -4% pre-market. BA beats and the stock jumps +5% higher. LL beats and it moves +7% higher reinforcing WHR’s happy talk about the housing sector yesterday. Retired Chairman Greenspan says stock prices are ‘relatively low’ and heading upwards. The broad indexes drop like a stone at the opening bell.  Copper collapses. The semiconductors collapse with the SOX dropping -3.3%. Equities move flat in the afternoon with the SPX closing at 1746 losing -0.5%.  The Dow is down -0.4%, Nasdaq -0.6% and RUT -0.4%. The weak semi’s and tech stocks lead equities lower.  After the bell T beats on EPS but misses on top line revenue. AKAM beats but reduces guidance and it is thwacked -7%. FIO pukes -11%. Merkel telephones Obama with suspicions that the U.S. is spying on her telephone calls. The Whitehouse says Merkel’s communications are not monitored now nor would be in the future but would not deny spying on her telephone conversations in the past. BSX cuts 1200 jobs.

On Thursday, 10/24/13, China PMI is better than expected. Credit Suisse reports weak earnings and guidance and is hit -3%. Unilever reports the weakest sales in 4 years highlighting softness in North America and Europe. Daimler sales are better than expected and gains +2%. Eurozone, Germany and France PMI’s are above 50 showing expansion but a touch weaker than expected. The euro pops above 1.38 overnight but drops to 1.3770 after the PMI data. Draghi says tough action will be taken against any bank that fails the bank stress tests which are ongoing through next year. BAC’s Countrywide unit is found liable for mortgage fraud. The Obamacare web site disaster continues and an easy fix is not readily apparent. The Whitehouse is not providing information or clarity which creates confusion and angst over the program. F and MMM beat on earnings. S&P futures are +10. The Whitehouse says the Obamacare penalty for not signing up for health insurance may be delayed 6 weeks as democrats, that once supported the program, begin speaking negatively. The House begins hearings on the Obamacare debacle. Representative Ryan says he has requested testimony from HHS Secretary Sebelius for weeks but she will not cooperate and the Whitehouse would not provide any replacement for the hearings. The principal contractors that developed the Obamacare web sites and the Obama administration are blaming each other for the debacle. Apparently, a last minute decision was made by the Obama administration to not provide price data for the health plans on the web sites until the user gives up extensive personal information and this change created the problems. Chemical company DOW, a key economic bellwether, misses on earnings. Futures leak lower off the highs with the S&P’s +3 before the opening bell. Equities float sideways to sideways higher as the session begins. The House hearings on the Obmacare debacle results in finger-pointing with each company representative blaming the other; you can smell the lawsuits coming. XRX reduces guidance and is crushed -9%. Snowden, the NSA whistleblower, released the information concerning the U.S. spying on Brazil, Mexico and now Germany’s communications. Everything you do electronically on computers and cell phones is monitored and archived forever. Merkel says “spying on friends is never acceptable.” The SPX moves higher all day long and closes at 1752. The broad indexes finish up about 0.5% on the day. After the bell, four earnings beats catapult the following stocks higher; AMZN +8%, MSFT +6%, OUTR +6% and ZNGA +11%. DD jumps higher after it announces a plan to split several units into a stand-alone company.  The American Association of Individual Investors’ (AAII) Sentiment Survey reports continuing high market bullishness now at 10-month highs while pessimism on the markets is at 21-month lows.  Traders do not expect markets to ever go down since the Fed and other central bankers keep printing money to keep stock prices elevated and their rich friends wealthy. The broad indexes are well elevated above their moving averages indicating that a reversion to the mean is required. Tread carefully in the equity markets since AAII serves as a contrarian indicator. Twitter IPO will price at $17 to $20 with a road show beginning and perhaps a first day of trading in about 2 weeks. Elon Musk says TSLA stock is probably overpriced—and the stock creeps higher, not lower, on his words of caution. 49% of Americans are now on some form of government assistance up strongly in recent years so the U.S.’s move towards European socialism continues.

On Friday, 10/25/13, the Nikkei dumps -3% and the Shangha Index loses -1.5%. Copper is weak on worries that the China and Japan economies are slumping and China may tighten credit. Samsung reports record profits as consumers prefer the lower-cost electronics. German IFO business confidence is 107.4 slightly below expectations.  The euro remains elevated at 1.3820 with a high today at 1.3833. The euro strength is hurting earnings for European stocks. Renault misses earnings estimates and drops -4%. Volvo misses and is punished -7%. Both are negatively affected by Indian, Russian and Swiss currency exchange rates. BBVA (Spanish bank) eliminates its dividend to help clean up the balance sheet and lower the bad loan ratio. Gucci, a Kering brand, reports the worst sales in 4 years. High-end consumers now prefer more subtle-looking bags and accessories rather than logo-riddled products. The higher euro decreases Asian tourism and takes a bite out of luxury sales.  U.K. GDP is +0.8% as expected. Merkel says trust with the U.S. must be rebuilt. France’s Hollande voices concern over the U.S. spying on friendly governments.  WTIC oil is 97.27 well off the recent highs with Brent oil at 106.75. PG earnings are on in line. Global shipping bellwether UPS earnings beat by a penny showing stronger domestic growth and expects another record holiday package-shipping season. AMZN is up +9% despite reporting a 9 cent loss. In these bizarre markets, just think how far AMZN would bounce if even more money was lost. The broad indexes move higher after the opening bell with the SPX testing the recent all-time highs at 1758-1759. Durable Goods Orders are up on aircraft orders but business spending on office equipment is weak. Consumer Sentiment is weaker than expected but traders ignore any bad news. Representative Rand Paul (son of the legendary libertarian Ron Paul), threatens to block the Yellen nomination as a means to receive an audit of the Federal Reserve. Equities soften for a few minutes but quickly recover since everyone knows the Federal Reserve books will always be kept secret and hidden from the American people, and Yellen will be confirmed. The broad indexes stumble sideways during the session and receive a late-day push higher for the SPX to print a new all-time intraday high at 1759.82 and new all-time closing high at 1759.77. The Dow is at 15570 moving through a sideways range of 14700-15700 for the last 6 months. The Dow Industrials, representing 30 large blue-chip stocks, are lagging the other major indexes not able to print new all-time highs. The RUT small caps printed a new all-time intraday high by pennies but could not print a new all-time closing high. For the week, the SPX is up +0.9%, Dow up 1.1%, Nasdaq +0.7% and RUT +0.3%. In strong bull markets, tech and small caps should be leading not lagging. The S&P 500 is now trading over 16.5 times earnings which is above the historical market average at 15.8. The high-flying momentum stocks such as NFLX and TSLA were hit this week. The 10-year yield is 2.51%.  Margin debt jumps 5% over the last month as traders take on more and more leverage chasing the stock market higher just like the 2000 and 2007 market tops. Equity prices for the major indexes are extended above their moving averages across monthly, weekly and daily charts, as well as tagging the upper standard deviation boundaries, indicating that a reversion to the mean (lower prices) is desperately needed. The low CPC and CPCE put/call ratio’s and low volatility (VIX) verify the complacency and fearlessness of traders. Everyone expects easy money QE to continue to March and later so why worry and instead, everyone is ‘partying like its 1999’, as Prince says. Snowden, the NSA whistleblower, now exiled in Russia, provided the documents that verify the U.S. spying on 35 world leaders and how senior officials were told to share their cell phone contacts so foreign politicians could be monitored by the NSA surveillance systems. U.S. foreign relations are damaged. All your communications and actions on computers and cell phones are continuously monitored, recorded and archived a la 1984 (George Orwell).

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On Monday, 10/28/13, Industrial Production.

On Tuesday, 10/29/13, FOMC Meeting begins. PPI. Retail Sales. Business Inventories. Consumer Confidence. 5-Year Note Auction.

On Wednesday, 10/30/13, ADP Employment Report. CPI. 7-Year Note Auction. FOMC Meeting Announcement.

On Thursday, 10/31/13, EOM. Jobless Claims. Chicago PMI. Farm Prices.

On Friday, 11/1/13, Fed’s Bullard speaks. PMI’s. ISM Mfg Index. Fed’s Kocherlakota speaks.

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On Friday, 11/15/13, Twitter IPO begins trading on the NYSE.

In Q4, European bank stress tests will begin and take one year to complete (there are likely 10% of the 128 banks undercapitalized  with no clear way on how to recapitalize these troubled institutions), Germany’s high court must decide if the ECB’s OMT program is constitutional, and Europe must finalize all plans for the new banking union.

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On Friday, 12/13/13, Congress provides a detailed road map to handle the U.S. budget crisis moving forward.

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On Sunday, 12/15/13, the sign-up period for Obamacare ends; Whitehouse needs 7 million people, otherwise, the program will start bleeding money and require a future bailout by the taxpayers.

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

On Wednesday, 1/15/14, a Continuing Resolution (CR) is needed to fund and keep the U.S. government open.

On Wednesday, 1/29/14, Chairman Bernanke conducts his last official two-day meeting (1/28 and 1/29) as Chair of the FOMC.

On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed. Yellen takes over.

On Friday, 2/7/14, the Debt Ceiling Limit is hit where the U.S. may default on obligations. Treasury Secretary Lew will use extraordinary measures to extend this time forward so late February or early March is a likelier deadline. Winter Olympics begin in Sochi, Russia, through 2/23/14.

On Wednesday, 3/19/14, new Fed Chair Yellen talks at the conclusion of her first FOMC meeting (3/18 and 3/19).

In February/March 2014, the Fed Chair Yellen testifies before Congress.

In March 2014, the ESM is officially “fully operational.” The Euro banking union is in place after delays from January 2013 to January 2014 and now to March 2014.

In April, MSFT no longer supports Windows XP.

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