Keystone's Key Events and Market Movers Week of 9-26-11

Keystone presents the following underlying market currents, sometimes subtle sometimes turbulent, that move global markets in real time.  The key dates and times below typically correspond to market pivot points.

Right on cue last week, the week after September OPEX is down 80% of the time or more and this seasonality played out again. Mark your calendar for next year. Markets remain at the mercy of the European crisis. If the Eurozone waits any long to structure the Greece default, they risk contagion, if they act too quickly without a good plan for the default, they risk contagion.  A hefty bailout would at leas cheer markets in a shot term move, euro higher=equities higher.  Further deterioration in the Euro woes and euro down=equities down.

Economic data and meetings this week show the Fed heads out in full force all week long, bookended by the St. Louis’s Fed Bullard on each end.  Bullard’s talk late Friday morning probably the most impactful since the Personal Income and Outlays data will be public.  On Monday, Bullard speaks before the open, then New Home Sales at 10 AM provides a market pivot point.  Fed data on manufacturing will move markets as well.  On Tuesday, Case-Shiller will provide a gloomy house report. A market pivot point will occur at 10 AM with Consumer Confidence data. 2-Year Note auction at 1 PM. Wednesday morning sees Durable Goods Orders and Oil Inventories data. On Thursday, the tone will be set with GDP and jobless claims. Friday will be very active in the morning. Personal Income and Outlays data, Chicago PMI and Consumer Sentiment all hit before 10 AM so look for a market pivot point just before 10 AM Friday morning. Friday also brings the end of the month, EOM, and the quarter, EOQ3. Some window dressing will occur this week.

Earnings dwindling now as most companies have already reported. Some notables include JBL, PAYX and WAG on Tuesday. On Wednesday, DRI and FDO. Thus, we see if the consumer has enough money to keep dining out and also if the dollar stores continue to eat WMT’s lunch. On Thursday, MU reports which will effect tech.  The more important news concerning earnings is the preannouncement season which kicks off this week. If any companies feel a need to visit the confessional and come clean ahead of time, this week is the week to start the announcements. Thus, keep an ear open, if only one or two companies lower expectations, no biggie, but if several companies start pre-announcing worse guidance, that will be a market negative weight.

Monday, 9/26/11, is a Bradley turn date so a Bradley window is opened between now and 10/1/11 for a market trend change.  Especially watch for a market turn now thru Thursday, 9/29/11. Interestingly, we have watched this turn window already produce last week’s trend change to the downside so this week we see if a meltdown occurs, or if the Bradley influence wants to send markets back up. Expect continued high volatility and wild large point swings. The move out of the SPX 1119-1142 range will tell the tale.

Last week good ole Keystone said that the trading week would be epic for gold and it did not disappoint, gold falling 10%, copper down 10% and silver off a whopping 26%.  Both the daily and weekly charts were in negative divergence across the board so this sealed gold’s fate. We watched the charts play out over the last few weeks.  At the Friday close, the CME raises gold, silver and copper margins so we will see how much of this was already priced in and how musch lower these commodities will drift.  If there was ever any time for an ETF event to occur, it would be now with GLD or SLV, so those are worth watching closely this week.

Keystone’s Inflation Deflation Indicator shows that we have fallen into Disinflation as of last week. Chairman Bernanke will not step in with forceful QE3, perhaps a unified global qe approach, until deflation is here. Watch CRB, if that loses 300 then Bernanke will have many sleepless nights here forward. As commodities drop and the dollar rises, pushing us into deflation, Bernanke will step in.

Yen intervention by the BOJ remains highly likely. Swiss intervention in the franc will continue. Continue to watch for the dollar to rise as the weeks move along. A rise in the dollar will place further pressure on oil, gold, silver and other commodities.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 9/26/11 and on:

·         Monday, 9/26/11: Markets remain at the mercy of Europe news moving forward.  Chicago Fed Activity Index 8:30 AM. Bullard (St. Louis Fed) speaks 9:30 AM. New Home Sales 10 AM. Dallas Fed Mfg Survey 10:30 AM. 3-Month and 6-Month Bill Auctions 11:30 AM. Kocherlakota (Minneapolis Fed) speaks 3 PM. Bradley turn window has been in effect for the last five days and will continue thru Monday, 10/1/11, where a market trend change should occur. Interestingly, the indexes were in an uptrend for five straight days, and reversed last week at the start of the Bradley window opening. But, with the window remaining open, and the actual turn date is tomorrow, 9/26/11, look for further wild moves, especially now thru Thursday, 9/29/11, since the market turns typically occur closer to the actual turn date. The indexes could very well reverse again to the upside.  The Bradley model does not predict direction, only heightened activity, the break out of either SPX 1142 on the top side, or 1119 on the bottom side will tell the tale.  Q3 window dressing this week so the successful plays during September may receive additional juice in front of EOM and EOQ3. Funding vote headaches this week by the Congress clowns will negatively impact markets.

·         Tuesday, 9/27/11:  Case-Shiller Housing Price Index 9 AM. Consumer Confidence 10 AM.  Richmond Fed Mfg Index and State Street Confidence Index also at 10 AM. 4-Week Bill Auction 11:30 AM. Lockhart speaks 12:30 PM. 2-Year note Auction 1 PM. Earnings: JBL, PAYX, WAG.

·         Wednesday, 9/28/11: Rosengren (Boston Fed) speaks 2:40 AM. Mortgage Purchase Applications 7 AM. Durable Goods Orders 8:30 AM. Oil Inventories 10:30 AM. 5-Year Note Auction 1 PM. Earnings: DRI, FDO.

·         Thursday, 9/29/11: Corporate Profits, GDP and Jobless Claims 8:30 AM.  Rosengren and Plosser (Philly Fed) speak 8:30 AM. Pending Home Sales 10 AM.  Natty Inventories 10:30 AM.  Kansas City Fed 11 AM. 7-Year Note Auction 1 PM. Farm Prices 3 PM.  Fed Balance Sheet and Money Supply 4:30 PM. “Sell Rosh Hashanah and buy Yom Kippur (10/8/11),” although approach this ole Wall Street adage with skepticism, simply be aware.  Earnings: LBIX, MU, XRTX.

·         Friday, 9/30/11: Personal Income and Outlays 8:30 AM. Chicago PMI 9:45 AM. U of M Consumer Sentiment 9:55 AM. Bullard speaks 11 AM. EOM; EOQ3.

·         September: Congress in session with budget talks and the super committee front and center, a market negative.

·         Now into early October: Pre-announcement season. Keep your ears open.

·         Thursday, 10/6/11: ECB rate decision and conference. Critical day for the euro.

·         Wednesday, 10/12/11: Bradley turn date, watch 10/5/11 thru 10/19/11 window for a market turn, especially 10/10/7/11 thru 10/17/11.

·         Friday, 10/28/11: Bradley turn date, watch 10/21/11 thru 11/4/11 window for a market turn, especially 10/25/11 thru 11/2/11.

·         Tuesday and Wednesday, 11/1/11 and 11/2/11: FOMC rate decision and meeting. Note how the meeting coincides with Keystone’s Eclipse Indicator.

·         Thursday, 11/3/11: Keystone’s Eclipse Technique targets the back half of October thru the first half of November as a potential major market selloff area.

Keystone’s Short Term to ‘Intermediate Term’ Key Dates and Market Movers for September, October and on:

·         Earnings:  The majority of companies have reported for Q2.  Many companies are ratcheting down guidance as the numbers are released. The confessional season is now, and this week in fact will kick off the pre-announcements. If you hear only a company or two lowering the bar, that is not a big deal, as the day’s move along, however, if you hear a steady drum beat of companies lowering estimates, this will be market negative for October, as the global recovery continues to stagnate.

·         QE3:  Quantitative easing two (QE2) ended 6/30/11.  Chairman Bernanke took away the punch bowl that elevated equities markets like clockwork with POMO pumps between 10:00 and 11:30 AM each session. Tentative projection for QE3 announcement is October-December.  The Fed announced Operation Twist last week and that resulted in a selloff.  Deflation must raise its ugly face before Bernanke moves towards a more shock and awe type QE3. Keystone’s Inflation Deflation Indicator signals Disinflation now so we are moving towards Deflation but not there yet.  When that occurs in the weeks ahead, perhaps the first global quantitative easing program for planet Earth will commence, the Fed joining forces with other countries to coordinate their efforts in trying to save a banking system already lost.   The key things to watch which will trigger Bernanke to act with QE3 will be the dollar rising (now occurring), commodities falling with CRB working down towards 300 and lower (now occurring) and the Treasury prices moving up, yields down (now occurring). If the CRB loses the 300 handle, Bernanke will be having sleepless nights.

·         FOMC Meetings and Rate Decisions:  11/1/11-11/2/11 (note this coincides with Keystone’s Eclipse Indicator); 12/13/11. Fed announced that the Zero Interest Rate Policy (ZIRP) will remain in place until mid-2013. Operation Twist is ongoing.  QE3 announcement is anticipated for the October-November time frame. Deflation needs to occur first (we are now in Disinflation).

·         U.S. Downgrades: S&P announces a downgrade of U.S. debt from AAA to AA+. Moody’s and Fitch have not downgraded as yet.  Therefore, 2 of 3 rating agencies have not downgraded so the affects of the S&P downgrade should be muted. A downgrade from either Moody’s or Fitch will seriously impact equity markets to the negative side, which Keystone projects to potentially occur before 10/15/11. Fitch announced that it will retain its AAA on the U.S. S&P is on hold until the end of the year when they will reassess the U.S.  S&P says there is a one in three chance of a further downgrade.  Perhaps the politico’s will downgrade other AAA countries as a way to bring them down to the U.S.’s new level rather than expecting the U.S. to move back up. Moody’s and S&P now in progress of downgrading European banks; down euro=down equities. Downgrade talk is a market negative and if any additional downgrade occurs from any of the three rating agencies, the equities markets will sell off large.

·         Congress In or Out of Session:  Market bullish when not in session, market bearish when in session. The children are playing their political games again with drama playing out this week on the vote to keep the government open.  Further budgets fights will continue in September. Each negative sound bite form the President and Congress continues to negatively impact the broad markets.

·         Europe Debt Crisis Continues (Five little piggies; PIIGS):  Portugal, Ireland, Italy, Greece and Spain. Greece on the verge of default with contagion now a major worry. Italy in major trouble as well. Moody’s to decide on potential Italy downgrade in October. Italy is the third largest debtor nation in the World, only trailing the U.S. and Japan.  Greece paper probably worth 30 cents on the dollar, Ireland 50 cents, Portugal 85 cents but no one knows for sure. The Spain and U.K. high unemployment for young people is a major concern, leading to riots, the U.S. sees the preview of coming attractions.  Italy and Spain are too big to fail, too big to bail. Solutions are limited. Europe may consolidate all member debt into a single Eurobond issue.  Germany says ‘nein’ to this idea but has softened their rhetoric as the Eurozone crumbles.  Rich Uncle China needs to save the day but they appear hesitant.  Europe now running the risk that they are taking too long to decide how Greece defaults and the markets may end u deciding for them. Weaker euro=stronger dollar=weaker commodities=weaker U.S. equities, and visa versa.

·         ECB Rate Hikes:  ECB announces next rate decisions 10/6/11, 11/3/11, 12/8/11, 1/12/12.  Past decisions are no hike on 9/8/11 (although the door is now cracked open for lower rates), no hike 8/4/11 followed by a confusing press conference where Trichet spoke gibberish-he realizes the rate hikes from April were a mistake.  25 bip hike 7/7/11. No change occurred 6/9/11 or 5/5/11. 25 bip hike on 4/7/11 that began Trichet’s mistake like July 2008 when he raised at the peak in the commodities market, exactly the wrong time.  Trichet is now replaced with Draghi. The euro buoyancy in 2011 was caused by Trichet’s hawkish talk, now that will reverse, thus, euro down=dollar up=equities down. Equities move in the same direction as the euro.  

·         Ongoing Wars: Libya, Iraq and Afghanistan. Libya oil production coming back on line as Colonel Gaddafi appears cornered, although the news flow is less than reliable.  Wars and M.E. problems will always provide a bid underneath oil, gold and silver, thus as tensions escalate, so do the prices on these commodities, as tensions ease, the premium in price works itself out.

·         Continuing Geopolitical Events other than Ongoing Wars: Egypt, Syria, Saudi Arabia, Bahrain, Yemen, N. Korea:  Dollar bullish and equity bearish.  Tensions provide a premium to oil, gold and silver prices. Bahrain is the big worry since unrest will impact oil supply.  Yemen is important since it is a southern Saudi border. Syria news on unrest and riots keeps a fear premium built up for the Middle East.  News wires impact commodities in real time.  Any bad news=higher oil, gold and silver prices, or, visa versa.

·         State and Muni Crisis; Union Busting:  Muni’s should experience pain first.  Muni’s rely on State funds.  Many State fiscal budgets turn over NOW.  State funding of local municipality projects will be impacted.  Muni and State layoffs increasing. Colleges relied on State funds and tuition increases are already hitting cash-strapped students. Lingering unemployment lessens government tax inflows. U.S. will probably see an increase in the cash society since folks will find ways to avoid higher taxes, hurting government coffers rather than helping.  Multiple U.S. cities now experiencing budget fights and protests.  Governments trying to reduce burden of high union costs.  Watch to see if California financial decisions spook the country. State and Muni problems are an H2-2011 and 2012 story. MUB daily and weekly charts are in negative divergence now marking this as a significant price top. A spank down and lower prices are ahead.  Meredith Whitney should be vindicated moving forward.

·         College Debt Bubble: Students continue to take on mountains of debt and cannot get a job after education. One poll cited 80% of college graduates moving back home to live with parents.  No effect near term but in the months forward the loan defaults will develop into a big problem. Now that State funding is being lost to colleges, tuition hikes are occurring, students now have to pay more for an education that no longer leads to a well-paying job.

·         China Property Bubble and China Contagion:  When it pops, anytime now, it will be extremely negative on global markets causing contagion in Asia and elsewhere. There are signs of growth slowing and bad real estate loan paper and fraudulent accounting by companies is now surfacing as well.  Copper was used as collateral for some construction loans and the collapse in copper price may provide the catalyst for the China real estate collapse. 65 million homes are unoccupied in China, a glut of capacity of epic proportions. Europe is China’s major customer so the Euro woes will only accelerate China’s problems.  China has built uninhabited cities to fuel their explosive growth during this century. China growth rates are trailing off, there are only so many empty cities that you can build.  This is going to end very badly. Keystone agrees with Jim Chanos’ view on China. Watch the copper price to gauge China moving forward. China has to decide if they want to play a larger role in the world and help prop up the global mess. China bubble pops=global markets down.

·         PBOC; China Rate Hikes:  First hike 25 bps on 10/19/10; second hike 25 bps Christmas 12/25/10; third hike 25 bps China New Years on 2/8/11; fourth hike 25 bps on 4/5/11; fifth hike 25 bips 7/7/11.  China said in 2010 that it will project about five hikes into June 2011.  Hikes have occurred October, December, February, April and now July, so China should hold steady for the weeks and months ahead. Bank reserve requirements are now ratcheting up continuously to slow down inflation but these appear to have less of an effect now. 

·         China New Premier:  Chosen in 2012, will it be a smooth transition?

·         India, Brazil, Taiwan, South Korea and other Emerging Market Rate Hikes:  Same effects as China rate hikes; commodities will sell off.  China, India and Brazil hikes are most important to global markets. Watch India closely moving forward since they are still raising rates in conflict with their Asian peers. Each emerging country lowering rates here forward will escalate trade wars.  Chairman Bernanke’s hot easy QE2 money pumped up emerging markets and commodities from August 2010 thru May 2011 creating new asset bubbles. India is now experiencing civil unrest as citizens demonstrate against corruption at all levels of government.  India directly supports one-third of the global gold market and we are entering the marriage season now where gold buoyancy typically occurs. This year has been far from normal, however, and the negatively diverged gold charts and CME margin hikes should trump all. Moving forward, watch India as a proxy for gold price. China consumes 40% or more of the world’s copper production. Watch China as a proxy for copper price, and visa versa.

·         Japan Disaster; Yen Currency Intervention:  The negative affects to the auto industry and technology are subsiding substantially, and, perhaps, Japan’s renewed growth in the months ahead may actually aid the global ecnomy.  Japan is performing policy manipulation and coordinated currency intervention to target the 85-86 dollar/yen area.  This could not be maintained so far, or 83, or 81, or 80, and now dollar/yen has fallen well into the 70’s. The 76.5 current level will more than likely be defended so expect currency intervention moving forward.  BOJ participated with other central banks on 8/15/11 to support Europe. Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Oil; OPEC; Strategic Petroleum Reserve (SPR); Hurricane Season:  SPR oil release talk is no longer an issue as oil price dropped under $80.  The hurricane season remains in play, however.  OPEC meeting 6/8/11 ended in mass confusion with lack of unified agreement on production, the producers will do whatever they want as they always have.  Hurricane season now so that may help keep oil price buoyant.  Hurricane’s coming=lower oil supply=higher oil price=good for construction material companies like HD and LOW.

·         GSE (Government-Secured Enterprises): A decision will need to be made on extending the GSE limit of 730K; is it time to end this or will the limit be extended over and over again?  This should hurt the market since the GSE’s back 9 of every 10 mortgages. Now folks will have to go elsewhere to seek financing where the down payments are 25 to 30% down.  In essence, the demand will be reduced, thus, the market will tighten and house prices will continue lower moving forward. Keystone’s proprietary algorithm shows that housing has already fallen back into a double dip as of mid-May 2011. This is deflationary behavior giving Chairman Bernanke many sleepless nights. Keystone considers real estate to be a key investment over the next year or two but prices have much lower to fall first. Low rates do not help housing since folks do not have jobs, if they do have a job, they may not have a good credit score, if they do have a good credit score, then they cannot come up with the 25% and higher down payments.  Perhaps the washout in housing will occur in 2012.

·         Eclipse Selloff Target Areas: Allow plus or minus a week or two on each side of the following dates as potential areas of major market selloffs. Note how the May and July targets were spot on.  This technique next targets the late October thru early November area as a potential large market selloff area.  Targets this year; 5/15/11 (large sell off occurred May-June); 7/15/11 (large sell off occurred 7/8 thru 7/18 then the crash the week of 8/1/11); 11/3/11 area is next; then 1/3/12.

·         Bradley Turn Dates: 9/26/11 (turn window 9/19 thru 10/3/11, more specifically 9/22/11 thru 9/28/11); 10/12/11; 10/28/11 (this date matches up with the eclipse sell off projection); 11/22/11-11/23/11; 12/28/11 (major turn area); 1/11/12. Typically allow a +/- 7 day window with actual turns usually occurring in closer to the actual date, say +/- 3 day window. Markets more than likely change their trends, if headed up, they reverse down, or if they have been moving down, they reverse up.  Every now and then, however, the markets will melt up or down in an acceleration move of the current trend. Dates are courtesy of Donald Bradley, Peter Eliades and Arch Crawford; reference their web sites for additional information.