On 12/16/11, Friday, an anti-ESM vote in Germany fails which is good for global equities markets. Italy receives a positive vote of confidence among its government. The U.S. politicians appear to have an agreement to resolve the latest government funding issue. Thus, the futures are green and a more positive market vibe exists. Markets rally strongly at the bell and thru the morning until Fitch lowered its outlook on France to negative from stable adding that a one in two chance exists for a downgrade of France over the next two years. Fitch also places six other European nations on watch for downgrade including Spain and Italy, stating that ‘a comprehensive solution to the region’s debt crisis is technically and politically beyond reach’. Traders sell the market on the news as the worries increase over a possible S&P downgrade of France coming after the markets close today. The markets languish and end the day flat, the major indexes are down about 3% on the week.
On 12/16/11, after the close, Moody’s downgrades Belgium. There is no announcement by S&P downgrading France debt.
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On 12/18/11, Sunday, Mario Draghi (ECB) admits that the euro could fall apart. The ECB is prepared to offer banks three-year loans in whatever quantity desired to encourage banks to buy sovereign bonds at cheap rates.
On 12/19/11, Monday, markets open positively until Draghi says that Europe faces serious downside risks. Banks are immediately hit by the negative comments and cause the broad markets to tumble. BAC is threatening to lose the 5 level. C is down over 5%. Markets finish lower on the day.
On 12/20/11, Tuesday, Germany sentiment is better than expected. Markets are excited about the three-year loan program in Europe and using it for a carry trade. Housing Starts are far better than expected (but due to seasonal adjustments). Indexes move up strongly. The Dow Industrials move back above 12000. All Dow Thirty stocks are higher. By lunch time, the markets are up close to 3% on the day. The One-Month T-bill yield turns negative. The 10-Year Note yield moves back above 1.90%. The SPX closes the day up 36 points, or 3%. The Dow Industrials are up a huge 337 points, or 2.9%. The Nasdaq is up 81 points, or 3.2%. The small cap Russell 2000, RUT, is up 30 points, or 4.2%.
On 12/20/11, Keybot the Quant algorithm flips back to the long side at 2:49 PM at SPX 1240. The short trade from 12/12/11 is flat.
On 12/21/11, Wednesday, markets open lower as traders have second thoughts about the ‘back-door bazooka’ three-year program. The response was large, 500 banks showing up at the window; perhaps things may be worse than thought? Markets sell off. Financials recovered as the day proceeded and markets ended the day flat.
On 12/22/11, Thursday, the Santa Claus rally is in force with markets floating up on light volume. Utilities, retail, financials, and lower volatility are pumping the indexes higher.
On 12/23/11, Friday, the rally continues as the VIX prints a 20 handle. Italy’s 10-year yield moves back above 7% today indicating that all is not well in Europe. At the close, Dow Theory gives a buy signal. The SPX overtakes the 200-day MA resistance at 1259. The U.S. 10-year yield moves back above 2%. The yields in general show that money prefers the perceived safety of Germany, the U.K. and the U.S. The markets need the semiconductors to supply the next bull strength. The S&P announcement concerning a one, or possibly two, notch downgrade of France will occur in January and will have large market ramifications.
On 12/24/11, Saturday, Christmas Eve, the last day of consumer shopping in front of the holiday.
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On 12/25/11, Sunday, Christmas Day, …………
On 12/26/11, Monday, U.S. equities markets are closed for the Christmas holiday.
On 12/27/11, Tuesday, trading begins after the holiday weekend as…………..
……………………the saga continues…………..
Looking ahead,
Watch the European bond market, especially Italy and France 10-year yields. Use the Italy 7%, Spain 6% and France 3.3%-ish level as a signal of trouble. Italy ventured above 7% again on Friday.
Global recovery is stalling. China real estate bubble is popping.
On 12/27/11, markets begin trading again. Case-Shiller Housing Index 9 AM. Consumer Confidence (a Keystone important monthly data point) at 10 AM. Richmond Fed Mfg Index 10 AM. Dallas Fed Mfg Survey 10:30 AM.
On 12/28/11, Oil Inventories 10:30 AM.
On 12/29/11, Jobless Claims 8:30 AM. Chicago PMI 9:45 AM. Pending Home Sales 10 AM. Natty Gas Inventories 10:30 AM.
On 12/30/11, bond markets close early. Farm Prices 3 PM. EOM, EOQ4, EOY2011.
In January, S&P announces the one or two notch downgrade of France. One notch is probably being priced in currently; two notches will probably cause equity markets to sell off strongly.
On 1/12/12, ECB rate decision and press conference, more rate cuts.
On 1/20/12, E.U. Summit.
On 1/24/12 and 1/25/12, Fed rate decision and press conference.
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