Keystone's Key Events and Market Movers Week of 1/9/12

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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.

Summary for the New Trading Week Ahead:

The first week of January ends on the positive side. SPX price is fighting to overtake the 12-month MA at 1280-ish which would represent a sea change for the broad markets, from a secular bear market for the last five months, back into a secular bull market. The secular bears remain in charge albeit by three measly points. Pay close attention to the SPX 12-month MA.

The U.S. markets continue to be at the mercy of the European debt crisis.  And this is especially the case for Monday since there are no economic data releases and earnings do not begin until after the bell with AA. Germany’s Merkel and France’s Sarkozy are meeting, Merkozy, so any tidbit of news or sound bite, and their anticipated communiqué, will effect U.S. markets for Monday’s trade. This back drop occurs with the SPX only needing a four or five point loss, to drop under 1273, to initiate substantial downside selling pressure in the broad markets. How does it feel to have Merkozy steering the ship for Monday?

The ongoing European crisis, the China real estate bubble popping, and the incompetence in Washington D.C. are providing a trilogy of drama for January trading.  The coming S&P downgrade of France debt should hit anytime.  When the France downgrade occurs, markets will focus on whether it is a one or two notch downgrade.  Two notches would mean big trouble for global equities markets. S&P will first warn the France government 24 or 48 hours in advance of the impending announcement. A Friday release date is targeted since that is the way the U.S. downgrade occurred and it provides extra weekend time to address the situation. Watch 1/13/12 closely.  Interestingly, the markets are closed on 1/16/12 in Observance of the Dr. Martin Luther King Day holiday, thus, if the S&P downgrades France this coming Friday after the close, that would give one more extra day for markets to settle down before the U.S. markets would open.

Continue watching the Italy, Spain and France 10-year yields to gauge the creeping contagion. Use the 7% level for Italy—which is violated to the upside again and the yield appears to have staying power here.  The Greece and Portugal moves above 7% signaled the time for bailouts.  Watch 6% for Spain and 3.3% level for France as signals of trouble. The France yield has now crept back above 3.4%.  All is not well.  The German, U.K., and U.S. 10-year yields show money seeking safety in these countries. The Germany 10-year yield dropped under 1.90% (as demand increases price moves up on notes and bonds, and yield moves opposite to price, up price=down yield).

Continue to watch the following asset relationship which is now under scrutiny; euro higher=dollar lower=commodities higher=gold higher=U.S. equities higher=treasuries price lower and yields higher, or, the visa versa, euro down=dollar up=commodities down=gold down=U.S. equities down=treasuries price higher and yields lower.  Recent action is showing the dollar move up but the negative impact on commodities, copper and oil is not as significant.  The euro is weakening but the SPX has remained buoyant.  Keystone thinks much of this may be due to the lower volume holiday trading, seasonality effects and flat market moves but these relationships must be monitored closely to see if a sea change is actually underfoot.  As long as the U.S. 10-year yield stays under 2%, disinflation is a threat.

For the new trading week, Merkozy dictates market action on Monday, good luck everyone.  AA starts off earnings season after the bell.  The Fed heads will do a lot of talking this week, so those sound bites will nudge markets to and fro. Lockhart speaks after lunch on Monday. The Consumer Credit numbers at 3 PM will provide some insight into the retail sector.  The RTH daily and weekly charts are displaying the spectacular negative divergence and rising wedges, with overbot conditions, indicating a retail sector slap down coming at any time. The retail sector must be monitored closely this week. If retail rolls over, this will create serious broad market weakness.

On Tuesday, the Wholesale Trade numbers at 10 AM provide a market pivot point. The back half of the week is packed full of economic data, earnings and European bond auctions so run your errands early in the week, full attention is required Wednesday thru Friday.  Wednesday begins with the Fed heads stirring things up, Oil Inventories at 10:30 AM are very important since the worry of a large global slowdown is on the table.  The 10-year note auction at 1 PM is a market pivot point. Likewise the Tan Book at 2 PM. Earnings shed light on the dollar stores and housing sector.

On Thursday, the ECB Rate Decision and Press Conference occurs so Draghi will be in the spotlight.  Europe is in recession so more cuts would be anticipated, perhaps another quarter point. A stronger cut would move markets since that would state the ECB is much more concerned and the economy is far weaker in Europe than anyone thinks.  Spain bond auctions will have everyone in a tizzy so the U.S. traders will have to be up early today to catch all this pre-market drama. Jobless Claims and Retail Sales hit at 8:30 AM.  As referenced above, the retail sector is huge this week.  The Retail Sales numbers are mucho importante and will drastically impact the futures markets and Thursday’s trade.  The Thursday soap opera will keep pumping out drama with a market pivot point at 10 AM with Business Inventories. Then Natty Inventories, the 30-Year bond Auction and Treasury Budget hit at one hour intervals. Excedrin will be required by day’s end.

On Friday, the Italy bond auctions will place traders on edge.  U.S. traders will be up with the rooster to monitor this action. As the European drama plays out, JPM earnings will hit around 7 AM and set the tone with the financials and thus the broad markets.  International Trade and Import Export Prices are at 8:30 AM.  Then, a market pivot will occur just before 10 AM with the Consumer Sentiment numbers. If the week ends without any S&P announcement of a France downgrade, listen Friday evening to see if it occurs.

Seasonality-wise, markets tend to be bullish for the two days in front of a three day holiday weekend. Thus, Thursday and Friday have a favorable slant for the bulls. If the France downgrade occurs Friday evening, however, positioning is key since Tuesday may open on a significantly more sour note. The seasonality is interesting since the Retail Sales on Thursday morning and JPM, the financials, on Friday morning, are going to dictate the bullish buoyancy, or lack thereof, to end the week.

Keystone’s Eclipse indicator targets this period, from now thru the next couple weeks, as having a high potential for a large market selloff.  A major Bradley turn date occurred on 12/28/11 which resulted in only a minor market stutter step as the year changed over, but, the markets are already in another Bradley turn window based on the 1/11/12 Bradley turn date. Thus, a market trend change can occur at any time, especially this week. A full moon occurs tonight into Monday. The star-gazers among you have noticed the outside brightness the last couple evenings. Typically markets are buoyant going into the full moon so that trend last week was in place. The full moon will be behind us as the new week gets underway. The new moon, more in line with market weakness, occurs in two weeks on 1/23/12 so perhaps some market weakness will occur from late OpEx week into the new moon.

Key Dates and Times for the Week Ahead:

·         Monday, 1/9/12: Markets remain at the mercy of Europe news moving forward.  Watch for a potential S&P downgrade of France debt which will wreak havoc on equities markets.  Watch the 10-year yields for Europe nations as described above.  Keystone’s Eclipse Indicator identifies this period now thru the next couple weeks, as having a high potential for a large market selloff. Merkozy Meeting. Fed Dennis Lockhart speaks 12:40 PM. Consumer Credit 3 PM. Earnings season kicks off with AA after the close. FUL, MTB, SCHN.

·         Tuesday, 1/10/12: Austria Bond Auctions. Merkel and LaGarde (IMF) meet.  NFIB Small Biz Optimism Index 7:30 AM. Wholesale Trade 10 AM. Fed John Williams speaks 10:30 AM. Fed Esther George speaks 1 PM.  3-Year Note Auction 1 PM.

·         Wednesday, 1/11/12:  Merkel, Sarkozy and Monti meeting. Mortgage Purchase Applications 7 AM. Fed Charles Evans speaks 8:40 AM.  Fed Dennis Lockhart speaks 9 AM.  Oil Inventories 10:30 AM.  Fed Charles Plosser speaks 12:30 PM. 10-Year Note Auction 1 PM.  Beige Book 2 PM. Earnngs: NDN, LEN, SVU.

·         Thursday, 1/12/12: Markets tend to be buoyant the two days in front of a three-day holiday weekend.  ECB Rate Decision and Conference. Spain Bond Auctions. Jobless Claims and Retail Sales 8:30 AM. Business Inventories 10 AM.  Natty Inventories 10:30 AM. 30-Year Bond Auction 1 PM. Treasury Budget 2 PM. Fed Balance Sheet and Money Supply 4:30 PM. Earnings: LBIX, MOBI.

·         Friday, 1/13/12: Friday the 13^th. Italy Bond Auctions.  International Trade and Import Export Prices 8:30 AM.  Consumer Sentiment 9:55 AM. Fed Jeffrey Lacker speaks 12:45 PM. Fed Charles Evans speaks 1 PM. Earnings: JPM 7 AM.

·         Monday, 1/16/11: Markets are Closed in Observance of Dr. Martin Luther King Day holiday.

Key Dates and Times for the Month Ahead:

·         In January: S&P will downgrade France debt—will it be one or two notches? Will the announcement occur on a Friday after the close, perhaps 1/13/12? The holiday is Monday in the States so this makes the 1/13/12 date an attractive target.

·         Thursday, 1/19/12:  France and Spain Bond Auctions.

·         Friday, 1/20/12:  E.U. Summit. OpEx.

·         Monday, 1/23/12:  Congress returns so negativity will likely creep into markets.

·         Tuesday and Wednesday, 1/24/12 and 1/25/12:  FOMC Rate Decision and Press Conference

·         Thursday, 1/26/12: Italy Bond Auctions.

·         Monday, 1/30/12:  Italy and Belgium Bond Auctions. E.U. Summit.