Keystone's Key Events and Market Movers Week of 2/27/12

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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 low volatility confirms the complacency (along with the low CPC and other indicators) in place as the majority of traders do not anticipate any pull back in markets. For the traders that do expect a pull back, they only reference a minor rest for markets of 3 to 5%.  The Barron’s cover advertises Dow 15K a week ago.  Jeremy Siegel, Professor at the Wharton School, toured the cable business outlets to tell everyone Dow 15K and higher is coming.  There is no denying the positive market impact of the LTRO program provided by the ECB, as well as the Fed announcing low rates thru 2014. This crack cocaine has supplied the bull fuel, and this week, we find out how much more crack cocaine is on tap.

The estimates and projected outcomes from the imminent LTRO decision are all over the map.  To perhaps keep a simple approach with the announcement, since simple is always better, if 500 billion euro’s or lower are announced, equities markets will likely be disappointed, even though the consensus is in this area.  If the amount is from 500 billion to 600 billion that will likely please traders and provide an initial pop but the steam will probably come out of markets thereafter.  We will find out how much of the LTRO announcement is already priced into the markets.  If the LTRO program is a shock and awe event, with an 800 billion bazooka or higher, the equities markets will take off like a rocket, since that crack fix will be plenty to keep the addicted markets happy. The LTRO announcement is the main event this week and will have the greatest impact on markets.

The broad indexes continue to print new multi-year highs. The Dow Industrials keeps testing 13K and the SPX closed above the 2011 high at 1364. Markets always strive to hurt the maximum amount of traders. Right now, the bulls are back-slapping and telling each other how smart they are for riding the bull rally the last two months.  Bulls have no fear of the markets going down, many say that even if the markets do pull back, there will be plenty of time to cash out and take profits, or the pull back will be so minimal that there is no need for concern. The bears are frustrated from shorting the market beast, having to cover the shorts as markets rose, only to provide short-covering bull fuel to keep pushing the indexes higher.  Many short players are sitting out now, they would rather wait and see markets drop first so then they can be more sure of a committed down move.

Therefore, considering the bulls are complacent with their feet up on the desk, and bears do not want to sell the market, the best outcome to hurt the maximum amount of traders is for an overnight event to occur that causes the equities markets to open down large, perhaps even lock limit down. That way, bulls that enjoyed the upside will immediately cry foul since a huge drop would erase much of the profits and long players that jumped in over the last two or three weeks would be under water. At the same time, the short sellers that were waiting for the move down, got it, but the magnitude and speed of the move down leaves many short sellers in the dust, not holding short positions, now having to decide to chase the downside or simply accept the missed move.  Stay on guard, as this example illustrates, markets are very unstable currently.

Earnings continue along in force with many second tier companies reporting.  The AZO earnings on Tuesday and Vehicle Sales data on Thursday will provide automobile data to help gauge the health of the U.S. and global economy. ODP and SPLS will provide information on small business activity.  Early in the week, the LOW earnings and the Case-Shiller data will affect the housing market.  Lots of energy earnings are on tap, including the popular MLP’s, and the ISM data hits on the first, Thursday, as it does each month. The XLE, oil and gas stocks will respond strongly to the ISM data.

The high gasoline cost is becoming a serious issue and now that the general public is taking notice, the effects on the retail sector are probably not far behind. Gasoline prices are already at or near $4 working towards $5 per gallon in the U.S. in the area where demand destruction occurred a few years ago. When cars are parked in the driveway, people are not shopping, and, not earning money to go shopping.

Aside from the LTRO main event this week, Chairman Bernanke’s testimony in front of Congress this week is important.  The Consumer Confidence data at 10 AM Tuesday should provide a market pivot point.  The Beige Book provides another market pivot point at 2 PM Wednesday.  Note how the economic data is centered in the mid-week time frame Tuesday thru Thursday.  Friday is set up as a slow day but perhaps the excitement this week will have all traders crying for a slow day by then. The Mexico City communiqué is the direct news that traders are focused on tonight, Sunday night, into the start of the week.  The LTRO talk takes precedence over anything else occurring this week. China and HSBC PMI numbers on Thursday are very important since the copper and commodities markets, and in turn, the equities markets, will react on the news.

Continue watching AAPL since as AAPL goes, so goes the markets.  As Keystone pointed out with an Apple chart last week, and the chart can be updated and reposted over the next day or so, the AAPL daily chart is set up with negative divergence setting up a nice short trade since a spank down is on tap. In fact, the traders that went in to short AAPL on Friday may look smart come Monday. As AAPL moves lower, so will the broad markets. 

Watch the Nasdaq versus S&P 500 percentage moves in real-time. If the Nasdaq 100 and Nasdaq Composite start to lag the broad market, the SPX, that will show tech running out of gas and thus affect the broad markets negatively. This occurred Friday, 2/17/12 thru Wednesday 2/22/12 for the first time this year. Traders enjoying the technology rally will likely take profits moving forward.  February is typically a month where tech traders take profits since the strong Q4 seasonality has now passed and this week we will be moving into March already.

Market bulls have made serious gains in the broad markets over the last month, overtaking the moving average lines as well as other key levels indicating a return to secular bull markets.  The bulls are in good shape as long as they stay above SPX 1284 and NYA 7650. The dollar and euro dictate the markets, up dollar = down euro = down commodities = down markets and down dollar = up euro = up commodities = up markets. Chairman Bernanke crushed the dollar with extending the low rate Fed policy into late 2014. Thus, Bernanke’s testimony this week will impact the dollar, and markets, again.  The euro moves opposite the dollar and in the same direction as equities. Thus, the LTRO decision this week will impact the euro, and, in turn, one of the relationships highlighted will play out.

For the SPX, starting at 1366, the market bulls need to touch 1369, if so, the intraday HOD from 2011 at 1370.58 is tested next, which leads to 1377. The market bears need to push the SPX back under the 1363.61 (2011 closing high), if so, the broad market selling will accelerate. A move thru 1365-1367 is sideways action. Since the projected range is very tight for Monday’s trade, the markets will likely commit to one side or the other, thus, watch 1369.00 and 1363.61. Keep an eye on retail this week as well, the RTH 39 may play a key role. We also find out if March comes in like a lion or a lamb.

Key Dates and Times for the Week and Month Ahead:

·         Monday, 2/27/12: Traders are awaiting the communiqué from the Mexico City meeting which will help assess the struggle between LaGarde and Germany.  Listen for news concerning the second LTRO program over the coming days. Watch the European 10-year bond yields, especially Portugal and Hungary.  Congress will return from a one week holiday recess which is a market negative. Listen for any China news, especially growth projections, which affect copper and commodities markets, and in turn, equities markets. PMI is important on Thursday. Markets remain in a Bradley turn window thru Wednesday so watch for a potential market trend change to occur early in the week, if it occurs. Pending Home Sales 10 AM. Dallas Fed Mfg Survey 10:30 AM. Earnings: AONE, ACHN, AEGN, AMRS, ATLS, CCC, CECO, DPM, DNDN, EGLE, EP, GXP, HGSI, HOGS, JAZZ, LOW, MRX, MELA, OXGN, PBT, PCLN, KWR, KWK, SOL, SJT, SWN, SVNT, SINA, JOE, TIE, UHS, URS, VTUS, VISN, VVUS, ZAGG, ZIOP.

·         Tuesday, 2/28/12: Durable Goods 8:30 AM. Case-Shiller 9 AM. Consumer Confidence 10 AM.   Richmond Fed Mfg Index 10 AM. Fed’s Pianalto speaks 7:15 PM. Earnings: AMED, ANGN, AZO, CERS, CRZO, DPZ, DSX, DWA, FSLR, FE, GTLS, HFC, MWE, NKTR, NRG, ODP, STEC, PANL, VRSK, VPHM, WNR, WTR.

·         Wednesday, 2/29/12: Leap Day for Leap Year. EOM. The announcement of the second LTRO program is the major market mover for the week. Mortgage Purchase Applications 7 AM. GDP 8:30 AM.  Fed’s Fisher speaks 9:30 AM.  Chicago PMI 9:45 AM. Chairman Bernanke speaks 10 AM. Oil Inventories 10:30 AM. Fed’s Plosser speaks at noon time. Beige Book 2 PM. Farm Prices 3 PM. Earnings: BID, COST, EIX, EVEP, FNSR, ISIS, JOY, LIZ, MDR, NOG, PETM, SIGM, SODA, SPLS, YGE.

·         Thursday, 3/1/12: E.U. Summit begins. China PMI and HSBC PMI data. Motor vehicle Sales data. Pianalto speaks 8 AM.  Jobless Claims and Personal Income and Outlays 8:30 AM.  Construction Spending and ISM Mfg Index 10 AM (watch the energy markets).  Natty Inventories 10:30 AM.  Fed’s Lockhart speaks 12:30 PM. Fed Balance Sheet and Money Supply 4:30 PM. Fed’s Williams speaks 10 PM.  Earnings: GMO, JRCC, KR, FL, FLOW, LORL, MITL, SATC, SPPI.

·         Friday, 3/2/12:  Fed’s Bullard speaks 8 PM. Earnings: ALTI, BIG.

·         Thursday, 3/8/12: ECB Rate Decision and Press Conference.

·         Friday, 3/9/12: Monthly Jobs Report 8:30 AM.

·         Monday, 3/12/12: Eurogroup meeting of euro zone finance ministers in Brussels.

·         Tuesday, 3/13/12: Ecofin meeting of European Union finance ministers in Brussels.

·         Tuesday, 3/20/12: Greece deadline for financing.

·         Friday, 3/30/12:  Informal meeting of EU finance ministers in Copenhagen.

·         Thursday, 6/28/12: EU Summit for heads of state in Brussels.