Keystone's Trading Week in Review and the Path Ahead 2/4/12

On 1/29/12, Sunday, the Greece talks with bondholders continues with no word yet on resolution.

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On 1/30/12, Monday, Italy bond auctions go well as the E.U. Summit is underway.  Portugal yields are blowing out.  Greece resolution with bondholders is needed.  Markets sell off dramatically as the day begins but then move higher all day long.

On 1/31/12, Tuesday, the overnight futures are green on news that a Greece resolution is near but this is more of the same.  Heavy-hitters such as XOM and UPS post disappointing earnings. The Baltic Druy Index (BDI) continues to fall.  The broad indexes sell off on a weak Consumer Confidence number.   AAPL now surpasses XOM as the largest market cap company in the world. The golden cross occurs for the SPX (50-day MA moves above the 200-day MA) , which means bullish markets according to trading folklore, but Keystone says do not pay any attention to it. The EOM occurs and January sees the best gain since 1997.  The ECB is active in the bond markets driving European yields lower. The LTRO program continues to calm markets.

On 2/1/12, Wednesday, China PMI reports a solid number over 50 indicating continued growth, a Goldilocks number if you will, not too high to have inflation worries, not too low as to signal guaranteed easing measures.  The markets take the news positively projecting a soft landing on tap for China.  China’s Wen says that they will support Europe moving forward.  China has provided this lip service many times already but never acts on the talk.  The futures markets run higher.  Copper and commodities experience further strength anticipating global economic activity ahead and this supports the bulls. Facebook announces a coming IPO so the tech fever grows stronger, reminiscent of the dotcom bubble days.

On 2/2/12, Thursday, the Nasdaq 100 Index, NDX, prints highs not seen since 2001, eleven years ago! China PMI Services data comes in weaker than expected but markets ignore the bad news and continue the party. European bond yields continue to improve. The Italy 10-year yield moves under 5.60% logging four straight weeks of rises (prices up yields down). Spain is under 5% with a two week winning streak with higher prices and the lower yields.  Eurozone retail sale data are weaker than expected but the markets continue to ignore any bad news.

On 2/3/12, Friday, the Monthly Jobs Report announces a blow-out number of 243K jobs and the futures markets catapult skyward.  The trading day goes the bulls way start to finish.  Greece remains without a deal with bondholders but the markets do not care.  Greece now promises a deal by Monday, but it sounds like more of the same lip service. Earnings reports all week are lackluster with weak guidance but the indexes view good news as good news and bad news as good news.  Gold drops $30, the first significant pull back for the yellow metal after the five-week rally to the 1760’s.  The Nasdaq Composite Index, COMPQ, closed at 2906, at levels not seen since 2001, eleven years ago! The Dow closes at 12862 which is a 4 year closing high.  The SPX finishes the week at 1345 with traders very bullish popping champagne corks.

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For the week ahead,

Continue watching the European 10-year bond market yields for any sign of trouble but the LTRO program has created calmness in Europe.  Next LTRO will be coming soon with 500 billion to 1 trillion expected, 500 billion would disappoint. Greece continues to struggle at reaching agreement with bondholders so this must be watched closely. Hungary requires close watching.  The ECB rate decision and conference is on Thursday.

China real estate bubble is popping but many traders continue to believe in the soft landing concept.

Another big earnings week is on tap.

On 2/6/12, Monday, Australia’s RBA Rate Decision. Fed’s Fisher speaks. YUM earnings are a great proxy for China.

On 2/7/12, Tuesday, Japan Current Account Balance. 3-Year Note Auction. Consumer Credit.

On 2/8/12, Wednesday, China CPI . BOE Rate Decision and Press Conference. Oil Inventories. Fed’s Williams speaks. 10-Year Note Auction.

On 2/9/12, Thursday, ECB Rate Decision and Press Conference. Jobless Claims. Wholesale Trade. Natty Gas Inventories.  30-Year Bond Auction.

On 2/10/12, Friday, International Trade. Consumer Sentiment. Fed’s Pianalto speaks.  Treasury Budget.