Keystone's Key Events and Market Movers Week of 3/19/12

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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:

A wild trading week resulted last week when JPM surprisingly announced a dividend increase and stock buyback.  This meant the Fed had finished the bank stress tests since the divvy was allowed.  BAC followed along as well and the financial sector and broad markets exploded to the upside.  The Fed then had to move up the release time of the results from Thursday afternoon to Tuesday after the close. The remainder of the week was under the influence of OpEx with wild volatility and volume swings.

Going into last week, the seasonality factors wanted a bullish week but the charts and technical analysis wanted a selloff.  Seasonality won.  So this week we will see if the bears come to play, or not.  If the market bears want to push the markets lower, it has to be now, especially early in the new week, since window dressing will come into play during the following week, the last week of March and end of Q1.

A major Bradley turn occurred last Friday so the window remains open for a potential major market trend change now, especially watch the market action Monday-Wednesday.  A new moon occurs on Thursday, so typically markets are weak in front of a new moon. The housing sector will be a main focus this week that will influence markets.  Housing Starts on Tuesday are one of Keystone’s most important monthly economic data points.  Existing Home Sales are on Wednesday and New Home Sales on Friday; both will result in market pivot points at 10 AM EST.  KBH reports earnings on Friday.  Keystone is currently shorting the real estate sector via SRS and will likely add this week.

The European drama took a back seat late last week but expect Portugal and Spain problems to heat up quickly.  Last week Treasury price moved lower, yields higher, as money moved out of bonds and some, but surprisingly not all, of the cash went into stocks. The dollar and stocks moved in sync which is opposite the many month trend in place where a stronger dollar leads to weaker commodities and equities. Keystone expects this latter relationship to remain in place so monitor this closely this week.  A stronger dollar will likely drop copper and commodities lower, as well as equities, and reward market bears. Bulls want to see the weaker dollar remain in place to allow further market upside.

Keystone highlighted a few of the sentiment and technical indicators yesterday, such as CPC and Skew, that show a significant market top in place.  The markets have a way of hurting the maximum amount of traders the majority of the time.  That said, the bullish side of the boat is fully loaded to one side, there are no bears. Even though Keystone is very bearish now on the markets, the Keybot the Quant algorithm (left margin) even maintains the core position long currently.  When Keybot turns south that will signal serious market trouble.  With traders overwhelmingly bullish, and even the few calling for a pullback say it will only be a paltry 1 or 2%, perhaps 5% tops.  Since the market has a way of surprising the most amount of traders, and considering the negative divergence in the charts, as well as uber bullish euphoria displayed by sentiment tools, a market pull back of from 5 to 20% is the area where not one trader is looking, perhaps no one except for good ole Keystone. The take away is to stay alert, any long positions should have protection in place, and short positions should have been placed on Friday since the market sentiment is off the charts bullish, proven by the CPC, Skew and VIX, and the SPXA150R is over 90 which is not sustainable for a long period of time.

High gasoline prices remain a worry and this is the time of year when gasoline prices move up due to winter to summer grade changes as well as scheduled maintenance. The seasonality will make it more difficult for gasoline prices to fall.  Anecdotal data already show that folks are seeking public transportation and other options to reduce fuel costs; higher fuel costs should not be healthy for the retail sector and TIF and NKE, as well as others, will provide further insight this week.  Keystone continues to short the retail sector which continues to not be a wise trade. RETS and SZK inverse ETF’s are favorites but are extremely dangerous trading vehicles, and thinly traded which will add to their wild volatility. Oil appears ready for a strong pull back, a 10 to 20 dollar downside move would not be a surprise, which would be in concert with markets pulling back; dollar up=commodities down=gold down=copper down=oil down=equities down. SCO is a potential play to short oil once the positive divergence locks in a smidge lower at 31-32, so the charts are setting up for a drop in oil price.

Continue watching AAPL since as AAPL goes, so goes the markets.  As Keystone pointed out last week, the Apple daily chart wants a smack down which perhaps started late in the week.  The weekly AAPL chart maintains momo, however, so price will want to come back up after the sell off (down up down move).

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. Friday’s action showed this taking place but the markets did not move down, the lack of tech leading simply limited the upside. Tech leads overall market direction so AAPL is the markets.  Traders enjoying the technology rally will likely take profits moving forward. A pull back in AAPL will negatively impact the tech sector, Nasdaq, and the broad markets, as well as the 90% of fund and money managers that own the stock.  Traders enjoyed the parabolic ride up in Apple but will not enjoy the topping and rolling over action ahead. Keystone bot TYP, a dangerous triple X ETF, on Friday, and plans to add as tech tops and rolls over.

Market bulls have made serious gains in the broad markets in 2012, 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 1293 and NYA 7635. The expected asset relationships were skewed last week so monitor this closely this week.  The dollar and euro dictate the markets, up dollar = down euro = down commodities, copper, gold, silver, oil = down markets and down dollar = up euro = up commodities, copper, gold, silver, oil = up markets.

Key Dates and Times for the Week Ahead:

·         Monday, 3/19/12: The European debt crisis drama continues; Greece, Portugal, Hungary, Spain and Italy all remain at risk. Ongoing political rhetoric and Congress in session is a market negative. Listen for any China news since this impacts copper and commodities markets which will cause the equities markets to move in the same direction.  Major Bradley Turn date occurred on Friday, 3/16/12, so watch for a potential major market trend change to occur in the coming days, especially early in the week. Fed’s Dudley and Fisher speak.  Housing Market Index 10 AM.  Earnings: ADBE, AOB, CUR, DSS, HRT, NATR, TLB, WAVX.

·         Tuesday, 3/20/12: Housing Starts 8:30 AM. Chairman Bernanke speaks 12:45 PM. Fed’s Kocherlakota speaks 5:30 PM.  Earnings: CTAS, DSW, JBL, JEF, KKD, ORCL, TIF.

·         Wednesday, 3/21/12: Mortgage Purchase Applications 7 AM. Existing Home Sales 10 AM. Oil Inventories 10:30 AM. Earnings: CDZI, DFS, GIS.

·         Thursday, 3/22/12: New Moon. Jobless Claims 8:30 AM.  FHFA House Price Index and Leading Indicators 10 AM. Natty Inventories 10:30 AM.  10-Year TIPS Auction 1 PM. Fed Balance Sheet and Money Supply 4:30 PM.  Earnings: ACN, AFFM, CAG, DG, FDX, GME, HIS, INOC, LULU, NKE, SCS.

·         Friday, 3/23/12:  New Home Sales 10 AM. Fed’s Lockhart speaks 2:30 PM.  Fed’s Bullard speaks 9 PM. Earnings: DRI, KBH.

·         Tuesday, 3/27/12: Consumer Confidence.

·         Thursday, 3/29/12: GDP.

·         Friday, 3/30/12:  Informal meeting of EU finance ministers in Copenhagen. EOM. EOQ1. Consumer Sentiment.

·         Saturday, 3/31/12: China PMI.