Keystone's Key Events and Market Movers for Trading the Week of 12/24/12

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: There are only five trading days remaining in 2012. The fiscal cliff is only 8 days away and each sound bite moves markets in real time.  Congress and the President are all on vacation until Thursday living it up without a care in the world. A positive fiscal cliff resolution is likely priced into the markets since traders are providing the benefit of the doubt and not selling off strongly on bad news. However, the solution needs to be announced this week. Time is expired from the standpoint of performing the legislative and administrative tasks to prepare the bill.  Both sides may attempt a fix with a watered-down bill that may not be well received by the markets; this solution would only serve to kick the can. The debt ceiling hits in February.  The European news flow directly dictates global market direction. Euro up = up markets. Euro down = down markets. Spain will likely delay their bailout request until early 2013. The ECB’s bond-buying program cannot be unleashed unless Spain requests the bailout but Spain does not want to give up sovereignty nor accept conditionality.  Italy wants Spain to request a bailout since the ECB bond-buying will immediately improve Italy’s debt situation.  Look for a strong market bounce and rally when Spain requests a bailout. The SPX is now back above the 1403 level where the ECB’s OMT bond-buying program was announced.  A flight of deposits out of Greece, Spain and Italy is ongoing which may lead to bank runs. European riots and violence are increasing. The slow-motion development of a European banking union continues.  Merkel likely wants Greece to stay in the euro until her election in September. The next ECB Rate Decision and Press Conference is 1/10/13.  A cut is expected in early 2013 likely January or February. If a cut occurs, the euro will drop and so will equities markets.  If no cut occurs, the euro will move flat to up as well as the markets. Europe must cut rates to weaken the euro and help the Eurozone grow out of the debt mess.   Watch for further China easing measures such as lowering rates or triple R’s, which will bounce copper, commodities and equity markets, but, do not hold your breath.  China appears hesitant to act since they correctly worry about the commodities inflation and asset bubbles that will be created (Chairman Bernanke incorrectly defends QE saying it does not create asset bubbles). China continues to provide lip service about easing measures and the markets bite each time raising copper, commodities, and equities, all on promises. This lip service act may no longer work since copper and commodities are leaking lower for the last couple weeks. New leaders President Xi Jinping and Premier Li Keqiang will supply economic targets in March. China professes a 7.5% growth rate but no one asks how this is possible when their number one customer, Europe, is in recession, Greece and Spain a depression, the U.S. is flat and uninhabited cities litter the China countryside, waiting for the urban shift.  Perhaps the simple reason is the fudged 7.5% number.  A weak global economy is driving the oil price lower but the Iran-Hamas War and Egypt and Middle East violence wants to take oil prices higher. Use the WTIC oil 90 and Brent oil 110 as pivot points. The Middle East violence is not a major concern in the context of oil price if Brent stays under 110. The SPX typically moves in the same direction as oil.  The earnings season winds down and confessional season will begin so listen for any companies that start to warn of lower numbers.  Tech (COMPQ) and small caps (RUT) lead the markets and verify the direction of the broad indexes. The bulls ran the markets higher on light volume last week with tech and small caps leading although tech faded late week.  Watch AAPL closely moving forward, it appears destined to break the 500 support.  As AAPL goes, so goes the markets.  Volatility moved higher last week with the VIX almost hitting 20. A higher VIX will lead to larger intraday and day-top-day point moves for the indexes (note the Dow Industrials up over 100 last Monday, up over 100 on Tuesday, down 100 Wednesday, then down 121 on Friday, you get the idea).

·         Saturday, 12/22/12: Major Bradley turn date so a turn window opens for a significant market trend change to occur (up or down) now. Is the Friday down move the beginning of an extended down move, or, a fake-out? Keystone’s Eclipse Indicator identifies this period, the remaining days of the year, as having a high potential for a large market selloff.

·         Sunday, 12/23/12: Riots and violence in Egypt may escalate now that Morsi forced thru the Islamist-dominated constitution. Brent oil is under 110.

·         Monday, 12/24/12: Christmas Eve. U.S. markets close early at 1 PM. Markets are driven by the Fiscal Cliff and Debt Ceiling, European debt crisis and Egypt and Syria dramas.

·         Tuesday, 12/25/12: Christmas Day. U.S. markets are closed.

·         Wednesday, 12/26/12: Kwanzaa. U.S. markets reopen for trading. Mortgage Purchase Applications 7 AM. Case-Shiller House Price Index 9 AM.  Richmond Fed Mfg Index 10 AM.

·         Thursday, 12/27/12: Jobless Claims 8:30 AM.  New Home Sales and Consumer Confidence 10 AM-expect a market pivot point. Oil Inventories 11 AM.

·         Friday, 12/28/12: Chicago PMI 9:45 AM.  Pending Home Sales 10 AM. Natty Gas Inventories 10:30 AM.

·         Monday, 12/31/12: EOM, EOQ4, EOH2, EOY2012. Last day of trading for 2012. Dallas Fed Mfg Survey 10:30 AM.  Farm Prices 3 PM. Earnings: PRGS.

----------------------------  2013  ----------------------------------

·         Tuesday, 1/1/13: New Years Day. Markets are closed. ESM is officially open for business but ‘will not be fully operational’.

·         Wednesday, 1/2/13: If Congress does not act, the U.S. drives off the “massive fiscal cliff” (a phrase coined by Chairman Bernanke in early 2012) that will cut the GDP, increase unemployment and immediately launch the country into recession, but, on the positive side, the nation’s debt will decrease. Chairman Bernanke stated that the Fed does not have the tools to help should the fiscal cliff occur. First day of trading for 2013. Typically new money is put to work in early January creating market lift. Motor Vehicle Sales.  PMI Manufacturing Index 8:58 AM. Construction Spending and ISM Mfg Index 10 AM.  FOMC Minutes 2:15 PM.  Earnings:  GBX, SABA, PER, TXI, VALU.

·         Thursday, 1/3/13: Chain Store Sales.  Challenger Job Report 7:30 AM. ADP Job Report 8:15 AM. Jobless Claims 8:30 AM.  Oil Inventories 11 AM. Earnigns:  FDO, UNF, WOR.

·         Friday, 1/4/13: Monthly Jobs Report 8:30 AM. Factory Orders and ISM Non-Mfg Index 10 AM-market pivot point. Natty Gas Inventories 10:30 AM. Earnings:  FINL, MOS.

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·         Friday, 1/11/13: Crop Report-watch corn and soybeans.

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·         Monday, 1/21/13: Presidential Inauguration. Martin Luther King Day. The president does not want a fiscal cliff mess and fiasco hanging over him on this day so it serves as an absolute deadline for the fiscal cliff and debt ceiling resolution.

·         In February:  Debt Ceiling limit is hit.

·         In February: Italy elections.

·         In February or March:  New China President Xi Jinping and Premier Li Keqiang take over complete control and the ten-year transition of power is finished. China now sets inflation and budget targets moving forward.

·         In March and April:  The BOJ head’s will be replaced and strong QE will likely occur. Perhaps a low in the Nikkei in January or February may provide a point of entry ahead of the money-pumping?

·         In September:  Merkel (Germany) seeks re-election and will not want Greece to exit the euro before the election, but will not care afterwards.  Perhaps Greece and Germany will both exit the euro in the future.

----------------------------  2014  ----------------------------------

·         In March 2014: ESM is officially ‘fully operational’. The banking union schedule has been delayed from January 2013 to January 2014 and now to March 2014.