Keystone's Key Events and Market Movers for Trading the Week of 12/31/12; Happy New Year

Key Dates and Times for the Week Ahead:

·         Keystone’s Comments on the Upcoming Week: Monday is the last day of trading for 2012, the end-of-month, end-of-fourth quarter, end-of-second half, and end-of-year (EOM, EOQ4, EOH2, EOY2012).  Markets are closed on Tuesday and then the fireworks begin Wednesday thru Friday with the Fiscal Cliff, ISM Mfg Index, FOMC Minutes and the Monthly Jobs Report. The fiscal cliff drama heats up on Friday evening with the Whitehouse meeting and large drop in the S&P futures.  Leaders Reid and McConnell are attempting a skinny-mini Plan C this weekend.  If the debt ceiling is part of the plan, markets will react positively.  If the debt ceiling is not addressed, that means the political shenanigans will continue thru January, and the markets will likely sell off strongly. The economy is already taking a negative hit from this ongoing political drama as evidenced by weak Consumer Sentiment and Consumer Confidence data, and weak retail sales. These trends are difficult to reverse. The debt ceiling hits in February. The SPX is below the 1438 and 1430 levels, where QE3 Infinity and QE4 Infinity and Beyond were announced, respectively.  The European news flow directly dictates global market direction. Euro up = up markets. Euro down = down markets. Watch the 1.32 level as a pivot point this week. Spain is delaying their bailout request so the ECB’s bond-buying program cannot be unleashed.  Spain is reluctant to give up sovereignty and 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 if Spain requests a bailout. The SPX is below 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, perhaps January, but maybe more likely in February or March. If a cut occurs, the euro will drop and so will equities markets.  If no cut occurs, the euro will move flat with a slight upward bias, and so will the equities markets. Europe must cut rates to weaken the euro and help the Eurozone grow out of the debt mess.   The China hard versus soft landing saga continues. 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 to a domestic-led economy.  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 begins 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. 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 moving up over 20 towards 23. The higher VIX will lead to larger intraday and day-to-day point moves for the indexes. The major Bradley turn date occurred last weekend and appears to have created a market top.  Keystone’s Eclipse Indicator identifies this period, ending in the days ahead, as having a high potential for a large market selloff. Obviously, the fiscal cliff drama playing out this weekend will determine if a market event occurs on Monday, or not.

·         Sunday, 12/30/12: President Obama appears on Meet the Press Sunday political talk show. Leaders Reid and McConnell are trying to come up with Plan C. Is there a vote on Sunday evening? Watch the futures, currencies, and Asian and European markets overnight to see if a cascade event is forming, or not.

·         Monday, 12/31/12: What is the result of the fiscal cliff drama overnight? EOM, EOQ4, EOH2, EOY2012. Last day of trading for 2012. Dallas Fed Mfg Survey 10:30 AM.  Farm Prices 3 PM. Earnings: PRGS.

·         Tuesday, 1/1/13: New Years Day. U.S. 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. Seasonality-wise, as the first few days of January goes, so goes the month; as the way that January goes, so goes the year. Motor Vehicle Sales.  PMI Manufacturing Index 8:58 AM. Construction Spending and ISM Mfg Index 10 AM--a market pivot point will occur.  FOMC Minutes 2:00 PM--a market pivot point will occur.  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-a market pivot point will occur. 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.

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·         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.