Keystone's Trading Week in Review and Path Ahead 12/15/12

On Friday, 12/7/12, an earthquake hits Japan extending their economic woes. In bombshell news, Germany lowers growth forecasts, now calling for a paltry 0.4% growth in 2013. The euro drops on the news, the ECB will definitely have to ease and lower the euro’s value moving forward into the New Year. Egypt turmoil continues. Violence in Athens grows uglier. The Monthly Jobs Report blows out all consensus estimates to the upside with 146K jobs and the unemployment rate drops to 7.7%. Average hours worked are flat but hourly wages are up which is a very encouraging sign. Markets are blind-sided as everyone expected Hurricane Sandy to negatively affect the data. The dirty secret in the data is that 350K people left the work force since they cannot find a job and simply gave up trying. The rate drops to 7.7%, not on stronger employment news, but due to the number of unemployed decreasing since they gave up trying to find work and are no longer counted. The S&P futures reverse from down 4 to up 7, an 11-handle flip for the bulls. The markets bounce at the open.  Consumer Sentiment is another bombshell surprise dropping more than expected. Interestingly, the positive sentiment displayed by wage earners that make over 75K per year that was in place before the election vanished causing the large drop in sentiment.  Obviously these folks were happy one month ago thinking Romney would win the presidency, but instead are now deflated dealing with higher taxes, increased regulation and more business bashing ahead. At 11 AM, Speaker Boehner lays an egg saying ‘no progress is occurring on the fiscal cliff negotiations, the Whitehouse has wasted another week, the president is slowly walking us to the cliff, Geithner’s ‘absolute’ comment was reckless, and the president’s plan will result in trillion dollar deficits forever’. The markets drop three S&P’s but continue sideways the remainder of the day receiving a late day push higher as volatility moved lower. The SPX closes at 1418, flat on the week, but price closed a touch above the 50-day MA, a bullish indication. The Dow Industrials are up 1% on the week to 13155. AAPL is down nearly 3% intraday. The Nasdaq is down 1% this week and the RUT is flat on the week showing that small caps and tech continue to create a negative weight on the markets. IBM changes employee benefits to make a lump-sum annual payment to 401k accounts rather than distributed payments, thereby allowing the company to save money. The employee is hurt financially but that does not matter in this slow-growth, high regulation, high-tax environment; companies are looking for ways to save money and many will follow IBM’s lead. 60 billion in relief is requested from a government that is broke to handle the Hurricane Sandy tragedy.

On Saturday, 12/8/12, Egypt military warns of dire consequences coming if they protests continue. Morsi rescinds the majority of his dictator-style decree but refuses to cancel the Draft Constitution vote on 12/15/12.

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On Sunday, 12/9/12, China factory output is up which boosts copper and commodities.  President Obama and Speaker Boehner meet at the Whitehouse but neither provides comments on the meeting. The global and futures markets begin a new week of trading favoring the bullish side.

On Monday, 12/10/12, China exports drop unexpectedly disappointing markets. Europe is China’s number one customer so the recession in Euroland is cutting deep. Italy’s Monti plans to resign and Berlusconi plots a return to power. This upheaval in Italian politics sends the 10-year yield up over 25 basis points to 4.80%. The FTSE MIB (Italy Stock Market) drops over 2.5%. Italy banks sell off from one to six percent. An increase in yields may force Italy to seek the ECB’s OMT which would create a problem since the wheels are falling off the Spain wagon currently and they will need the OMT as well. The Morsi opposition grows in Egypt showing that he perhaps overplayed his hand in trying to create a dictatorship in Egypt under the Muslim Brotherhood umbrella.  News leaks that the Obama/Boehner meeting resulted in a refusal of both sides to yield on taxes and spending. The global markets weaken, Europe is negative, and the U.S. futures are in the red. The euro drops under 1.29 but maintains a sideways drift since traders anticipate dollar weakness this week with more Fed QE which would in turn support the euro.  Italy’s GDP data disappoints, contracting 0.2%, now negative for the last five quarters, piling on more trouble for the boot-shaped nation.  The Italy market is now down over 3.5%.  Japan remains in a deflationary funk showing a drop into another recession, the fifth recession in the last 15 years. Now you can see why Chairman Bernanke is money-printing like mad; he is desperately trying to avoid the Japan deflationary-spiral scenario (a lost two decades) in the States.  The 10-year yield is 1.60%. MCD announces sales far exceeding expectations which send the Dow Industrials and S&P futures back to the flat line. Natty gas plummets 3% on warmer weather in the Northeast.  The markets languish flat all day on low volume.

On Tuesday, 12/11/12, futures are weak but German sentiment blows out expectations to the positive side so the DAX runs higher and U.S. futures turn firmly positive. The euro climbs higher to 1.2972. The mood becomes more bullish into the opening bell and the markets spike wildly higher at the opening bell.  The SPX attacks the strong 1433 resistance as volatility collapses. Traders are complacent and convinced that markets will continue moving higher without fear or worry, especially with more Fed stimulus coming tomorrow.  Speaker Boehner spoke on the floor asking democrats to supply more details on spending cuts causing the markets to drop.  Senate Leader Reid says it will be difficult to get a deal done before Christmas and ‘the democrats will not suggest spending cuts’. The markets sell off, the SPX dropping ten handles from 1434 to 1424.  This shows that the resolution to the fiscal cliff is priced into markets and any hint of negativity causes selling.  The FOMC two-day meeting begins. The markets languish in the afternoon with the SPX closing up 9 points to 1428.  After the bell, Speaker Boehner says a counter-offer was provided to the president.

On Wednesday, 12/12/12, markets await the Fed and start the day sideways.  At 10 AM, Speaker Boehner says the president is “slow walking the fiscal cliff process.” The SPX drops a couple handles. Volatility climbs higher. Retail is weak driven lower by WMT, DG, BIG and other low-end retailers. The lower income folks are obviously hurting since these retailers are not doing well.  The SPX is 1430 as the Fed announcement hits the wires. The FOMC Rate Decision at 12:30 PM extends monetary easing and links it to a 6.5% unemployment rate goal; call it QE4 Infinity and Beyond. The markets move higher on the news but nothing like the orgy rallies that occurred with prior Fed pumping.  The SPX hits 1438 where QE3 Infinity was announced in early September. The FOMC Forecasts at 2 PM show that the members are lowering all the growth forecasts for each year forward. At 2:15 PM, Chairman Bernanke’s Press Conference occurs and as he speaks and takes Q&A, the markets slowly drift lower. Bernanke repeats prior comments and says he does not have the tools to handle the fiscal cliff if it occurs, and a recession would seriously damage the economy. One hour later, as Bernanke finishes his press conference, the SPX has dropped ten handles from 1438 to 1428. The 10-year yield moves above 1.70% as traders leave notes and bonds fearing inflation but the money is not moving into stocks.  The session ends with the SPX and Dow Industrials flat but the RUT and Nasdaq are negative. Small caps and tech is leading on the downside which is bearish. At SPX 1428, the markets are under both where QE3 Infinity was announced at SPX 1438 in early September, and today, QE4 Infinity and Beyond, which was announced at SPX 1430. At this writing, the last two Fed money pumps, QE3 and QE4 have already failed. Emperor Bernanke has been exposed for not wearing any clothes (Hans Christian Anderson). The jig is up; the printing presses are running 24/7 but are not helping.  The money simply sits at banks since no one wants a loan. Those that do want a loan must jump thru numerous hoops, even a hoop of fire, so few are able to qualify.  Therefore, there is no ‘velocity of money’, and the multiplier effect does not occur to stimulate the economy.  This describes the present disaster but in the future, the whoosh of money will hit eventually and the country will explode into hyper inflation. This may be years away yet and the critical near term worry continues to be a Japan-like deflationary spiral which has led to their ‘lost two decades’. The central bankster intervention over the last few years has now created a larger mess of global markets. The massive deleveraging must continue; it started with people deleveraging, then companies deleveraging, and now the governments must deleverage. As they said in the Great Depression, “buddy, can you spare a dime?”

On Thursday, 12/13/12, European leaders agree to a banking union structure but the details will require weeks and months to hash out. The schedule for a fully operational banking union is pushed ahead to March 2014, more can-kicking.  Greece receives funding. Chairman Bernanke wakes up under the desk this morning shell-shocked and worried after yesterday’s QE4 Infinity and Beyond dud. The money bazooka is shooting blanks now. The SPX is under where the Fed announced QE3 Infinity in early September at SPX 1438.  The SPX is under where the Fed announced QE4 Infinity and Beyond yesterday at SPX 1430.  The SPX is under where the Election Day top occurred at SPX 1429.  Retail Sales are lower than expected but taking out auto’s and gasoline better than expected. The markets drift lower after the opening bell. At 11:30 AM, Speaker Boehner stresses the need for spending cuts with a large chart.  Boehner utters a hilarious line when responding to the ongoing barrage of hypothetical questions, “Ifs, and ands, and buts, are like candy and nuts, if that were the case everyday would be Christmas.”  The markets sell off. Leader Reid runs to the microphone to rebut the republican comments but the video feed is bad and his comments are lost having no impact, especially since all traders know that Reid will simply say everything is the republican’s fault.  Keystone’s SPX 30-minute chart with 8 MA and 34 MA cross indicator shows the 8 MA stabbing down thru the 34 MA indicating bearish markets for the hours and days ahead.  Twenty minutes before the closing bell, Speaker Boehner and President Obama agree to meet at the Whitehouse for a meeting, probably since the Administration’s polls show the public supports the idea of spending cuts professed by Boehner. The markets jump higher on the news into the closing bell.  The meeting at 5 PM EST is more political Kabuki Theatre, lasting less than one hour’s time, resulting in a statement that the discussion was “frank”, and both sides agreed to not make any further comment. The new moon occurs which typically favors stock market selling.

On Friday, 12/14/12, Japan Tankan survey of business confidence falls more than expected.  The Asian mood is lifted, however, when China manufacturing data, the HSBC Flash PMI, expands for two months in a row hinting that the improvement last month was not a one-off.   Analysts immediately chime in to profess that China can be self-sustaining with internal domestic growth, rather than exports. China power consumption is up which further enforces thoughts of a China recovery.  EU leaders meet in Brussels and argue over who pays the bill for the banking union.  European automobile sales plummet although Germany automakers gain market share. UBS cuts AAPL’s rating which hits the stock hard, Apple drops over 3% to test the 505 mid-November low. The Apple malaise, and higher volatility with the VIX now above 17, creates market negativity. AAPL closes the week down 4.4%. The SPX closes the day at 1414, above the strong 1413 support, but below the 50-day MA at 1415.09 and 20-week MA at 1419.14. The broad indexes finish flat on the week.  The markets are moving sideways, pricing in a positive resolution to the fiscal cliff. The 10-year yield is 1.70%. The euro is 1.3166 closing exactly at the mid September high. Next week, the euro will pivot off 1.3166 deciding to either explode higher to establish a new upside range taking the SPX up into the 1420’s and 1430’s, or, the euro receives a smack down from this resistance and collapses lower taking equity markets lower. Gold is under 1700 losing one-half percent this week which is very odd considering the additional Fed money pumping.

On Saturday, 12/15/12, the vote on the Draft Constitution for Egypt is scheduled. Violence may erupt especially considering that over 26 million people will vote today with an additional 25 million voting next week.

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On Sunday, 12/16/12, Japan elections, watch the dollar/yen.

On Monday, 12/17/12, more Fiscal Cliff Kabuki Theatre is ahead. European drama continues with Spain a major focus. The euro will pivot from 1.3166 and take the markets in the same direction. Empire State Mfg Index.  TIC data. 2-Year Note Auction. This is the last full week of trading for 2012; only ten trading days remain in the year.

On Tuesday, 12/18/12, Housing Market Index.  5-Year Note Auction.

On Wednesday, 12/19/12, Housing Starts. Oil Inventories. 7-Year Note Auction.

On Thursday, 12/20/12, Jobless Claims. GDP.  Existing Home Sales, Philly Fed and Leading Indicators.

On Friday, 12/21/12, Opex. Durable Goods Orders. Personal Income and Outlays.  Consumer Sentiment.

On Saturday, 12/22/12, a major Bradley turn date for markets.

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On Monday, 12/24/12, Christmas Eve, U.S. markets close early.

On Tuesday, 12/25/12, Christmas, U.S. markets are closed for the holiday.

On Wednesday, 12/26/12, U.S. markets reopen for trading. Happy Kwanzaa.

On Thursday, 12/27/12, Consumer Confidence.

On Friday, 12/28/12, Chicago PMI. Full moon.

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On Monday, 12/31/12, EOM. EOQ4. EOH2. EOY2012. Last Day of Trading for 2012.

On Tuesday, 1/1/13, ESM is officially open but will not be fully operational.

On Wednesday, 1/2/13, if Congress does not act, the U.S. hits 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. On 9/13/12, Bernanke says the Fed does not have tools to handle the fiscal cliff. First Day of Trading for 2013. ISM Manufacturing Index. FOMC Minutes.

On Friday, 1/4/13, Monthly Jobs Report.

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On 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, thus, this date serves as an absolute deadline for the fiscal cliff and debt ceiling resolution.

In February, the debt ceiling hits.

In February, Italy elections.

In February or March, the National People’s Congress convenes.  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. China will push to a domestic-led economy, private consumption, rather than an export-led economy, but a domestic economy will grow at a slower pace.

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