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Saturday, December 22, 2012

Keystone's Trading Week in Review and Path Ahead 12/22/12

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. 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 to begin today and conclude nest weekend. Violence may erupt especially considering that over 26 million people will vote today with an additional 25 million voting next week. Brent oil remains around 110-111.

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On Sunday, 12/16/12, Speaker Boehner offers the president a tax raise on the wealthy for those at one million and higher, above the president’s 250K number but it shows the republicans have given up on holding the line on taxes. Both parties are Keynesians that cannot stop spending money. The Japan elections result in an LDP Party win with Abe returning to power (Abe resigned five years ago). Abe ran on unlimited stimulus so the yen should weaken (dollar/yen pair moves up) but it is a tricky path since the Fed is easing as well and Japan will need the U.S.’s help for the island dispute in the future.

On Monday, 12/17/12, India cuts GDP estimates. China is willing to accept slower growth in exchange for stability moving forward. This does not encourage copper and commodities.  AAPL is downgraded again and drops under 500 pre-market. The markets languish sideways after the opening bell, Apple is in the low 500’s, then just before lunch time, news hits that Speaker Boehner and President Obama are meeting at the Whitehouse with Secretary Geithner.  The SPX jumps higher. Keystone’s SPX 30-minute chart with 8 MA and 34 MA cross indicator shows the 8 MA piercing up thru the 34 MA indicating bullish markets for the hours and days ahead.  The 10-year yield moves up thru 1.74% and higher with money moving from Treasuries into stocks. The SPX continues higher into the close ending at 1430 with a strong drop in volatility. The bulls are running firmly believing a fiscal cliff resolution is near. The financials are very strong. The SPX is up 1.2%. The Dow Industrials are up 0.8% to 13235. The Nasdaq is up 1.3% and the RUT is up 1.4% showing that traders are running into risk assets and tech and small caps are leading. The 10-year is 1.79%. The euro is flat at 1.3160. After the close, Meredith Whitney analyst upgrades the banking sector (sadly, she may have just unwittingly called the top). The CPC put/call is 0.71 showing uber complacency in the markets, there is no fear or worry; the vast majority of traders believe the markets will move higher without any problems (the CPC is a contrarian market indicator) whatsoever, pass the eggnog.

On Tuesday, 12/18/12, global markets are higher on U.S. optimism over the fiscal cliff resolution. China predicts another year of 7.5% growth which provides buoyancy to copper and commodities. Spain’s bad loan ratio is now up to 11.2% jumping about one-half percent per month. This is very troubling but the euro is actually moving higher towards 1.32.  President Obama makes a counter offer to Speaker Boehner raising the tax limit to 400K. Just before the opening bell, Speaker Boehner announces ‘Plan B’ which takes the fiscal cliff negotiations in a dual direction. Leader Reid says it is Lucy pulling the football out from under Charlie Brown.  The markets move higher all day long in another back-to-back melt-up day. S&P rating agency upgrades Greece which provides market lift. Future Japan stimulus is also exciting markets. The SPX gains 1.2% closing at 1447. The SPX jumps 35 handles in two days. The Dow Industrials are up 0.9%.  The Nasdaq and RUT are up 1.5% leading the charge.  The euro is far higher at 1.3230.  The 10-year yield moves to 1.85% showing money moving from bonds to risk assets. Everything is going the bull’s way. The shorts are being squeezed on light volume and traders are chasing the markets higher. After the bell, ORCL earnings are in line and the stock jumps 3% which will help maintain Nasdaq buoyancy.  Moody’s places AA (a Dow component) on review for a potential downgrade.

On Wednesday, 12/19/12, Asian shares are at 16-month highs. German confidence rises two months in a row which boosts the euro to 1.33.  Housing Starts are slightly weaker than expected with downward revisions but remain at levels not seen since 2008. FDX earnings miss on the bottom line and provide an uninspiring path forward for the global economy.  Dr. Copper is weakening significantly.  At the opening bell, volatility spikes wildly higher (bearish) and copper collapses creating market negativity.  President Obama says he will veto the Plan B.  Speaker Boehner’s aid says the president’s behavior is ‘growing more bizarre and irrational by the day’.  At noon, the president speaks on gun control but reporter’s are more interested in the fiscal cliff status.  The president oddly and narcissistically remarks how the “republicans have a difficult time to say yes to ‘me’,” and that “they have to take ‘me’ out of it.” Boehner responds with a terse one-minute statement in front of the press saying that the House will pass Plan B tomorrow which makes permanent tax cuts for 99.2% of the population, and, “if the president does not accept the republican plan he will be responsible for the largest tax increase in American history.” As they say on the street, ‘them’s are fightin’ words’. The negotiations are clearly deteriorating.  The markets are weak all day long and sell off lower into the closing bell ending at the lows. After two triple-digit up days for the Dow Industrials, today finishes down 100 points.  The 10-year Treasury yield moves lower to 1.78%. The euro moves under 1.3250 after spiking above 1.33 early this morning.

On Thursday, 12/20/12, global markets are weak as Japan provides stimulus but not to the strong extent expected (yen strengthens) and the U.S. budget negotiations are deteriorating. The broad indexes drop at the opening bell but recover to end the day up.  Keybot the Quant trading algorithm flips to the bear side at SPX 1435. The 8 MA stabs down thru the 34 MA on the SPX 30-minute chart to forecast bearish markets for the hours and days ahead.  The collapse in copper is serious. Silver and gold are selling off hard.  WTIC oil is at 90 and Brent oil at 110, two whole number pivot points. Volatility is climbing higher.  Leaders Reid and Boehner speak during the day but do not impact the markets to any great extent.  Traders continue to provide the benefit of the doubt to a positive solution to the fiscal cliff, as well as the Plan B vote this evening. The SPX finishes the day at 1444.

On Thursday, after the bell, the House is in session preparing for the Plan B vote in the evening. At about 8 PM EST, however, Speaker Boehner could not gather the support to pass Plan B.  The vote was cancelled to avoid humiliation.  A portion of the Republican Party (many Tea Party enthusiasts) would not vote for any tax hike, even on those making one million and higher. Perhaps they are the adults in the room realizing that Washington has a spending problem not a revenue problem. The futures markets react violently to the failed Plan B vote with the S&P’s dropping from 1442 to 1391, 51 handles, -3.5%, in a couple minutes time, a mini-crash. The S&P’s popped off the bottom and settled in sideways thru the 1420’s down about twenty or more handles. Suddenly, a sober reality hits that the politicians are truly dysfunctional.

On Friday, 12/21/12, Quadruple Witching Opex. The Mayan calendar did not foretell the end of the world.  Overnight, global markets are weak. Europe opens to the downside as the Plan B vote failure ripples thru the markets. The S&P futures are down over twenty handles.  The smell of jet fuel proved too enticing for the House and Senate as the rats ran from the sinking ship to the airport to begin luxurious vacations. The political leaders dropped the people’s business like a hot potato and instead prefer to sip eggnog in their slippers. The U.S. markets open and the broad indexes immediately plummet on the failed Plan B vote and the realization that a fiscal cliff solution is no longer guaranteed by the end of the year.  The markets, however, continue to provide the benefit of the doubt since the SPX fell from 1444 to 1422, then bounced and maintained a sideways range thru 1422-1433 all day long, a somewhat tame reaction all things considered.  The euro drops under 1.32.  The retail and financial sectors are weak.  At 10 AM, Speaker Boehner says the president and Leader Reid must now figure a path forward.  Consumer Sentiment is weaker than expected. President Obama speaks in the afternoon and says a ‘limited deal’ is possible in the remaining ten days but it sounds like it will be a watered down deal, and also that perhaps several mini-deals will occur with this fiscal cliff and debt ceiling drama for the weeks and months ahead. The markets will not like this path forward. The president smells the jet fuel and does not take questions, running from the podium to the airport to begin his fun and frolic in the Hawaiian sun, while the country hangs in the balance, and the 25 million under and unemployed people in the country continue to watch their lives and families fall apart each day. The Egypt voting is ramping up for the weekend again. Morsi continues to ramrod the Muslim Brotherhood into power. The street riots are growing more intense and violent perhaps leading to civil war, but Brent oil stays under 110. For the week, the Dow Industrials gained one-half percent, the SPX gained one percent, the Nasdaq gained 1.7% and the RUT gained 3%. Small caps and tech leading the broad markets is a bullish signal. Volume is light this time of year although OpEx ushered in strong volume today.  The president has raised everyone’s hopes for next week so he will need to deliver. Congress should be back on Thursday, so late next week may experience the same turmoil as this week.

On Saturday, 12/22/12, a major Bradley turn date for markets. The Egypt vote continues.

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On Monday, 12/24/12, Christmas Eve, U.S. markets close early. Light volume is expected but anything is game in these markets. More Fiscal Cliff Kabuki Theatre is ahead once Congress and the president return from their vacations on Thursday. European drama continues with Spain a continuing major focus. Five trading days remain in the year.

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. Case-Shiller House Price Index. Richmond Fed Mfg Index.

On Thursday, 12/27/12, Jobless Claims. New Home Sales. Consumer Confidence. Oil Inventories. Congress should stir the fiscal cliff pot again today.

On Friday, 12/28/12, Chicago PMI. Pending Home Sales. Natty Gas Inventories. 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 and 12/12/12, 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 March and April, the BOJ head’s will be replaced so strong QE will likely begin. Perhaps a low in the Nikkei in January or February may provide an attractive entry for a long trade once the money-printing begins (weaker yen).

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.

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