Keystone's Trading Week in Review and Path Ahead 12/9/12

On Friday, 11/30/12, EOM. German retail sales disappoint showing continued weakness.  France consumer spending is worse than expected.  Europe’s third largest economy, Italy, announces a 13-year high in unemployment at 11.1%. The Eurozone unemployment rate approaches 12% with youth unemployment in Spain at 50%, depression levels. LaGarde (IMF) and Draghi (ECB) are at a conference where Draghi says “Spain and Portugal are showing strong export growth.”  This statement hints that Draghi does not want to lower rates at the ECB meeting next week. Draghi says “Euro area is making progress on internal balances.” He says that Europe has been living in a “Fairy World.”  Draghi talks in broad terms but does not provide details. European stock markets are at 16-month highs.  The euro is at 1.3000. The U.S. broad indexes drift sideways all day with a downward bias due to volatility rising. Just before 1 PM, Speaker Boehner walks to a microphone and says “Who are we kidding, we are at a stalemate,” and, “the talks are going nowhere.”  The markets drop on the negativity but recover quickly and continue along sideways. This behavior hints that the markets are now willing to wait and see how the coming days play out concerning the fiscal cliff negotiations.  Late session a rebalancing occurs bringing in strong volume which floats the broad indexes higher into the closing bell.  The day ends flat overall.  For the week, the broad indexes were flat while the Nasdaq and RUT, tech and small caps were up 1.5% and 1.8%, respectively, which is encouraging for the bulls.  For the month of November, the SPX, COMPQ and RUT were flat while the Dow Industrials printed a negative month. After the bell, Moody’s rating agency downgrades the ESM (European Stabilty Mechanism), which was anticipated, however, the euro takes a hit from over 1.3000 dropping to 1.2985 on the news. This will create negativity to start the new week.

On Sunday, 12/2/12, Secretary Geithner appears on the Sunday political television shows and restates the president’s plan. Speaker Boehner restates his plan. Both sides are worlds apart talking past each other. Protestors in Egypt block the judges from entering the court buildings. The judges refuse to rule on the new constitution that Morsi is trying to ramrod through the system. This action results in a standoff and increased tension.

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On Monday, 12/3/12, the China PMI shows expansion so copper receives a lift as well as global markets.  Italy and France PMI’s are weaker than expected. Germany PMI is as expected. Overall, the Eurozone remains in contraction. Merkel opens the door to a potential write-off of Greece debt, aligning herself with LaGarde at the IMF.  Any debt forgiveness would not occur until 2014 or 2015 and the statement is perhaps more lip service than anything since Merkel’s election is only nine months away and she is likely promising a chicken in every pot. Greece receives aid so this creates market positivity. The euro is at 1.3034. The U.S. 10-year yield is 1.61% showing a strong willingness to stay in the safety of bonds as the fiscal cliff drama plays out.  The market bounces at the open, as December trading begins, with the SPX testing the 50-day MA at 1421, but then collapses quickly. The ISM Manufacturing Index is far lower than anyone expects at 49.5 indicating contraction.  The markets sell off further. Volatility spikes solidly higher encouraging the bears. At 2 PM, Keystone’s SPX 30-minute chart shows the 8 MA stabbing down thru the 34 MA indicating bearish markets for the hours and days ahead. President Obama conducts a Twitter Q&A at 2 PM concerning the fiscal cliff. Speaker Boehner tweets the president asking how growth can be achieved when the people that create the jobs are taxed more. The president ignores the tweet. The juvenile antics by both sides continue.   At 3 PM, Speaker Boehner provides a counteroffer to the president to solve the fiscal cliff crisis and as would be expected, the Whitehouse says the plan is not well balanced. Late session, the semiconductors break down dragging the broad indexes lower into the closing bell. The markets finish down on the day. Brent oil drops under 111. After the bell, ORCL joins the many other companies that are accelerating dividend payments to avoid the higher taxes coming in 2013. Usually the stocks are popping on this divvy tax-avoidance maneuver but ORCL actually sells off AH’s. What a mess the politicians and central banksters have created.

On Tuesday, 12/4/12, Australia cuts rates but surprisingly the Aussie dollar gains in value. Also, commodities are weak, the Aussie stimulus is not providing the bump that would be expected. European officials meet to discuss the banking union. Merkel says “Nobody can say when this banking crisis will be over.” The euro remains elevated at 1.3070. A Los Angeles port strike is causing economic damage at one billion dollars per day as ships are unable to load and unload in this busy holiday season. Brent oil falls thru 110. The markets continue the bull-bear struggle and trail lower as the day progresses. The euro moves above 1.31 helping the bulls to support the markets. The 10-year remains flat at 1.62% with traders unwilling to take on risk. Semiconductors and financials lead lower although semi’s recover strongly into the close. Protestors in Egypt storm Morsi’s palace causing him to flee. Speaker Boehner removes four tea party members from committees, a sign that the Keynesian republicans and democrats continue to drive the country down the wrong road, fiscal responsibility be damned.

On Tuesday, at 11:05 AM EST, Keybot the Quant algorithm flips bearish at SPX 1407 signaling bearish markets for the hours and days ahead. The markets are in an unstable and erratic sideways bull-bear fight.

On Wednesday, 12/5/12, China markets move higher anticipating growth-friendly policies. Commodities move higher.  The euro is over 1.31.  Morsi returns to the Cairo palace although the riots and protests continue.   The Spain bond auctions are disappointing. The Euro retail sales numbers are weak.  ADP Employment report surprises with weaker numbers.  The markets take on a negative tone with the banks faltering then only minutes before the opening bell, C drops a bomb shell announcing an 11K reduction in its workforce.  C stock catapults higher, BAC is also goosed, and the financial sector leaps higher creating market happiness. Stocks take a slight dip as television screens show Congress leaving town for a long weekend but many republicans break ranks with Speaker Boehner and sign up to the democrat approach of raising taxes on the wealthy.  The markets perceive this as a positive development for the fiscal cliff negotiations so the markets leap higher in a dramatic intraday reversal, the SPX moving from 1398 to 1416 in quick order.  Geithner says that the president is ‘absolutely ready to go over the cliff if the republicans do not raise taxes on the wealthy’, but the markets do not react negatively.  The mixed and erratic market action continues with the Nasdaq negative today but the Dow Industrials are up over 100 points. The Nasdaq has technical problems with bringing an IPO to market. The data feeds shown on television are lagging real-time by a couple minutes in the afternoon.  These odd data and technical glitches, as well as mixed market signals (Dow up Nasdaq down) provide reasons to consider flash crash scenarios for markets moving forward.  AAPL plummets 5% during the session, the biggest drop in four years. Droid is gaining market share, China sales are losing share and margin requirements on owning Apple stock are increased. Financials and semiconductors push the broad indexes higher, sans Nasdaq. The RUT was also negative, and, since small caps and tech lead, the move higher in the Dow is not impressive. Keystone’s SPX 30-minute chart shows the 8 MA piercing up thru the 34 MA indicating bullish markets for the hours and days ahead. Keybot the Quant positions for a move to the bull side but the algorithm does not turn bullish and then late session the markets do leak lower into the close. The Dow is up over 13K again.

On Thursday, 12/6/12, France unemployment rate is over 10% at a 13-year high.  European stocks, led by Germany, are now making 18-month highs.  Brent oil drops under 109, it was over 111 a couple days ago.  This behavior shows that Middle East tensions are abating but oddly enough, the Egypt turmoil grows with deaths now occurring as the Muslim Brotherhood’s building is set on fire and Morsi’s palace remains a target of protestors.  Egypt may erupt in civil war. Syria may be arming chemical weapons of mass destruction (WMD) which would elevate the already horrific tragedy where Asaad has now killed over 40K of his own people. The BOE keeps rates on hold. The ECB Rate Decision and Press Conference results in no cut, however, Draghi says growth remains weak and the growth forecast was cut to 0.3%.  Trader’s realize this reduction in forecast is code for a rate cut coming in early 2013 so the euro drops like a stone and takes the U.S. futures lower.  The markets drop at the opening bell but recover as semiconductors are goosed strongly. The SPX travels sideways all day long ending at the HOD at 1414. Senator DeMint resigns, a tea-party fave, to head the Heritage Foundation think-tank.  There is no fiscal responsibility in Washington, D.C., both democrats and republicans are Keynesians that cannot stop their obscene spending.

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 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 Monday, 12/10/12, more Fiscal Cliff drama is ahead. European drama continues with Spain the major focus.

On Tuesday, 12/11/12, International Trade.  Wholesale Trade. FOMC two-day meeting begins.

On Wednesday, 12/12/12, Import and Export Prices. 10-Year Note Auction. FOMC Rate Decision 12:30 PM, FOMC Forecasts 2 PM and Chairman Bernanke’s Press Conference 2:15 PM. Operation Twist ends in two weeks so a decision on a new QE course of action is expected. New money-pumping ideas should create lift in the markets and PM’s. A surprise announcement of limited QE, will shock the markets. Keep in mind that QE3 Infinity already failed; the SPX is below the 1435 level where QE3 was announced in early September.

On Thursday, 12/13/12, Jobless Claims, PPI and Retail Sales.  Business Inventories. 30-Year Bond Auction. New moon.

On Friday, 12/14/12, CPI and Industrial Production.

On Saturday, 12/15/12, the vote on the Draft Constitution for Egypt is scheduled.

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

On Wednesday, 12/19/12, Housing Starts.

On Thursday, 12/20/12, Jobless Claims. GDP. Philly Fed.

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

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

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.

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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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In 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.