Keystone's Trading Week in Review and Path Ahead for Markets 3/23/13

On Friday, 3/15/13, Euro leaders discuss the Cyprus bailout. The banking sector is key to Cyprus’s economic health and any changes to bond holder guidelines would ripple through the Eurozone. To add to the drama, a large amount of Russian money is involved in the Cyprus banks.  Italy is meeting to decide if a coalition government can be formed, or, if a new vote is required in May-June. Former Fed Head Greenspan appears on television and says ‘irrational exuberance’ is not in the markets (Greenspan used this phrase in December 1996 waxing worry over the elevated equity markets. The Dow ended up running 1,000 points higher into the dotcom bubble top defying Greenspan).  Interestingly, will Greenspan now signal a market top, since he was wrong last time, and may now be wrong in the opposite direction this time?  CPI and Empire State Mfg Survey data are inline.   Industrial Production data is better than expected.  Consumer Sentiment is far weaker than expected.  Perhaps the high gasoline prices are weighing on consumers. The broad indexes sell off to start the day but then move flat into lunchtime.  Another Carnival ship is having troubles and CCL stock drops 4%. GS says that for the SPX to print above 1600 the GDP would have to be at 4% and higher, over double where it is at currently (the markets are ahead of themselves). The JPM London whale hearings begin on Capitol Hill and are shown on television.  Talented and pretty Hollywood actress Mila Kunis comments about how she once preferred safe investments like CD’s but is now getting involved in the stock market. Professional trader’s chuckle since this may be the sign of a market top. Just prior to the 1929 crash, the shoe shine boy was getting involved in the market which turned out to call the top (the inexperienced money shows up serving as the bag holders as the markets top and roll over). The markets travel sideways into the close with the Dow ending its ten-day winning streak and streak of eight days of new all-time highs. The Dow closes at 14514.11. The all-time closing high is 14539.14 with the all-time high at 14539.29. The SPX closes at 1560.70 remaining under its all-time closing high of 1565 and all-time high at 1576.  For the week, RUT (small caps) are up about one percent, the broad indexes, SPX and INDU (Dow), are up about 0.7% and the Nasdaq (tech) is up the least, flat at +0.1%. Tech is not leading the markets higher.  

On Saturday, 3/16/13, Euro leaders agree on a bailout for Cyprus. Cyprus agrees to reduce its deficit, downsize the banking sector and increase taxes. In addition, a one-time depositor’s fee of 6.8% to 9.9% will be charged. Cyprus authorities are making arrangements to place this plan in affect before depositors have a chance to withdrawal their money. This is a terrible precedent where banks are now able to confiscate deposits and should lead to European bank runs. This is a glimpse into America’s future.  Russia may aid Cyprus since large amounts of Russian money is laundered through the Cyprus banks. Italy struggles in developing a new government. The voting for leaders continues today and all sides will attempt to form a new government next week. The Italy debt is at all-time highs.

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On Sunday, 3/17/13, the Cyprus depositor confiscation has the planet in a tizzy. S&P futures are down 16, the Dow Industrials are down 120 and Nasdaq down 25.  Cypriots are lining up at ATM’s to withdrawal money. Euro leaders are already discussing a confiscation increase from 10%  to 12.5% on the wealthy and ease the percentage taxed on Cyprus citizens from 7% down to 3%.  Voting will occur tomorrow. There is serious global concern that contagion will develop across Europe. Cyprus is a very small country and a tiny portion of European GDP so the effect of the bailout is negligible overall, however, the confiscation of bank deposits and that banks in Europe no longer guarantee bank deposits is worrisome. The Cyprus situation is analogous to the Lehman Brothers bankruptcy incident as the markets crashed in Fall 2008. Putin (Russia) says the bank tax is unfair and unprofessional. The euro drops as compared to all other currencies. The euro/dollar falls through 1.29 but recovers. Moody’s rating agency says downgrades may occur acrossEurope due to this new turmoil.

On Monday, 3/18/13, world markets are anxious overnight. Australia, New Zealand, Japan and China markets sell off.  The European markets open and drop about 2% with both Italy and Spain down about 3%. Germany’s DAX drops under 8K.  Cyprus and Greece markets are closed for a bank holiday (banks are shut down due to the turmoil). Copper is collapsing down -2.5%.  The 10-year yield is 1.92%, a large drop in yield as traders seek safety. The Italy 10-year yield jumps to 4.73% and Spain is at 5.06%. The Germany 10-year yield drops to 1.38% as money moves out of the troubled nations and into Germany. The S&P’s are down -19. Dow futures -110. Nasdaq -35.  The euro begins to recover now at 1.2960. At 4:30 AM EST, markets are stabilizing with the 10-year yield at 1.94% and the futures showing S&P -15. Dow -85. Nasdaq -31. Gold remains a hair above 1600.  Secretary Treasurer Lew travels to China. President Obama travels to Israel.  Mastercard says the consumer spending in Europe is occurring with increased use of credit cards.  WTIC crude oil is under 93 and Brent is under 109.  Cyprus protestors display a sign, “Merkel Stole Our Money.” The finger-pointing begins as the ECB says they did not want the Cyprus tax charged to small depositors.  Russia says it will have to reassess its involvement in Cyprus.  HSBC Bank cuts 10,000 jobs.  Trading begins and the markets drop as expected. The SPX falls through 1548 support but recovers.  The banks sell off led by MS down over 3%, which serves as a proxy for Europe since MS had excessive exposure to Europe a couple years ago.  The NAHB Housing Index is worse than expected. The Cyprus banks will now be closed until Thursday and the vote on the depositor confiscation should take place on Tuesday afternoon.  The stock market stumbles through the day recovering from the initial drop but falling into the closing bell. The SPX loses 9 points to 1552, well off the worst levels shown on the futures last evening at -20. The Dow loses a modest 62 points to 14452. The 8 MA moves down through the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours and days ahead. Copper experiences a strong collapse of 3% which forecasts a weakening global economy but the markets do not care. Traders are hooked on the Fed’s crack cocaine money-printing that constantly elevates the stock market.

On Tuesday, 3/19/13, India cuts rates but the move may not help their flailing economy.  The Cyprus drama continues.  Russia (huge depositor in Cyprus banks) continues to voice concern and will likely find a way to retaliate against Europe over the Cyprus depositor confiscation. European automobile sales continue to fall as depression and recession deepens and manufacturers are lowering their sales estimates for 2013. Italy and Spain bond yields are moving higher but Europe is remaining somewhat calm considering the circumstances.  The retirement crisis grows as 57% of Americans have less than 25K in savings for retirement, a sad statistic indeed that will cause trouble in the years forward.  Housing Starts are better than expected at 917K but the markets do not rally on the news.  The two-day FOMC meeting begins. DE, a key economic bellwether, receives a downgrade. The markets open and leak lower.  The Cyprus vote occurs and results with a unanimous rejection of the depositor confiscation.  The broad indexes sell off on the news with the SPX dropping to 1538.  Keybot the Quant algorithm flips to the bear side at SPX 1540.  At 2 PM EST, the ECB,IMF and EU say they will support Cyprus moving forward which stick-saves the markets. The SPX rebounds running from 1538 up to 1548 at the closing bell. Copper continues to collapse with copper inventories hitting highs not seen for months and years. The markets are continually pumped by central banker talk and easy money. The Cyprus finance minister is flying to Russia tomorrow to meet with leaders and perhaps Putin to discuss the crisis. The only way out for Cyprus may be to relinquish their gas rights to Russia. The complacency remains in the markets. The Cyprus crisis is not taken seriously by traders. In the overall markets, bearish analysts have now capitulated and joined the bull party.  Adam Parker of MS, who has leaned bearish over the last couple years, increases the SPX year-end target to 1600. Another analyst now calls for SPX 1700 by year-end. The CPC put/call remains under the 0.9’s verifying the ongoing market complacency. Traders remain uber bullish on the markets without worry since the Fed said it will pump the stock market indefinitely with QE Infinity.  Volatility jumps higher the last two days with the VIX now above 14 showing some anxiousness returning to markets.  The higher VIX creates the wild 20-handle range in the SPX today and will increase the intraday and day to day point swings in the markets. German finance minister Schaeuble says that “Cyprus only has itself to blame for the mess’.  Germany shows no sympathy since elections are coming in September and the politicians must look strong. Since Cyprus does not have a bailout agreement now, bank depositors may lose all their money if the system breaks down.

On Wednesday, 3/20/13, Spring begins, Vernal Equinox. Cyprus meets with Russia in Moscow to find a solution to the crisis. The Cyprus finance minister says the talks are ‘constructive’ and ‘honest’ and will continue until there is a deal’. The ECB continues to stock the Cyprus ATM’s (flying cash in via airplane) but the machines empty quickly and businesses are now having trouble making change for customers.  The global markets are ignoring the Cyprus situation with the S&P futures up six points. The ongoing bullish sentiment (since the Fed supports the stock market) paints a brighter picture on this first day of Spring.  The 10-year Treasury yield is moving up now at 1.93% and the euro is above 1.29 at 1.2918. At 6:30 AM EST, Cyprus is now keeping the banks closed through tomorrow. Cyprus banks have been closed since 2 PM Friday afternoon, and Monday, 3/25/13, is an actual holiday, so the banks may remain closed until Tuesday to provide time to resolve the drama. Fear and worry increases each hour the banks and markets are closed.  South Korea banks and television stations experience shutdowns from a cyber attack. Merkel says the Cyprus banking sector must contribute to the bailout.  LEN earnings beat showing strong numbers as home building increases due to the low inventory.   FDX, the key shipping bellwether, misses big on earnings and issues weaker guidance moving forward. CAT, a key global bellwether, reports lower sales than expected.  The futures drift lower but immediately recover on a rumor that Russia will takeover one of the Cyprus banks but the rumor is denied by Cyprus. The markets open and the SPX jumps nine points to 1559 and flattens out. The Dow prints a new all-time high at 14546.82.  Keybot the Quant algorithm whipsaws back to the long side at SPX 1557 due to the lower volatility. The 8 MA moves up through the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours and days ahead. At 2 PM EST, the FOMC Meeting Announcement and Forecasts are as expected. Chairman Bernanke mentions that the “efficacy of QE will have to be monitored moving forward. Bernanke says his job is dispensable hinting that a new Fed chief will likely take over come January 2014. Most analysts expect Yellen to be a shoe-in for the top job; she is equally or even more dovish than Bernanke. The markets jump a few SPX handles but no great shakes. The Chairman’s press, or rather, desk, conference is non-eventful. The Fed plans on keeping the punchbowl filled and that is all that traders wanted to hear—it means party-on and bloat the stock market ever higher.   Cyprus says the banks will now be closed through Monday and not reopen until Tuesday. Rajoy says he will cut Spain’s growth forecast moving forward. French authorities search LaGarde’s apartment in relation to a Sarkozy court case. The broad indexes receive a strong up day on Fed happy talk. The small caps stocks are now at PE’s over 20 which is not cheap. After the bell, ORCL misses big on earnings. In addition, the HPQ board appears split on the path forward. Also, INTC guidance is exposed as overly optimistic. The trio of bad news will weigh on tech tomorrow.  China HSBC Flash PMI is better than expected despite the actual data by bellwethers CAT, DE, FDX and YUM saying otherwise.

On Thursday, 3/21/13, Eurozone Flash PMI’s are weaker than expected; Germany is surprisingly weak. The U.S. and Japan currency debasing is stealing away manufacturing and export activity from Europe. The euro falls through 1.29 briefly.  The ECB says they will stop the Cyprus-ATM stocking on Monday. By charter, the ECB is not allowed to help keep afloat any insolvent bank, and the Cyprus banks are insolvent.  Concern grows over Cyprus bank runs come Tuesday. Russia and Cyprus are discussing a potential transfer of gas rights as well as other solutions. Merkel (German) is now involved in talks to help find a resolution to this escalating situation.  Meanwhile, Italy continues to try and form a government. WTIC crude oil is 93.  The 10-year yield is 1.95%. At the opening bell, Russia says ‘to not expect the Cyprus crisis to be fixed soon’. The broad indexes tumble lower. Fitch warns of potential downgrades to European banks due to the Cyprus problems. Cable news television runs videos of Cyprus ATM lines that are now 20-deep. Folks are becoming anxious over the crisis. The U.S. markets drift along with a downward bias and then collapse into the close finishing near the lows. The SPX loses 13 points, -0.8%, to 1546.  Tech and small caps lead the downside. The 8 MA moves down through the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours and days ahead. Markets are very unstable and erratic. After the bell, NKE earnings beat and the stock rises 7% creating positivity amidst today’s gloom. As a solution for the Cyprus crisis, leaders are considering splitting the most-troubled bank, Laiki Bank, into a good and bad bank. This concept would protect the accounts under 100,000 euro’s but the larger accounts (Russian accounts) will take a serious beating perhaps losing one-half of their money or more. Russia will likely find a way to retaliate and the Cyprus bank employees will lose their jobs causing damage to the already-troubled economy. This bank depositor confiscation action and the events over the last few days set a precedent that your money in any bank account is never truly safe ever again.

On Friday, 3/22/13, the Nikkei plummets -2.5%. The Cyprus finance minister returns from Moscow empty-handed.  Russia is out of the talks until the Troika makes a decision. Merkel is very unhappy with Cyprus delaying talks with the Troika (EU, IMF and ECB).  News occurs that Cyprus Popular Bank will close and reorganize. Hundreds of protestors and bank employees take to the streets in front of the bank and clash with police. Cyprus parliament is in session trying to find a solution to the crisis. S&P rating agency downgrades Cyprus debt.  France business confidence drops. The U.K.’s Mulberry (high-end bags) announces disappointing sales and lowers guidance moving forward (the wealthy consumers are not spending). Contagion across Europe from the Cyprus crisis is tame and contained so far since Italy and Spain bond yields are maintaining a flat posture. The German 10-year yield is down to 1.35%, a level not seen in about one year, so traders are definitely seeking safety. The euro/dollar sits at 1.29. Cyprus needs 5.8 billion dollars within three days time; the clock is ticking.  The tax on Cyprus depositors will likely occur changing the face of global banking forever, and, of course Russia will find a way to retaliate. German business confidence misses estimates. Italy continues to try and form a government. The broad indexes open and jump higher. The remainder of the day the SPX moves through the 1553-1556 range, bumping up and down depending on Cyprus rumors. At 12:30 PM, the 8 MA moves up through the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours and days ahead.  Fitch rating agency places the U.K. on negative review. The SPX closes at 1557 flat on the week. The Dow was also flat this week closing at 14512 but the Dow did print a new intraday all-time high at 14547. The Nasdaq (tech) and RUT (small caps), the market leaders, are negative on the week. The markets do not sell off since traders optimistically expect a solution to the Cyprus situation and, after the closing bell, Cyprus votes to approve capital controls on banks which opens the door to receive a bailout. The smaller Cyprus bank depositors (under 100,000 euro’s) will be protected but the wealthier depositors will have their funds confiscated, perhaps as much as fifty-percent or more. The Russians, making up the bulk of the wealthier depositors, will likely seek retaliation. The capital controls are needed since bank runs will occur come Tuesday morning and restrictions are needed to limit the amount of funds that can be pulled. Moody’s rating agency downgrades three Cyprus banks one notch based on the pending depositor confiscations and serious problems in the banking sector. Traders involved in the JPM London whale trading debacle are under investigation and charges may follow.

On Saturday, 3/23/13, Cyprus leaders are currently meeting with the Troika (EU, IMF, ECB). Cyprus retailers and other businesses are hurting due to the lack of cash and banks that are now closed for one week.  Eurozone finance ministers are meeting tomorrow and the Cyprus parliament wants to wait until this meeting ends before they convene. Cyprus must set the levels and conditions and approve the money confiscation from the wealthy depositors before Monday to avoid a meltdown which would cause Cyprus to exit the euro. Things are on track to approve the confiscation of the wealthy depositor’s money but the looming worry remains the bank runs coming on Tuesday morning.

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On Sunday, 3/24/13, Palm Sunday. Cyprus drama continues with the Eurozone finance ministers meeting as well as the Cyprus parliament.

On Monday, 3/25/13, Cyprus drama continues. A plan must be in place for Cyprus otherwise the ECB will cut off funding and the banking system will collapse. Chairman Bernanke speaks at 1:15 PM.

On Tuesday, 3/26/13, Passover.  Cyprus banks reopen with bank runs occurring. Durable Goods. New Home Sales. Consumer Confidence.

On Wednesday, 3/27/13, the Continuing Resolution (CR) to fund the U.S. government through September, agreed to by Congress, requires President’s Obama signature before today which should be no problem. Politicians are great at can-kicking. Four different Fed heads speak today.

On Thursday, 3/28/13, GDP.  Jobless Claims. Chicago PMI. EOM. EOQ1.

On Friday, 3/29/13, Personal Income and Outlays. Consumer Sentiment.

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On Sunday, 3/31/13, Easter.

On Monday, 4/1/13, ISM Mfg Index. Construction Spending.

On Tuesday, 4/2/13, Factory Orders.

On Wednesday, 4/3/13, ADP Employment Report. BOJ meets with new members for two-day meeting; the money pumping and yen weakening will continue.

On Thursday, 4/4/13, Jobless Claims.

On Friday, 4/5/13, Monthly Jobs Report. International Trade. Consumer Credit.

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On Sunday, 5/19/13, the 16.4 trillion Debt Ceiling hits.

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.

In Q4 2013, European bank stress tests will occur.

On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed, unless there is news during Q4 2013 that he will stay on.