Keystone's Trading Week in Review and Path Ahead 4/6/13

On Friday, 3/29/13, U.S. Markets are closed in Observance of Good Friday. Consumer Sentiment surprises to the upside. This is a surprise since gasoline prices remain elevated and other sentiment indicators are turning sour. Italy struggles to form a government and President Napolitano considers stepping down.  Germany’s Schauble says that Europeans should not worry and their savings are safe. The hit to the major Cyprus depositors may now be a shocking 60% confiscation from the accounts holding over 100,000 euro’s. It is absolutely shameful that a bank steals 60% of your money. The world has changed forever. Russia will likely retaliate since they make up the majority of the wealthy depositor’s.  Since Russia controls much of the gas and oil flow to Europe, next winter may be very chilly for the Europeans.

On Saturday, 3/30/13, Italy’s President Napolitano plans to meet with a select group of individuals to find a way to form a government. The Italy mess becomes more confusing by the day. Beppe Grillo says “We are the French Revolution without the guillotine.”

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On Sunday, 3/31/13, Happy Easter. David Stockman, the budget director under President Reagan, says a crash will occur within a few years and blames the Fed. Stockman says, “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out o the markets and hide out in cash, it is.”

On Monday, 4/1/13, China PMI prints highest number in 11 months but below the consensus.  Japan Tankan Survey is worse than expected. Asian markets sell off.  European markets remain closed for the Easter holiday.  ISM Mfg Index is weaker than expected.  The markets push lower all day long with the SPX down 0.5%, 7 points, to 1562, but the VIX remains low, under 14, so the market downside is no real threat.  The volume is light as would be expected on the day after Easter. The Dow is flat closing at 14573.  The consumer staples, healthcare, blue chip and dividend stock bubbles grow as verified by the flat action with the Dow.  Tech, small caps and the broader market in general are weak. Semiconductors, the SOX, lose 2% today.

On Tuesday, 4/2/13, RBA (Australia) keeps rates on hold. Cyprus is trying to renegotiate some of the bailout terms and the finance minister resigns.  The Italy election drama continues.  Eurozone unemployment rate hits 12% another record high. Italy banks lose from 3 to 7% but overall the European markets are up about one percent returning from the Easter holiday.  Silver futures and rubber drop into bear markets (-20%).  North Korea threats continue.  The U.S. banks downgrade each other. GS downgrades AAPL. TXN, CAT and DELL are downgraded.  The broad indexes run higher at the opening bell, move flat during the day, and then drift lower into the closing bell. Markets are idling ahead of the central banker and jobs report numbers coming in the back half of the week. A judge says the city of Stockton, California, is insolvent and needs the protection of bankruptcy. Stockton must address insolvent retirement funds and pension problems as well as how to maintain services for this mismanaged city.

On Wednesday, 4/3/13, BOJ begins meeting to discuss further yen weakening.  The new Cyprus finance minister must sell the bailout conditions to the citizens. Cyprus businesses are closing since there are few consumers remaining in light of the crisis.  Families are selling jewelry and other items to raise cash. Credit Suisse downgrades the gold, silver, copper and mining sectors. ADP Employment Report shows a paltry 158K jobs when over 200K was expected. The S&P futures drop a few handles.  The markets open and the broad indexes sell off.  At 10 AM, the ISM Non-Manufacturing Index disappoints which creates another leg down for the equity markets. The 10-year yield drops from 1.84% to 1.82%. In the afternoon, the Fed’s Williams, a dove, says that QE should taper this summer and end by the end of the year. This takes the markets by surprise and carries clout since Williams is a dove (pro-QE to fight deflation by creating inflation) now talking like a hawk (anti-QE since it will create future inflation problems). The markets drop on the news.  A short time later, North Korea escalates tensions stating that internal final government approval is received to launch a nuclear strike against the U.S. The news is bluster but the markets take another leg lower. The U.S. sends an anti-missile battery to Guam to address the ongoing threats. Dow Transports and the RUT (small caps) print one-month lows. The 20-day MA support fails for all the major indexes. Semiconductors, SOX, break down. Financials tumble today. At 11 AM, Keystone’s SPX 30-Minute with 8 and 34 MA Cross Indicator shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours and days ahead. Keybot the Quant, Keystone's trading algorithm, flips to the short side at SPX 1562. Gold, silver, copper, metals and miners are under serious pressure breaking down.  Gold closes at the critical 1550 level where a bounce or die will occur. Mining and resource companies are placing assets on the sell block to raise cash. The SPX closes down 17 points, -1.1%, to 1554.  The Dow is down 111 points, -0.8%, to 14550.  The Nasdaq is down 36 points, -1.1%, to 3219.  The RUT (small caps) is down 16 points, -1.7%, to 919. Small caps and tech are leading lower which is bearish action. The Dow is less affected since the Fed’s easy money, and now the money fleeing Europe, is pumping the dividend, blue chip and perceived safety and defense stock bubble. The 10-year yield is 1.81%. President Obama proposes offering mortgage loans to folks that have weak credit. This insanity is amazing as the government now wants to encourage the very things that created the subprime housing bubble. In addition, a new subprime bubble is now identified in the automobile sector since anyone that can fog a mirror is driving off the car lot in a brand new Cadillac or Winnebago.  Keystone’s Inflation-Deflation Indicator signals that the U.S. is in Deflation potentially heading towards the Japan deflationary spiral scenario. MSFT is downgraded.

On Thursday, 4/4/13, BOJ doubles bond purchases showing an aggressive stance to weaken the yen. The dollar/yen and euro/yen jump higher.  The Eurozone service sector continues to contract. The euro sits at 1.28 awaiting the ECB Rate Decision and Press conference.  At 7:45 AM, the ECB leaves the rate unchanged at 0.75%. Draghi says he will remain accommodative. The rate decision is a non-event. The Japan 10-year yield drops to 0.436% and the U.S. 10-year yield drops from 1.82% to 1.77%.  A drop in yields reinforces the deflationary theme.  Semiconductors drop over 4% in three days time. Mining and metals continue to break down. Gold tests the critical 1550-ish support level. Jobless Claims increase.  Fed’s Lockhart chimes in following Williams yesterday saying that QE may be tapered this summer. The Fed is likely paying attention to the new asset bubbles they are creating in dividend, blue chip, utility and other perceived safety stock plays. The broad indexes move sideways ahead of the jobs report tomorrow morning.

On Friday, 4/5/13, the Japan bond markets are reacting erratically with a drop in the 10-year yield into the 0.3%’s, then catapulting into the 0.6%’s, then back down to the 0.4%-0.5% area; phenomenal action that creates concern around the globe.  Soros warns that Japan is engaging in dangerous and risky business.  The S&P futures trail lower ahead of the Monthly Jobs Report that produces a paltry 88K jobs when 200K or more was expected.  The unemployment rate dropped one tick to 7.6% but this is due to folks simply giving up hope of finding a job, so they are no longer counted. The labor participation rate is the lowest since 1979 with one-half million folks leaving the work force. Retailers drastically reduce employees as the tax hikes are cutting into consumer spending. Less traffic is noted at restaurants.  The futures plummet on the news with the S&P’s down -20. The Dow futures are down -165 and Nasdaq -35. The 10-year yield collapses under 1.70% down to 1.67% fostering the deflationary theme.  Markets tumble at the opening bell but the dip-buyers, hooked on the Fed’s crack cocaine, trip over themselves to buy long, and the markets recover as the day moves along.  Consumer Credit grows as the demand for automobile loans and student loans increase far more than expected. The auto loan numbers verify the new subprime auto bubble. If you can fog a mirror, you can drive off the car lot in a brand new Caddy. The SPX recovers off the low at 1539 to close at 1553, down 7 points on the day, -0.4%, and closes down one percent on the week. The Dow is flat on the week at 14565. The Nasdaq is down -2.0% on the week to 3203. The RUT is down -3% this week to 923. Tech and small cap weakness indicate trouble for markets moving forward.  The break down in semiconductors this week is very bearish for markets.  In addition, new asset bubbles in dividend stocks, healthcare, staples, utes, and other perceived safety plays, are verified by the flat Dow this week. Utilities have gone parabolic with UTIL at 515. The market sentiment remains complacent with markets not climbing a wall of worry but instead climbing the wall of Fed easy money. The Italy mess continues with a new election becoming more likely.  Sadly, an Italian couple, representative of the financial and social problems currently plaguing Italy, commits suicide to escape their daily struggles, and a third person, the brother of the woman, also commits suicide.  The tragic news gains attention across Europe and the world.

On Saturday, 4/6/13, the EU’s Rehn says that a new directive under development may require large bank depositors to assume losses for future bank failures. InTrade betting site is 700K in debt and appears insolvent--read the companies announcement posted on their web site--the link is in the lower right margin.

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On Sunday, 4/7/13, …

On Monday, 4/8/13, Fed’s Pianalto speaks. Chairman Bernanke speaks in the evening.

On Tuesday, 4/9/13, Wholesale Trade.

On Wednesday, 4/10/13, FOMC Minutes. 10-Year Note Auction. New moon.

On Thursday, 4/11/13, Jobless Claims. Import and Export Prices. 30-Year Bond Auction.

On Friday, 4/12/13, PPI and Retail Sales. Consumer Sentiment. Business Inventories.

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On Tuesday, 4/16/13, CPI and Housing Starts. Industrial Production.

On Wednesday, 4/17/13, Beige Book.

On Thursday, 4/18/13, Jobless Claims. Philly Fed. Leading Indicators.

On Friday, 4/19/13, OpEx.

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On Monday, 4/22/13, Existing Home Sales.

On Tuesday, 4/23/13, PMI Manufacturing Index. New Home Sales.

On Wednesday, 4/24/13, Durable Goods Orders. 5-Year Note Auction.

On Thursday, 4/25/13, Jobless Claims. 7-Year Note Auction. Full moon.

On Friday, 4/26/13, GDP. Consumer Sentiment.

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On Monday, 4/29/13, Personal Income and Outlays.

On Tuesday, 4/30/13, EOM. Chicago PMI. Consumer Sentiment. FOMC two-day meeting begins.

On Wednesday, 5/1/13, ADP Jobs Report. PMI Mfg Index. ISM Mfg Index. Construction Spending. FOMC Meeting Announcement.

On Thursday, 5/2/13, ECB Rate Decision and Press Conference. Jobless Claims. International Trade. Productivity and Costs.

On Friday, 5/3/13, Monthly Jobs Report. Factory Orders. ISM Non-Mfg Index.

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On Tuesday, 5/7/13, 3-Year Note Auction.

On Wednesday, 5/8/13, 10-Year Note Auction.

On Thursday, 5/9/13, Jobless Claims. Wholesale Trade. 30-Year Bond Auction.

On Friday, 5/10/13, Treasury Budget.

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On Monday, 5/13/13, Retail Sales. Business Inventories.

On Wednesday, 5/15/13, PPI.  Industrial Production.

On Thursday, 5/16/13, Jobless Claims, CPI and Housing Starts. Philly Fed.

On Friday, 5/17/13, Consumer Sentiment. Leading Indicators.

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

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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.