Keystone's Trading Week in Review and Path Ahead for the Stock Market 5/11/13

On Friday, 5/3/13, India cuts rates one-quarter point to 7.25% but trader’s wanted more; the Bombay Sensex drops. Italy’s 2-year note yield drops under 1% for the first time ever.  Spain 10-year yield falls under 4% (last seen October 2010). The BOJ’s easy money continues buying European bonds. ECB’s Nowotny plays down Draghi’s negative interest rate talk from yesterday and says “markets over-interpreted Draghi’s comments on negative deposit rates. This would have to be analyzed closely and is not relevant for the immediate future.”  The euro jumps from 1.3060 to over 1.3120. The EU cuts the Eurozone economic growth forecast. U.K.’s RBS bank sells off as it loses customers due to the weak European economy. The dollar, USD, drops under 82.  The government is investigating JPM for questionable energy trading practices.  IBM is under investigation on bribery charges. The Monthly Jobs Report is 165K jobs and 7.5% unemployment rate, better than the 145K and 7.6% consensus. The prior month’s revisions cause the futures markets to sky rocket higher. The March number is revised up from the paltry 88K to 138K and February from 268K to 332K, a multi-year high.  Average earnings are up 0.2% (flat last month) but hours worked are 34.4 down from last month. So folks may be paid a wee bit more per hour but they are working less hours, so the actual take home pay is lower.  Less hours worked is not a hopeful sign despite all the euphoria today. The labor participation rate remains flat and weak at 63.3% with many folks giving up looking for work. The ADP Jobs Report loses its luster as a prediction tool. The S&P futures are +13, the Dow Industrials are +130 and Nasdaq is +23.  The SPX is now set to print new all-time highs and easily cruise above 1600 for the first time ever. Copper is up strongly, +6%, with its best day in one and one-half years. The bulls have everything going their way. Good news is good news and bad news is good news.  Any negative earnings or economic data is viewed as positive since the Fed and BOJ will print more money and pump assets higher.  The broad indexes soar higher at the opening bell.  The SPX prints above 1600 for the first time in history in the opening minute and runs 20 handles higher to 1618.46, a new all-time high.  At 10:20 AM, the Dow Industrials print above 15K for the first time in history running over 170 handles higher to 15009.59, a new all-time high. Ralph Acampora, noted stock analyst, says the Dow will reach 20K within four years. Jeremy Siegel, noted professor, who made the bold Dow 16K call recently for the end of this year, repeats his bullishness. Short-sellers capitulate adding more upside fuel. Volume remains below average for the market up days. The broad indexes float higher into the close but the Dow is unable to close above 15K. The SPX prints a new all-time closing high at 1614.42 and new all-time high at 1618.46.  The Dow prints a new all-time closing high at 14973.96 and new all-time high at 15009.59. The Nasdaq prints a new 12-½ year high at 3388.12. RUT prints a new all-time high at 959.55. Crude oil jumps strongly the last couple days closing at 95.61. Look for the gasoline price at the pump to move higher again. Gold is 1470 recovering from its drubbing last week. The 10-year Treasury yield moves from 1.63% this morning to close at 1.75% showing that money is leaving the bond market and moving into stocks, the risk-on trade. The parabolic utilities sector, pumped by the Fed’s easy money is actually down today. Traders are rotating into tech and industrials sectors, tripping over each other to buy the XLI which was up over 2% today before closing up 1.7%. The recent negative manufacturing and other economic data shows a slowdown ahead but traders are buying steel, coal, and industrials with both hands. The trading session is one large euphoric bull party. Despite the bullishness, the NYMO McClellan Oscillator chart signals a significant market top in place. The SPXA150R chart hits the 90 level signaling an attractive time to start shorting the market. Market complacency continues as evidenced by the low VIX (now under 13) and CPC put/call ratio. A solar flare occurs, an M 5.7, which is not particularly strong, and any affects on radio and other transmissions is minimal. The disturbance may indicate that the 11-year solar cycle is ramping up (the cycle peaks this year) and much larger solar flares and disturbances are expected moving forward.

On Saturday, 5/4/13, Berkshire Hathaway holds its annual meeting where traders are listening for any hints of Buffett’s successor.

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On Sunday, 5/5/13, Israel bombs a military research center near Damascus in Syria to prevent missiles transferring from Iran to the Hezbollah (Lebanese guerillas). Two strikes occur in a few hours time escalating the Middle East tensions. Approximately 70,000 people have been killed during the Syrian civil war. Europe is giving France two more years to meet its debt obligations. France’s Moscovici says this marks the “end to the dogma of austerity.” Germany fears moral hazard since Italy and others will want more relaxed loan terms and all will avoid making the hard austerity choices to improve their nations’ economies. Moral hazard is ongoing in the States.  Banks and financial institutions do not care about another crisis event occurring since the government will simply bail everyone out again just like 2009 and stick the average-Joe taxpayer with the bill.

On Monday, 5/6/13, China services PMI shows a big drop from last month but remains above the 50% level showing slight expansion.  Copper is weak on the news.  London markets are closed today so European trading volumes are lower. Euro-area PMI services data is weak extending a 15-month slide.  Syria blames Israel for the air strike on the weekend and says this is a “Declaration of War.” WTIC crude oil price climbs to 96 and Brent oil is up to 104.60 as the Middle East turmoil escalates.  Today is the 3-Year Anniversary of the Flash Crash where the Dow dropped over 1000 points intraday. Germany’s DAX prints above 8100 testing record highs. Markets float along sideways absorbing Friday’s large up day on the happy Jobs Report. Utilities are bludgeoned with UTIL dropping -3% in the last four days. Aunt Harriet and Uncle George, that placed their entire life savings into the perceived safety of utilities last week, following the advice on television and media to buy dividend stocks, have already lost the yield they were chasing. Money is moving out of utilities and healthcare and rotating into industrials, materials and financials, as GS directed everyone to do over the weekend.  XLI is up 0.7% intraday as traders trip over themselves to buy industrials with the Fed, ECB and BOJ easy money, despite all the weak manufacturing data over the last couple weeks. The weaker yen boosts equities and the SPX prints a new all-time high at 1619.77 and new all-time closing high at 1617.50. The Dow was unable to print above 15K today. After the bell, troubled Harrisburg, Pennsylvania, near bankruptcy and under receivership, settles securities fraud charges with the SEC.  The CME raises margin requirements on copper due to the extreme recent volatility which may place slight downward pressure on copper tomorrow.

On Tuesday, 5/7/13, violence in Syria escalates spilling over into Iraq. The Middle East crisis is increasing but the oil markets are steady and not moving higher.  RBA (Australia) cuts rates to a record low 2.75%. The Aussie dollar tumbles lower. Soros is rumored to be shorting the Aussie dollar which adds to the downward pressure.  Copper, oil and commodities are flat to lower in the early morning hours. Nikkei is up 3% to 14180, now at a 5-year high, due to the BOJ’s yen debasement. Germany’s DAX prints a record high at 8160. France manufacturing data is weak and the economy contracts. France’s Moscovici and Germany’s Schaeuble meet in Berlin to sort out differences in the approach to austerity, growth and the European banking union. The broad indexes experience another up day printing new all-time highs. Consumer Credit grows less than expected but auto loans and student loans (debt) increase. The Dow punches up through 15K again and closes above for the first time in history. The Dow new all-time closing high is 15056.20 and new all-time high is 15056.67. The SPX prints a new all-time closing high is 1625.96 and new all-time high is 1626.03.  After the close, DIS earnings are in line with estimates.

On Wednesday, 5/8/13, China import/export trade data is better than expected so copper, oil and commodities move higher. Many question the data in light of the ongoing weak manufacturing numbers.  NIKK hits another record high at 14286 on the BOJ easy money. Protestors continue clashing with police in Greece.  Poland cuts interest rates to boost their economy. Chatter increases over a bailout for Slovenia; folks with money in banks should prepare for a deposit confiscation like Cyprus. European stock markets are at the highest levels since 2008 due to the global central banker intervention especially the BOJ. The broad indexes run higher after the opening bell; the bulls appear unstoppable with the markets melting-up day after day. The Bengazi 9-11 terrorist attack hearings are broadcast on television with democrats complaining it is a witch hunt and republicans using words like ‘cover-up’ and ‘Watergate’. The whistle blowers testify that more could have been done in Bengazi to save the lives of the four murdered Americans.  More hearings are likely to sort out the discrepancies in the individual stories and documents but the markets are not interested. The SPX prints a new all-time high at 1632.78 and new all-time closing high at 1632.69. The Dow prints a new all-time high at 15106.81 and new all-time closing high at 15105.12.

On Thursday, 5/9/13, China consumer inflation increases with food prices jumping higher than expected. South Korea cuts interest rates to boost their economy. About 60K protestors rally in Malaysia against election fraud.  U.K. industrial production data is better than expected.  The BOE keeps the main interest rate unchanged at 0.5% as expected. Weidmannn says the ‘ECB does have the right to use expansive monetary policy’. The euro weakens a touch to 1.3140.  A Spain bond auction receives a tepid response. Copper is weak.  Futures are flat. Endowments at major universities are cutting Treasury exposure.  Jeremy Siegel, noted economist and professor, appears on television again predicting 17K on the Dow Industrials this year.  Jobless Claims continue to show layoffs decreasing.  There is no firing, which is good, but there is no hiring either, which is bad.  Companies are operating at bare bone levels, whipping current employees to handle the ongoing workloads in a soft economy, without hiring new employees.  Markets are flat to begin the day as the Nasdaq prints another 12-year high for the last nine days in a row.  Wholesale inventories are up but sales are down. Growing inventories are attractive when demand grows, but detrimental as demand shrinks.   Markets are unresponsive to the news, however, since the Fed and BOJ will simply print more easy money if the data is bad.  The 10-year yield moves above 1.80% from 1.62% about one week ago. About 2 PM, the dollar/yen explodes higher through the 100 level for the first time since 2009. The BOJ is weakening the yen (dollar/yen higher) and the easy money is pumping equity markets and European bond markets higher. The dollar jumps higher which creates weakness in commodities.  Stocks follow the dollar/yen higher and the SPX prints a new all-time high at 1635.01, however, the SPX collapses immediately, falling to 1623, a twelve handle drop, by 3 PM, on a rumor that the Fed is to release a paper that discusses ‘tapering’ of QE. The markets have become a central banker casino that move up and down depending on whether central bankers are pumping asset prices with QE, or not. The race to debase, the race to the bottom, by the U.S., Japan, Europe, England, and many other countries continues; it is central banking intervention and policy gone mad.  The broad indexes print a rare down day. Utilities collapse. These are perceived safe haven dividend stocks that Aunt Betty and Uncle George just bought, chasing yield, investing their entire life savings based on all the hype from market pundits. UTIL (utilities sector) is down over -5% the last couple weeks wiping out the yearly divvy in a few short days. After the bell, PCLN earnings disappoint and the stock is bludgeoned.  GPS reports happy earnings and a ‘gap’ up occurs. The NYMO McClellan Oscillator chart signals a significant market top in place (over 60). The SPXA150R chart is over 92 signaling a very attractive time to short the market.  The BPSPX is over 86 which corresponds to all major market tops over the last few years. In a rather disturbing development, more and more bond funds are now putting money into equities due to the central banker intervention. This action, along with other troublesome signs such as the BOJ and other central banks buying equities outright, is becoming very scary. Margin debt held by traders is now at the same level as July 2007 (traders are betting the farm on the long side). The markets printed a major top in September-October 2007.

On Friday, 5/10/13, the G7 meeting begins. The dollar/yen jumps through 101 to 101.60 with analysts now targeting 105-110 by the end of the year. The Japanese are debasing the yen and traders are jumping on the momentum trade. Fed’s Plosser voices concern over too-big-to-fail banks but this would be expected since he is a hawk. The futures are higher following the path of the dollar/yen (the BOJ money pump). Italy manufacturing data is weak but the MIB rocks over one percent higher since weak data means more central banker easy money (bad news is good news). Markets have become completely dependent on the central bankers money-printing policies. Marty Feldstein, noted economist, says the Fed’s policies have hit a dead end. Chairman Bernanke speaks but the comments are not market-moving. The markets meander sideways to begin the day. Keystone’s 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets for the hours ahead.  The new moon and an eclipse occur last evening and the SPX is weaker through the new moon, as would be expected, dropping from a 1635 high to a 1623 low this morning. In the afternoon, volatility drops lower and commodities run higher adding bull fuel to the broad indexes. The indexes fly higher into the closing bell to end the week on a happy note. Short sellers avoid the market, long players have no intent on exiting the market, and the retail investor is sucked in on the late day bullish euphoria. The SPX ends the day with a new all-time closing high at 1633.70 but does not print a new intraday all-time high.  The Nasdaq and RUT print new all-time highs at 3436.58 and 975.16, respectively, showing a push higher in tech and small caps today. Traders rotate from the utilities sector into tech, industrials, materials and financials.  For the week, global indexes are all up from one to two percent on the central banker easy money. Gold drops -1.5% this week to close at 1448. The Benghazi terrorism scandal continues to unravel with a testy press conference occurring at the Whitehouse.  The president’s spokesman attempts to handle the discrepancies in documents and whistle blower testimony weighted against the Whitehouse’s actions, especially Secretary Clinton, but things are not adding up. Traders are not paying attention to this drama right now but if the scandal unravels further, affecting the negotiations over the debt ceiling, sequester and ongoing fiscal mess, Benghazi-gate, as the republicans call it, will become a problem for markets. Further complicating the political atmosphere, the IRS issues an apology stating that they had singled-out and targeted the ‘Tea Party’ and other groups with words such as ‘patriot’ in their returns, which is obviously unconstitutional.  Morality is thrown out the window in the States ever since the banks were bailed out in 2009. The U.S. and U.K. withdraw diplomatic staff from Libya. The northern Africa and Middle East turmoil increases and traders do not have any geopolitical risk priced into markets currently. At 7 PM, under the cover of darkness, Jon Hilsenrath, who many believe has the inside track at the Fed, releases an article about the Fed tapering QE. The rumor of this pending article is what caused the big drop in the SPX on Thursday afternoon but all was forgotten for the Friday session. The article rehashes what is already known but it will be interesting to see if the markets react negatively next week as traders hear the word ‘taper’. The CPC put/call ratio prints 0.75 showing complacency and fearlessness in markets indicating a significant top is occurring in the broad indexes right now.

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

On Tuesday, 5/14/13, Fed’s Plosser speaks. NFIB Small Business Optimism Index. Import and Export Prices.

On Wednesday, 5/15/13, PPI. Empire State Mfg Survey.  Industrial Production. Housing Market Index. E-Commerce Retail Sales. Oil Inventories.

On Thursday, 5/16/13, Fed’s Plosser, Rosengren, Fisher, Raskin and Williams speak. Jobless Claims, CPI and Housing Starts. Philly Fed.

On Friday, 5/17/13, OpEx. Consumer Sentiment. Leading Indicators. Fed’s Kocherlakota speaks.

On Saturday, 5/18/13, the 16.4 trillion Debt Ceiling limit is hit, however, the government is taking in more revenue than expected, the sequester cuts are in place, and Congress is developing a plan to extend the Debt Ceiling deadline to after Labor Day into September.  Thus, the can will be kicked about three months down the road again. The politicians are trying to line up all the problems (debt ceiling, fiscal cliff, and CR resolution to fund the government) for a combined September deadline thus providing this summer as the time to conduct a knock-down drag out political fight to set the U.S. on the correct fiscal path forward. This political behavior is similar to the summer of 2011 which did not receive a happy ending.

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On Monday, 5/20/13, Chicago Fed Activity Index.

On Tuesday, 5/21/13, …

On Wednesday, 5/22/13, Existing Home Sales. Oil Inventories.  FOMC Meeting Minutes.

On Thursday, 5/23/13, Jobless Claims, PMI Mfg Index. FHFA House Price Index.  New Home Sales. Kansas City Fed Mfg Index. 10-Year TIPS Auction.

On Friday, 5/24/13, Durable Goods Orders.

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On Monday, 5/27/13, U.S. Markets are Closed in Observance of Memorial Day.

On Tuesday, 5/28/13, U.S. Markets Open for Trading.  Consumer Confidence. 2-Year Note Auction.

On Wednesday, 5/29/13, 5-Year Note Auction.

On Thursday, 5/30/13, Jobless Claims, GDP. 7-Year Note Auction.

On Friday, 5/31/13, EOM. Personal Income and Outlays. Chicago PMI. Consumer Sentiment.  Farm Prices.

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On Monday, 6/3/13, PMI Mfg Index. ISM Mfg Index. Construction Spending.

On Tuesday, 6/4/13, International Trade.

On Wednesday, 6/5/13, ADP Employment Report. Productivity and Costs. Factory Orders. ISM Non-Mfg Index. Beige Book.

On Thursday, 6/6/13, Jobless Claims.

On Friday, 6/7/13, Monthly Jobs Report.

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In September, Merkel (Germany) seeks re-election and will not want to see Greece or other nations exit the euro before the election but will not care afterwards. Perhaps Greece and others, or Germany, may 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. Will Yellen, even more dovish and likely wanting to see QE on steroids, take the reins?

In March 2014, the ESM is officially “fully operational.” The banking union schedule has been delayed from January 2013 to January 2014 and now to March 2014.