Keystone's Trading Week in Review and Path Ahead for Markets 5/25/13

On Friday, 5/17/13, a large X-class solar flare erupts and the most active sunspot the last several days is now aligning with the Earth. European auto sales slightly improve mainly due to U.K. sales. Fiat reports weak sales. Euro-area construction data is weaker than expected. Today is OpEx. The shamed IRS head Miller is grilled by politicians concerning the IRS scandal.  Bullish traders cast away the QE tapering remarks from yesterday since the Fed will more likely continue QE indefinitely moving forward.  MS says the S&P 500 will reach 1750 this year. The S&P futures are up six.  The markets open and move higher. The dollar/yen moves above 103+ creating the bull fuel (weaker yen due to BOJ pumping). Volatility collapses lower creating further market upside. Consumer Sentiment is better than expected adding rocket fuel. The broad indexes travel flat for much of the day after the initial push higher and then at 2 PM Fed’s Kocherlakota says “the Fed has not lowered interest rates enough” and is stating the case for more QE. A buying frenzy occurs creating a melt-up into the closing bell. Shorts are throwing in the towel adding more bull fuel along with the volume push for OpEx.  New all-time highs are printed again in the Dow, SPX; Trannies, and RUT (Nasdaq remains far below the dotcom bubble top). The SPX closes at a new all-time intraday and closing high at 1667.47. The indexes have gone near-parabolic over the last four weeks. The Fed and BOJ central bankers are pumping equity markets higher day after day and ‘the Fed is the market’.  Stocks remain ovebot and signals indicate topping action but the central bankers are overpowering market fundamentals and technicals. For the week, the RUT is up +2.2%, SPX +2.1%, Nasdaq +1.8% and Dow +1.6%. XLI (industrials sector) outperformed to the upside at +2.3%.  Gold drops over 100 in the last seven days closing at 1358. The NYSE cancels trades in APC in the final minute as a mini flash crash occurs taking the stock from the 90’s down to 20 in a heartbeat. The computer glitches and software malfunctions in the exchanges continue to occur with regularity. The BPSPX, SPXA150R, CPC and CPCE put/call numbers, CRB Rind Index, and other market signals indicate a significant market top is at hand but the Fed and BOJ money printing continues to distort price discovery.

On Saturday, 5/18/13, the U.S. Treasury begins measures to extend the 16.4 trillion debt ceiling limit. The government is taking in more revenue than expected, the deficit is lower and the sequester cuts are in place, all helping Secretary Lew to extend the Debt Ceiling deadline to after Labor Day into September.

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On Sunday, 5/19/13, North Korea launches four short-range missiles.  YHOO buys the blogging site Tumbler.

On Monday, 5/20/13, Japan voices concern over the drastic drop in the yen (that they created) so the yen strengthens with dollar/yen moving from over 103 on Friday to 102.59. Japan upgrades its assessment on the economy and the Nikkei moves higher despite the stronger yen.  China real estate prices continue to overheat. Copper and commodities are sold off. Silver drops 4%.  European indexes continue to print new all-time highs. DAX is up one-half percent to 8440. The FTSE closes at the highest level since 2000. The U.S. broad indexes are flat to higher with the SPX printing another new all-time high at 1672.84 but the all-time closing high from Friday at 1667.47 remains in place. Fed heads Fisher and Evans say the economy is improving and that tapering of QE may occur but traders are hooked on the QE crack cocaine and simply take markets higher ignoring the Fed comments. Stocks fade in the last hour of trading and close flat on the day overall.  Gold and silver as well as commodities in general stage a dramatic comeback. Silver was down over 7% in the morning and ends up 3%. Lumber is down over -22% since March, less than 8 weeks ago, contrary to what is expected for a robust housing recovery that analysts tout daily.

On Tuesday, 5/21/13, CCL lowers sales forecasts as the cruise ship industry weakens.  HD earnings beat on top and bottom lines verifying a strong housing recovery; the stock climbs +5% pre-market and sets a happy tone for markets.  BBY earnings miss and drops -2%. GS says the SPX will reach 1750 this year, 1900 in 2014 and 2100 in 2015. MS called for 1750 last Friday morning which created market bullishness. A JPM shareholder vote backs Jamie Dimon deciding to not split the leadership role and the stock jumps 1.5%.  AAPL’s Cook is grilled by Congress over its tax accounting and tax havens. The SPX covers a range of 1663-1675 today and threatens a break down in the morning at SPX 1663 but Fed’s Bullard says he is agreeable to continued QE so the markets recover and catapult higher. Markets drift along sideways until the afternoon when Fed’s Dudley also says he is agreeable to more QE providing another market up thrust with the SPX printing another new all-time high at 1674.93 and new all-time closing high at 1669.16. The Dow prints a new all-time high at 15434.50 and new all-time closing high at 15387.58. The Fed is the market.

On Wednesday, 5/22/13, BOJ will ‘carefully watch JGB bond yields’ and maintain flexibility with purchases as necessary.  Kuroda believes yields will be underpinned and that the recent spike higher in yields is not impacting the economy. The dollar/yen moves higher to 102.81 and U.S. futures rise. Asian stocks are near 5-year highs.  U.K. retail sales are worse than expected.  MSFT unveils new Xbox.  Syria turmoil continues as the ongoing civil war broadens out and threatens the entire Middle East. Fed’s Dudley, a mouth piece for Bernanke, says it will take 3 or 4 months for a decision on whether to taper, or even ‘dial-up’ QE.  TOL beats on earnings verifying a housing recovery but lumber prices and Mortgage Applications (the lowest in many months) say the housing recovery is out of gas. TGT reports lackluster earnings which is a surprise considering the retail sector strength this year.  The markets open and move higher.  Chairman Bernanke testifies in front of Congress and repeats strong dovishness and continued QE.  The equity markets catapult higher with new all-time highs printing in the major indexes. The RUT moves above 1000.  The Fed is the markets. Lois Lerner, at the center of the IRS scandal, pleads the Fifth Amendment and refuses to testify. Congress dismisses the witness so the IRS scandal drama grows.  The SPX runs higher through 1686.  Bernanke is asked about tapering and he says a decision can be made in the weeks ahead (not months) and he would not rule out a slowdown in QE before Labor Day. The Fed is the markets so these less dovish comments cause a sell off. Markets drift lower into the FOMC Minutes which add further confusion to the Fed’s game plan. The mixed signals from the Fed send markets lower into the close as algorithmic sell programs kick-in. Volatility jumps higher and copper sells off creating market negativity. The broad indexes print an outside reversal day where the indexes print higher highs and then finish at lower lows than Tuesday typically signaling a trend change in the markets. The SPX ends the day down 14 points at 1655, -0.8%, after printing over 1687 this morning.  The intraday negative point swing is about 38 S&P’s. The Dow ends the day down 80 points at 15307, -0.5%, after printing over 15542 this morning. The intraday point swing is -277 points. The Nasdaq  is down -1.1% to 3463.  The RUT is down -1.7% to 982.  Clearly, tech and small caps are leading the way lower, on strong volume, a negative sign for markets moving forward. Traders are shocked to see that markets can actually go down instead of up day after day on Fed and BOJ crack cocaine. The 10-year Treasury yield jumps to 2.03% and higher. Dollar/yen 103.14. Euro 1.2836. WTIC crude oil 93.96. Brent oil 102.32. After the bell, HPQ beats on earnings but top line revenue is weaker than expected and guidance is weak for China. The stock jumps over 10% AH’s and sets a happy tone for the tech sector.                

On Thursday, 5/23/13, F announces closure of auto manufacturing plants in Australia ending a 90-year history. Interestingly, the ramp up of Ford production in the U.S. announced yesterday, which excited traders, actually results in F reducing global production overall after today’s announcement.  The U.S. negativity hits Japan.  The 10-year JGB (Japan bonds) yield tops 1% (highest in one year) creating a one billion dollar headache for Japan in a heartbeat. Yield then drops to 0.86% a few hours later.  The worry in JGB’s causes the dollar/yen to drop under 101 from a high of 103.74 only a few hours ago (stronger yen).  The Nikkei market crashes -7.3% to 14484 and the Topix drops -6.9%, the most since the tragic earthquake in March 2011. The HSBC China PMI.surprises to the downside showing contraction (a drop under 50) and a shrinking manufacturing sector in Asia. Copper and commodities sell off. Crude oil drops to 92.97. Asian markets sell off on the triple whammy of the U.S. market weakness, trouble in Japan JGB’s and now confirmation of a more serious China slowdown.  More fuel to the negative global fire is added by weak European PMI’s. Germany manufacturing data is slightly better than expected but remains under 50 showing continued contraction overall. European automobile stocks are sold off about -5%.  European markets sell off from 2 to 3%. Spanish bonds decline for the first time in over a week (yields up). GOOG is grilled in the U.K. over using the tax system to their advantage like AAPL was grilled in the States, but both companies simply state that they are following the rules laid out by lawmakers. Global tensions are high as a potential cascading market event may be underway. Negativity moves from the U.S. to Japan, China and Asia, then to Europe, and now back to the U.S. with S&P futures down over 20 points at 6 AM EST.   Jobless Claims improve slightly. New Home Sales show a continuing recovery in the housing sector. Markets drop like a stone at the opening bell; the SPX prints a LOD at 1636.  A Flash Crash occurs in the utilities sector with AEP and NEE dropping over -50% in a heartbeat. The UTIL utility index collapses over -12%. A data feed problem is blamed and the stocks and index recover. In a surprising announcement, the stock exchange decides to keep all orders in place despite the huge drops, burning any trader that had a market sell order in place. These traders lost 50% of their money in AEP and NEE in minutes. Aunt Martha worries over her perceived safe haven utility stocks. Flash crashes continue to occur with frequency and another big one a la 5/6/10 is on the table moving forward. The broad indexes place a bottom in the first half hour of trading and move higher all day long to end flat on the day. Long traders are relieved that the markets did not cascade lower considering the bad news out of Asia and Europe overnight.  The SPX finishes the day at 1650. On the ongoing unraveling IRS scandal, Lois Lerner is placed on administrative leave with pay. Congress is considering recalling Lerner next week since her pleading the Fifth Amendment may have been nullified by her statement of innocence before she refused to answer any questions. ECB’s Draghi speaks at a dinner engagement and says his bond-buying pledge is helping European markets.

On Friday, 5/24/13, Aussie banks sell off the most in one year’s time. BOJ’s Kuroda says sufficient monetary easing has taken place and that he has not set targets for the yen or the Nikkei Index. The yen strengthens with the dollar/yen dropping to 101.57 overnight.  The Nikkei drops at the opening bell but recovers as the session plays out. Volatility jumps nearly 60%! Germany’s Weidmann expresses skepticism over whether the BOJ’s actions will be successful. Markets are becoming increasingly concerned over the Fed and BOJ exit strategies. GS says that Kuroda may not actually fully understand the implications of his policies. German GDP data is lackluster reflecting the weakness in Europe.  German trade data disappoints as well but IFO confidence is far above expectations. Global markets remain very jumpy.  U.S. futures were up, then went negative at 3:30 AM EST, then up again, then start to deteriorate again at 5 AM EST. Crude oil drops under 94. The 10-year yield is 2.01%. The rock-steady retail sector is weak after disappointing ANF earnings.  Durable Goods Orders are better than expected especially with defense spending which is surprising due to the sequester cuts. Futures recover. Markets place a low in the 10 AM time frame, as usual each day, and then the Fed pump carries markets higher into the closing bell.  Dollar/yen drops under 101 but recovers. Volatility remains elevated and copper is weak. Volume is at the lowest level since the Christmas and New Year’s holidays so the markets throw off mixed signals. Both the SPX and VIX move lower today. The CPC put/call jumps to 1.26, the highest level since the May 2012 sell off, indicating that traders are buying downside protection.  This fear may create a market bounce next week.  The NYMO prints a low number also hinting that a recovery bounce may be on tap next week.  Markets are typically buoyant In front of the three-day holiday weekend and full moon which plays out as expected.  A lunar eclipse occurs. The SPX finishes at the highs at the important 1649-1650 S/R level. For the week, the SPX is down -1.1%, the Dow -0.3%, Nasdaq -1.1% and RUT -1.2%, so tech and small caps lead the way lower with the SPX. The down week breaks the 4-week parabolic up streak for the indexes. Bidders such as YHOO are tripping over themselves to buy Hulu, the popular video service.

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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. Fed Mfg data. 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, HSBC China PMI. European PMI’s. 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, the Debt Ceiling limit is reached along with the CR resolution to fund the U.S. government.  Can the politicians reach an agreement this summer to set the U.S. on the correct fiscal path forward to avoid these deadlines? The summer showdown is similar to the set-up in the summer of 2011 which did not end happily for markets.

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.