Keystone's Trading Week in Review and Path Ahead for Markets 6/22/13

On Friday, 6/14/13, Japan and Asia markets recover on the back of a happy U.S. tape yesterday. The BOJ says more stimulus programs are coming in autumn which helps lift global equities. The dollar/yen is at 95.00. Economic bellwether rebar trades near a 9-month low due to China weakness.  European markets move higher. The Airbus A350 plane performs a successful test flight.  PPI (Producer Price Index) reports higher food and energy prices. Industrial Production remains lackluster. Economics professor Jeremy Siegel appears on television once again affirming his Dow 17,000 call for this year. The broad indexes jump higher with the SPX printing a high near 1641 but the weaker than expected Consumer Sentiment data drops the markets. In addition, the IMF is pessimistic warning of downside risks to the U.S. economy.  The dollar/yen drops like a stone down through 95 towards 94. The stronger yen slaps the equity markets lower. Keystone’s 60-minute chart shows the SPX dropping through the 200 EMA at 1629 signaling bearish markets for the hours ahead. The broad indexes are flip-flopping this week with a big down day on Wednesday, followed by a big up on Thursday and now another down day. The SPX then moves sideways through 1625-1632 and closes at the important 1626-1627 S/R. The SPX loses -0.6% today, the Dow is down -0.7%, Nasdaq -0.6% and RUT -0.8%; small caps leading the way lower. Volume was light. For the week, the SPX closes at 1627 losing -1.0%, the Dow is 15070 losing -1.2%, Nasdaq at 3424 losing -1.3% and RUT at 981 losing -0.6%. Tech led the broad market lower while traders maintain faith in small caps. Stocks are down three of the last four weeks. The FBI head testifies before Congress revealing that he does not know who is running the internal investigation that is supposed to get to the bottom of the situation. Shameful. At the same time, National Intelligence Director James Clapper is exposed for lying to Congress when he said there is no spying of Americans occurring. Detroit misses a 2 billion debt payment trying to service 17 billion in liabilities. The Iranians elect pro-nuke and moderate Rohani to replace Ahmadinejad but the cleric’s rule the country and are pro-nuke so the politics will remain the same.

On Saturday, 6/15/13, the Snowden spying case receives international attention with Hong Kong protestors marching in favor of the whistleblower not wanting to return Snowden to the U.S. In the States, citizens weigh-in on each side of Snowden’s disclosures of the government spying, some call him a traitor, others call him a hero for exposing the breach of the American Constitution. This ongoing drama may distract Congress away from solving the ongoing monetary problems in the U.S. The Syria mess intensifies with a more active role by America beginning but a majority of Americans are not in favor of the action since the weaponry will simply end up in terrorist hands. Iran is sending 4K troops to fight in Syria. The Syria war is a regional conflict with both sides disliking the U.S. There are now 4 million Syria refugees with the conflict causing oil prices to move higher. The Turkey mess continues with Erdogan cracking down on protestors.  Police and government forces attack citizens in alley ways leading to the square and are releasing tear gas canisters inside of buildings creating mayhem and chaos.

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On Sunday, 6/16/13, North Korea expresses interest in negotiations over its nuclear program but these advances always result in gamesmanship. U.S. bank regulator Hoening says that Deutsche Bank is ‘horribly undercapitalized’. Turkish unions call for a one-day strike to protest the government crackdown on citizens.

On Monday, 6/17/13, China drops on lower property and material stocks. Stress is appearing in the China banking system. G8 leaders meet in Belfast.  The U.K. is hesitant to arm the Syrian rebels and become embroiled in a Middle East conflict. Putin warns the West about becoming involved in Syria and says the rebels should not be supported since they ‘kill their enemies and eat their organs’.  Erdogan (Turkey) threatens to use government troops to further beat down citizens. The dollar/yen moves higher overnight from 94.20 up to 94.90 sending S&P futures to +15 and the Dow +136. WTIC oil prints 98.54 at one-year highs.  The SPX leaps higher at the opening bell. Equities move up into the early afternoon when at 2 PM EST, the FT (Financial Times) releases an article by Robin Harding that says the Fed tapering will begin sooner than later. The market’s collapse. The Dow plummets 150 points erasing the day’s gains.  At 3 PM, Harding tweets (Twitter) a message “chill out” and says his article was misinterpreted. The broad indexes turn around and catapult higher with the Dow moving up 100 points.  The markets are now a circus moving off the words of a journalist waxing about the tapering of QE.  The central bankers have created this mess. The broad indexes finish up on the day.  Presidents Obama and Putin provide a joint statement from the G8 Summit where both look like they would rather be a hundred other places. Russia backs Syria’s Asaad making for an awkward meeting. G8 leaders say the worst is over for the global economy. What are they smoking at that summit?

On Tuesday, 6/18/13, India is hit with severe floods. China banks become shakier as the property bubble grows. The dollar/yen is calm at 95-ish. Indonesia protestors are rioting over gasoline prices.  European auto registrations hit 20-year lows for the month of May. Folks cannot buy cars if they do not have jobs.  Greece is falling apart mired deep in depression with rioting on the increase. People have made sacrifices over the last two years but there is no economic improvement and no economic plan forward. Trust is lost between the Greek citizens and the State. Draghi has an ‘open mind to non-standard measures’ moving forward that may have ‘unintended consequences but that does not mean they should not be used’. The euro continues rising to near 1.34 as the dollar weakens in anticipation of happy QE money-printing talk.  Brazil citizens protest the rising living costs as a result of the Olympics. Stadiums are built while folks suffer with inadequate hospitals, schools and infrastructure. All around the world, the wealthy benefit from the bailouts and are richer than ever while everyone else suffers. These protests are occurring in many nations currently and are a developing worldwide phenomena as the common folks are fed up with receiving the short-end of the stick. President Obama suggests that Chairman Bernanke will likely be replaced saying “he’s already stayed a lot longer than he wanted or he was supposed to.” CPI (Consumer Price Index) shows no signs of inflation. Housing Starts are 914K, lower than expected, and surprising since it is the spring building season, well off the one million pace two months ago.  The housing recovery is in question.  Markets drift higher all day long and the Dow Industrials are up over 150 points in the afternoon printing the sixth consecutive triple digit move for this index in as many days. The markets finish strong with the SPX up 13 points, +0.8%, to 1652 moving above the 20-day MA.  The Dow is up 140 points, +0.9%, to 15318. This action turns out to be the market top for the week.

On Wednesday, 6/19/13, HSBC lowers the growth forecast for China due to weak economic data. Brazil protests intensify with rioters storming the Sao Paulo City Hall.  Economic bellwether FDX beats on EPS but is light on top line revenue, like most companies these days.  FDX lowers guidance moving forward and says 3600 employees are ‘leaving voluntarily’.  Perhaps walking the plank constitutes leaving voluntarily? Tesla issues a partial recall on its electric automobiles. Commerzialbank plans on cutting 5600 jobs through 2016. Fashion icon’s Dolce & Gabbana are convicted of tax evasion in Italy. The broad indexes move flat awaiting the Fed. Oil Inventories are higher than expected so oil price drops from the 99 level it hit today to 98.21. At 2 PM, the Fed says there will be no change to the purchase program. The markets drift lower but tentatively await the press conference.  Chairman Bernanke’s opening statement says that ‘downside risks have diminished and if the incoming data is broadly consistent with this outlook, the committee should moderate purchases this year and end in the middle of next year’. BOMBSHELL NEWS. This is a much more hawkish statement than traders expected. The party will be coming to an end since Bernanke is taking away the punch bowl. Stocks immediately sell off on the statement. Interestingly, the word ‘taper’ is not mentioned in the press conference. Treasury yields sky rocket as notes and bonds are sold off. The 10-year yield leaps above 2.30% at highs not seen for fifteen months. The 30-year bond yield is 3.41%. The dollar catapults higher sending the euro into a tailspin down from 1.34+ this morning to under 1.32, and the dollar/yen jumps from 95-ish this morning to over 96, huge moves for currencies. Utilities and REIT’s collapse due to the up in yields causing further pressure on equities. Oddly, volatility remains flat and does not leap higher as would be expected. Keystone’s 30-minute chart shows the 8 MA stabbing down through the 34 MA signaling bearish markets ahead. Keystone’s 60-minute chart shows the SPX dropping under the 200 EMA at 1630-ish signaling bearish markets ahead.  At the closing bell, the SPX is down 23 points, -1.4%, to 1629. The Dow drops 206 points, -1.4%, to 15112. The Nasdaq loses 39 points, -1.1%, to 3443. The RUT loses 13 points, -1.4%, to 987, after printing over 1000 two hours ago.  Gold ETF’s such as IAU and GLD are beaten -1.2%. Long traders that are up nicely on the year are taking the chips off the table. Traders await the reaction in Asia.

On Thursday, 6/20/13, Aussie dollar falls to lowest since February 2011 with an Aussie dollar buying 92.74 cents. Japan’s Nikkei closes down -1.7% to 13.0K. China manufacturing PMI hits a 9-month low with output and new orders both in decline. Commodities, copper, gold and silver plummet. Asia stocks are pummeled with the double whammy of the Fed hawkishness and weak China PMI. Eurozone PMI’s remain in contraction but improve slightly. At 4:30 AM EST, the DAX is down -1.8% to 8050. France is -1.7%. U.K. -1.5%. The sell off is global cascading through the time zones. Gold and oil extend their losses after the Fed news yesterday.  Gold drops over -3%, about 40 bucks, to 1310.  Silver collapses -6%. WTIC crude oil drops almost -2% to 96.47.  At 5 AM EST, S&P futures are -12. Dow -89. Nasdaq -23.   Dr. Copper is at a 7-month low. Gold drops to 1302. Dollar/yen 98.00. Euro 1.3211. The 10-year yield is 2.39%. At 6 AM EST, the S&P’s are -13. Dow -100. Nasdaq -24. Gold, silver and copper are collapsing. The 10-year yield is 2.42%.  Several U.S. banks, including BAC, JPM C and WFC, are not following mortgage standards.  At 7 AM, S&P’s are -14. Dow -102. Nasdaq -28.  The broad indexes drop like a stone at the opening bell. The SPX falls through the 50-day MA at 1618, then 1600 and then leaks lower all day long.  Financials and retail sectors lead the way lower. A historic economic and market day is occurring. Keystone’s trading algorithm, Keybot the Quant, flips to the short side. The 10-year yield catapults higher to 2.47%, the highest yields in over one year, causing a large sell off in home builders, REIT’s, utilities and telecom.  Into the close, panic and fear begins to show as the broad indexes collapse. CPC put/call spikes to 1.39 and VIX spikes to 21 signaling a return of fear. Gold plummets under 1300. Commodities, copper, gold and silver are all beaten lower across the board.  The SPX finishes down a huge 41 points, -2.5%, to 1588.  The Dow loses 354 points, -2.3%.  The Nasdaq loses 79 points, -2.3%.  The RUT drops 26 points, -2.6%, small caps leading the way down which is a bearish indication.  After the close, ORCL drops over -9% on weak earnings.

On Friday, 6/21/13, today is the first day of summer in the northern hemisphere.  The Indian rupee falls. Global markets are crushed over the last couple days especially emerging markets. Asia markets are all lower except the Nikkei printing a gain closing at 13.2K. China intervenes to support its failing banking system which sends U.S. futures higher and points to a relief bounce (easy money always pumps markets). China banks are starting to miss overnight interbank lending obligations. Singapore smog reaches hazardous levels with the pollution creating a thick fog and airplanes are having trouble landing in the haze. Brazil’s one million man march starts peacefully but ends tragically with riots, violence and the first death. European bond yields are creeping higher. Greece becomes a bigger worry each day as its 10-year yield moves above 11%. Greece needs further funding by the end of July. The 10-year yield for Italy is 4.54%, Spain 4.83%, Germany 1.68% and U.S. 2.40%.  The Fed pulling back on QE is rekindling the European turmoil.  Fed’s Bullard goes rogue disagreeing with Chairman Bernanke’s path forward, calling it “inappropriately timed,” something you never hear among the FOMC members. Perhaps there is trouble in paradise. CME raises gold margin requirements which may lead to lower gold prices as traders scramble to raise cash with commodities collapsing.  Today is OpEx Quadruple Witching day so there is heavy volume at the open. The markets bounce at the opening bell and then leak lower to print the lows for the day at lunch time. The SPX sells off but bounces off its 100-day MA at 1577. The broad indexes float higher into the close ending near flat on the day with the Nasdaq ending negative.  For the week, the SPX drops 34 points, -2.1%, to 1592.  The Dow is down 271 points, -1.8%, to 14799. The Nasdaq loses 66 points, -1.9%, to 3357. The RUT is down 17 points, -1.8%, to 964.  From the late Tuesday intraday high to the Friday intraday low, the Dow drops from 15340 to 14688, a huge 652 points, in only about 15 total hours of trading. The Trannies (Transportation Index; a bellwether of economic activity) lose -3.2% this week! The 10-year Treasury note yield hits 2.53%, the highest close since August 2011. The 30-year bond yield hit 3.59% and the 5-year yield prints 1.41%. Gold drops -7% this week and silver dorps -9%. Home builders, REIT’s, telecom and utilities are bludgeoned this week due to the up in yields. After the close, FB said a bug in its system causes user personal information to become available on the internet.  In the evening, the U.S. government charges Snowden, the NSA whistleblower who informed America that everyone’s cell phones, email and Internet usage is being spied upon, with espionage.  Hundreds of Southwest Airlines flights are delayed due to a computer glitch. Shamed ex-Enron CEO Skilling, continuing to serve prison time, has his sentence reduced.

On Saturday, 6/22/13, Hong Kong says the Snowden situation will be handled as the law dictates but does not comment on any potential Snowden extradition. Snowden’s location is unknown since 6/10/13 when he checked out of a Hong Kong hotel. The Whitehouse scandals are distracting politicians that must resolve budget and government funding issues within the next 12 weeks. Markets are becoming nervous over the political inaction reminiscent of the summer of 2011.

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On Sunday, 6/23/13, concern continues that a banking crisis may occur in China. Full moon.

On Monday, 6/24/13, Chicago Fed National Activity Index. Dallas Fed Mfg Index. Fed’s Fisher (hawk) speaks.

On Tuesday, 6/25/13, Durable Goods Orders. New Home Sales. Consumer Confidence. Richmond Fed Mfg Index. 2-Year Note Auction. LEN earnings.

On Wednesday, 6/26/13, Fed’s Kocherlakota speaks. GDP. Oil Inventories. 5-Year Note Auction. Fed’s Fisher speaks.

On Thursday, 6/27/13, Jobless Claims. Personal Income and Outlays. Natty Gas Inventories. Fed’s Powell speaks. Kansas City Mfg Index. Fed’s Lockhart speaks. 7-Year Note Auction. Farm Prices 3 PM. NKE earnings.

On Friday, 6/28/13, EOM.  Fed’s Stein speaks. Fed’s Lacker speaks. Chicago PMI. Consumer Sentiment. Fed’s Pianalto speaks. Fed’s Williams speaks.

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On Monday, 7/1/13, Asia PMI’s.  Europe PMI’s. Construction Spending. ISM Mfg Index.

On Tuesday, 7/2/13, Factory Orders.

On Wednesday, 7/3/13, ECB Rate Decision and Press Conference. ADP Job Report. International Trade. ISM Non-Mfg Index. Natty Gas Inventories. Oil Inventories. Markets Close Early for Holiday.

On Thursday, 7/4/13, U.S. Markets are Closed in Observance of July 4^th Independence Day.

On Friday, 7/5/13, Jobless Claims. 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. The Whitehouse scandals are distracting politicians from properly addressing the countries financial problems.

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.