Keystone's Trading Week in Review and Path Ahead for Markets 8/3/13

(the most important event last week was not the central banker announcements, economic data or earnings, but instead China pledging to maintain a high growth rate moving forward which provided support to commodities, copper and equities)

On  Friday, 7/26/13, China cuts manufacturing capacity so copper takes a -1.1% dive. Japan data shows a hint of inflation. The Nikkei drops -3% and the dollar/yen pair drops under 99 to 98.69 showing that traders think the BOJ may pull back slightly on QE due to the inflation improvement. Global markets clearly move according to central banker actions.  GS’s Blankfein says the Fed stimulus will continue for a ‘considerable time’.  The weaker dollar and higher euro keep the stock market elevated in recent days.  UBS Bank pays a 900 million settlement to Fed regulators for missteps during the 2008 housing and financial bubble.  The new Fed Chairman talk increases with Yellen favored over Summers currently. The Whitehouse tries to tamp down all the talk as it takes on a life of its own, releasing a statement that a list of potential candidates to replace Bernanke has not been finalized and the selection will not be until the Fall.  S&P futures steadily drift lower all morning long to -7 one hour before the opening bell.  Equities sell off at the opening bell.  Consumer Sentiment is better than expected at a six-year high.  Markets drift lower but at 11 AM, just like yesterday, recover and move higher into the closing bell. The Fed POMO pumps kick in at that time. The Fed is the market. Semiconductors and copper are very weak today. Europe approves 4 billion more in aid for Greece which will keep them afloat until Fall when they will need more money.  Today is the one-year anniversary of Draghi’s famous statement that he “will support the euro by all means necessary, and believe me, it will be enough.”  This historic statement has catapulted equities to new highs (European stock markets are up 20 to 30%) and created calm in the European bond markets ever since. The SPX finishes at 1692 and Dow at 15559, flat on the week. The Nasdaq (tech) is up +0.6% for the week. Trannies (TRAN), RUT (small caps) and financials (XLF) are all down on the week from -0.6% to -1.8% and should be up like the Nasdaq for a robust market rally. Equities are now rallying for about 1600 days, almost 4 ½ years, the fifth longest bull market in history. At 6 PM EST, midnight Cairo time, riots continue in Egypt.  The streets are filled with protestors, both for and against Mursi, and vehicle traffic is unable to move. The army continues to detain Mursi and is on the side of the anti-Mursi protestors. Many street battles develop with the pro and anti-Mursi protestors fighting one another setting the stage for a civil war. The army drops leaflets on the pro-Mursi protestors requesting restraint from any violence and states a deadline for tomorrow evening where these protestors must ‘calm down, or else’. Oil price has dropped in recent days. JPM announces plan to sell its commodity business as regulators scrutinize the operation. Detroit retirees request help from the president but any city bailout or aid package will set a precedent for all the other cities facing bankruptcy.

On Saturday, 7/27/13, Egypt violence turns ugly overnight with dozens killed as the army fires into a crowd of Morsi-supporters brandishing weapons; the country is deteriorating into chaos. The IRS union does not want to enroll in Obamacare and these are the very people responsible for enforcing the new health care program. The new healthcare law would not have passed without the support of the unions but now that they understand the program they do not want it. President Obama and his spokespeople call the ongoing Whitehouse scandals (Fast and Furious cover-up, Bengazi cover-up, IRS targeting, NSA spying, journalist targeting, etc…) ‘phony’ and ‘fake’ scandals.

----------------------------------------------------------

On Sunday, 7/28/13, Fed’s Lacker calls for an end to QE since it is not helping the economy in any significant way. Earnings season thus far shows the lowest amount of beat’s and positive surprises in 4 years. The lowered bar is not low enough. Top line revenue growth remains challenged. Steven Cohen (SAC Capital) throws a lavish party despite the indictment last week. Detroit dominates the weekend news since the decisions made here, bailout or not bailout, will ripple through to all the other U.S. cities facing high debt and bankruptcy including Chicago and many California cities such as Oakland and San Bernardino.

On Monday, 7/29/13, the dollar/yen falls below 98 so the stronger yen sends the Nikkei lower. More economists are questioning China’s lofty growth numbers. BKS book seller says recent financials are not correct and revised numbers will follow.  SKS is purchased by Hudson Bay.  Traders have waited five years for an SKS takeover but the stock only pops a paltry 3%. S&P futures are -4 all morning long before the opening bell.  Pending Home Sales are weak as expected. The broad indexes drop at the opening bell then travel flat the remainder of the day contemplating the busy economic data, earnings and central banker week ahead. The SPX closes at 1685. The Dow is 15522. After the closing bell, EMN (chemicals) beats on earnings which is encouraging for the economy. In the evening, JPM is exposed for manipulating the energy markets in 2010 and 2011 and is working on a settlement with the Fed of 400 million dollars. Same old story. No one ever goes to jail. JPM makes billions by the misdeeds but pay a paltry fine and move on without prosecution. For those of you wondering if the markets are rigged, of course they are. The bankers are always saved and protected and the general population suffers.

On Tuesday, 7/30/13, Australia will offer stimulus moving forward so the Aussie dollar drops. China pumps 3 billion dollars into the floundering money markets to create liquidity. This action was last performed early February resulting in weaker equity markets. Commodities are very weak today with copper, oil, gold and silver all tumbling lower. Berlesconi faces a court decision which may affect Italy’s shaky politics and economy.  The FOMC Two-Day Meeting begins. MRK and PFE both beat by a penny but top line revenue is unimpressive as well as lackluster guidance. Nonetheless, the markets receive a slight lift from the pharma sector.  Equities move higher at the opening bell with the SPX jumping to 1693. Consumer Confidence is above 80 for two months in a row at 5-year highs.  Markets sell off as the day proceeds but the semiconductors move higher and volatility drops to keep equities elevated. Markets are simply idling sideways awaiting the GDP and Fed tomorrow.  The Nasdaq outperforms to the upside today mainly due to strong moves higher in AAPL and FB.  FaceBook is now moving towards its IPO price at 38, catapulting from 26 to 38, 46%, in only four days time, after the earnings release showed increased revenue from mobile ads.

On Wednesday, 7/31/13, EOM. China states that they want to maintain the 7% plus growth rate for this year.  Copper and other commodities move higher recovering from yesterday’s selloff. The dollar/yen wrestles with 98 yesterday and fails today printing at 97.63. The 10-year yield is 2.62%. Bayer, the large chemical producer, says demand for polymers is falling, China demand is weak and the economic environment ahead is challenging. BNP Paribas, France’s largest bank, reports lower profits with a clear lack of demand for loans.  ADP Jobs Report is 200K jobs so this will bump up the consensus to 200K jobs for the Friday Jobs Report. The 10-year yield jumps through 2.63%-2.64% resistance and leaps to 2.70%.  The initial number for Q2 GDP is 1.7% beating expectations, however, the Fed has changed the way the data is calculated, and oddly, Q1’s GDP is revised down from 1.8% to 1.1%. IBM is down -1% pre-market on accounting issues.  MA is up +3% on an earnings beat. The broad indexes move higher after the opening bell and then leak lower into the 2 PM Fed statement. The FOMC remains accomodative and continues the 85 billion per month purchase program.  The Fed comments on persistent low inflation (a political way of saying that disinflation and deflation remains a worry which is pro-QE) and says growth is ‘modest’ rather than ‘moderate’ in the last statement (more pro-QE talk). Fed’s George is the lone dissenter (hawkish). Traders view the news as dovish so the markets move higher after erratic behavior for the first few minutes following the news. The SPX reaches a HOD at 1698.43 at 3 PM and then tumbles lower into the closing bell to 1686 giving up all the gains from 2 PM then some. Equities finish flat on the day overall. The 10-year yield drops to 2.58%. JCP is beaten down -10% and more on reports that suppliers are pulling back support for the troubled retailer. FB breaks up through the 38 IPO price but closes under. WFM (dubbed ‘Whole Paycheck’ since only the affluent can afford to eat healthy) earnings are in line but guidance is weak so the stock is sold off -6%. YELP beats and jumps higher in AH’s trading.

On Thursday, 8/1/13, the Aussie dollar drops to 0.8979 on an expected rate cut coming from the RBA. China PMI is 50.3 better than expected indicating slight expansion but the HSBC PMI, a reflection of smaller companies and believed to be a slightly better indicator, prints another low at 47.7 indicating contraction. China vows to maintain reasonable growth moving forward and this causes commodities, oil and copper to move higher overnight.  Russia manufacturing numbers are weak. The euro popped to 1.3345 yesterday but retreats to 1.3243 overnight on belief that the ECB will remain dovish.  Poland manufacturing expands. Royal Dutch Shell profits drop -20%. Arcelor-Mittal steel manufacturer says demand remains low. European PMI’s are better than expected so the banks rally. BOE leaves rates on hold with no change to monetary policy. S&P futures are +11. JCP recovers +7% pre-market after CIT Group says there is not a problem with suppliers. PG beats on earnings which sends the Dow futures to +112 and S&P’s +12.  XOM earnings miss and CVX also guides lower but the futures are unaffected. Don Kohn is added to the list of Fed Chairman candidates along with Yellen and Summers. Kohn was Greenspan’s first-choice recommendation for his replacement a few years ago. The ECB leaves rates on hold and the press conference is benign. Draghi says labor conditions remain weak.  Jobless Claims are at lowest levels in 5 years continuing to show layoffs moderating. The broad indexes are set for a very strong open with the Dow +125, S&P’s + 15 and Nasdaq +25, on Fed dovishness and China’s promise to maintain strong growth.  The 10-year yield is moving up to 2.64% so money is moving out of bonds and into stocks. The markets jump higher at the bell and the SPX moves above 1700 for the first time in history.  The ISM Mfg Index is 55.4 blowing out estimates to the upside. Construction Spending, a great indicator for jobs, is weaker than expected. The SPX prints a new intraday all-time high at 1704.57 and continues moving higher.  Copper strength helps the bulls but as the day proceeds, copper leaks lower. The TRIN plummets to an uber euphoric 0.48. This verifies the over-the-top bullishness shown in today’s markets. Markets are not climbing a wall of worry but instead are climbing a wall of bullish euphoria and central banker easy money. The dollar/yen pair jumps to 99.32 reflecting the weaker yen which creates market bull fuel.  WTIC crude oil is up +2.5% to 108. The broad indexes are strong all day long with stocks and Treasury yields both moving up, so money is flowing from notes and bonds into equities. The 10-year yield moves higher to 2.72%. The SPX finishes up +1.3% to a new all-time closing high at 1706.87 and new all-time intraday high at 1707.85.  The Dow lags, up +0.8% to a new all-time closing high at 15628.02 and new all-time intraday high at 15650.69. The Nasdaq is up +1.4% to 13-year highs at 3676. The RUT is up +1.4% to a new all-time closing high at 1059.88 and new all-time intraday high at 1060.96. Tech, small caps and the SPX move higher in sync with the Dow blue chips lagging, perhaps the large players are distributing stock to Ma, Pa and Joe Sixpack caught up in the bullish push higher.  The Dividend Stock Bubble is clearly in place as evidenced by SDY and DVY. The dollar/yen is at 99.61 moving up two big figures over the last day. The financials, XLF, gain +1.6%. Trannies explode higher today, the big outperformer, with TRAN catapulting +3.2%, even as oil climbed higher, to end at 6670. Dow Theory is in sync again with the Dow Transports now confirming the new highs in the Dow Industrials and visa versa. FDX is up +3.8%. After the close, LNKD reports strong earnings and the stock pops over +6% despite the company lowering forward guidance. Fabrice Tourre, the ‘Fabulous Fab’, former GS employee, is found liable for defrauding investors. Tourre’s defense is paid by GS that loses the case. Tourre is chewed up in the Wall Street casino machine and no one who actually designed the investment products, the higher-ups, will ever face charges.  The U.S. is closing embassies in several Muslim nations due to threats of terrorism imminent.  Snowden, the whistleblower viewed as a hero by many Americans since he exposed the government’s spying on all citizens’ cell phone calls, emails and Internet usage, is given asylum in Russia to freely move about the country. Putin views President Obama as a weak leader. The Whitehouse is considering cancelling the upcoming meeting between these two politico’s because of the Snowden affair but surely Putin will not lose any sleep if that occurs. Berlesconi’s jail term is upheld by Italy courts which may negatively impact the fragile political environment.

On  Friday, 8/2/13, gold drops under 1300. Debt-to-GDP ratio’s continue to increase around the world, non-stop higher year after year, despite the rosy stock markets, indicating that further global deleveraging is likely required moving forward. CVX misses on earnings. The consensus for the Monthly Jobs Report is 183K, but 200K is expected due to the ADP Report, with a slight downtick in the unemployment rate from 7.6% to 7.5%.  At the CME, Treasury futures stop trading for 5 seconds just before the Jobs number is released at 8:30 AM. Circuit breakers kick in as a large buyer enters the market likely via HFT (the trade was on the correct side so obviously the jobs number was known ahead of time with two sets of rules occurring at the Wall Street casino, one for the insiders who receive data releases ahead of time, and one for everyone else). The Jobs numbers miss at 162K jobs well under the 200K expected. In addition, the May and June jobs numbers are reduced, but, the broad indexes already enjoyed upside off that prior happiness. The labor participation rate drops again as folks give up on finding a job. The unemployment rate drops to 7.4% (lowest in 4 ½ years) from 7.6%. The average hourly earnings are down one-tenth percent. Wage deflation means that overall inflation does not exist. Obamacare is causing an increase in part-time jobs as companies seek to avoid the higher costs of the new law.  Sequester furloughs create weak job numbers and many jobs created lately are of low quality.  One-third of the jobs created in the last few weeks are in the retail, food and restaurant areas. 77% of the jobs created this year are part-time jobs.  One in every three young people are living at home with their parents, mainly due to the structural employment problem growing in the U.S. The 10-year yield collapses on the news from 2.74%, on the verge of breaking out to the upside, down to 2.61%, a huge 13 basis point drop in a heartbeat. The dollar weakens. Futures drift flat to lower. The markets sell off slightly at the opening bell. Copper is strong today and gold rebounds as traders think the Fed will continue QE forever with the weak job news. European stocks close at 2-month highs. The markets are weak but volatility is crushed lower and Fed’s Bullard pumps the QE talk so equities recover. Copper weakens as the day continues but the bulls run into the closing bell creating a new all-time closing high and intraday high for the SPX at 1709.67. The Dow closes at a new all-time high at 15658.36 and new all-time intraday high at 15658.68. The Nasdaq prints a new 13-year closing and intraday high at 3689.59. The RUT does not print new all-time highs. For the week, tech is the big winner with traders tripping over themselves to buy the Nasdaq up 2.1%. The Dow Transports are up+2.8% this week which is positive for markets from a Dow Theory perspective. The SPX and RUT are up 1.1% on the week and the Dow is the laggard up +0.6%.  The Dividend Stock Bubble is at a new peak as evidenced by SDY and DVY. After the close, BRKA and BRKB earnings beat so Berkshire (Warren Buffett) stock rises.  Ralph Acampora, a notable technical analyst, says to buy the stock market now with both hands. The SEC brings insider trading charges against a former GMCR employee and a cohort. S&P cuts the RSH rating so the stock is sold off.

On Saturday, 8/3/13, 21 U.S. embassies in 12 Muslim nations are closed due to a terrorism threat that is supposed to occur tomorrow (on President Obama’s birthday); looks like the terrorists win.  Perhaps the focus should be on properly protecting the embassies instead?  A travel warning is issued for all Americans in Northern Africa and Middle East. Sunday is a work day in these nations. Violence typically increases after Ramadan. Egypt violence continues as the army contemplates encircling Morsi-supporter encampments to disperse the crowds. In the afternoon, the U.K., France and Germany decide to close their Yemen embassies.  The First Community Bank of Southwest Florida is raided and shut down by the Fed’s, the seventeenth bank failure this year. The Indian embassy in Jalalabad is attacked by a suicide bomber that kills nine people, six are children. The Benghazi scandal grows as it comes to light that dozens of CIA operatives were on the ground during the attack and it may have been an arms deal gone bad where weapons in Libya were supposed to be acquired and then shipped to Syria rebels via Turkey. The Whitehouse appears to be prohibiting the Benghazi survivors from talking to the press and are changing the names of witnesses so they cannot be tracked and asked questions. For the IRS scandal, the House subpoenas Treasury Secretary Lew for IRS documents since Whitehouse officials appear to be obstructing the investigation.

---------------------------------------------------------

On Sunday, 8/4/13, ..terrorism…Egypt…oil… China…..Japan……copper…….

On Monday, 8/5/13, Congress adjourns for August recess ignoring the fiscal problems until after Labor Day. ISM Non-Mfg Index. New response rules are brought on line for the exchanges to help prevent future flash crashes. TSN. VNO.

On Tuesday, 8/6/13, International Trade. JOLTS Report. 3-Year Note Auction. DIS. KORS. D. Z.

On Wednesday, 8/7/13, Ramadan ends. Oil Inventories. 10-Year Note Auction. DRYS. DUK. EGLE. RL. TSLA. YRCW.

On Thursday, 8/8/13, Jobless Claims.  Natty Gas Inventories. 30-Year Bond Auction. CLNE. GERN. PCLN.

On Friday, 8/9/13, Wholesale Trade. CPK.

---------------------------------------------------------

On Monday, 8/12/13, Treasury Budget.

On Tuesday, 8/13/13, Retail Sales. Import and Export Prices. Business Inventories.

On Wednesday, 8/14/13, PPI. Oil Inventories.

On Thursday, 8/15/13, CPI. Jobless Claims. Industrial Production. Natty Gas Inventories.

On Friday, 8/16/13, Opex. Housing Starts. Productivity and Costs. Consumer Sentiment.

---------------------------------------------------------

On Monday, 8/19/13, ….

On Tuesday, 8/20/13, …

On Wednesday, 8/21/13, Existing Home Sales. Oil Inventories. FOMC Minutes.

On Thursday, 8/22/13, PMI Manufacturing Indexes. Jobless Claims. Natty Gas Inventories.

On Friday, 8/23/13, New Home Sales.

---------------------------------------------------------

On Monday, 8/26/13, Durable Goods.

On Tuesday, 8/27/13, Consumer Confidence. 2-Year Note Auction.

On Wednesday, 8/28/13, Oil Inventories. 5-Year Note Auction.

On Thursday, 8/29/13, Jackson Hole Economic Summit begins with a focus on Yellen. Jobless Claims. GDP. Natty Gas Inventories.

On Friday, 8/30/13, EOM. Chicago PMI. Consumer Sentiment.

On Saturday, 8/31/13, Jackson Hole Summit ends.

---------------------------------------------------------

On Monday, 9/2/13, Markets are Closed in Observance of Labor Day. China and Asia PMI’s.  European PMI’s. 

On Tuesday, 9/3/13, Markets Reopen for trading. Congress returns from August recess to address the fiscal problems within the next 4 weeks. ISM Mfg Index.

On Wednesday, 9/4/13, Beige Book.

On Thursday, 9/5/13, Jobless Claims. Factory Orders. Natty Gas Inventories. Oil Inventories.

On Friday, 9/6/13, Monthly Jobs Report.

---------------------------------------------------------

On Monday, 9/9/13, …

On Tuesday, 9/10/13, …

On Wednesday, 9/11/13, Anniversary of 911. Wholesale Trade. Oil Inventories. 10-Year Note Auction.

On Thursday, 9/12/13, Jobless Claims. Natty Gas Inventories. 30-Year Bond Auction.

On Friday, 9/13/13, PPI. Retail Sales. Consumer Sentiment. Business Inventories.

---------------------------------------------------------

On Monday, 9/16/13, Industrial Production.

On Tuesday, 9/17/13, FOMC meeting begins as traders listen for ‘QE taper’. CPI.

On Wednesday, 9/18/13, Housing Starts. Oil Inventories. FOMC Meeting Announcement, Forecasts and Chairman Bernanke Press Conference.

On Thursday, 9/19/13, Jobless Claims. Philly Fed. Leading Indicators. Existing Home Sales. Natty Gas Inventories.

On Friday, 9/20/13, OpEx Quadruple Witching.

---------------------------------------------------------

On Sunday, 9/22/13, Germany reelects Merkel and now there is no longer a need to keep countries like Greece or Cyprus in the euro, or even Germany itself.

On Monday, 9/23/13, Flash PMI’s.

On Tuesday, 9/24/13, Consumer Confidence. 2-Year Note Auction.

On Wednesday, 9/25/13, Durable Goods Orders. New Home Sales. Oil Inventories. 5-Year Note Auction.

On Thursday, 9/26/13, Jobless Claims. GDP. Natty Gas Inventories.

On Friday, 9/27/13, Consumer Sentiment.

---------------------------------------------------------

On Sunday, 9/29/13, the Debt Ceiling Limit and CR Continuing Resolution to fund the U.S. government deadlines occur. Perhaps last minute antics occur today which is typical for the politicians. The Whitehouse scandals are distracting politicians from addressing the fiscal problems.

On Monday, 9/30/13, EOM. EOQ3.

On Tuesday, 10/1/13, Q4 begins. China and Asia PMI’s.  European PMI’s. Construction Spending. ISM Mfg Index.

On Wednesday, 10/2/13, ADP Jobs Report. Oil Inventories.

On Thursday, 10/3/13, Jobless Claims. Factory Orders. Natty Gas Inventories.

On Friday, 10/4/13, Monthly Jobs Report. European bank stress tests will occur in Q4.

----------------------------- 2014 ----------------------

On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed. Yellen, Summers and Kohn are candidates. Yellen is the front runner, very dovish and will likely continue QE indefinitely which is happy news for stock market bulls.

On Friday, 2/7/14, Winter Olympics begin in Sochi, Russia, through 2/23/14.

In February/March 2014, the new Fed Head testifies before Congress.

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.