Keystone's Trading Week in Review and Path Ahead for Markets 9/21/13

On Friday, 9/13/13, Friday the 13^th, a Japan newspaper reports that Summers is selected as the new Fed Chairman to take over from Bernanke in January 2014. The dollar strengthens on the news since Summers is viewed as being on the hawkish side of dovish Yellen. The DAX (Germany) is near all-time highs. EU finance ministers meet to continue discussions concerning the future banking union.  INTC is closing a Massachusetts plant canning 700 workers. The Whitehouse refutes the report on Summers saying a decision has not yet been made concerning the new Fed Chairman.  Yellen continues to receive a daily beating in the press but is the far better qualified candidate. The hawk and dove monikers attached to Summers and Yellen, respectively, are likely overblown, especially in the case of Yellen that may surprise many detractors if she is selected.  Retail Sales are flat with weak clothing sales. Markets open with an upward bias. INTC pops +2%. Consumer Sentiment is 76.8, surprisingly low, but it jives with folks becoming burdened by high gasoline prices, which is also reflected in the lower retail sales numbers. Business Inventories rise so products are not moving off the shelves as fast as anticipated. Equities pivot lower on the news dropping from SPX 1689 to 1682 at 10:30 AM. The dip buyers enter in force and send markets higher. AAPL completes a golden cross with the 50-day MA moving above the 200-day MA as price plummets to 465. Two CBOE options platforms experience outages but the situation is corrected quickly. In the final five minutes, a flurry of buying occurs and the SPX finishes at 1688. Dow closes at 15376. For the week, a strong relief rally occurs with the SPX up +2.0%, Dow gains +3.0%, the best week since January, Nasdaq is up +1.7%, RUT gains +2.4%, SOX is up +2.8% and the Trannies gain +2.4%. The 10-year yield is 2.90% and 30-year yield is 3.85%. Gold is 1328 beaten badly this week losing -4.6%. WTIC crude oil drops about -2% this week on easing Syria tensions but remains elevated at 108.60.

On Saturday, 9/14/13, Yom Kippur.  President Obama drops the threat of military force on Syria, conceding to Putin’s demands, to allow a framework for securing chemical weapons to proceed. The president relinquishes control of the situation to Russia and Syria as Assad works to split and hide his chemical weapons stockpiles in over 50 different locations. Putin further emasculates Obama, now on a daily basis, by announcing arm sales to Iran.

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On Sunday, 9/15/13, today is the 5-year anniversary of the Lehman (LEH) collapse and the start of the 2008 Crash. The unemployment rate was 6.1% then and now remains elevated at 7.3%. Back then, if you could fog a mirror, you were given a house mortgage. Now, you must have 25% down or more to purchase a home so the speculators and cash-buyers are the ones pumping house prices higher.  Consumers are spending less on clothing and electronics nowadays than five years ago. The wealthy are wealthier due to the higher stock market. The big banks remain too big too fail. The middle class and below continue to suffer with structural unemployment. At 4:30 PM EST, Larry Summers withdraws from consideration for Fed Chairman shocking the markets since he was the expected choice. Summers cites a ‘difficult confirmation process that would be acrimonious and not serve the interest of the Federal Reserve’. For the Sunday evening global indexes and futures markets, the dollar drops, gold is up over 20 bucks, the Dow is +180, S&P +19 and Nasdaq +36. Traders conjecture that Yellen may be selected which means a more dovish Fed, so the stock market catapults higher dreaming of a new round of easy money QE.  Two weeks of violence in the Philippines continues.

On Monday, 9/16/13, Asian markets are higher on the Summers news except for the Shanghai which is lower. The DAX hits a new record high. A small 3-foot wide drone taking aerial photos at a Merkel event crashes into the stage. Drones have easy access anywhere which creates a concerned look on faces. The euro pops to 1.34 overnight but drops to 1.33 at 5 AM EST. A property bubble is growing in the U.K.  The futures remain strong with the Dow +170, S&P +20 and Nasdaq +33. The dollar is at a 3-week low with USD at 81.17. The 10-year yield falls to 2.80%. Stocks are higher, yields are lower. Brent oil drops -2.3% to 109.13, almost a 108 handle. WTIC crude oil is down -1.5% to 106.54.  The Continuing Resolution (CR) deadline to fund the U.S. government is only 2 weeks away. The Debt Ceiling limit is reached in only one month. The broad indexes jump higher at the opening bell but not as high as the futures projected.  The SPX prints above 1700 with a HOD of 1703.74 in the first fifteen minutes. The all-time closing and intraday high from 8/2/13 is 1709.67. The Dow Industrials jump to 15528 out of the gate but this remains about 130 points below the all-time highs. The VIX is actually higher (volatility should move opposite the markets). A shooter is loose at the Washington Navy Yard with one dozen people injured and several killed.  The news coverage continues throughout the day dominating the air waves.  There may be as many as three shooters involved in the horror (turns out to be a single shooter).  President Obama moves forward with a speech on the economy, while the shooting incident is ongoing only two miles away, bashing republicans over the CR deadline now only days away.  At 1:40 PM, a U.S. option trading is halted due to a problem with the Option Price Reporting Agency (OPRA) data feed. Minutes later, the exchanges attempt a restart, but fail. About 17 minutes later, options trading resumes with minor issues.  The broad indexes dip due to this latest stock market computer glitch with the SPX dropping from 1702 to 1698 in five minutes time. The computer glitches and mini flash crashes continue tempting fate. The Nasdaq turns negative on the day pulled lower by AAPL losing -3.2% to 450. JPM agrees to pay a penalty of about 750 million for the London Whale trading debacle and the stock pops +1%. The SPX finishes up 10 points, +0.6%, to 1698.  The Dow is up +119 points, +0.8%, to 15495. The Nasdaq closes negative. The 10-year yield recovers to 2.87%. After the close, MOS lowers forward guidance. At 6:30 PM, two shots (turns out to be firecrackers) are fired at the Whitehouse and the person is taken into custody.

On Tuesday, 9/17/13, Asia markets are flat to weak. Initial data shows weak Apple iPhone sales in Asia. U.K inflation rate is as expected at 2.7%. German ZEW sentiment is better than expected. European indexes are flat.  In the packaging and paper industry, PKG buys BZ. MSFT announces NOK phones on sale for $29 which likely sets of a price war in the cell phone category. The 2-day FOMC meeting begins as traders listen for ‘QE taper’ comments.   CPI shows inflation remaining on a milk carton. The broad indexes jump higher at the opening bell then level off as traders look to the Fed decision tomorrow. The SPX is up 7 points on the day to 1705 not yet testing the all-time highs at 1709.67. After the bell, JEF says profit tumbles over 80% on a plunge in bond-trading revenue shocking the financial sector. ADBE earnings are better than expected and it is rewarded in afterhours trading. The gasoline price in the U.S. is now above $3 per gallon for over 1,000 consecutive days. Brazil’s President Dilma Rousseff cancels her State visit to the U.S. due to the NSA and Whitehouse spying scandal where PBR (Petrobras) and Brazilian politicians were targeted.

On Wednesday, 9/18/13, the German 10-year bund yield moves above 2%. Portugal’s borrowing costs rise to a 10-month high as the 10-year yield breached the 8% level. Spain and Portugal are slipping into serious trouble. Germany’s election is Sunday shows a Merkel win on tap. The Berlesconi expulsion vote is expected today. Global bellwether CAT is downgraded. DOW is withdrawing the sale of its plastics unit due to lack of bidders. Shipping bellwether FDX pops over 2% higher on a slight earnings beat. President Obama speaks at a business conference. The chief executives at major corporations are projecting a lackluster economy ahead. Housing Starts are slow at 891K showing that fewer homes are being built. WTIC crude oil pops higher from a 105 handle to over 107 on lower inventories than expected. The 10-year yield moves higher to 2.89%. Markets are idling sideways ahead of the Fed announcement.  The Fed announces “NO TAPER” shocking the market. The 85 billion purchases will continue. The SPX prints new all-time highs above 1723. The Dow Industrials perform a 200-point turn around intraday to print new all-time highs above 15664. The VIX plummets under 14. The 10-year yield collapses to 2.76%. The dollar drops to 80.60. Gold jumps 30 bucks to 1340. Utilities catapult higher due to the fall in rates, ditto home builders. Markets move flat at new all-timehighs as Chairman Bernanke begins speaking at 2:30 PM. The Fed lowers economic estimates moving forward and thinks that the economy is so weak that it cannot even handle a tiny tapering of QE. Pundits and analysts have said that the global economy is recovering and this is why the Fed will taper. Wrong. All this thinking is thrown out the window creating confusion. The Fed says the reduction in QE (Bernanke has never used the word ‘taper’) is data dependent and not calendar dependent. The Fed may have refrained from tapering due to the political deadlines for the Continuing Resolution (CR) to fund the government, and the debt limit, which occur over the next 2 to 6 weeks. The Fed decided to punt until the next FOMC meeting and announcement on 10/29/13 and 10/30/13, perhaps after the politicians resolve the ongoing issues. Chairman Bernanke loses credibility as he coyly states in the Q and A session that he ‘never said that there would be a major announcement in September’. Perhaps he did not, but analysts complain that the Fed head has been in hiding for nearly 3 months with very little guidance provided, and his surrogates never hinted that tapering was off the table. The Fed is more transparent these days but at the same time provides less clarity creating confusion. Markets will need time to sort out the confusion. At the close, the SPX is up 21 points, +1.2%, to a new all-time closing high at 1725.52 and new all-time intraday high at 1729.44. The Dow is up 147 points, +1.0%, to a new all-time closing high at 15676.94 and new all-time intraday high at 15709.58.  The Nasdaq is up 38 points, +1.0%, to a 13-year closing high at 3783.64. The RUT is up 11 points, +1.0%, to a new all-time closing high at 1076.97 and new all-time intraday high at 1080.49.  Trannies (TRAN) are up +1.5% despite higher oil. FDX is up +5%. Utilities explode higher with UTIL up a huge +3% to 494. Interestingly, for a strong rally based on fundamentals, tech (Nasdaq), small caps (RUT) and semiconductors (SOX) should lead the way, but instead, all lag the broad market up move today. PCLN hits 1000 today. After the bell, ORCL beats on EPS but falls short on top line revenue, continuing the trend of lower sales numbers across all industries, and lowers forward guidance. JPM agrees to a 900 million settlement with regulators over the London Whale debacle; higher fines than the 750 million projected a couple days ago. GOOG announces a move into the healthcare sector focusing on extending human life. WAG will drop 160,000 workers from healthcare coverage due to Obamacare to protect the company against rising healthcare costs.

On Thursday, 9/19/13, Asian markets jump strongly higher due to the Fed decision. Dollar/yen is 98.82 moving flat due to the weaker dollar. European indexes are up over one percent. DAX hits a record high. U.K. retail sales unexpectedly drop to a 10-month low. Stocks and bonds continue higher. In the futures at 5 AM EST, the Dow is +50, S&P’s +8 and Nasdaq +13. Commodities are up large. Copper is up nearly 2%. WTIC crude oil is at 109 and Brent at 111. Gold is steady at 1365 after a near +5% move yesterday. The higher gold price indicates that the Fed has lost credibility. The 10-year yield is 2.70% with the strongest Treasury rally occurring since 2011. WFC plans on cutting another 1100 jobs due to slower mortgage demand.  BBRY announces as many as 5,000 job cuts coming in the weeks and months ahead. Blue chips CAG and GIS are downgraded.  David Tepper, Appaloosa Management hedge fund, says the Fed no taper decision creates a favorable environment for markets. Interestingly, a couple months ago, Tepper was bullish because he thought the Fed would taper; now he is bullish because the Fed will not taper. Tepper has been correct on his bullish calls from 2010 to now and he remains a bull at these new all-time highs. Jeremy Siegel, the economics professor, has also been correct with his uber bullish calls this year.  Jobless Claims are less than expected. Jokingly, does this mean the taper is back on the table?  Shortly before the opening bell, the futures lose a little bit of gas; Dow +25, S&P’s +4, Nasdaq +8. Dollar/yen 99.25.  The SPX prints a new all-time high at 1729.86 after the opening bell.  The Philly Fed, Leading Indicators and Existing Home Sales data are all better than expected.  Markets pivot to the downside and drift lower the remainder of the day showing that the same ole ‘good news is bad news’ routine is in play. The healthcare stocks such as MOH, UNH, HUM and WCG are getting thwacked over worries about Obamacare moving forward. UNH drops from 76 to a 70 handle, -5.5%, in only 4 days time. The SPX ends at 1722 unable to print a new closing high. The Dow did not print a new intraday or closing high today. The Nasdaq prints a new 13-year intraday high at 3798.15 and closing high at 3789.38. The small cap RUT does not print a new all-time intraday or closing high. Trannies print new all-time intraday and closing highs. In the evening, Warren Buffett says the “Fed is the largest hedge fund”.  Buffett always defends the Fed since he was bailed out decades ago and says that the exit from QE “can be handled”. He also says “stocks are fully valued” and it is hard to find bargains anymore. Icahn also speaks in the evening and he says stocks are fully valued. Two big-wigs that proclaim the easy money has already been made in the market should receive the attention of all traders. HD is shifting 20,000 part-time workers medical coverage to the public exchanges. The move follows along from a similar move by Trader Joe’s grocery chain.

On Friday, 9/20/13, India surprises markets by raising rates to try and protect their currency.  The new AAPL iPhone is on sale around the world creating small crowds.  Germany and Tokyo have very large lines. The gold iPhone is popular. Today is OpEx Quadruple Witching. The low CPC and CPCE put/call ratio’s continue to signal market complacency and a significant market top at hand. The broad indexes bounce at the open but fall on their sword in quick order and drift lower. At about 10 AM, the utilities turn ugly dragging the broad indexes lower. At 11:30 AM, Speaker Boehner takes the podium and says the House passed a CR bill  to fund the government but a rider on the bill requires that Obamacare be defunded.  The Senate will not approve and the president will veto any bill that contains a defunding of Obamacare. A software glitch surfaces with Obamacare which may cause serious problems with open enrollment in the health exchanges which is set to begin on 10/1/13 only 10 days away.  At about 1 PM, Fed’s Bullard says the Fed decision to not taper was a toss-up and that an October taper is on the table. Equities continue to weaken printing lower lows and lower highs into the closing bell. Traders are not so much concerned about the Bullard comment on a late October taper as much as they are at the mass confusion coming from the Fed. The Fed is floundering and making everything up as they move along.  COL drops -6% as defense contracts dry up. NOC, GD and LMT all dump 2% in sympathy.  At 3:00 PM, BBRY is halted from trading on pending news.  BlackBerry reports earnings one week earlier and the numbers are horrible. In addition, BBRY is canning 4500 employees, about 40% of the workforce. Where are these folks going to find jobs? No where. BBRY reopens for trading at 3:30 PM and collapses losing -23%. The session ends with the SPX losing 12 points, -0.8%, to 1710 in the area before the Fed decision. The Dow loses 185 points, -1.2%, to 15451. The Dow rebalancing with the new additions, as well as Quadruple Witching, creates a huge volume surge. The utilities dump -1.5%. The 10-year yield is 2.74%. Gold retreats from its gains dropping -3.2% to 1325. For the week, the SPX is up +1.3%, Dow +0.5%, Nasdaq +1.4% and RUT gains +1.8%. Trannies gain +2.6% this week. Outperforming tech, small caps and trannies are bullish for the stock market but are these sectors rising because of a healthy economy or rising because traders know they should be rising if the economy was healthy so they simply take the Fed’s easy money and pump these asset bubbles higher? The Fed said Wednesday the economy is sick since there is no taper. At this point, the Fed is doing far more harm than good. At about 5 PM EST, President Obama calls Speaker Boehner to tell him that he will not negotiate on the CR bill. Looks like the spirit of cooperation does not exist as usual in the dysfunctional political system. Political pundits comment on how the president will negotiate with Syria, Russia, and now perhaps Iran, but not with the U.S. House. LNKD may have hacked client accounts to generate sales leads. AAPL iPhone sales receive a positive push today with initial sales numbers expected on Monday.

On Saturday, 9/21/13, Typhoon Usagi continues wreaking havoc across Asia and now targets Taiwan and the Philippines.

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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. CR drama heats up this week. Potential new Fed Head announcement today or this week.

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.

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On Sunday, 9/29/13, the CR Continuing Resolution deadline is tomorrow so Congress and the president will likely perform their last minute clown antics to find a solution. The Whitehouse scandals, and Syria and Middle East problems, are distracting the president and politicians from addressing the U.S. fiscal problems.

On Monday, 9/30/13, EOM. EOQ3. The CR Continuing Resolution to fund the U.S. government deadline occurs. Will the shutdown be averted?

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. Also, now that the elections are over and Merkel is reelected, Germany’s high court must decide if the ECB’s OMT program is constitutional, or not.

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On Friday, 10/18/13, the nation reaches its Debt Ceiling Limit (projection is sometime between 10/18/13 and 11/5/13). Will the debt ceiling be raised to avoid a downgrade of U.S. debt?

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On Friday, 1/31/14, Chairman Bernanke’s term ends at the Fed. Yellen and Kohn are candidates for the position, and perhaps Bernanke and Geithner as well. Summers had to bow out so Yellen appears to be the choice, however, the possibility of Bernanke extending his term, or Geithner riding in on a white horse to take the job, have to be placed on the table as well..

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.

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