Keystone's Trading Week in Review and Path Ahead for Markets 10/5/13

On Friday, 9/27/13, U.K.’s Carney says the recovery is strengthening which may indicate less need for stimulus. Worries continue over the U.K. housing bubble where London prices are up 30-40% in only 6 months time. S&P futures are weak at -4 at 4 AM EST. At 5 AM, S&P’s -6. At 6:30 AM, S&P’s -8. The threat of the government shutdown looms as the CR deadline on Monday approaches. The debt ceiling deadline is 10/17/13. An IPO comes to market, Violin Memory, VMEM, with loud boisterous applause at the opening bell. The joy fades quickly and the crowd goes silent as the stock plummets -16% on its debut. The broad indexes tumble lower at the bell with the SPX falling through 1690. Consumer Sentiment is lower than expected. LL dumps -11% as corporate offices are searched by the Fed concerning lumber origin, much like the raid on Gibson concerning their guitar wood.  GS and BAC are downgraded by Guggenheim. Weaker utilities and higher volatility sends markets lower. The VIX moves above 15 briefly. The financials continue to tease the XLF 20 level but the bulls hang on and send the SPX sideways at 1692. Keybot the Quant, Keystone’s trading algorithm, flips to the bear side at SPX 1689. President Obama speaks at 3:45 PM, fifteen minutes late from the planned time, and berates the House as usual repeating the mantra that he will not negotiate. The Washington dysfunction continues on all sides. Equities drop as the president speaks but then recover into the closing bell with the SPX ending at 1692. The broad indexes are down about one-half percent across the board today. The Dow is 15258. For the week, the SPX is -1.1%, Dow -1.3%, Nasdaq +0.2% and RUT +0.1%. Tech and small caps lead which is a bullish indication. Small caps are supported by the small speculative biotech stocks. AAPL’s 2-week rally boosts the Nasdaq. The FHA asks for a bailout.

On Saturday, 9/28/13, the House convenes to discuss the CR bill. Either the House approves the Senate bill, which is a clean bill that simply approves funding the government without any reference to Obamacare, which will be quickly approved by the president, or, the House will modify the bill by attaching a different stipulation than defunding Obamacare, such as delaying the individual mandate for the health bill for one year or making it law that Congress and all staff should be subject to Obamacare. How sickening it is for the politicians to ram the higher health care costs down everyone’s throat while they conveniently exempt themselves? The system is broken. More evidence surfaces that over the last 3 years, the NSA is spying on all American citizens creating detailed social maps of contacts from cell phones and computers, obviously, in violation of the American Constitution. Holiday retail hiring drops off dramatically with 11% less workers needed this year. TGT is hiring 70K workers for the holidays down from 88K last year. WMT bucks the trend planning to hire 50K workers up from 55K last year, however, this is more due to the higher number of stores now open and operating this year. Back-to-school-sales were lackluster indicating weak holiday sales ahead. Apparel sales are weak. Some new AAPL iPhone users are experiencing dizziness and vertigo-type symptoms, even vomiting in a few cases, due to the screen actions and animations.

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On Sunday, 9/29/13, shortly after midnight, the House approves a new CR bill that approves funding the government with two new stipulations; first, the Affordable Care Act (Obamacare) would be delayed for one year and second, the medical device tax would be lifted. The Senate and Whitehouse already say that the new bill is a non-starter and they will not negotiate. The CR Continuing Resolution deadline is tomorrow at midnight. Congress and the president are performing their last minute clown antics as usual. The debt ceiling limit is only 18 days away. The Sunday evening futures open with the S&P’s -14 and Dow -109. The China week-long Golden Day holiday begins.

On Monday, 9/30/13, EOM. EOQ3. Asian markets drop on the U.S. political uncertainty with a government shutdown now only hours away. NIKKK drops -2%. The dollar/yen is 97.87. China PMI data is weaker than expected.. The dollar is weak and traders are now the least bullish on the dollar since April. The euro is up a touch remaining at the 1.35 level. The Italy coalition government faces collapse as the delicate political balance begins to unravel. Italy 10-year yield moves higher to 4.51%. Italy banks are down -2 to -4% today. Spain’s retail sales continue to drop. Siemens cuts 15K jobs.  Toshiba cuts 3K jobs. The U.S. 10-year yield is 2.61% after dropping under 2.60% overnight. At 5 AM EST, S&P -12. Dow -104. Nasdaq -15.  The CR Continuing Resolution to fund the U.S. government deadline occurs at midnight. Equities drop like a stone at the opening bell with the SPX touching a 1674 handle but the dip-buyers rush in and the broad indexes recover as the day moves along. In the afternoon, the Senate votes against the House CR bill removing the Obamacare stipulations sending it back to the House with only hours remaining before the deadline. Stocks drop during the afternoon. The SPX finishes at 1682. President Obama calls Boehner (House), Reid (Senate), and others but with the same message that he will not negotiate.  The polls must show that all branches of government will be blamed for the shut down so the president is trying to deflect blame. In the evening, the House stands behind funding the government but with the stipulations that Obamacare is delayed for one year and that Congress and staff should have to sign up for Obamacare and not receive special treatment. The House pleads for ‘fairness’ since the president has already provided businesses a one year delay and also unions and other friend’s special exceptions.  The Senate tables the bill since there is no progress. The clock runs out and at midnight; the U.S. government begins shutting down. The last government shutdown was 17 years ago in 1995-1996. As many as 800K people will be out of work and non-essential departments such as parks will shut down. President Obama takes to Twitter and tweets “They actually did it.” The blame game begins.

On Tuesday, 10/1/13, Q4 begins. China PMI is lower than expected.  Japan increases the sales tax from 5% to 8% but also provides 50 billion dollars of stimulus. Global markets are higher surprisingly shrugging off the U.S. government shutdown. Traders remain complacent fully believing that the Fed and central bankers will keep equity markets elevated. The dollar weakens to 79.1 with the dollar/yen at 97.96 and euro up to 1.3564. The 10-year yield is 2.65%. Unilever, a global bellwether, is down -4% on lower guidance citing emerging market weakness moving forward.  Signs of slowing emerging markets are appearing across many sectors.  At 4 AM, S&P futures are +9, Dow +66, Nasdaq +19. What shut down? Traders do not care; the wine is flowing like water. Global markets are higher. Eurozone PMI weakens slightly but continues to show expansion. German jobless rate increases. Italy youth jobless rate rises to 40.1%. The Italy 10-year yield continues to inch higher to 4.56% and the government is in disarray.  U.K. PMI data is weaker than expected.  AMZN boosts holiday hiring.  In bombshell news, MRK cuts 8500 workers, about 10% of its work force. MRK jumps +1% on the news since laying off workers will increase earnings. At 7:30 AM, S&P’s +4, Dow +32, Nasdaq +9. The broad indexes leap higher at the opening bell, the SPX moves from 1682 to 1697 at lunch time. Construction Spending data is delayed due to the government shutdown and the Friday Monthly Jobs Report may be delayed.  ISM Mfg Index is better than expected reversing the negative vibe from this morning’s global PMI’s. The Affordable Care Act health exchanges open for business today. The Obamacare web sites crash and other glitches occur. The government had 3 years to get ready and they fall flat on the first day. These are the incompetents that everyone will now rely on for medical care.  Gold collapses today -40 to 1287. A large seller exited gold positions this morning fostering the negativity.  Equities drift lower during the afternoon but in the final minute of trading spike wildly higher. The SPX is up 13 points, +0.8%, to 1695. The Dow gains +0.4%, Nasdaq +1.2% and RUT +1.2%. RUT prints another new all-time high at 1088. The strong tech and small caps continue to favor the bulls. The House attempts to pass smaller funding bills to fund items such as the national parks and veterans’ affairs but the approach is voted down. President Obama and the Senate are against a piece meal approach and continue to say they will not negotiate.  Both sides are busy sniping and blaming each other all day long into the evening.

On Wednesday, 10/2/13, Asian markets are higher except for NIKK down -2%. TM is cutting production so all auto makers are trading lower. Motor vehicle sales are weaker than expected. GM sales are disappointing. European stocks are down -0.5% to -1.0%. Italian PM Letta speaks. Berlusconi’s supporters abandon his party and join Letta. The ECB meets today, on a rare Wednesday instead of the regular first Thursday each month, due to a German holiday tomorrow. Traders are listening for a potential LTRO 3. Draghi avoids commenting on Italian politics.  At 3:30 AM EST, futures dip lower with the S&P’s -12, Dow -90, Nasdaq -17. The 10-year yield is 2.62%. Secretary Lew sends a letter to Congress urging quick action on increasing the debt ceiling limit since time is running out.  Bill Gross of PIMCO says not increasing the debt ceiling would be unimaginable and catastrophic.  The ADP Jobs Report is 166K jobs, weaker than expected, reflecting an anemic economy, and takes on increased importance since the BLS number may be cancelled on Friday.  The broad indexes drop at the opening bell. Financials and utilities create market weakness. At 10 AM, a statement by Leader Reid is perceived to offer an olive branch (later in the day it was determined to be the same old rhetoric) so the markets recover back towards the flat line as the day moves along. The SPX ends flat at 1694 and Dow at 15133. TSLA loses -10% on a downgrade and more importantly, a video that goes viral, showing a Model S on fire after a collision.  Chairman Bernanke speaks late-day saying that the slow growth economy is hurting small banks.  The New York Attorney General sues WFC for insufficiently helping homeowners after the 2008-2009 financial crisis.  Defense contractor UTX says as many as 5K jobs will be lost due to the shutdown. Twitter is exploring office locations in San Francisco for its coming IPO. After the bell, President Obama is interviewed by a democrat-friendly commentator and says he will not negotiate. The president says he is exasperated over the shutdown and that he ‘bent over backwards to find solutions’ (although for multiple times per day for two weeks the president forcefully said he would not negotiate). When asked about the stock market complacency, the president says “this time is different and the markets should be concerned.” In the evening, the president and Congressional leaders Boehner, Reid, Pelosi and McConnell meet at the Whitehouse for one hour. Boehner steps to the makeshift podium in the Whitehouse driveway to say the meeting reiterated all the same positions. “The president does not want to negotiate.”  Reid and Pelosi provide a statement a short time later saying the Senate will gladly negotiate if the republicans will reopen the government (same baby talk from both sides).  The language grows uglier with Reid saying the republicans are holding the U.S. hostage. Markets are desensitized to the drama remaining elevated without concern. Traders expect a solution to come, as always happens, so the bulls are content to stay long the market. This complacency may set up a spectacular drop in the stock market if the politics worsen.

On Thursday, 10/3/13, Michelin, a global rubber and tire provider receiving 30% of its sales from large commercial vehicle tires, reports weak sales indicating a slowing global economy. Leader McConnell comments on the Senate floor that the meeting last evening at the Whitehouse resulted in the president saying he will not negotiate. The mainline China week-long Golden Day holiday continues. China services data expands at a faster rate. Another radioactive leak is discovered at Fukishima. Tokyo Electric drops -5%.  Spanish yields are climbing. U.K. house prices continue to move higher month after month increasing the bubble. The pound/dollar is 1.6232. The euro breaches 1.36. The dollar is at an 8-month low against the euro. The 10-year yield is 2.64%. At 5:30 AM EST, S&P futures are -5 and Dow -45.  Authorities bust the Silk Road website, an anonymous marketplace, which is believed to be conducting nefarious activities, and using bitcoin as its form of currency for transactions. Global governments obviously view bitcoin as a threat and want to create news spin that the virtual currency is used for illegal activity. Bitcoin prices plunge on the news.          LLY says sales forecasts are weak moving forward so the stock drops, but only slightly, since they also announce a buy-back to pump the shares higher.  Equities sell off after the opening bell. Factory Orders data are cancelled due to the government shutdown. ISM Non-Mfg Index is weaker than expected which weakens the markets. Secretary Lew comments on the shutdown and pending debt ceiling limit crisis saying it would be ‘catastrophic’ and a ‘recession will occur that will be as bad as the Great Depression’.  Lew spooks the markets which is likely what the Administration desires during these sick political games. The SPX falls through the 50-day MA at 1680 and down to 1671 at noon time. The president said the markets should be worried last evening and apparently the markets are today.  The New York Times reports that Speaker Boehner told his colleagues that he “will not let the Nation default.”  Boehner’s office does not deny the comment. Stocks recover strongly on the more conciliatory tone with the SPX moving higher to 1682.  At 2:30 PM, shots are fired at the Capitol Building at the Botanical Garden, after a wild car chase, which results in a lock-down of the area. Stocks drop on the news. The SPX ends the day down 15 points, -0.9%, to 1679. The Dow gives up 137 points, -0.9%, to 14996, losing the 15K level. The Nasdaq drops -1.1% to 3774. The RUT is down -1.1% to 1071. Tech and small caps may lead on the way up, but they are leading on the way down as well. Twitter announces their IPO stock symbol as TWTR (obviously, they did not want to select TWIT). The NYSE and Nasdaq continue to court Twitter for the listing but it looks like the NYSE will get the nod in light of the FB IPO debacle.

On Friday, 10/4/13, BOJ maintains current policy and says the moderate recovery continues. The Nikkei is down -5% this week. Italy considers expulsion of Berlusconi since he is convicted of tax fraud.   ADBE data is stolen by computer hackers. The Monthly Job Report is cancelled due to the government shutdown. The ADP Report has to serve as a proxy for now which disappointed on Wednesday. President Obama cancels a trip to Asia due to the ongoing political turmoil. Big banks are stocking up on cash for ATM machines in case the political situation grows uglier and folks run to the banks to withdraw cash. UNP reports weaker earnings so it is beaten -1%. The economy is anemic if rail cars are not hauling coal and other raw materials. The broad indexes run higher after the opening bell but Speaker Boehner steps to the microphone commenting on a newspaper article that says the democrats feel they have to do nothing to resolve the shutdown since they are ‘winning’.  Boehner erupts “This isn’t some damn game.” Markets drift a touch lower but the Fed’s regular morning market pump each day sends equities higher. The SPX trades flat in the afternoon through 1688-1692 ending at strong S/R at 1691.  The SPX gains 12 points, +0.7%. The Dow jumps 76 points, +0.5%, to 15073. The Nasdaq is up +0.9% and the RUT up +0.7%. Strong copper and financial sectors help the bulls while weak utilities, commodities and higher volatility help the bears.  For the week, the markets are mixed, the SPX is dead flat, the Dow drops -1.2%, the Nasdaq is up +0.7% and RUT +0.4%. Gold ends at 1310. In the evening, the Whitehouse announces that the Obamacare web sites will be down for repairs this weekend. The roll-out of the Obamacare web sites were a disaster this week due to the software malfunctions. No one is able to sign up for health insurance. Young folks are growing concerned, posting messages on FB voicing disgust, now realizing their health insurance costs will rise dramatically, double and triple; many realize that it will be far cheaper to simply pay a penalty and not carry insurance, even if they currently have insurance under the existing system. Hurricane Karen barrels through the Gulf towards New Orleans. Oil and gas rigs are shutting down and removing personnel ahead of the storm. LMT begins furloughing workers due to the which will increase each day the shutdown lingers.  Margin interest debt now surpasses the 2007 market top. Traders are borrowing to play the long side at the greatest level ever in the history of the markets. The major 2000 and 2007 market tops were identified by the high margin interest. What do you think will happen moving forward?

On Saturday, 10/5/13, the government shutdown is in day 5.

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On Monday, 10/7/13, political drama continues.

On Tuesday, 10/8/13, NFIB Small Biz Optimism Index. International Trade. JOLTS Job Openings Report. Fed’s Plosser speaks.  3-Year Note Auction. AA kicks off earnings season.

On Wednesday, 10/9/13, Wholesale Trade. 10-Year Note Auction. FOMC Minutes.

On Thursday, 10/10/13, Import and Export Prices. 30-Year Bond Auction.

On Friday, 10/11/13, PPI and Retail Sales. Consumer Sentiment. Business Inventories.  European bank stress tests will occur in Q4. Germany’s high court must decide if the ECB’s OMT program is constitutional, or not. The new banking union rules and organization must be developed for early 2014.

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On Monday, 10/14/13, …

On Tuesday, 10/15/13, Empire State Mfg Survey.

On Wednesday, 10/16/13, CPI. TIC data. Beige Book.

On Thursday, 10/17/13, Fed’s Fisher speaks. Housing Starts. Industrial Production. Philly Fed. The nation reaches its Debt Ceiling Limit. Will the debt ceiling be raised to avoid a downgrade of U.S. debt? A large debt payment is due the first week of November so there is likely one or two more weeks of wiggle room for the clown politicians.

On Friday, 10/18/13, Leading Indicators.

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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.

In April, MSFT no longer supports Windows XP.

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