Trading Week in Review and Path Ahead 1/29/12

On 1/21/12, Saturday, news sources are reporting that a key negotiator in the Greece debt talks has left Athens without a deal in place.  Greece needs a second tranche of funding to stay afloat but has to come to a deal with private debt holders first.

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On 1/23/12, Monday, the Greece talks continue without resolution. The markets do not seem to care as the major indexes move sideways.

On 1/24/12, Tuesday, after the close, AAPL announces blow-out earnings hitting a solid homerun.  Ericcson, however, misses earnings and tumbles 14%.  Alcatel-Lucent loses over 10%. VZ is weak.  People want the new Smartphone technology but at the same time the telecom companies and parts suppliers appear to be weakening. Portugal’s yields continue to blow out.

On 1/25/12, Wednesday, LaGarde says combining the ESM and EFSF would boost confidence.  The World Economic Forum’s annual meeting in Davos, Switzerland, begins. The FOMC rate decision and press conference announces that the Fed’s low interest rate policy will continue well into late 2014 (another 18 months). Chairman Bernanke also comments that further quantitative easing is on the table.  Traders ponder that perhaps the Fed is seeing a much weaker economy than everyone else sees but with the fresh quantitative easing, traders dubbing the Fed move as QE2.5, the markets sky rocket higher, the SPX moves over 1330. The dollar weakens on the Fed move thus, the commodities, copper, gold, oil, and equities, as well as the euro, all move higher.

                                                                                                                                    

On 1/26/12, Thursday, Italy bond auctions go well as all the European auctions have in recent days after the LTRO program appears to be increasing confidence on the continent. All eyes are on the Dow as the day begins since a close above 12811 from 4/29/11 will have the Dow at levels not seen for 3 ½ years, but, those hopes disappear quickly as the markets steadily trail lower during the session. Technology is strong supporting the bullishness in the markets. The XLK technology sector chart shows price highs not seen since eleven years ago, back during the dotcom bubble days. CAT, an excellent global economic proxy, announces stellar earnings, but the bulk of the improvements is in the States rather than the high-growth emerging markets.

On 1/27/12, Friday, the GDP number is 2.8% far short of the 3% and higher whisper numbers, but actually an improvement over recent months.  Markets meander directionless into the weekend. Portugal yields continue to blow out indicating the need for a second bailout is coming fast.  Fitch rating agency downgrades Belgium, Cypress, Italy, Slovenia and Spain.

On 1/29/12, Sunday, the Greece talks with bondholders continues with no word yet on resolution.

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Looking Ahead,

On 1/30/12, Monday, Italy and Belgium bond auctions. Greece resolution needed. E.U. Summit. Personal Income and Outlays. Dallas Fed Mfg Survey.

On 1/31/12, Tuesday, EOM, S&P Case-Shiller, Chicago PMI, Consumer Confidence.

On 2/1/12, Wednesday, Final China PMI, ADP Employment, ISM Mfg Index-watch energy markets, Construction Spending.

On 2/2/12, Thursday, Jobless Claims.  Productivity and Costs. Fed Chairman Bernanke testifies befoe the House Budget Committee.

On 2/3/12, Friday, Monthly Jobs Report, Factory orders, ISM Non-Mfg Index.

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Continue watching the European 10-year bond market yields, especially Portugal yields that continue to blow out.  Greece’s talks with bondholders requires resolution as the E.U. Summit begins on Monday. The bond auctions over the last two weeks went well for Europe and helped calm markets. Greece, Portugal and Hungary require close watching.

Global recovery is stalling. China real estate bubble is popping.

Another big earnings week is on tap.

Keystone's Morning Wake Up and Midday Market Action 1/27/12

GDP dissapoints at 2.8%, which is actually an improvement over recent numbers, but traders expected 3% and higher.  The news impacting markets is coming in waves.  Trying to keep up with it all is fruitless, the weekends are needed simply to play catch-up and process the information.  RVBD and JNPR tech earnings were weak so that may impact tech today.  Earnings this morning were not that impressive, F, PG, CVX, etc...   About 70% of companies are beating earnings but remember, most of these beats are against lowered expectations. Everyone receives a trophy nowadays.  In addition, many companies are guiding lower.  Another whammy is that many top line revenues are only in line, few are beating and those that do are only beating by a smidge. This speaks volumes about the actual consumer. Holiday spending was performed using credit cards and folks dipping into savings.

CAT earnings were stellar but most positively effected by activity in the States which accounts for about one-third of its business.  CAT is an excellent proxy for the global economy, especially emerging markets, and although the overall picture is positive, the areas where the growth is most expected and needed is not where CAT's success occurred.  T, the huge divvy play, fell over 2% yesterday, the telecom sector in general weak. Margins are falling as they handle the demand for iPhones. Interesting to see that AAPL had blow-out earnings but many of the support companies, from chips and parts, to the glass, and the telecoms as well, are guiding lower.

The GDP data a few minutes ago weakened the futures.  For the SPX today, starting at 1318, the market bears need to push lower about four points, to lose the 1314 handle, and more specifically 1313.60. If so, the broad markets will accelerate lower in short order, the SPX then likely testing 1307-1308.  The bulls have a tougher road ahead today since they need to attain 1333 to reignite the upside celebration, 15 points higher, and now the major index futures are all red.  A move thru 1315-1331 is sideways action.

The same culprits are in play today.  Watch Keystone's SPX:VIX ratio, now at 71.00.  If 68 is lost, the broad markets will experience a significant selling event today, the Dow Industrials down triple digits. If the ratio stays above the 68, then any downside move will be limited.  The Nasdaq futures are down -0.24% while the S&P futures are down -0.52%, thus, the Nasdaq is not leading the anticipated downside move today so the move lower may be muted.  Watch to see if the Nasdaq accelerates and leads lower which would accelerate the bearishness. A Bradley turn date also occurs tomorrow so the market is ripe for a trend change now.

Note Added 1/27/12 at 9:50 AM:  The market move down after the open petered out quickly since the Nasdaq is not leading the downside.  The SPX came down, however, and bounced directly off of Keystone's target at 1313.62, thus, support held.  Look for another test of this 1313.60 level.  SPX:VIX is remaining above 68 continuing to favor bulls.  Consumer Sentiment data hits any minute and this is a potential market pivot point.

Note Added 1/27/12 at 10:18 AM:  Consumer Sentiment was 75.0, a happy reading, highest in about one years time, but the market pivoted on the news and sold off dropping down to test that 1313.60 again.  A failure did occur at 1313.60 but only for seconds before the bulls pushed the SPX back upwards.  Watch for further tests of 1313.60. If it fails and the failure holds for seven to ten minutes, the bears will accelerate the down move in the broad markets strongly. SPX:VIX is at 70.41, well above the critical 68, dampening the bearish action.

Note Added 1/27/12 at 10:50 AM:  SPX failure at 1313.60 at 10:46 AM--and another rebound bounce occurs. The bulls are not giving up easily, they are trying to prevent the 1313.60 failure with all their might. Here's the fifth test coming today...........

Note Added 1/27/12 at 10:59 AM:  Remember how important the utilities sector was a couple days ago, before the Fed announcement? The UTIL 439 is a key level this week. The utes are weakening today now printing a 448 handle.  For next week, Keystone's algorithm, Keybot the Quant, identifies the 453 level as key.  UTIL is now printing 448.15.  Thus, watch UTIL extremely closely today. If UTIL closes under 453 at 4 PM today, the broad markets will be in serious trouble when the Monday morning opening bell rings. SPX now popping up towards 1316, the bulls are not giving up today.  The tech strength, Nasdaq, is supporting the market bulls today.

Note Added 1/27/12 at 11:35 AM:  Portugal is blowing out with the 10-year yield now at 15.22%, up 40 basis points in the last six hours, it appears they are losing control.  The Greece talks with bondholders were supposed to deliver the goods today, now it is looking like the can will be kicked into the weekend.  The E.U. Summit on Monday is a more firm deadline.  Europe needs to provide plans and direction. Even with an acceptable handling of Greece now, Portugal is spinning out of control and may need a second bailout immediately. What a mess.

Note Added 1/27/12 at 11:46 AM:  SPX failure at 1313.60 at 11:40 AM. This may be for real this time. A bearish acceleration lower would be expected if the bears hold it under 1313.60.  A back kiss would be needed.  The SPX:VIX ratio is 69.94 so this continues to place a dampener on any downside move. The bears need to see 68 for the ratio. Tech buoyancy continues to help the bulls. UTIL now printing a 447 handle.

Note Added 1/27/12 at 1:02 PM:  SPX failure at 1313.60 at 12:58 PM. If price finally decides to stay under 1313.60 the broad markets should accelerate lower.  The buoyancy in tech and the SPX:VIX above 68 continues to support the bulls today preventing any significant downside.  UTIL venturing down to the low 447's. Every step lower makes it more likely to print under 453 at the close today three hours away.

Note Added 1/27/12 at 1:04 PM:  Fitch rating agency downgrades Belgium, Cypress, Italy, Slovenia and Spain.

Note Added 1/27/12 at 1:25 PM:  UTIL printing a 446 handle. The fight along SPX 1313.60 support/resistance continues.

Note Added 1/27/12 at 3:33 PM:  The bulls are pumping the indexes into the close with the SPX now testing 1319.  Price continues to fight thru the support/resistance gauntlet at 1314-1319. The Nasdaq bullishness today and SPX:VIX ratio now over 72 would not permit the broad indexes to move lower today.  UTIL is 449.26 appearing to want to close under the critical 453 level.

Note Added 1/28/12 at 8:00 AM:  The markets trailed lower during the last half hour of trading.  The bears did not perform any negative damage since the Nasdaq, technology, continues to relentlessly lead the upward momo.  Of interest, for Monday's open, the utes, UTIL, will automatically begin in a market bear-friendly position.  As long as UTIL stays under 453, market bears will begin to be favored moving forward. If UTIL moves up at Monday's open and regains 453, that is an immediate tell that the market bulls will continue to push much higher. After such an impressive bullish market move in December-January, the down side is hard to envision, the markets have a way of lulling you into this mindset.  But if UTIL remains under 453, the markets are in serious trouble.  The UTIL 50-week moving average (MA) must be closely monitored as well.  If the broad markets do weaken moving forward, a failure of UTIL at the 50-week MA, now at 432.07 and moving up, represents a trap door for the broad markets where bearish carnage runs wild. Thus, the utilties are key come 9:30 AM Monday.  There is lots to look at and post as the weekend moves along. The Greece bond holder talks are front and center leading into Monday's E.U. Summit.

European Bond Yields 1/27/12

The Greece drama, or more correctly Greek Tragedy, continues along.  Resolution to the latest Greece debt crisis with bondholder negotiations is promised every couple days but when the target day comes, a cup of coffee is poured and the date pushed forward again. The latest goal was for Greece to announce the plan for bondholders today but today is already long in the tooth.

Portugal is blowing out. Over a week ago we could see the yields climbing creating a new problem that will have to be pulled to the front burner.  Portugal prints 14.83% only 17 basis points below 15%. Portugal blowing out above 15% will receive lots more attention. The Portugal 2-year is 16.11%; note the inversion as compared to the 10-year at 14.83%.

10-Year Yields:
Greece 33.53%
Portugal 14.83%
Hungary 8.75%
Italy 5.97%
Spain 5.06%
Belgium 3.78%
France 3.10%
U.K. 2.09%
U.S. 1.95%
Germany 1.89%
Japan 0.97%

On the positive side, Italy is under 6%, not seen since early December. However, isn't it pitiful to consider a move under 6% to be positive? Spain is moving down towartds the 5% level.  Germany moves under 1.90% as money continues to seek safety there.  Interestingly, France is moving down stubbornly slow, maintaining the 3.10% level, that in itself is a tell.

Japan must be monitored closely as rating agencies discuss their dissatisfaction with Japan and the threats of a downgrade are growing. If Japan experiences any rise in rates from the paltry 1% level shown above, the country will lunge into turmoil.  The events coming out of left field are the ones that impact markets the most.  Currently, Portugal, Hungary and Japan are major concerns.

Note Added 1/27/12 at 8:25 AM EST:  Here we go folks, Portugal is blowing out, now 14.90%, only 10 bips from 15%.  Obviously, as the yield sky rockets the spread between Portugal and the other Euro nations widens.  Hang on tight.

Note Added 1/27/12 at 11:36 AM EST:  Portugal 10-year yield is blowing out. Last print is 15.22%, jumping 40 basis points this morning! Looks like Portugal is losing control and they will need a second bailout immediately.  Greece promised a resolution with the bond holders today but the weekend is now more realistic.  The E.U. Summit on Monday now creates a firm deadline.  Greece needs resolved by Monday and now Portugal is spinning out of control perhaps requiring immediate intervention.

Note Added 1/27/12 at 1:12 PM EST:  Fitch rating agency downgrades Belgium, Cypress, Italy, Slovenia and Spain. The euro trails lower.

Note Added 1/28/12 at 8:16 AM EST:  Greece continues to try and find resolution with bond holders before the E.U. Summit on Monday. It's a pizza weekend in Europe as teams work day and night to handle this latest mess.  Perhaps they should keep the pizza man on speed dial since Portugal, perhaps Hungary, will quickly need attention as well.

NYHL New Highs-New Lows Daily Chart Signals Significant Market Top

NYHL shows a significant market top now in place. The 295 reading is nose-bleed level. The red circles show significant market tops over the last half year. Note the July market high was identified with that obscene 400-ish number. Markets dropped, but recovered, placing the 200-ish number that marked the top in the broad indexes right before the August waterfall crash.

The green circles mark significant market bottoms such as the bounce off the August lows and the start of that uber bullish rally in October. Note that the chart also accurately forecasted the late November bottom that marks the rally to present day.  Thus, a market top is in place now with the 295 reading.  Note the blue lines showing negative divergence across all indicators. In addition, the stochastics are overbot so the markets are about to experience a smack down here at any time.

I hope that everyone had a chance to search their souls today concerning the holding of any long positions, as discussed in this mornings missive. The time is at hand for a market pull back, and it has potential to become quite serious, put your seat belt on. Projection is that a broad market sell off is at our door step and will occur at any time. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your finanical advisor before making any investment decision.

S&P 500 Dividend Yield Chart Over the Last 100 Years

This chart was developed by S&P and Robert Shiller. Please explore their web site at http://www.multpl.com/s-p-500-dividend-yield/   The Keystone Speculator added the annotations.

The dividend yield is the annual dividend payments divided by the market capitalization or more simply, the dividend per share divided by the price per share. The chart above presents the dividend yield for the S&P 500. The green circles represent significant market bottoms and the red circles represent significant market tops.

The green chart was added and graphically depicts the SPX from the 1982 low (SPX 100) to present day (SPX 1318). The pink lines show the 18-year cycle. A bear market was in place from the mid 1960's into August 1982 when the rip-roaring 18-year bullish cycle kicked in and the markets celebrated into the dotcom bubble high in 2000.  Markets now continue along a little more than halfway thru the 18-year bear cycle currently, and note that stock prices remain elevated at levels at the start of the cycle. Perhaps the next eight years will finish the story.

One way to interpret this chart is the directional move of the divvy yield to determine market direction, it is obvious above that the divvy yield moves opposite the markets.  In 1982, the dividend yield on the SPX reached 6.7%.  During the next five years, into the 1987 Black Monday crash, the divvy yield had dropped to about 3%. Note how the directional move with the green and red circles directly correspond to the market highs and lows, with lows occurring in 1982, 1988, 1990, 1994, 2002 and the March 2009 bottom.

Note the long drop in divvy yield from the 1982 market bottom to the late 1990's market top, about 18 years, form the 6.7% down to about a 1.4% low.  During this period stock prices were rising faster than divvy payments from earnings.  Thus, if the price per share is rising faster, reference the formula above, price is in the denominator of the ratio so if price rises faster the divvy yield moves lower faster. Think back to high school math and fractions, hopefully you paid attention that day.

What does all this mumbo jumbo mean? In a nutshell, here in January 2012, we are at a very low 1.91 divvy yield, sure there are lower numbers in the previous decade that would be possible but do you think it is more likely for the divvy yield to move upwards from here, or downwards? Keystone projects upwards which corresponds to markets continuing lower as the 18-year bear cycle continues to play out towards 2018. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

XLK Technology Sector Weekly Chart Visits Highs from 2001 -- Eleven Years Ago

XLK technology sector punched above the late 2007 highs to print numbers not seen since 2001, eleven years ago, during the ongoing dotcom melt down. One heck of an accomplishment after all these years. AAPL earnings probably helped with the final push. The Nasdaq, however, has not exceeded prior highs.

The higher high over the last year shown by the green line above comes with negative divergence (not shown). Thus, a down up down stutter step sideways move would be expected for XLK with price then rolling over. Projection is sideways to sideways down for the foreseeable future. Continue to watch the tech earnings releases to gauge the path forward for technology. This entire market rally has been led by the Nasdaq strength so watch for cracks in the technology sector to see if tech starts to lead the markets down. This information is for educational and entertainment purposes only. Do not trade based on this information. Consult your financial advisor before making any investment decision.

Keystone's Midday Market Action 1/26/12

The markets launch out of the gate today; this is becoming a standard routine now.  The Dow, INDU, prints a HOD thus far at 12842, over the closing high from April, but not yet thru the intraday high of last year in early May. The SPX overtook 1328.30 immediately so this led the way to bullish fun and a thrust up and over 1333.   Referencing the SPX support and resistance, the 1329, 1331 and 1333 levels are extremely strong resistance levels. Price has used these levels as magnets in the past so the progress of the SPX, and thus the broad markets, can be measured as the SPX interplays among these levels.

Keystone's SPX:VIX ratio popped to 74 and is now printing 73.29.  The bulls remain in control of the equities markets as long as the ratio stays above 68. Bears do not have a chance unless they see sub 68. The bulls are holding all the cards with a weak dollar that causes the euro, copper, gold, commodities and equities to all move higher. SPX now continues to leak lower, rejected by the 1329, 1331 and 1331 resistance levels.

The SPX is up only 0.12% while the Nasdaq is up 0.27% so the tech strength continues to underpin the markets and provide that buoyant bull support. Looks like the bears may only be able to reverse this bullish market momo if bad news from Greece, Hungary, Portugal, or Japan, hits the wires. Housing data was weak but who cares when the wine is flowing like water.

Note Added 1/26/12 at 10:51 AM:  The Nasdaq is down -0.22% while the SPX is down -0.18%.  That is a change from the open.  The Nadaq is now leading the downside, albeit slightly. This accounts for the weakness in the indexes.  If the Nasdaq continues to lead lower the markets will continue to trail lower. The SPX:VIX is now printing 70.93, still a couple handles above the critical 68 level, but the market bears are making a push. Note the volatility is rising as well favoring the bear move down.

Note Added 1/26/12 at 12:14 PM:  The Nasdaq is down -0.22% while the SPX is down -0.28% so the tech leadership to the downside melted away. Thus, markets stumble sideways waiting for the next catalyst. For the SPX, strong support exists at 1319 (strong support), 1316 (very strong support), 1314 (very strong support), and then the number the bears really need to fail today, 1308. Watch to see if downside Nasdaq leadership reexerts itself, or not.

Note Added 1/26/12 at 2:44 PM:  The Nasdaq is down -0.57% while the SPX is down -0.66% so although the markets drift lower tech is not leading the down side, so the move south will be muted, unless the Nasdaq accelerates lower.  The SPX cracked thru 1319 support at 2:17 PM. Watch 1316 support next. SPX:VIX is now 69.57 and actually moved down towards 69.30 a short time ago.  Thus, the bears are fighting back today.  If the market bears can push the SPX:VIX ratio another point and change lower, a large negative snowball will start growing and rolling down hill.

Note Added 1/26/12 at 2:54 PM:  Since SPX 1319 was strong support, price is coming back up and performing another back kiss to make sure that 1319 can now be renamed as resistance. Price will either fail now and head down to test the strong support at 1316, or punch back up thru and decide that it does not want to give up 1319 support just yet. Here we go......currently printing 1319.16.......

Note Added 1/26/12 at 2:59 PM:  The back test results in collapse and failure, SPX now printing 1317.54.......1317.18.  Two handle drop in five minutes.  SPX:VIX is 69.36, however, so the bulls remain in control above 68. 

Note Added 1/26/12 at 3:03 PM:  The SPX did not waste any time testing the 1316 support, two minutes ago stabbing down thru, printing a LOD at 1315.76 and bouncing.  SPX 1316 is strong support so price will likely try once or twice more before it possibly breaks down thru.

Note Added 1/26/12 at 3:08 PM:  She's coming down now for another look at 1316......there you go, failure, 1315.97.  Can the bears keep it under 1316? If so, it would say a lot about the strength of the bear push lower since 1316 is very strong support.

Note Added 1/26/12 at 3:25 PM:  SPX now under 1316, the bears are flexing their muscles, so now a back kiss is in order to verify that 1316 will serve as resistance moving forward, just like the move down and back kiss that took place at 1319 one-half hour ago. The next strong support is at 1314.

Note Added 1/26/12 at 3:29 PM:  SPX back kissed the 1316 resulting in price failure.  Price now collapsing thru 1315 probably on its way to test 1314 support. SPX:VIX ratio is now down to 68.67.  The market bears got game.  If the bears can move the ratio down another 67 cents they can start some mayhem, and there is ample time available with one-half hour remaining before the close.

Note Added 1/26/12 at 3:32 PM:  SPX drops to test 1314 and bounces, look for further tests of 1314 support. This action the last couple hours is text book support and resistance action.

Note Added 1/26/12 at 3:35 PM:  The SPX is down -0.80% while the Nasdaq is down -0.73%. This makes the market move down questionable since tech is simply not providing the strong leadership and oomph needed to drive bearishness. 

Note Added 1/26/12 at 3:49 PM:  The bears ran out of gas.  Since the Nasdaq would not provide bearish leadership, the downside move faded, price climbs back up thru to overtake 1316 again.  The SPX:VIX ratio is moving towards 70 again.  The bears are folding like a cheap suit into the close.  SPX now up to test the 1319 S/R again.  Watch the closing price in relation to the critical S/R levels at 1319, 1316 and 1314.

Note Added 1/26/12 at 4:10 PM:  During the last two hours of trading, the SPX failed the 1319 support level then attempted four times to regain 1319, including in the last minute, only to fail each time.  SPX 1319 sealed its importance as critical S/R moving forward so watch it closely here on out.  Think of this in terms that if markets stay under 1319 a bearish pall exists over markets but if price moves above 1319 the skies will clear and this will be bull favorable. Remember a couple days ago Keystone called the 1314-1319 zone the 'resistance gauntlet' and price overtook this zone favoring bulls.  Today's action brings price back down for a test of this area, what we will now call the 'support gantlet' zone. Thus, price is going to either bounce from this 1314-1319 zone and the bulls will ride another leg higher well into the 1320's and 1330's, or, price failure will occur from this zone.  For tomorrow, Friday, watch the 1314 support, it is extremely important, if lost, it will signal that perhaps this long December-January rally may finally roll over.

Keystone's Morning Wake Up 1/26/12

Now that the smoke has cleared after Chairman Bernanke fired the bazooka yesterday, the effects on the markets are dollar down, copper up, commodities up, gold up, equities up, the standard quantitative easing directional move.  The euro is up moving with equities as usual. The Fed changed its stance from maintaining low rates into mid 2013 to now extending the easy money policy into late 2014. In addition, Bernanke commented that he remains open to QE3 (more bond purchases are on the table). The equities markets are rocking to the news but as things settle down traders must wonder why the Fed extended the time target.  Of course because the Fed sees a weak economy, probably far weaker than any of us realize. Bernanke is walking down the road of Japan, a road he swore he would never travel. How many years, or decades, will be lost for America?

The ECB rate decision is coming in early February, days away, and with Europe falling deeper into recession, rate cuts have to be on tap, so the enthusiasm with the euro versus the dollar move should adjust backwards as the days play out. The recent ECB LTRO program, and now the Fed, are performing quantitative easing measures before the equities and commodities markets even pull back, as typically would be the case. Again, this provides a nagging background thought that the global equities markets may be in a lot worse shape than anyone realizes. But, for now, the party lives on, so pour another drink.

The Italy bond auctions went fine this morning.  The Greece dilemma is supposed to be resolved by tomorrow, but that promise is repeated too many times already. The two countries to watch are Portugal and Hungary.  Watch the Portugal 10-year yield to see if it explodes up and over 15% in the coming days. The higher Portugal and Hungary bond yields means it is more expensive for these countries to borrow money from investors. The yield reflects inflation expectations and the likelihood that the debt will be repaid. Hungary 10’s were over 10% a couple weeks ago. Early next week Italy bond auctions occur with the 5’s and 10’s and the E.U. Summit will occur so the Euro situation is going to heat up quickly now thru the weekend.

The ECB meets in early February, a couple weeks away, where another rate decision is required.  Europe is slipping deeper into recession so they need to cut rates, this will bring the euro lower again providing a balance against yesterday’s Fed easing. In other words, this euphoria over Chairman Bernanke’s easy money policies should be dampened as time moves along.

Earnings are reporting in line with estimates, estimates that were lowered during the worst pre-announcement season for stocks in the last several quarters. It’s easy to jump over a bar that is lowered to the floor.  Note that many companies are having trouble meeting the top line revenue sales numbers so the concern is not so much earnings or margins but rather that global demand continues to trail off lower, except for iPhone’s of course. The Apple addicts are unstoppable with many of the new sales the result of existing customers ditching phones that are only a few months old in exchange for the new model. Now that is loyalty, and a more well-to-do consumer.

The Dow Industrials closed at 12757 yesterday.  On 4/29/11, the Dow closed at the 2011 high at 12811.  On 5/2/11, the intraday high for 2011 occurred at 12928. Thus, if the Dow closes only 54 points higher today the Dow will be at levels not seen since spring 2008, 3 ½ years ago. The Dow futures are currently up 64 points.  This is occurring as the Dividend Stock Bubble continues to grow. The high yield plays such as T, XOM, MCD, IBM, etc…., are experiencing continual inflows and pumping as Joe Sucka gets caught up in the divvy talk, rushing into the divvy plays.  Afterall, every bubble needs a bag holder.  As all individual traders must decide, is it important for you to receive a 5% yield on a stock as you may watch that stock tumble 5%, 10%, or even 20% in value? The divvy bubble will receive much greater attention as the weeks ahead play out.

These currently deceiving markets require soul-searching by all market long participants.  Ask yourself if you want to hold any long positions for an extended period of time.  If the equities markets pull back strongly here, perhaps the current levels may not be seen for quite some time.  The Fed’s quantitative easing measures provide the market junkies another fix which moves contrary to this idea.  Perhaps the markets will find clarity in the coming days as Greece, Portugal, Hungary, the E.U. Summit and upcoming ECB rate cuts all hit the fan.  With the uber bullishness in the markets now, and many traders unwilling to short, the Wall Street adage of ‘picking up nickels in front of a bulldozer’ comes to mind.  Sure you may have a wee bit more upside but the market downside risks are far higher. Thus, search your soul today.

For now, Chairman Bernanke has beat the dollar with a baseball bat, thus, copper, commodities, gold, equities and the euro all move up as a jolly team. Watch the dollar today. The market bulls win as long as the dollar heads lower.

For the SPX today, starting at 1326, if 1328.30 is achieved (reference the SPX support and resistance levels posted previously), the bulls will party higher once again with a bullish acceleration. SPX 1329, 1331 and 1333 are all very strong resistance levels. The bears are simply trying to stop the upside momo and would be happy with a sideways move thru SPX 1309-1327 today. As presented last evening, watch the SPX:VIX ratio 68 level and after the close check the SPXA150R.

European Bond Yields 1/26/12

Italy bond auctions went fine today. Portugal is finally received the attention it deserves by the global media. The Portugal bonds are reaching record highs since the inception of the euro. Fears grow that the Portugal situation is deteriorating and further bail-out measures are needed. The 10-year is hovering around 14.6%. Portugal's debt has been downgraded to junk status by Fitch, Moody's and S&P rating agencies. The consensus developing is that Portugal may not be able to avoid a default.  As eyes focus on the Greece talks, which now promise resolution by tomorrow, the 900-pound gorilla sitting on the sofa is actually Portugal. Watch to see if Portugal explodes up over 15% in the coming days.

10-Year Yields:
Greece 33.50%
Portugal 14.63%
Italy 6.14%
Spain 5.31%
Belgium 3.90%
France 3.13%
U.K. 2.14%
U.S. 1.97%
Germany 1.94%

Belgium is now 10 basis points under 4%. Italy, Spain and France are behaving themselves lately as Europe is experiencing a temporary calmness. Rates for the U.K., U.S. and Germany remain low showing that investors continue to view these countries as safer areas.

CPC Put/Call Daily Chart Signals Significant Market Top

CPC put/call chart prints another number in the 0.7's indicating a market top is at hand. Over the last eight days the CPC has printed 0.74, 0.70 and now 0.77. The Investors Intelligence Survey shows the level of bullishness to be off the charts as well. Low put/call numbers indicate that the bulls are complacent, no fears or worries at all, the 0.7 numbers show that bulls expect the markets to continue skyward indefinitely. Therefore, this chart is contrarian, and the low numbers now place all traders on notice to assess long positions and decide if you want to hold them, or not, moving forward, since a market sell off is at hand.

Note the signal in July that forecasted the waterfall crash two weeks later. Extreme caution is warranted in these markets, stay on guard, especially for an overnight event which may cause a gap down open, thus, any long players that enjoyed the ride up will give back a chunk of coin on a gap down opening, and short players that wanted to go short will be too late if the shorts are not placed at the prior days close.

Since the CPC forecasts a market down turn at any time, watch the SPX:VIX 68 level, and the SPXA150R 80 level, to help verify the start of a broad market slide. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your finanical advisor before making any investment decision.