Keystone's Trading Week in Review and Path Ahead for Markets 9/14/13

On Friday, 9/6/13, the G20 meetings continue and should be centered on world economics but instead the Syria situation dominates the conversations with East versus West. Union Leader Tromka, instrumental in helping pass the Affordable Care Act, now says businesses are reducing employee work hours to 29 hours to avoid high Obamacare costs. France consumer confidence rises. German industrial production numbers unexpectedly drop. The 10-year yield is 2.97% slightly lower than the 3.00% number hit last evening, not seen since July 2011. Traders believe that either yields move higher with stocks moving lower, or, yields move higher with stocks moving higher.  No one, or very few, entertain the thought of yields dropping from here forward, with stocks dropping as well, which would be disinflationary and deflationary behavior. The consensus for the Monthly Jobs Report is 175K jobs and the unemployment rate to remain unchanged at 7.4%. The whisper number is 180K-200K jobs. The Jobs Report is 169K jobs, a disappointment, and the rate dips a tick to 7.3%. The lower rate is not due to millions of people finding work but the opposite. Folks are discouraged from finding work, since there are no jobs available, so they give up and the unemployment rate drops since these people are no longer counted. Average hourly earnings are slightly up which is a positive. The labor participation rate is 63.2%, the lowest level since 1978, 35 years ago. There are no jobs available. The prior two month revisions result in a huge 74K reduction in jobs so these releases were not as good as originally appeared. In these sick perverse markets, however, bad news is good news, traders are hooked on the Fed’s easy money crack cocaine, so equity futures jump strongly higher, S&P’s +10, and the 10-year yield collapses from the 3% last evening down to 2.87%, 13 basis points. It is shameful what the so-called free markets have become. Obviously the Fed and central bankers are the markets; fundamentals, technical’s and price discovery be d*mned. Copper and retail sectors jump higher leading markets higher at the opening bell. The bulls are running higher when at 10 AM, Putin is asked if he would help Syria. Putin says he will support Syria if the U.S. strikes and he is currently helping them. Equities collapse on the news of escalating Syria tensions, oil sky rockets higher with WTIC crude almost at 111. Gold moves higher.  The SPX collapses from 1662 to 1640, 22 handles, in a heartbeat. News wires provide clarification and context on Putin’s comment and it turns out to be a reiteration of prior comments rather than anything new. Markets recover. The SPX jumps from 1640 to 1665 as the day moves along. At 2 PM, markets reverse again with the SPX dropping to 1655 at the closing bell. The SPX moves a total of 66 points, four percent, through a range of 1640-1665, in only six hours time, and this is with the VIX at 16-ish. When the VIX moves above 20 the moves will be even more erratic and violent.  FB prints a new 52-wk high at 44.61. For the week, the SPX gains +1.4%, the Dow is up +0.8%, unable to regain 15K, Nasdaq is +2% and RUT is up +1.8%.

On Saturday, 9/7/13, President Obama returns from the G20 which was dominated by Syria talk and tensions rather than economics. The president is unable to gain support for a Syria strike from the G20, the American people are against the strike, and it appears that Congress will likely vote against taking action. The Pope sends a letter to the G20 attendees warning them and the president that targeting Syria with military strikes is a ‘futile pursuit’ and to instead seek peaceful solutions. China says a Syria strike will undermine the world economy (sounds like China is already lining up the excuses for an impending market crisis).

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On Sunday, 9/8/13, China may lower its growth estimate to 7%, however, China exports top estimates. Syria’s troubled leader Asaad is interviewed and he vehemently denies using chemical weapons, citing the Colin Powell weapons of mass destruction debacle that brought on war. Syria says it will have no choice but to retaliate if the U.S. strikes. This hints that Syria may launch missiles against Israel.

On Monday, 9/9/13, Japan GDP is better than expected fueled by the weakening yen. The dollar/yen touches 100. The Nikkei finishes up +2.5% and the Shanghai Composite, SSEC, is up a huge +3.4%. The happy China and Japan news sends copper higher and the S&P futures to +4. Secretary Kerry is speaking on Syria and is asked if there is anything that Syria can do to avoid U.S. action? Kerry offers a flip remark “he could turn over every single bit of his chemical weapons to the international community, in the next week, turn it over, all of it, and without delay, and allow a full and total accounting for that, but he isn’t about to do that, it can’t be done obviously.” (little did anyone know that this would be a turning point in the Syria drama) Interestingly, Syria and Russia discuss a plan to implement what Kerry unknowingly just suggested. Equities jump higher at the opening bell. The SPX moves up through the 20-day MA at 1656.  At noon, Syria says they may be open to an international group overseeing their chemical weapons surprising Kerry and the international community. Stocks pop on this news and the SPX wrestles with the 50-day MA at 1667. Fed’s Williams speaks and says the Fed must study how QE creates asset bubbles; this is taper-friendly talk but the markets march higher.  At 2 PM, Russia says they can assist in securing Syria’s chemical weapons. Stocks jump higher again on more positive Syria news. The SPX prints a HOD and closes at 1672. The SPX is up 17 points, 1.0%. The Dow gains 141 points, +1.0%, up and over 15K, to 15063.  The Nasdaq is up 46 points, +1.3%, up and over 3K, to 3706.  The RUT is up 17 points, +1.6%, to 1046. The rally is led by copper, retail and financial sectors. After the bell, PVH, an important retail play since it handles Tommy Hilfiger and Izod, reports weak sales in the retail sector and collapses -4%.  FIVE, the store that sells items under $5, that folks jokingly say is where you go to buy something that lasts for five days, reports strong earnings and is rewarded +13%. Fannie and Freddie are reducing the sizes of loans eligible for financing to try and wean the mortgage market off government support.

On Tuesday, 9/10/13, China industrial output is the highest in 17 months so the double whammy of encouraging China and Japan news, with the Syria positive news, drives global markets higher. The dollar/yen moves above 100. Abe, however, says that failure to approve a tax increase may create a market selloff. The Indian rupee strongly recovers from the recent beatings. The dollar is up and commodities are down including oil, gold, silver and copper. In the futures, S&P’s are +7, Dow +70 and Nasdaq +16. The 10-year yield is 2.94%.  President Obama says the Syria move with chemical weapons is a potentially positive move. Spain’s 10-year yield falls under Italy’s for the first time since 2012.  NFIB Small Biz Optimism Index is flat showing continuing lackluster business conditions.  BAC says about 2100 job cuts are planned due to the slowdown in the mortgage unit.  Companies continue to axe employees to meet earnings numbers which is not illustrative of a healthy economic environment. Instead, earnings should move higher because sales move higher. Changes to the Dow Industrials are announced with BAC, HPQ and AA receiving the boot, replaced by GS, V and NKE. A 3 for 3 swap does not occur often.  Traders joke that the Dow is ‘out with the makers and in with the takers’ and calling the Dow the ‘not-so industrial average’.  The booted stocks drop in pre-market trading while the new additions receive strong pops. MCD surprisingly reports robust global sales on a stronger Europe. S&P’s +9. Syria agrees to a chemical weapons plan. S&P’s jump to +11. Dollar/yen is 100.44.  WTIC oil drops to 107. NFLX prints a new all-time high over 308. URBN cites slow retail sales and plummets -11%. The broad indexes run higher into the afternoon printing a HOD at 1684.  The  JOLTS Report shows that layoffs are at multi-year lows but so is hiring. Companies appear to have cut to the bone and are hanging on to the skeleton crew of employees with no plans on hiring, a very sick economic sign.  AAPL rolls out updated products and a less expensive iPhone, however, the so-called cheaper iPhone is not that much cheaper, and AAPL stock collapses from 502 to 490. At 9 PM EST, President Obama addresses the American people concerning Syria. The vote in Congress is now delayed and the president retreats from striking Syria now to give the Russia-Syria chemical weapons plan a chance. Oddly, oil moves up showing that commodity traders remain concerned about the Middle East. The NSA spy scandal continues showing that the U.S. has tapped into the networks of GOOG, oil company PBR and other international institutions.

On Wednesday, 9/11/13, dollar/yen remains above 100 continuing to create global market buoyancy. Deter Zetsche is driven onto the stage at the Frankfurt Auto Show sitting in the back seat of a driverless Mercedes-Benz. Zetsche says driverless vehicles should be available by the end of the decade. British unemployment drops. The pound is the best performing currency over the last six months. TXN lowers guidance moving forward. The Canadian government dumps $1.1 billion GM stock. Today is the Anniversary of 911. AAPL stock leaks lower continuously in the pre-market as disappointment sets in concerning Apple’s announcements yesterday. AAPL is down -4.7% to 475 as the opening bell rings. AAPL and PG receive downgrades. The 10-year yield is 2.94%. Markets drift sideways to begin the day. APPL is down -5% to 469. GM is -1.4% to 36.50.  The SPX tests the important 1685 resistance level. IBM is goosed higher adding over 30 points to the Dow Industrial’s but AAPL weakness sends the SPX and Nasdaq lower. Volatility is pushed lower creating the lift in the markets. SBUX, TJX, LOW, NKE and NFLX are all at new all-time highs. Utilities are beaten today on a downgrade of ED. AAPL is down -6% to 464 after printing above 500 yesterday afternoon. The Apple bonds issued a couple months ago are now down about -11%. FB hits $45 erasing the negativity from the IPO debacle. IP closes their Alabama Mill due to decreasing paper demand, mainly paper used in copy machines, not a good sign for the economy. The SPX finishes up a modest 5 points to 1689. The Dow is up a huge +135 points, +0.9%, now printing three triple-digit days in a row. The Nasdaq and RUT finish negative. Gold drops to 1340.

On Thursday, 9/12/13, the dollar/yen is 99.31 dropping well under 100 (higher yen) creating a global market malaise today. Italy industrial output unexpectedly drops. Italy yields are rising (10-year yield at 4.56%) due to the ongoing political instability. 2 million Vodafone customers’ records are hacked in Germany. BOE’s Carney defends his policies which are hurting U.K. senior savers and creating a housing bubble. Carney says he is ready to provide further accommodation if the economy falters. Syria rebels reject the Russia weapons plan. Putin appeals to the U.S. citizens concerning Syria in an Op-Ed letter in the New York Times American newspaper.  Two ‘errant’ shells are fired from Syria into the Golan Heights in Israel. Jobless Claims drop under 300K for the first time in years to 292,000. A labor official minutes later says the drop in claims is due largely to faulty reporting by States. The level of incompetence nowadays across government and business is disturbing.  The Labor Department says numbers will revised moving forward. LULU lowers guidance and is sold off -8% pre-market. MW misses on earnings and traders are ‘not going to like the way it looks’. Markets are flat after the opening bell.  The Nasdaq prints a high of 3732 in the early going, the highest level since September 2000, over a decade ago.  At 1:30 PM, WTIC oil reaches 109 and Brent oil is at 113. DIS announces a buy-back program and the stock jumps over +2%. The broad indexes close marginally lower with the SPX at 1683 and Dow at 15300. Gold is 1319. The 10-year yield is 2.90%.  After the bell, Twitter tweets that their IPO process has begun with a tweet heard round the world; “We’ve confidently submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.”

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, 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. Crude oil may dip strongly, and gold may further weaken, on the decreasing tensions in Syria.

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

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

On Wednesday, 9/18/13, Berlesconi expulsion vote. Housing Starts. Oil Inventories. FOMC Meeting Announcement, Forecasts and Chairman Bernanke Press Conference. The long-awaited decision and details on QE tapering occurs.

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.

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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.

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, Summers and Kohn are candidates. Summers is the likely choice since President Obama referred to Ms. Yellen as ‘Mr.’ Yellen, not taking her candidacy seriously. Long traders prefer dovish-leaning Yellen since she should keep the QE party going while the view on Summers is that he would be more hawkish.  However, it is unfair to paint with a broad brush and both candidates would likely surprise with their policies. Purely on a competence basis and a spirit of cooperation within the Fed, Yellen is the better and brighter candidate.

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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