TUESDAY 1/14/14

The NIKK collapses -2.5% at the opening bell in sympathy to the US’s bad day. Asia markets tumble lower across the board with the SSEC bucking the trend +0.9%. The Chinese Yuan remains strong at 6.04. The Nikkei finishes down -3.1% losing almost 500 points to 15422. Dollar/yen 103.57. Aussie dollar 0.9016. France’s Hollande fights for his political career, providing a speech on the economy, while wrestling with his triangle love affair. Euro 1.3678. Pound jumps to 1.64 on news that UK inflation is easing around the 2% level. European markets trade lower as the US negativity cascades around the globe. Egypt votes on a new constitution when an explosion occurs in Cairo killing one person. The Egypt stock market is up +6% thus far this year. US futures are slightly positive in the early hours on the East Coast. TWC rejects the $61 billion Charter bid. The FBI is investigating rate-rigging and front-running in the Fannie and Freddie swaps market. Traders are colluding and profiting from the manipulation by as much as $100 million. As George Carling the comedian would quip, “it’s a big club, and you ain’t in it.” In a different matter, the Libor scandal, three ex-Rabobank traders, Robson, Thompson and Motomura, are charged with manipulating and price-fixing the Yen Libor benchmark interest rate.

The 10-year yield is 2.85% and 2-year 0.37% for a 248 2-10 spread well off the 264 spread a week ago indicating a flattening rather than steepening yield curve. Nearly 90% of the S&P 500 companies that pre-announced in the confessional season have lowered earnings estimates. The bar is so low now that even Aunt Edna in her white orthopedic shoes can easily step over. JPM misses on earnings by a nickel but beats on the top line. After sorting through the mixed numbers and adjustments, the earnings appear to beat by a nickel. JPM drops -1.3% pre-market on a knee-jerk reaction but then returns to the flat line minutes later and begins inching higher. CEO Dimon says progress is made on placing the litigation issues behind them and the bank is ready to move forward. NFIB Small Business Index is up again this month but remains far under the pre-2006 robust numbers. Companies say sales remain weak and more extensive regulations, Obamacare and higher taxes are all a worry. Capital spending was likely pulled forward into 2013 which decreases expectations for early 2014 and businesses do not see a need to boost inventories. Thus, businesses are optimistic, but very tentative. WFC beats by 2 cents and the top line misses. WFC trades flat initially and then leaks lower -0.6%, then -1.2%. Wells Fargo handles about one-third of all mortgages in the US. MSFT is downgraded and drops -0.7%. Retail Sales are better than expected but the prior months are revised lower. S&P futures are +4 pointing to a recovery rally.

Equities move higher after the opening bell. The SPX runs to 1827 but then drifts lower. GIS is downgraded and drops -0.7%. SSYS 3D printing company lowers guidance and is bludgeoned -10%. GME cuts the outlook and is punished -18%. The NRF says holiday retail sales are up +3.8% over last year at $601 billion, a better than expected result although a touch below the higher estimates. Somehow folks always find the money to buy for Christmas and the holidays, however, evidence is mounting that many sales were pulled forward from 2014 into 2013 which may create very weak Q1 results. In addition, it is easy to print a robust sales number when stores are giving the merchandise away like JCP unloading pants for one dollar but this obviously leads to trouble with the margins moving forward. At 10 AM, Business Inventories are stronger than expected. The pipeline is stocked with goods. The consumer needs to buy the stuff to keep the party going. Considering that many Americans blew their Christmas budget, and are now eating franks and beans each evening, and millions remains structurally unemployed, the growing inventories may prove worrisome. JPM trades slightly up and WFC trades slightly down. ISRG gains +10% after guiding higher. The broad indexes recover strongly moving into the noon hour. Another battery problem occurs with a BA 787 where a malfunctioning cell creates smoke during a pre-flight check. BA drops -1.4%. The banks trade flat with the exception of BAC, which has become a darling for long traders, that pops +1%. The VIX drops down to 12 on the dot like yesterday, but bounces. Tesla recalls 29K Model S cars to fix the power adapter overheating problem. TSLA pops +3.3% as it also announces that auto production is 20% above estimated levels. Television trader Stephen L Weiss says to buy stocks and “the markets will not have a significant correction.” Equities are printing the highs of the day during the lunch hour on fumes and vapor for volume. Yesterday’s sell off was on strong volume.

Fed’s Plosser, a hawk, says the “future rate increases may have to be aggressive.” Markets are leaking lower off the intraday highs. Fed’s Fisher says he would have preferred a $20 billion taper per month rather than $10 billion and will vote to continue tapering even if the stock market sells off. Equities are resilient and remain elevated in the face of the hawkish comments. The retail sector is flat. M is a strong retail stock up +1%. Tech and biotech are providing leadership retracing yesterday’s drop. Copper is weak. The equity markets continue higher into the closing bell retracing all of Monday’s losses and printing the biggest up day of the year. The dollar/yen dropped from 104 to 103 yesterday (stronger yen), thus, equities sold off. Today the dollar/yen climbs from 103 to over 104 to 104.18 (weaker yen), which means the BOJ was printing yen like madmen yelling Banzai! and pumping the markets higher. The Fed and BOJ central bankers are the market.

The SPX gains 20 points, +1.1%, to 1839. The Dow jumps 116 points, +0.7%, to 16374. The Nasdaq leaps a huge 70 points, +1.7%, printing new 13-year highs, intraday at 4183.84, and closing at 4183.02. The RUT gains 15 points, +1.3%, to 1163. Tech and small caps lead higher today with tech overtaking yesterday’s losses but small caps could not. Volume is lighter today than yesterday. INTC gains +4% printing a new 52-week high. JBL +7.8%. AAPL +2%. GOOG +2.4% printing a new all-time high at 1151. TSLA +16%. FB +3.3%. LNKD +1.3%. CTRL jumps +38% as traders chase companies involved in home technology a la the GOOG takeover of NEXT. 3D printing stocks are all lower in sympathy to SSYS dropping -8.2%. After the bell, GM announces a 30 cent dividend, a 3% yield, and bounces +3.2% in AH trading. 11 people are killed during the Egyptian voting today. The Iran nuclear talks intensify with rhetoric heating up in the Iran, Israel and US camps. Television show host Larry Kudlow tells folks to “stay in stocks and stay away from bonds.” The courts rule against ‘net-neutrality’ and in favor of the larger telecom companies such as VZ and T in regards to transmitting data across the Internet. The large companies can continue to play favorites providing faster service to clients that pay higher fees and slower service for anyone aligned with non-favorite affiliates.