WEDNESDAY 1/22/14

The BOJ continues monetary policy as expected. The dollar/yen is 104.36 slightly higher overnight so the NIKK is slightly higher as well as US futures. A major Chinese internet outage occurs with the cause not yet identified. SSEC gains +2% due to the liquidity injections. European markets are flat. UK unemployment rate drops to 7.1%. Pound is higher to 1.6545. ABB drops -4% on weak Q4 results blaming project delays. Geneva II peace talks are underway concerning Syria with US Secretary Kerry stating that Asaad cannot be part of the transitional government. The World Economic Council meetings and interviews are in full swing in Davos.

Nobel Prize economist Shiller continues to encourage investment in the stock market even though markets are in bubble-like conditions. Market bears cite Shiller’s PE calculation, which uses average inflation-adjusted earnings over 10 years, now at 25, as an indicator of an overextended market. Shiller agrees with this assessment but says the PE climbed to 46 before the 2000 market top so equities can continue higher. Interestingly, now even renowned economists doubt their own work that signals a market top at hand or very near and instead drink the long-side Koolaid, not wanting the party to end. The bitter cold and snow continues in the northeastern US, also in Washington, D.C., slowing business and government.

IBM is down -4% pre-market. UTX beats on EPS but misses on top line and trades flat. COH misses earnings on top and bottom lines and is bludgeoned -6.4%. Coach reports a big drop in sales and did not discount merchandise to the extent of other retailers so it paid the price. UBS beats and trades flat. ABT beats on EPS but misses on the top line sales so it deteriorates lower. MS -1.1%. FCX misses on earnings and is beaten -2%. ORCL is downgraded and slapped -0.6% lower. NSC reports healthy results for moving products by rail so it jumps over +6% and creates an upbeat mood. Ditto EAT that reports bullish numbers and it jumps +6%.

Markets move flat to higher as the session begins. VMW drops-2% on news it is buying Airwatch but then recovers and moves higher on the day. XLNX +2.3%. NUAN +8%. GILD is parabolic up another +0.7%. Biotech is parabolic with IBB up +0.7%. Activist investor Carl Icahn says investing in AAPL is a “no-brainer” so Apple gains +0.4%. FB’s Sandberg is one of the youngest women to ever become a billionaire. Target axes about 475 people at the headquarters and tells part-time workers to sign up for Obamacare. TGT dumps -0.6%. The gaming stocks WYNN, MGM and LVS are thwacked -2% or more creating a near-term ceiling for the parabolic price moves.

The SPX ends the day flat at 1845. The Dow is down 41 points, -0.3%, due to IBM weakness. The Nasdaq is up +0.4% and RUT +0.5%. Tech and small caps are leading higher. All four major indexes exhibit tight standard deviations bands on the daily charts so a big squeeze move in the market is expected over the coming days. The COMPQ and RUT are already starting to break to the upside; tomorrow will dictate if up is the direction, or, a fake-out. The dollar/yen is 104.52 moving up today from 104.25 this morning so the BOJ pumped the stock market higher with the weaker yen. TRAN prints a new record high at 7555 but the Dow lags and does not print new highs providing a non-confirmation from a Dow Theory perspective. Five weeks ago the trannies and the Dow were in sync but not now TRAN is running parabolic higher and Dow diverging flat to lower. The retail sector, RTH, is smacked again losing -0.3%.

After the bell, NFLX beats big on earnings but only by a smidge on the top line revenue and launches +17%. NetFlix runs to the 390’s matching the prior record highs printed in the Fall. NFLX short interest is about 14% so much of the launch will be short covering. FFIV +11%. EBAY beats by a penny and misses on the top line, however, activist investor Carl Icahn announces a position in the stock so it catapults +11% higher instead of selling off. AEO collapses -4.3% on news of naming an interim chairman. WDC pukes -2.1% after guiding lower. STX loses -2.1% in sympathy. SNDK drops -1.6%.

Aetna CEO Bertolini says US health care costs are out-of-control and change is needed. AET has doubled over the last year from 33 to 72 benefiting greatly from the turmoil and worry he describes. Secretary Lew sends a letter to Speaker Boehner concerning the debt ceiling limit. In the Fall, Lew had said he could take extraordinary measures to extend the debt limit into late February or early March but now says Congress will need to reach an agreement by late February. Suddenly, the debt limit theatrics are front and center with the deadline now only five weeks away.