FRIDAY 2/21/14; OpEx

NIKK  pops +3% due to the weaker yen. The Nikkei is a roller coaster ride this week with up and down moves of 300 to 400 points occurring on a daily basis. NIKK bounces through the 14K-15K sideways range and sits directly at the 200-day MA at 14450. Asia markets are up except for SSEC dropping -1.2%. Beijing tells residents to stay indoors since the air pollution is at elevated levels. China voices displeasure that President Obama will meet with Dalai Lama this morning in Washington, DC.

G-20 leaders are meeting in Sydney and stress the concern over emerging markets especially as global rates rise. The G-20 supports the continued withdrawal of monetary stimulus. Of course they do, until the economies weaken, then these folks will quickly return to their Keynesian ways. Treasury Secretary Lew says China can manage the shadow banking situation. When bosses, officials or other power people tell you not to worry, that is typically the time to worry. Germany’s Schauble says emerging markets need to “do their homework” and make corrections and reforms to their economies now before asking for help later.

Ukraine drama continues with many conflicting stories appearing across news wires. The death count is up to between 75 and 100 deaths over the last few days. Ukraine police say 67 officers were captured. News video shows that Ukraine riot police were positioned as snipers against the opposition protestors. Fear runs rampant among the population since anyone can be picked off by a sniper if walking in the street. A tentative deal is reached with the help of Poland, German and France officials, but the agreement must be signed in the hours ahead. The deal would return the Ukraine government rule back to the 2004 constitution. Back then the political system and parliament had more power rather than the current unilateral rule coming from President Yanukovych, who is in essence, a Putin puppet.

Yanukovych will likely allow elections but in question is whether he stays or goes. The key demand of the opposition is that Yanukovych must go. Gunshots continue to ring out in Kiev. S&P lowers Ukraine credit rating to CCC and looks for a default to likely occur. EU officials are placing sanctions on Ukraine officials including freezing of assets and limiting travel to the Euro zone. The situation remains fluid, but calm, as everyone waits for an official signing of the agreement to end the violence. The Russian ruble continues to weaken against the dollar at 35.8225.

UK retail sales are weaker than expected and analysts quickly blame the weather. Gucci reports the slowest sales growth in our years. Luxury-provider Kering (previously PPR) reports weaker sales as luxury brand sales are trailing off. Today’s softness in luxury reinforces the weak results from Nordstrom last evening and indicates that the rich are tightening their spending habits. The FTSE is above 6800. Pound 1.6671. RBS is cutting 25% of its over 100K employees about 30,000 investment banking jobs. RBS warns of earnings losses coming next week. RBS bounces +1.3% on the news since firings are bullish. Interestingly, the UK government owns about 80% of RBS.

VOD bounces +4% as the deal with VZ closes. VZ trades slightly lower. European markets bounce about +0.5% in early trading. US futures are up on the weaker yen with the dollar/yen up to 102.45. S&P +6. Dow +54. A DB Tokyo salesman is charged with bribery and leaves the bank. Nickel rises for three weeks as traders believe steel and construction demand will increase. Copper is weak. GRPN -13% pre-market. PCLN +2%.

President Yanukovych announces that an agreement is reached and Ukraine will hold an early presidential election and the government will return to the 2004 constitution. A truce is apparently reached but everyone continues looking over their shoulders. Opposition protestors celebrated the news since they thought Yanukovych had resigned but the mood turns sour again when this was not the case. The opposition does not trust Yanukovych and the existing government. About 60% of the Ukraine population sides with the opposition, EU and the West, with 40% backing Yanukovych and the Putin side. EU says violence from either side is unacceptable and they have not yet seen a formal agreement.

Minutes before the opening bell, news wires confirm that an agreement has been signed by both Ukraine officials and the opposition. The opposition protestors express disappointment since they want Yanukovych to resign. Ukraine Health Ministry says 77 died and 581 are injured from the several days of violence. SPX begins on the upside now up 9 of the last 11 days. Copper turns positive. VIX is 14.70 teetering exactly at the bull-bear 200-day MA line in the sand. VOD +1.7%. The dollar/yen is strongly higher at 102.70 (weaker yen) providing stock market bull juice. The 10-year yield is 2.76% and hit 2.78% earlier so yield is challenging the three-week 2.76% resistance level. The 10-year yield has closed between 2.71% and 2.76% for the last eight consecutive days.

GRPN is pooped-on losing -16%. January Existing Home Sales are down -5.1% a big miss. The weak sales are not blamed on weather. The buyers are simply drying up. First time home buyers are at the lowest level since data collection began now only 26% of the overall market. First-time buyers should make up 40% or more of the housing market. Something very unhealthy is occurring in the economy. The median home price is $188,900. California housing sales decrease -7% and the winter weather obviously did not have an effect. Sales are simply weak across the board. Equities take the news in stride and remain elevated since the dollar/yen remains elevated at 102.68. The BOJ and Fed control the markets. Financials remain elevated which also helps equities remain buoyant.

INTU jumps +5.2% as the new TurboTax software release is well received as the heart of tax season begins. MSFT +1%. UA is up +5% after announcing a new deal with the US speed skating team and promises that the next Olympics will bring home gold. The US was highlighted to win 10 gold medals in skating at Sochi and instead end up with one silver medal. Under Armour was blamed for providing high-tech racing suits that actually slowed the skaters although the team has since downplayed the excuse. HPQ loses -1.5% quickly forgetting all of CEO Whitman’s positive talk. Equities float higher into lunch time fueled by the weaker yen.

Credit Suisse, the Zurich-based bank, will pay $196 million in fees and admit wrong doing concerning services offered to wealthy individuals without first registering with the SEC. CS trades flat on the news. The SEC moves ahead with a test program that will permit small-cap stocks to trade in wider increments. SEC Chair Mary Jo White spearheads the ‘tick size’ pilot program. The Fed releases transcripts from the meetings during the financial crisis and market crash in late 2008. Detroit bankruptcy proceedings continue with plans for all parties to absorb pain to remedy the excessive debt. Companies, investors, stock and bond holders and pensioners will all take a hit. Public pensions may be reduced by as much 34% and set a US-wide statute that pensions and bonds are susceptible to losses in other troubled cities. The final decision will impact the municipal bond market.

Biotech and pharma remain hot with ISIS up +17%. GILD gains +0.7% receiving European approval for limited use of the Hepatitis C drugs. Tech infrastructure company COMM catapults +18% after providing strong earnings. Fed’s Bullard admits there is softness in the economy but says the QE taper will continue. Warren Buffett’s Business Wire, which publishes economic data and company news releases, will terminate the selling of direct data feeds to high-speed traders. Buffett is concerned about Berkshire Hathaway’s reputation since the HFT computers have an advantage over the common trader receiving the data earlier. President Obama and President Putin speak on the telephone concerning Ukraine. A new coalition government must be formed within 10 days. Protestors remain in Kiev. The Ukraine hryvnia currency is 8.90.

At 2 PM, the Dow turns negative. The dollar/yen falls from above 102.70 down to 102.58 so the stronger yen creates stock market weakness. At 2:15 PM, the SPX turns negative. At 2:30 PM, the COMPQ turns negative and a more negative tone develops into the OpEx close and the weekend. Equities attempt a comeback but the wheels fall off during the last one-half hour of trading into OpEx.

The SPX finishes lower losing 4 points, -0.2%, to 1836. The INDU loses 30 points, -0.2%, to 16103 exactly at the 50-day MA at 16110. The Nasdaq drops -0.1% but places a new 13-1/2 year intraday top at 4285. The RUT gains +0.2% to 1165. For the week, the SPX drops -0.1%, Dow -0.3%, Nasdaq +0.5% and RUT gains a large +1.3% fueled by big moves in biotech and pharma small cap stocks. The Nasdaq is up for three consecutive weeks. The CPC put/call ratio is 0.69 signaling rampant complacency and lack of fear remaining in the markets. Traders believe in the Fed, BOJ and other central bankers that they can keep the stock market elevated indefinitely. The uber low CPC indicates that a significant market top is at hand over the coming days or couple weeks. The low CPC put/call ratio in late December forecasted the January-February market selloff. Traders are far too complacent and will likely experience fear and panic moving forward for the weeks ahead.

Traders are blaming the weather for the lackluster stock market performance this week. However, much of the data is not weather-related as illustrated with the weakness in California housing sales above. Bitcoin collapses on the Mt Gox exchange to 100 although the cyber currency remains elevated at 583 on other exchanges. The dysfunction of the Mt Gox exchange creates much of the negativity around bitcoin lately. The Mt Gox exchange is fighting for survival in the days and couple weeks ahead.

Moody’s upgrades Spain’s debt rating to Baa2 with a positive outlook moving forward. Spain remains extremely sick economically. The Great Lakes are 90% frozen so ice breakers are clearing shipping lanes around the clock. Iron ore, coal and grain shipments continue experiencing delays where a one-day trip now takes as much as one week. Shamefully, IRS officials are exposed for avoiding the payment of taxes concerning executive travel regulations. There are two sets of rules; one for the officials in control and the other for the people. These are the same IRS tax officials that are monitoring all personal information provided by the new Obamacare health law as well as intruding in many other facets of American life.

There are five weeks remaining in the open enrollment period for Obamacare. President Obama posts a video to the internet encouraging folks to sign up for health care insurance but the link on the screen to HealthCare.gov does not function. The Obamacare site goes down overnight and continues to experience intermittent outages. The ACA needs a total of 7 million paid enrollees within the next five weeks to support the program financially. The CDO accounting office has lowered estimates to 6 million and Vice President Biden said the number may be as low as 5 million. Others say lower. California’s health care exchanges are experiencing outages due to computer glitches. Democrats are concerned that the ongoing Obamacare problems will negatively impact their election hopes this year. The taxpayer will likely have to bail out Obamacare in the future.