TUESDAY 2/4/14

The RBA holds the Aussie benchmark rate at 2.5%. Asia sells off with many major indexes now in a correction phase down -10% off their respective tops. Russia’s RSX ETF is in correction now down -17% over the last month. The NIKK collapses 611 points, -4.2%, to 14008, continuing a 4-day losing streak. The Hang Seng dumps -2.9%. Kospi loses -1.%. Lenovo slumps as traders weigh all the recent acquisitions. The dollar/yen is 101.12. Hong Kong retail sales are weaker than expected. Philippine peso is falling and there are no plans for intervention as yet. The South African rand is 11.1687. The concern over global currencies continues. 

BP reports lower profits and drops -2% but recovers to -1%. Royal Dutch Shell is off -0.4%. European markets open and sell off from -0.5% to -1%. Insurance, utilities and banks are the only three sectors positive. Chip darling ARMH is pummeled -5%. Chips are required for nearly every popular product nowadays so a slowdown in semiconductors indicates a weakening global economy. ARM Holdings says their back log is strong and smartphone demand remains steady. Switzerland’s biggest bank UBS jumps +3.5% higher on strong earnings and increases the bonus poll 28%. The telecom woes circle the globe with Dutch giant KPN planning to cut 2K jobs, 14% of the workforce.  IBM is exposed for using a Dutch tax haven to help increase profits. UK construction numbers are strong.

US futures are higher but jumpy. S&P +9. Dow +52. Nasdaq +14. The 10-year yield is 2.60%. Crude oil and metals are flat. Europe remains negative led lower by Germany down -1%. Two severed heads are discovered outside a bank in Michoacan, a western state of Mexico. The drug cartels are sending a message to any potential informants. President Enrique Pena Nieto is scheduled to visit the area in a few days and the increased police presence is increasing tension. Fed’s Fisher says the large market selloff will not affect the ongoing QE taper. Fisher was a hawk, turned dove, now turned hawk again, so his remarks blend into the background music.

AAPL is quietly building an online delivery network. Analysts conjecture that the move has to do with Apple tv. AAPL trades flat pre-market. The TGT CFO Mulligan testifies before Congress today concerning the security breach debacle. There is now a push to provide chip-enabled credit cards, like Europe’s system, that provide an extra level of security. KORS catapults 16% on robust earnings. PFE is upgraded and jumps +1%. MSFT names Satya Nadella as CEO. Moving towards the opening bell, the futures catch a bid as the dollar/yen moves higher to 101.45. S&P +12. Dow +70. Nasdaq +23. The CAC turns positive and Germany recovers to -0.5%. Banzai! The BOJ weakens the yen and creates global market lift.

At the opening bell, equities bounce higher. JCP holiday sales surprisingly rise when everyone feared the worse. JCP jumps +4% to 6. GPS gains +3.6%. YUM leaps +9% higher receiving a short-covering rally. December Factory Orders drop but the previous month is revised higher. The weather is blamed for the weak economic data over the last few days. Equities remain buoyant moving into lunch time. The VIX drops under 20. The 10-year yield is 2.62%. The 5-year yield is 1.47%.

The Affordable Care Act becomes a bit more unaffordable again with the CBO tripling the estimate of future work hours to be lost by 2021 as a result of Obamacare. America is turning into a part-time nation. The Congressional Budget Office predicts that labor market weakness will persist. On the positive side, the US deficit improves slightly to $514 billion. At 10:15 AM, the Dow remains below the 200-day MA but the NYA is back above the 40-week MA providing fuel for a relief rally. JCP collapses -12% printing new record lows despite the better than expected sales data. JC Penney did not provide detail on margins so analysts figure the numbers must be weak so the stock is bludgeoned on high capitulatory-style volume. MCD prints a 3-month low at 92.59 and bounces.

FURX runs +130% higher on triple volume after its ulcerative colitis drug shows promise. Consumer discretionary stocks move higher. FOSL +6%. JPM Chief Strategist Lee, appearing on television quite frequently these days, continues to pump the bull side optimistically and advises investors to buy the market dips. Equities move steadily higher through lunch time with the SPX up 14 points, +0.8%, to 1756. A relief rally is in progress. The Dow is up triple digits desiring a back kiss of the 200-day MA. The dollar/yen continues higher at 101.65 so the weaker yen provides the upside market fuel.

TUR, the Turkey ETF, leaps +6% off the bottom. ERUS, the Russia ETF, jumps +3.2%. EIDO, the proxy for Indonesia, jumps +5%. EWW, Mexico, is up +2.5%. Thus, the emerging markets are recovering strongly today. GILD is upgraded and leaps +3.6%. At 1:30 PM, the markets are waiting for the Dow to provide the go signal, or not, for the broad indexes as it sits directly on top of the 200-day MA at 15474. Bounce or die. The Dow collapses unable to push through the 200-day MA resistance.

Fed’s Lacker says the QE tapering should continue regardless of the market selling. The Fed obviously wants to exit QE since the steady drumbeat of the members is to continue tapering despite the market selling. The price action for equities is a jagged sideways move all day long. S&P rating agency downgrades Puerto Rico debt to junk status after 3 PM and the broad indexes drop like a stone. Puerto Rico fought hard to avoid this inevitable outcome. Equities quickly recover from the quick market dip. MUB, the muni bond ETF, plummets as well but does not recover completely from the drop. Municipal bond funds that own Puerto Rico paper will now have to exit.

The SPX gains 13 points, +0.8%, to 1755, remaining above the 150-day MA at 1736.95. The Dow bounces 72 points, +0.5%, to 15445, but unable to regain the 200-day MA at 15474. The COMPQ is back above 4K gaining +0.9% and the RUT jumps +0.8%. The VIX is 19.11. ARMH loses -4.4%. OPEN leaps +3.5% and YUM catapults +9%. RSH loses -5%. JCP plummets -11% on five times average volume. After the close, BWLD reports strong sales and bounces +2.5%. MMM announces a buyback and moves +2% higher. The buyback orgy stock pump is in full swing. RSH intends to close 500 more stores. Natural foods company HAIN provides stale guidance and lower gross earnings so it is beaten -7.2%.