WEDNESDAY 2/5/14

Australia markets move higher in response to the US recovery. NIKK moves +1.6% higher a the opening bell. The Nikkei maintains a positive day up +1.2% in jumpy trading but the dollar/yen leaks lower to 101.36. The Kospi finishes higher but the Hang Seng lower. An accident at the HMY Doornkop mine in South Africa results in eight workers trapped and nine are missing.

Syngenta sales are higher but exposure to Brazil sends the stock -3% lower. Euro zone services PMI disappoints at 51.6. UK services PMI is weaker than expected at 58.3. Euro 1.3514. Pound 1.6292. Perhaps Draghi will offer a rate cut or stimulus program in the near future? The ECB meets tomorrow morning. London’s public subway underground workers go on strike causing travel headaches throughout the city. Swatch profit jumps +17% mainly due to the TIF settlement. Europe trades higher with Italy’s MIB leading +0.7%. Poland central bank maintains the key interest rate at 2.50%.

JPM will pay $614 million to settle a mortgage lending fraud case. MS must pay $1.25 billion to resolve a mortgage lawsuit. DB fires three New York Forex traders concerning the ongoing currency market manipulation probes. S&P says further downgrades of Puerto Rico debt may follow yesterdays downgrade. Concern grows over any fund that has exposure to Puerto Rico debt. 70% of US muni bond funds are exposed to Puerto Rico debt. Dollar/yen continues leaking lower to 101.26. US futures are flat at 4:30 AM EST. The 10-year yield is 2.63% and 2-year yield 0.31%.

Severe winter weather slaps the US again with several inches of snow falling followed by freezing rain and sleet. Roads are extremely icy and commuting and travel will be affected slowing commerce. At 5 AM, the dollar/yen drops to 101.10 so the US futures turn negative with S&P -2. The dollar/yen has dropped from its peak over 101.60 last evening which hints that the up move in the Nikkei is likely short-lived and US equities should remain challenged. CVS plans to remove cigarettes and tobacco from all stores by October. CVS drops -3.5%.

MRK misses by a penny and is light on revenue and trades flat pre-market. Merck is a recent darling of traders so as the minutes roll by, traders show it love no matter what the results sending MRK +3% higher. TWX beats and rises +0.8%. GOOG reaches agreement in EU anti-trust case and gains +1.2%.

Tom DeMark, a reliable and well-known market technician, analyst and strategist, appears on CNBC business television and provides a dire forecast forward. The price action in equities mimics the 1929 stock market behavior and if it continues we are currently exactly where the downside crash occurred. DeMark is watching the price action in the coming days, if price prints lower lows from here, or bounces today or tomorrow, then reverses and prints lower lows, the equity markets may unravel quickly and dramatically. DeMark says a -40% move off the market top would be a reasonable expectation with the SPX dropping into the 1100’s. He is eating his own cooking since he is in, and advises clients to move into, cash and Treasuries.

ADP Jobs Report is 175K jobs missing the 189K estimate. S&P -5. At 8:30 AM, the dollar/yen breaks 101 and futures drop like a stone. S&P -9. Dow -50. Nasdaq -15.  Gold, silver, copper and natty are all higher. RL leaps +7% so Ralph Lauren today and KORS yesterday pumps life into the retail sector. At 9 AM, the dollar/yen bounces to 101.21 so the futures return the flat line. Long traders thank the BOJ for reversing the gloominess. Fears frow over the Puerto Rico debt crisis. PZT muni fund ETF lost -0.7% yesterday. The 3D printing party ends abruptly with DDD lowering guidance and collapsing -21% and VJET -12%. XONE and others are crushed in sympathy. TWTR is up +1% ahead of earnings this afternoon.

The opening bell rings and equities stumble lower. VIX jumps above 20. The US government says there will be no federal bailout of Puerto Rico. Last evening’s HAIN beating continues with a -10% sell off. Healthcare and biotech stocks are punished. XLV -1%.  IBB -2%. RGEN -4.3%.  The SPX drops down to test the important 1740-1745 support zone and briefly falls through. The support at the 150-day MA at 1737 immediately bounces the SPX higher. ISM Non-Mfg data is better than expected but does not help the negativity. Utilities are weak with UTIL testing the important 50-week MA at 495.50. NYA tests the important 40-week MA at 9750. Transportation and trucking stocks are beaten. TRAN -1.1%. CHRW is whacked -10%. Beauty stocks are ugly. EL -3.5%. REV -1%.

Gambling stocks are dealt a losing hand with WYNN, MGM and LVS all dropping -2% to -3% or more. Macau gaming revenue is dropping with the slowest increase in gambling occurring in over ten years. Asia casino’s and Asians traveling to America to gamble are highly supportive of the gaming industry but perhaps the house should have let them win more since they may be running out of money. PZT is up +0.6% so the Puerto Rico debt crisis does not appear to be causing too much of a problem. MUB is flat.

The Nasdaq is whipped -2.5% sitting directly on 4000. RUT is pummeled -3.5%. RL loses all the earlier highs after a lackluster conference call. Fed’s Plosser, a hawk, says the QE taper should continue undaunted and perhaps even increased. Despite today’s negativity, the bulls hold back the strong push lower by equities and recover into lunch time. Stocks move higher into the afternoon. The Dow turns positive. Fed’s Lockhart says the bond taper is to continue and end in Q4. This is new information and creates market lift. At a $10 billion QE taper rate per month, the $85 billion is lessened to $75 billion for January and then drops to $65 billion for February and QE 3 will end in August. Lockhart now says Q4 (October, November or December) instead.

Thus, the Fed expects to at least slow the current pace of the taper, or delay the taper, at some point between now and summer time, according to Lockhart, but it may be a simple slip of the tongue. Targeting Q4 for the end of QE 3 would require the taper to slow from the current $10 billion per month reduction to a pace of $6 or $7 billion per month instead. In March or April, Fed Chair Yellen may decrease the taper to between $6 and $7 billion per month, due to a weaker economy, while at the same time targeting Q4 to end the QE, to satisfy the hawkish members at the Fed.

Mid-afternoon, the SPX turns positive as the markets intraday rally continues. The dollar/yen is up to 101.45 so the BOJ saves the day by printing yen to weaken the currency and cause the lift in the stock market. Coffee keeps moving strongly higher. MRK slips negative. DATA +12%. PH +1.6%. Moody’s upgrades Mexico’s debt rating which adds a happy tone to the markets. The dollar/peso is 13.345. EWW, the Mexico ETF, pops +1.1%. Copper turns negative. The severe weather in the States causes folks to buy UGG boots and other winter garb for warmth so DECK heats up gaining +3.3%. The wings turn cold since football season is over so BWLD pukes -10%.

Fed’s Lockhart provides additional statements, perhaps as others realize he referenced that QE 3 would not end until Q4 this year, and says the “$10 billion taper is the default mode.” This is an odd statement but it sounds like he is retracting his mention of Q4 earlier and instead the August target to end QE 3 remains the default target. Interestingly, his statement about Q4 likely provides insight into the Fed and how they are actively discussing multiple paths forward including the ‘tapering of the taper’ discussed above. The Fed wants to provide transparency and clarity but with all the talking heads day after day, more confusion occurs rather than clarity. Perhaps issuing talking points to all members would be helpful to avoid off-hand remarks. The Fed and BOJ control the stock market direction so traders have no choice but to study each word closely. Traders long for the days when fundamental and technical analyses mattered rather than the Fed and BOJ daily actions.

As the last hour of trading begins, the SPX and Dow turn negative. Dollar/yen 101.30. The SPX is trying to maintain the 1750 level. VIX is 19.60. Traders are making decisions ahead of the ECB meeting in the morning before the opening bell rings in the US. Will Draghi hint at or announce a rate cut or new LTRO program? The euro, dollar and equities will react violently depending on Draghi’s words as he reads the tablets brought down from on high.

The session ends with flat a flat SPX and Dow. The SPX is 1751. Dow ends at 15440 under the 200-day MA for three days. Nasdaq dumps -0.5% to 4011. The RUT loses -0.8% to 1094. Small caps and tech lead lower. Trannies collapse -0.8% but are well off the lows. Natural gas slides to 5.12 due to the new margin requirements. CVS loses -1% on the announcement about eliminating tobacco products. CVS/Caremark may want to rethink the plan since competitors WAG leaps +3.4% and RAD gains +2.1%.

After the bell, TWTR jumps +5% and then collapses to the negative side as its virgin earnings are released. Twitter reports a two cent EPS beat as compared to the two cent loss estimate and top line beats. TWTR drops -3%, minutes later -6%. Traders are looking for a higher number of active Twitter users than was reported. The minutes tick by and TWTR continues deteriorating to -11% with the stock covering 16% of its price in five minutes time. It only gets worse. TWTR -13%.

DIS beats handily and jumps +2%. This will provide positivity for the Dow tomorrow. YELP drops -3.3% after earnings are only in line disappointing expectations. P loses -7% beating on earnings but lowering guidance. The social media stocks disappoint. FB is weak AH in sympathy. GMCR and KO are halted on news that Coke will purchase a 10% stake in Green Mountain Coffee to partner on cold beverage strategies. SODA loses -8% on the Coke deal. GMCR opens for trading and catapults +47%. Green Mountain had a high short interest that creates an explosive short-covering rally that will continue tomorrow. Hedge fund manager David Einhorn has been vocal about shorting GMCR so he will be facing pain tomorrow. After the dust settles, SODA is -1.3%, KO +2%, TWTR pukes -17% and YELP recovers +8%.

In trading, economic and business circles, the phrase ‘secular stagnation’ is bandied about to describe the economy. The winter storms wreak havoc in the States with 750K people losing electric power in Pennsylvania. Salt, used to treat roads to melt ice and snow, is in short supply. Airlines servicing the Sochi Olympics are warned to stay on alert for toothpaste bombs. Complaints are increasing from Olympic athletes and visitors that hotel rooms are unfinished, telephones do not function, there are packs of dogs roaming and there is a lack of adequate drinking water. Unflattering pictures of Sochi conditions appear on the social internet. The games begin tomorrow. Putin is stressing that the government spent only $3 billion of the $51 billion cost for the games with the majority of funding from private business but no details would be provided. Russia is worried about the negative perception that the country frittered away $51 billion dollars.