FRIDAY 4/25/14; Ukraine Turmoil Increases; F; CL; STT; WY; Consumer Sentiment

Asia markets remain weak for a couple days. NIKK is flat after Tokyo CPI is at a multi-year high so there is a slight whiff of inflation trying to surface but the jury remains out. Inflation will not exist in any nation without wages increasing. Asia weakness is partially due to the Japan and US unable to reach an agreement on the trade pact before President Obama’s departure.

China stocks are beaten with the SSEC losing -1% and HSI down -1.5%. China punishes internet company Sina for providing pornographic images over the Internet. SINA collapses -7%.  President Obama speaks in Seoul, South Korea, providing condolences over the tragic ferry accident where as many as 300 people may have perished. The dollar/yen is lower overnight to 102.21. The Aussie dollar recovers nicely to 0.9277.

Europe trades weaker as Ukraine turmoil increases. The MIB and DAX are both down -1%. Alstom shares are suspended from trading as the French econ minister is working on a deal with General Electric. Only yesterday Alstom was denying ongoing talks. France does not want to give away one of its crown jewel companies. France may keep the Alstom train division to save face avoiding the sale of the entire company with GE acquiring the turbine and other divisions.

UK retail sales are weaker than expected. Euro 1.3838. The UK gilt and US 10-year yields are both 2.67%. Germany’s 10-year is 1.51% so the lower yields show that money is moving into notes and bonds for perceived safety as the Ukraine worries grow. ECB’s VP Constancio says the central bank is looking at many different stimulus measures including asset purchases and “non-conventional instruments” to prevent long-term low inflation (they cannot allow themselves to utter the dreaded word ‘deflation’). The ECB lip service continues but no longer has an effect as the euro inches higher and higher hurting European manufacturers and exporters. AMZN is trading slightly negative in Frankfurt so traders are not impressed with Amazon results last evening.

S&P rating agency downgrades Russia’s credit rating to BBB- only one notch above junk with a negative outlook. Ukraine PM Yatsenyuk says Russia aims to occupy Ukraine “militarily and politically” and “Russia wants to start World War III.” Those words will receive a lot of attention. FM Lavrov says “Russia will retaliate” if important areas of the Ukraine are attacked. Putin announces plans to increase production of anti-missile systems. The geopolitical tensions are clearly increasing in and around Ukraine upstaging the president’s trip to Asia.

The headlines are crossing fast and furiously. Russia’s central bank steps in and raises the key interest rate from 7% to 7.5% attempting to stop the loss of capital out of the country. The Russian Ruble is 35.87 weakening but not yet near the recent weaker ruble levels at 36, 37 and 38 (the ruble currency number moves higher representing a weaker ruble and moves lower representing a strengthening ruble). Television news wires say nine are wounded and one dead in a gun battle in Ukraine. Ukraine turmoil is finally receiving the attention of complacent traders. A shooting war appears underway.

US mortgage lending is at a 14-year low. Obviously, the middle class and poor cannot afford a home without a job. The young adults are weighed down by student debt and do not have a job. Instead of buying a house they are moving home with Mom and Dad. The Fed’s easy money makes the wealthy wealthier but does not stimulate the overall economy. Companies do not spend the Fed’s free money on jobs or capital equipment for expansion but instead finance buybacks to pump the stock price higher to make themselves wealthier. So the weak mortgage lending numbers are not surprising at all. The cash buyers, hedge funds and wealthy Chinese and Russians have been supporting the housing market for the last year and this activity is waning. Young adults do not need homes since they cannot afford to marry these days.

The ‘net neutrality’ debate heats up. US regulators want to enhance open Internet rules and prevent Internet providers from blocking or slowing sites that provide an advantage to certain clients that pay more money. Europe operates on an open basis where there are no preferential advantages provided. Companies like NFLX want stricter rules. Everyone should have the same access to the Internet in the US but this is currently not the case.

US futures continue to drift lower overnight with S&P -2 an hour ago but at 7 AM down -5. Dow -60. Nasdaq -15. Gold is buoyant at 1297. The US 10-year yield drops to 2.66%. Copper is weak. Earnings are lackluster thus far this season. Financials are missing and tech is actually a bit light. Ford drives the earnings bus into a ditch to begin this morning’s reports. F misses on EPS by six cents, 0.25 versus 0.31 expected, and misses on the top line. This is a surprise to all the Ford cheerleaders’ parading across the television screens for the last couple months. F collapses -3.5% and blames recall costs and weather disruptions for the surprisingly weak numbers. Ford maintains guidance moving forward overall and increases guidance for China sales.

CL earnings are dead in line with estimates. Folks always need consumer staples such as toothpaste, toilet paper and soap, no matter what the economy or markets are doing. If the equity markets turn south, traders will attempt to hide money in consumer staple stocks such as CL, PG, CLX and others which are already catching a bid in recent weeks. At 7:30 AM, US futures continue to leak lower. S&P -6.3. Dow -66. Nasdaq -17. Copper recovers to the positive side. The dollar/yen drifts lower to 102.07 threatening the 102 psychological level so the stronger yen creates weakness in US futures. Germany’s 10-year yield drops under 1.50% to 1.488%. The Russian Ruble weakens further with the currency pair rising above 36.

Strategist Howard Ward appears on Bloomberg television saying the M&A and IPO activity will continue, stocks are not toppy and equities will likely run higher for a couple more years. The underlying bullish market sentiment remains. The dollar/yen falls briefly under 102 but recovers. BAC is down -1.6% on the mortgage settlement news. WFR reports a loss but bounces over +7% since it raises forward guidance. MSFT is up +1% well off the lofty +2.6% highs last evening. P follows through with last evening’s weakness puking -10%.

The opening bell rings and the Dow drops triple digits. The dollar/yen is holding the line at 102. WTIC crude oil drops under 101 to 100.75. V and MA both plummet -5% after Visa provides lower guidance. AMZN collapses -9%. CAT drops -1.6% with traders locking in the quick profits from yesterday’s pop. The bears have a firm hold on today’s action. The retail sector is very weak especially consumer discretionary which creates broad market weakness. XLY -1.7%. Utilities are the only positive sector. XLU is up +1.2% as traders seek perceived safety while receiving a strong dividend. Utilities continue to explode higher since the December low but the vertical move is becoming very long in the tooth.

High flying stocks are beaten. TSLA -3.9%. LNKD collapses -7.8%. TWTR -7.2%. YELP -8.1%. Housing-related stocks are bludgeoned indicating a lack of confidence with this important sector moving forward. Z -10.5%. TRLA -8.2%. USG -4.6%. MAS -7.4%. MHK -3.2%. HD -0.5%. So cabinets, rugs, floors, drywall and other suppliers are hit hard. Appliances buck the negative vibe with WHR up +0.5%. WY is another winner jumping +2.6% after reporting earnings today, however, LUMBER prints flat today despite the encouragement from Weyerhaeuser. Investor Jeffrey Gundlach of DoubleLine says home ownership will drop and recommends shorting the homebuilders.

Europe is red across the board. Germany plunges -1.9% lower but recovers into the closing bell finishing down -1.5%. Spain’s IBEX loses -1.5%. Fitch upgrades Spain’s credit rating to BBB+ from BBB as its economy stabilizes. Deutsche Bank plans to sell stock to bolster its balance sheet. DB drops -1.6%. CAC -0.8%. The majority of selling in Europe is bank and automobile sectors. Europe finishes flat on the week. Advertising giant WPP drops -1%.

INTU pops +2.8% on strong TurboTax software sales. The number of on-line tax filers increase again this year. Biotech stocks are sold off but pharma MYL pops +3.5% on news it is raising the bid for Sweden’s generic drug maker Meda. SBUX bounces +1% on news it will offer alcoholic beverages in more locations. K pops +0.3% after boosting the dividend. Kellogg knows how to play the game dangling a carrot for long traders as it also knows that traders will continue to seek consumer staple stocks as a safe haven. XLP is showing green up +0.2% against a back drop of red across the screens. PG +0.3%. Traders are chasing into consumer staple and utility stocks.

Oregon may end its $300 million health care exchange debacle and join the Federal exchange. Maryland’s exchange faces a similar fate. Vast amounts of money are wasted as States and companies continue dealing with Obamacare and the upheaval of the US health care system. A solar flare erupts from the sun last evening and causes communications problems at various locations in the Pacific Ocean today.

A couple months ago television pundits said to buy F, GM and IBM but now they say these stocks will be a 2015 story. This is remindful of the old Wall Street saying that a “trader turns into an investor when the trade goes the wrong way.”

Consumer Sentiment is higher than expected at 84.1 matching last summer’s optimism. The boost is surprising since gasoline prices are on the rise. Stocks continue to leak lower unimpressed with the happier sentiment. The IPO market is faltering. Many of the recent IPO’s over the last couple months are now down from -5% to -30% off the initial debut bounces. Traders and investors are not going to want to buy IPO’s if the trend is that they will lose one-third of their value over the first month.

The session ends near the lows clearly concerned over the growing Ukraine rhetoric and drama. The SPX loses 15 points, -0.8%, to 1863. The LOD is 1859.70 bouncing off the strong 1859 support. The 20-day MA is 1862.39 so the bulls close out the week one single point above this critical moving average. The 50-day MA is 1858.35 where the LOD bounced. The Dow drops 140 points, -0.9%, to 16361, finishing below its 20-day MA at 16380. The Dow Industrials have not been able to close at a new all-time high this year but the Transports have. Therefore, the recent stock market rally remains unconfirmed from a Dow Theory perspective. TRAN collapses -1.6%. The COMPQ loses 72 points, -1.8%, to 4076, a severe beating. The RUT small caps dump 21 points, -1.9%, to 1123. Tech and small caps clearly leading lower.

Copper positivity helps prevent the indexes from falling further. MSFT ends the day flat failing to capitalize on the earnings beat. AMZN collapses -10% to 303 dropping from over 400 less than three months ago a -25% loss. VFC +2.2%. STT drops -3% after earnings today creating a drag on the financial sector. XLF loses -0.8%. BAC -2.4%. For the week, the SPX is a hair lower -0.1%. The Dow is down -0.3%. The Nasdaq loses -0.5%. The RUT dumps -1.3% with small caps clearly being thrown overboard.

Fox Business News commentators Gary B Smith and Charles Payne say to buy the dips. CNBC commentators are in the same boat with the non-stop bullish sentiment continuing despite the down day. The VIX remains tame at 14.14 verifying complacency. The CPC and CPCE put/call ratios are moving up showing that traders are buying put protection but overall remains sanguine concerning the stock market. The Fed, BOJ and other central bankers (the ECB is on deck) are on a mission to push the stock market higher and keep extending time as long as possible to allow the global economy to recover. The top line flat to lower company sales numbers, however, clearly indicate the global economy is not recovering. At best it staggers through a sideways funk.

The market weakness is blamed on Ukraine. President Obama makes new threats today telling Russia once again there will be consequences and additional sanctions. The president also threatens North Korea but the daily threats of action go more and more unnoticed since they are only words repeated each day. Russian jets are now flying over East Ukraine territory so Putin is not paying any attention to the hollow threats. In fairness to the president, Europe is the weak-kneed participant relying on Russia for one-third of its energy and afraid to bite the Russian bear for fear of being bitten back. Europe’s inaction indicates that they really do not care if Ukraine is taken over by Russia. The markets will be impacted on Monday if the US and Europe finally do impose additional sanctions against Russia over the weekend.