FRIDAY 7/18/14; Israel Invades Gaza; Ukraine Airplane Crash; GE; HON; KSU; Consumer Sentiment; OpEx; Markets Recover Despite Geopolitical Events; Euro 1.35

The global turmoil cascades into Asia. Malaysia Airlines stock collapses -11%. The dollar/yen drops to 101.08 on the verge of printing a 100 handle so the stronger yen sends the NIKK down -1%. Companies that export electronics and autos such as Sharp, Yamaha and Mitsubishi are beaten from -2% to -4%. The BOJ Minutes indicate that only a moderate pick-up in exports is expected moving forward. Taiwan’s Hon Hai is beginning production on the iPhone6.

China Premier Li says a slightly higher or lower 7.5% growth rate is acceptable moving forward.  China property stocks rise from +2% to +6% despite home price data showing the slowest rate of rise since last year. The SSEC is flat but the HSI dumps -0.5%. Gold mining stocks trade higher. US futures are flat. European futures are down pointing to about a -0.5% loss across the board.

Day 11 begins for the Israel-Hamas conflict. Israeli troops, tanks and bulldozers advance into Gaza for the first time since 2009. An Israeli soldier and 11 Palestinians die in initial skirmishes. WTIC oil continues higher to 103.73. Brent oil is up to 108.31. Natty gas 3.962.

In Ukraine, the international focus is on the Malaysian Flight MH17 airplane crash site in Donetsk, however, the area is under control of the pro-Russian separatists. Investigators cannot access the area due to security concerns. Nearly 300 bodies, many dismembered, are strewn across the 10-mile debris field. The Dutch (Netherlands) are hit particularly hard by the incident with 177 citizens perishing on the doomed flight. 44 Malaysians and 27 Aussie’s are also killed. The majority of the deceased passengers are European which will increase the support for further sanctions against Russia.

A Russian BUK missile, capable of bringing down aircraft up to 80K in altitude, is suspected of downing the plane. Intercepted audio communications identify pro-Russian militants as shooting the missile and downing flight MH17. Talk will increase to impose the serious Level 3 sanctions against Russia since a BUK missile proves they are either supplying the separatists with advanced weaponry or directly engaging in war in Ukraine.

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The IPO orgy continues with traders tripping over each other to buy the latest shiny object. The TERP IPO, a spinoff of SUNE’s solar power division, shines +33% higher. TRUP, a pet services IPO offering, leaps +14%, causing traders to drink wine and toast the Fed for never-ending easy money gains. Equities take on a strongly positive tone and the bull euphoria quickly returns. Stocks are printing at the highs moving towards the closing bell.

JNJ, BA, V and NKE lead higher. GE and IBM are down in the up tape. Healthcare and tech lead higher. XLV +1.6%. GILD jumps nearly +5% on an upgrade. Airliners recover with UAL, AAL, DAL and XAL all higher. FDX trades up +0.6% despite its new legal issues. VFC pukes -2% even though earnings and sales projections are in line. The euro briefly falls through 1.35 but recovers.

At the closing bell, the SPX is up 20 points, +1%, to 1978 recovering yesterday’s losses. The bears are smacked in the face once again. The bull euphoria picks up like it never ended. The market selloff was a volatility event with the wild spike higher in VIX on Thursday afternoon due to geopolitical turmoil that is not priced into the markets. Today the VIX collapses to 12.06 catapulting the broad indexes higher with a strong recovery rally. The VIX giveth to the market bears and then the VIX taketh away. The INDU gains 123 points, +0.7%, to 17100, recovering the 17K level, even 17.1K by a hair, but not fully recovering Thursday’s loss due to weakness in components GE and IBM. GE drops -0.6% in the up tape and IBM is dead flat.

The COMPQ gains 69 points, +1.6%, to 4432, fully recovering the prior day’s selloff and a lot more. Traders are tripping over each other indiscriminately buying tech and biotech stocks believing they are receiving the bargain of a lifetime. XLK +1.2%. Biotech recovers strongly today after the Fed Chair Yellen downgrade. IBB +3%.  The RUT jumps 18 points, +1.6%, to 1152 sitting exactly at the 50-day MA for a bounce or die decision. Whichever way the RUT pivots Monday morning, the broad indexes will likely follow. Retail stocks are strongly bid today. XRT +1.8%. RTH +1.1%. Beaten-down retailer and potential takeover candidate ARO leaps +4.7%. TRAN +1.3%. XLF +1.2%. Healthcare outperforms today.

For the week, the SPX is up +0.5% interestingly knocking on the door to new all-time highs but unable to step through. The Dow gains +0.9% printing all-time highs. The Nasdaq is up +0.4%. The RUT is the skunk at the garden party dropping -0.7% this week. TRAN jumps a huge +1.6% as lower oil and energy prices benefit the shippers. The high-flying airlines rally today but are down on the week affected by the airplane crash as well as a bubble top. XAL -1%.

Energy is up this week. XLE +0.6%. Bank earnings create stock market positivity this week. XLF +1%. The Fed decides the stock market direction and winners and losers with their easy money policies and meeting comments. Fed Chair Yellen says biotech and Internet stocks are overpriced so IBB is crushed -2.5% and SOCL loses -0.2% this week, respectively; both recovering strongly today but remaining down due to the Fed comments.

Free markets are a joke since Yellen decides the winners and losers. Traders are simply trading based on what the Fed says and does with fundamentals and technicals playing a minor role. The Fed easy money policies encourage traders to continue raping the stock market upside for all its worth but October is nearing and once the Fed stops the heroin drip, most everyone will jump ship.