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26Mar2015 Market Update: Averages In The Red As The War In Yemen Rages On

Written by Gary

The biggest news of the day is the start of the second proxy war in the past year as U.S. stocks declined on Thursday after Saudi Arabia and its allies launched air strikes on Yemen, but were off session lows as the S&P 500 attempted to hold a key technical level. This last push higher in the S&P 500 and NASDAQ feels like a major top forming say some analysts. As one respondent noted, "we do not see the economy as being as strong as a portrayed in the national media reports."

With Trannies now down almost 6% year-to-date, the S&P just fell back below the red-line for 2015, joining The Dow. Small Caps and Nasdaq remain up 2% for now. Bonds, gold, and silver are back in the green for 2015.

By noon the averages were flat, in the red with falling volume.


Here is the current market situation from CNN Money

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 51
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 38
Investors Intelligence sets the breath Above 50 bullish 58.3%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. -13.46
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 55.98%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 62.50
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 70.40
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 19.72
StockChart.com Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 74.63
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,868

What Is Moving the Markets

Here are the headlines moving the markets.

Wall Street down after air strikes on Yemen, but off lows

NEW YORK (Reuters) - U.S. stocks declined on Thursday after Saudi Arabia and its allies launched air strikes on Yemen, but were off session lows as the S&P 500 attempted to hold a key technical level.

ECB's Draghi says money printing already helping recovery

ROME (Reuters) - Bond-buying by the European Central Bank will reinforce the euro zone's economic recovery, its president, Mario Draghi, said on Thursday, adding that there was already evidence that the scheme was taking effect.

Low interest rates causing 'huge problems' in Germany: Schaeuble

BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said on Thursday that record low interest rates were causing considerable problems in Germany but added that he was not criticizing the European Central Bank which needed to defend its inflation target.

Technical Signs of a Top Forming

This last push higher in the S&P 500 and NASDAQ feels like a major top forming.

For certain the move is being pushed by fewer and fewer companies. Meanwhile, the NYSE, the largest US stock exchange, has been seesawing for a year now:

Regarding the other indices, ever since stocks began their near vertical climb in late 2012, the 126-day moving average (DMA) has been of critical import from a momentum perspective.

Indeed, the only time the S&P 500 has broken below this was during the October 2014 collapse when the financial world briefly realized that the global economy was once again contracting... DESPITE the Fed and other Central Banks having spent over $11 trillion attempting to prop it up.

Since that time, stocks have seesawed back and forth between worrying of economic weakness and hoping for more Central Bank monetary action. We've visited the 126-DMA no less than five times in the span of four months.

Meanwhile, the Dow Transport Index, which is far more closely associated with the real economy, has in fact already broken below the 126-DMA again.

This is particularly important because it was the Transportation index that peaked out first in 2007, collapsing lo ...

Putin Is Becoming A "Vulture" Bond Investor

With Washington throwing its full faith and credit behind a new Ukrainian bond issue, it appears it's time for Moscow to play spoiler to current debt restructuring talks between Kiev and its creditors. Russia is the country's second-largest creditor after buying $3 billion in bonds back in the days of Viktor Yanukovych (who was once the victim of an attempted assassination by egg and who famously fled the country amid widespread protests last year) and now the Kremlin wants its money and isn't likely to be amenable to any haircuts imposed on private creditors. Here's more from Bloomberg:

Ukraine, after gaining a lifeline from the International Monetary Fund, included Russia's bond among the 29 securities and enterprise loans it seeks to renegotiate with creditors before June. Finance Minister Natalie Jaresko has promised not to give any creditor special treatment. The revamp will include a reduction in the coupon, an extension in maturities as well as a cut in the face value, she said.

Russian Deputy Finance Minister Sergey Storchak said March 17 that the nation isn't taking part in the debt negotiations because it's an "official" creditor, not a private bondholder.

Should Russia decide to stick with a hardline stance on the negotiations (and it's likely they will) it could not only embolden other prospective holdouts, but may indeed force Ukraine into a default:

Kansas Fed Plunges To 2-Year Lows, New Orders Crash: "Economy Not As Strong As Media Portrays"

How can it be? Services PMI was at 6-month highs. The Kansas City Fed Index tumbled to -4 in March (against expectations of +1) and was last below this level in Feb 2013. KC Fed has now missed for 6 of the last 8 months and the report is a disaster across the board. New orders plunged to -20 (2nd lowest print since Lehman), order backlogs imploded, average workweek collapsed to -17 (lowest since Lehman), and future capex expectations fell to a five-year low. As one respondent noted, "we do not see the economy as being as strong as a portrayed in the national media reports."

Ugly...

Uglier...

As for Capex, stick a fork in it: worst expectations in 5 years.

Ugliest...

U.S. Jobs, Services Sector Data Point to Growth Rebound

The number of Americans filing new claims for jobless benefits fell more than expected last week while activity in the services sector hit a six-month high in March, underscoring the economy's solid fundamentals despite a recent softening in growth.

U.S. jobs, services sector data point to growth rebound

WASHINGTON (Reuters) - The number of Americans filing new claims for jobless benefits fell more than expected last week while activity in the services sector hit a six-month high in March, underscoring the economy's solid fundamentals despite a recent softening in growth.

Kansas City Fed: Manufacturing Contracting in March 2015

Of the four regional manufacturing surveys released to date for March, two show weak manufacturing growth while two are in contraction.

Leaked Pacific trade pact draft shows investment carve-outs sought

WASHINGTON (Reuters) - Australia's medicine subsidies, Canadian films and culture, and capital controls in Chile would be carved out from investment protection rules being negotiated in a Pacific trade pact, according to a draft text released by Wikileaks on Wednesday.

Common Sense: Bargain Hunting With a Strong Dollar in Europe, but Finding a Mixed Bag

With the euro approaching parity with the dollar, it seems to be time for a shopping spree on the Continent. But currency fluctuations are complicated.

The 10 Things Germany Needs To Do To Save The Eurozone (And Itself)

Submitted by Daniuel Stelter via The Globalist.com,

The political pressure on Germany is rising in Europe. The country faces a choice: Continue business as usual or change the strategy?

Only the latter option may give it real influence on shaping the future course of economic and political affairs in Europe. Playing defense is the comfortable choice, but it may be the wrong strategy.

What needs to be done? Below is a proposal for saving the Eurozone in a way that would safeguard Germany's interests, too:

1. Admit the facts: Policymakers need to communicate the message very clearly that between 3.0 and 5.0 trillion Euros of government and private debt in Europe will not be served in an orderly way. This excess debt needs to be written off.

2. Pool the debt overhang: Excess debt should be pooled into a debt redemption fund, with all the Eurozone countries bearing joint liability for it.

3. Pay off the debt: Start an orderly process for paying off this debt over a period of at least 20 years. Such longer maturity periods will help to reduce the cost saving pressures that many Eurozone countries are facing.

4. Issue Eurobonds: The debt relief fund (see #2 above) will be refinanced by Eurobonds specifically issued for this purpose. These bonds, with joint liability of all Eurozone countries, will have long maturity periods and low coupon rates and should be amortized on an annual basis.

5. ECB intervention: The ECB could purchase some of these bonds, thus ensuring long-term financing for this legacy debt at low interest rates. The risks are properly balanced: ...

Fed's Lockhart says economy is in solid shape for rate tightening cycle

WASHINGTON (Reuters) - Atlanta Federal Reserve Bank president Dennis Lockhart said on Thursday there was little risk of a misstep that would force the Fed to lower rates once it begins raising them.

Fast-growing 'smart' funds in regulators' sights

LONDON (Reuters) - Funds that mimic strategies used by active managers for a fraction of the cost could be forced to carry a health warning by regulators who are concerned they may pose greater risks than are being disclosed.

Oil prices surge after Saudi air strikes in Yemen

LONDON (Reuters) - Brent crude surged by as more than 5 percent on Thursday after Saudi Arabia and its Gulf Arab allies began air strikes in Yemen, before paring gains by almost half to trade back near $58 a barrel.
...

One Month After Austria's Black Swan Shocker, The ECB Quietly Asks Banks to "Detail Their Exposure"

Nearly a month after the Hype Alpe Adria bad bank Heta Asset Resolution "unexpectedly" imploded under a house of non-GAAP and misreported cards, and which led to only the second European creditor bail-in after Cyprus in what until then was considered the safest European nation, unleashing a herd of black swans which will result in not only the insolvency of one of Austria's provinces, Carinthia, but a week ago led to its first foreign casualty, German Duesseldorfer Hypothekenbank AG which had to be bailed out by the German FDIC-equivalent, the ECB has finally realized it may have a major problem at hand.

So, doing what it does best, a month after the fact and long after the black swans have left the stable so to speak, Mario Draghi's ECB has asked Eurozone banks "to detail their exposure to Austria and provisions they plan to make after the country halted debt repayments by a "bad bank" winding down defunct lender Hypo Alpe Adria," financial sources told Reuters.

From Reuters:

The questionnaire sent to banks and a video conference to discuss the potential fallout underscore the sensitivity of Austria's path-breaking move to invoke new European rules on ensuring creditors, not just tax ...

Rail Week Ending 21 March 2015: Continued Weak Rail Growth

Econintersect: Week 11 of 2015 shows same week total rail traffic (from same week one year ago) again weakly improved according to the Association of American Railroads (AAR) traffic data. Intermodal traffic, which accounts for half of movements, is now strongly growing year-over-year - but railcar counts remain in contraction. Rail traffic still appears soft.

Dow Breaks Below Key "Bullard Bounce" Trendline

Paging Jim Bullard...

And The World's largest stock index is not looking good... and is now in the red since the end of QE3

Charts: Bloomberg

Three Triggers That Will Send Oil Crashing Again

Submitted by Charles Kennedy via OilPrice.com,

Oil prices bounced back on March 24 on a sliding U.S. Dollar, and then again overnight on Middle East turmoil, but the pain may not be over yet.

Oil storage capacity continues to deplete. Storage levels at Cushing, Oklahoma, home to the crucial WTI benchmark, are at record levels. As of March 13, Cushing oil inventories hit 54.4 million barrels, the highest ever, according to the Energy Information Administration. That means that Cushing's storage is now 77 percent full, up from just 27 percent in October 2014. The glut of oil has led to a flood of crude being diverted into storage tanks. As storage nears capacity, it becomes more likely that prices could drop significantly below current levels. That, of course, depends on if drillers cut back production enough to slow the storage build.

CushingCapacity

Yet another reason to suggest that oil prices could fall over the next two to three months is the annual planned maintenance that takes place at many U.S. refineries. Spring maintenance often leads to a significant volume of refining capacity temporarily closed down for several months. As that occurs, demand for domestic crude in the United States will decline, potentially pushing down prices. That also would force more output into storage, again exacerbating the shrinking ability for U.S. storage to handle more oil.

Wall St. Is Lower, Extending a Losing Streak

Oil prices were rising as concerns grew about Middle East turmoil.

US Services PMI Surges To 6-Month Highs, Decouples From Hard Data Reality

Who could have seen that coming? Markit reports that US Services PMI surged to 58.6 in March (considerably better than the 57.0 exp) and the highest in 6 months. Despite the total collapse in US Macro data, the survey says... everything is awesome.

Except, under the covers the report is full of contradictions...

Despite stronger output and new business growth during March, the latest survey pointed to a moderation in service providers' optimism towards the business outlook. The proportion of service sector companies expecting a rise in business activity over the next 12 months was the lowest since June 2012.

Service sector output growth accelerates to its strongest since September 2014 - GREAT!

Payroll numbers at service sector companies increase at fastest pace for nine months - GREAT!

But...


confidence towards the business outlook eases to its lowest since June 2012 - WAIT WHAT!

As Markit concludes,

"The US economy is showing signs of regaining momentum after the slowdown seen at the turn of the year. The flash PMI surveys are registering faster growth of both service sector and factory activity at the end of the first quarter, as ...

U.S. March services sector activity index rises to highest since Sept: Markit

NEW YORK, March 26 (Reuters) - The U.S. services sector expanded in March at its fastest pace since September, an industry report showed on Thursday.

S&P Tumbles Into Red Year-To-Date, Gold Goes Green

With Trannies now down almost 6% year-to-date, the S&P just fell back below the red-line for 2015, joining The Dow. Small Caps and Nasdaq remain up 2% for now. Bonds, gold, and silver are back in the green for 2015.

Year-to-Date, stocks not happy...

as PMs and bonds push back into green...

Charts: Bloomberg

Middle East Proxy War: Presenting The Massive "Decisive Storm" Coalition

The biggest news of the day is the start of the second proxy war in the past year (the first one of course being the Ukraine civil war which is just a chess game between the west, mostly the US with Europe as a reluctant second fiddle, and the Kremlin) overnight in Yemen, where as we reported yesterday a coalition led by Saudi Arabia and backed by the US has launched an airborne assault on Yemen's Houthi rebels at the request of the self-exiled government (at last check Yemen's president was in Oman), which confronts the Suuni states led by Saudi Arabia, against the mostly Shiite militia, which has the broad support of Iran.

Who is in this coalition, aptly named "Decisive Storm" (one hopes not by the same person who was responsible for "Desert Storm")? The following map from Al Arabiya should explain.

It is very likely that more nations will enter the conflict, although there is a possibility the "war" may be shorter than expected: Arabiya also notes there are reports that top Houthi leadership Abdulkhaliq al-Houthi, Yousuf al-Madani, and Yousuf al-Fishi were killed, and head of the Revolutionary Committee for the Houthis, Mohammed Ali al-Hothi, was wounded.

Considering the most levered asset class to the Yemen war is oil, a prolonged war is what all those who are bullish oil would prefer, and as such it w ...

Ford to triple exports from India with new $1 billion plant

SANAND, India (Reuters) - Ford Motor Co plans to triple exports from India with a $1 billion plant that will be one of its most heavily automated in Asia, offsetting slower sales inside the country with a push to sell more local production abroad.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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