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28Apr2015 Market Close: Markets Close Higher, But Sideways Trading Eludes To Investor Worries, Oil May Be The Next Black Swan

Written by Gary

Afternoon trading has been sideways in a narrow elevated band with the small caps in the red and mostly flat on mostly low volume. The Large caps show no signs of breaking out either up or down and depending on World news in the next several day we could see more of the same this week. Volatility is assured though.

By 4 pm the averages looked weak and the oils may be the one financial upset in the making as the oil rally looks doomed - read on.

Todays S&P 500 Chart

WTI oil is at 56.98 falling from morning highs of 57.81 (Chart Here), Brent has fallen to 64.61 from its high of 65.46 (Chart Here), and the U.S. Dollar has lost ground, now at 96.28, up from its high at 97.09 (Chart Here).

Our medium term indicators are leaning towards SELL portfolio of non-performers and the session market direction meter (for day traders) is 3 % bullish up from 22 % bearish at the opening bell. We remain mostly conservatively bullish, but with a bearish slant. I am very concerned any downtrend could get very aggressive in the short-term and any volatility may also promote sudden reversals that will only please the day traders. The SP500 MACD has turned flat, but remains above zero at +8.78. Watch the WTI oil prices as anything below $50 will be the first sign of a declining market in the works. Below $44 you had better put on your seat belt as the encroaching market roller coaster ride may be be very bumpy.

Having some cash on hand now is not a bad strategy as negative market changes are happening everyday, 99% of them are minor, it is that 1% I am worried about. Many investors are starting to take in some profits from 'high-fliers' as a precaution and to build a better cash base for the 'dips'.

The Market in Perspective

Here are the headlines moving the markets.

The Oil Rally Looks Doomed, in Five Charts

Oil has surged 20 percent this month to $57 a barrel as expanding violence in Yemen stoked concern that supplies could be disrupted.

The rally follows the biggest drop since 2008, with crude falling as low as $43.46 a barrel in March, as a price war broke out between OPEC producers and U.S. shale drillers. West Texas Intermediate oil, the U.S. benchmark, is now back up at close to a four-month high. Prices gained in each of the last six weeks, the longest stretch in more than a year.

Before deciding prices will race back to $100, here are five charts worth keeping in mind. "The cart is moving ahead of the horse," Barclays Plc analysts said in an April 27 report.

The chart for the 'Leading Index For The United States' was released today and it shows a slowdown in progress, but nothing approaching a recession or other financial disaster in the making.

http://research.stlouisfed.org/fred2/series/USSLIND

Confidence shaky

U.S. Consumer Confidence Index Unexpectedly Dropped in April

Ever since December, the collision between cooling consumer spending and buoyant consumer confidence has puzzled economists and investors. The clash is over for now, and optimism has suffered.

The Conference Board's consumer confidence index dropped to a four-month low of 95.2 in April, weaker than the most pessimistic forecast in a Bloomberg survey of economists, according to figures from the New York-based private research group Tuesday. Government data Wednesday are projected to show purchases grew in the first quarter at less than half the pace of the previous three months.

Merck's Revenue Doesn't Fit Its Stock

Merck's results sent its shares higher, but revenue must grow to justify the stock's valuation.

Wall Street edges up with Merck, IBM; Nasdaq slips with Apple

(Reuters) - The Dow and S&P 500 inched higher on Tuesday afternoon, helped by strong earnings from Merck and gains in IBM after it boosted its dividend.

Citi Holders OK Pay Packages

Citigroup shareholders approved top executives' pay packages, a vote of confidence for a bank that is trying to move forward after a tough 2014.

Selerity reveals Twitter results ahead of schedule

(Reuters) - Micro-blogging website Twitter Inc had lower-than-expected quarterly revenue, according to market data firm Selerity, which revealed the earnings numbers before the company's scheduled announcement.
...

China Readies Fresh Easing to Tackle Specter of Debt

China's central bank is planning to launch a fresh credit-easing program, as Beijing's flagship plan to restructure trillions of dollars of local-government debt hits snags.

How BofA's Depositors Funded The Bank's "Fugazi P&L"

When we first exposed in February how yet another bank - Bank of America - has been quietly preserving the post Glass-Steagall world in which cash depositing taxpayers are on the hook for a bank's stupidity, some shrugged it off and looked to stress test to solve all the problems. However, it appears - for once - the SEC is not willing to just ignore the bank's actions. Just as JPMorgan's CIO Office, aka the London Whale, took advantage of fungible, taxpayer-insured funding in the form of excess US deposits over loans, to corner the US credit market (in what was clearly a directional prop trade); so, as WSJ reports, The SEC is investigating whether BofA broke rules designed to safeguard client accounts, potentially putting retail-brokerage funds at risk in order to generate more profits using large complex trades.

For at least three years, the bank used large, complex trades and loans to save tens of millions of dollars a year in funding costs and to free up billions of dollars in cash and securities for trading that Bank of America otherwise would have needed to keep off-limits, and now, as The Wall Street Journal reports,

The SEC is investigating whether the bank's unusual strategy violated customer-protection rules and whether the bank misled regulators about wh ...

Bits Blog: Google Reaches Out to European Publishers, With $165 Million in Hand

Google's efforts come less than two weeks after the European Commission filed antitrust charges against the company and before new potential problems for the company in Europe.

Twitter reports lower-than-expected quarterly revenue

(Reuters) - Micro-blogging website operator Twitter Inc reported quarterly revenue below Wall Street expectations, hurt by weak monthly user growth.

For-Profit College Closures: The Next Billion Dollar Taxpayer Bailout?

To be sure, we've been keen on pointing out the severity of America's $1.3 trillion student debt problem. We've documented not only the inexorable rise in tuition rates and the concurrent increase in total debt outstanding, but also the persistent underreporting of delinquency rates thanks to the way loans in forbearance and deferment are treated in the calculation. Earlier this month we asked if the student debt bubble's "2007 moment" was at hand after Moody's warned that some $3 billion in student loan-backed paper may not be fully paid down by maturity (i.e. the defaults are coming). Then on Monday we suggested that depending on how borrowers in IBR and PAYE payment plans are counted, delinquency rates may actually be far worse than even we calculated. Meanwhile, in Louisiana, falling crude prices have blown a hole in the state's budget triggering funding cuts that may push LSU into the public university equivalent of bankruptcy.

While delinquency rates for student debt are a major concern in general and, as noted above, are grossly understated in the headline figures, the delinquency and default problem is far worse for loans extended to students that attend for-profit colleges. < ...

Big Banks' Debt-Cost Conundrum

A recent Federal Reserve working paper challenges the idea that markets expect the government to rescue the biggest banks. That looks like wishful thinking.

Selerity reveals Twitter results ahead of schedule

(Reuters) - Micro-blogging website Twitter Inc had lower-than-expected quarterly revenue, according to market data firm Selerity, which revealed the earnings numbers before the company's scheduled announcement.

Citigroup leaders win shareholder support as stock lags

NEW YORK (Reuters) - Citigroup Inc shareholders re-elected directors and overwhelmingly sided with the board on proposals at their annual meeting on Tuesday even as their stock traded for less than the company thinks it is worth.

U.S. Stocks Edge Higher

U.S. stocks rose slightly Tuesday as a number of positive quarterly earnings reports helped offset a continued decline in the biotechnology sector.

MasterCard seen stealing a march on Visa as China opens doors

(Reuters) - MasterCard Inc's strong association with Chinese bank card behemoth UnionPay is expected to help it reap more benefits than larger rival Visa Inc as the country opens up its $7 trillion bank card payments market to foreign players.

Wall St. Turns Higher as Company Earnings Reports Pour In

Merck shares were up substantially after the drugmaker posted earnings well above expectations.

Japan Proves Monetary Policy Is Nothing But Destructive

Submitted by Jeffrey Snider via Alhambra Investment Partners,

Japan continues to provide the best refutation of monetary policy as anything other than destructive. With its economy stripped bare of dynamic essentials after thirty years of the Bank of Japan's "lead", marginal changes are left as remnants of nothing more than monetary transmission. In the space of QQE, that has used up and destroyed what was left of Japan's once-dominant trade position, leaving the economy to hollow out from the inside as Japan Inc transfers to Offshore Inc.

Even the press toward the 2% inflation target has been pushed back, as if 2 years and a quadrillion (give or take a few trillions) yen were not enough to begin with. Back in April 2013, BoJ Governor Haruhiko Kuroda mentioned that his policy would be "flexible" (using that exact term) with regard to reaching the target and the manner in doing so, but it was clear then that he was talking about the exact opposite case - not doing more QQE if he fell far short but scaling back if it proved to be too powerful. The misplaced confidence and overestimation toward, really, zealotry is remarkable in hindsight of what has actually and instead taken shape.

The country's economists have been scrambling to rewrite forecasts, particularly as the stock market soars and the yen has fallen sharply in global currency markets, giving Japan's exporters a lift. Goldman Sachs, which has called ...

Goldman sees $1 trillion lift in 2015 via U.S. stock buybacks, dividends

NEW YORK (Reuters) - Investors will rake in more than $1 trillion in 2015 as U.S. companies increase stock buybacks and boost dividends, Goldman Sachs Group Inc said, with benefits coming soon as many S&P 500 companies exit a blackout period for repurchases next week.

Fed Talks, Rate Liftoff Date Walks

Ahead of the Tape: The Federal Reserve may delay a rate increase if a negative feedback loop returns.

Ford first-quarter profit misses expectations, 2015 profit outlook affirmed

DEARBORN, Mich. (Reuters) - Ford Motor Co reported a first-quarter profit that was less than analysts expected, selling fewer vehicles in North America as it worked to increase production of the redesigned F-150 pickup truck, and losing money in South America.

Debt Pile-Up To Fuel Further Oil Price Pressure

As regular readers are no doubt aware, a long-running theme here has been the vicious deflationary feedback loop inadvertently created by DM central bank policy. In the case of the heavily-indebted US shale complex it works like this: investors' quest for yield in a world governed by ZIRP and NIRP drives demand for HY issuance which in turn allows otherwise insolvent drillers to keep drilling by tapping the debt market to stay afloat. Meanwhile, the very act of continuing to drill puts more pressure on prices, imperiling the companies even further and encouraging still more debt issuance, which leads to more drilling and so on and so forth. This is exacerbated by the fact that the more debt you take on, the more interest expense you incur, adding further incentive to drill, drill, drill. In short: the entire sector is digging itself a hole (no pun intended).

This is a microcosm of the dynamic that's taking place in the macroeconomy. Those with access to easy money overproduce without witnessing a concurrent increase in demand from those to whom the benefits of ultra loose monetary policy do not immediately accrue. Defaults are averted when troubled companies tap yield-starved investors for cash, which leads to further excess capacity, still more pressure on prices, still lower yields, further herding into risk assets, and around we go. Citi's Matt King recently described this as "creative destruction destroyed" and as the process by which "zombies are born."

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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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