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18May2015 Market Update: Markets Rallied To New Highs Belying Large Financial Negatives Lurking, DOW And SP500 Set New Historical High Which Might Be Last

Written by Gary

Today is Monday, which has become a rally day for stocks. However, there are several large negatives on the horizon investors need to watch closely. This morning homebuilder confidence index fell, adding to a stream of weak economic data that has muddied the outlook for interest rates.


Here is the current market situation from CNN Money

North and South American markets are mixed. The S&P 500 is higher by 0.17%, while the Bovespa is leading the IPC lower. They are down 1.56% and 0.18% respectively.

The averages opened lowered and then sea-sawed along the unchanged line for most of the morning. The DOW squeezed in a new historical high early in the morning and backed off. Then by 11:30 am pushed higher with another best for the session (18,297.28) along with the SP500 higher at 2127.54

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 62%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 59%
Investors Intelligence sets the breath Above 50 bullish 57.7%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. +13.08
StockChart.com NYSE % of stocks above 200 DMA Index ($NYA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Dropping below 40%-35% signals serious continuing weakness and falling averages. 62.89%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 62.96%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 63.20%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 22.20
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 76.73
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 11,214

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. appeals court reverses part of Apple's $930 million verdict vs Samsung

NEW YORK (Reuters) - A U.S. appeals court on Monday reversed part of a $930 million verdict that Apple Inc won in 2012 against Samsung Electronics Co Ltd , saying the iPhone maker's trademark-related appearance could not be protected.

30Y Treasury Yield Surges Back Above 3.00%, Bunds Flat

After some relief Friday, US treasuries are selling off once again this morning (but not being driven by Bund weakness). Yields are up 5-9bps across the complex with 30Y back over 3.00% again..

"Decoupled"

But the last week has been a wild ride for bonds...

As bonds roundtrip Friday's gains...

Charts: Bloomberg

Cambridge University to Adopt Ethical Approach to Multibillion-Dollar Fund

One of the world's oldest-and richest-universities has decided to adopt a more ethical approach to investing its multibillion-dollar endowment fund.

So Much For The Oil Crash: Cali Gas Price Almost Back To Year Ago Levels; Los Angeles Gallon Rises Over $4.00

Back when oil was crashing from $100 to $40, every day various economists and pundits, oblivious of the bloodbath in energy junk bonds and the imminent capex collapse, would explain how plunging gas prices were "unambiguously good" for consumer spending in the US. Well, the oil crash came and went, and retail sales since November have been unambiguously bad, not to mention US GDP in the first half is now poised for a negative print.

But while one could, at least superficially, make the case that for the US consumer (if nobody else) lower oil prices are indeed better than the opposite, we wonder how the same pundits will spin that according to AAA, not only are Los Angeles gas prices now back over $4.00 per gallon, erasing almost all losses from a year ago...

... but that the mecca of US motorists, the entire state of California, has seen its average gas prices soar from a low of $2.55 in January, a 40% discount to the $4.15 price a year ago to just above $3.80, a single-digit decline from May of 2014, and a difference which at this rate will be completely erased in less than two weeks time.

< ...

Italian Banks Have Chance to Bloom

Italy's banking sector is set to benefit from the return to economic growth and a stable government in Rome. There is opportunity here for investors, but buyer beware: valuations are already stretched for the main players.

China's Housing Market Shows Signs of Hope

The tentative rebound in some cities' housing prices suggests recent steps by policy makers are helping engineer at least a slight turnaround.

Deutsche Bank co-CEO Fitschen says he never deceived in Kirch case

MUNICH (Reuters) - Deutsche Bank co-CEO Juergen Fitschen rejected prosecutors' accusations that he gave misleading evidence in connection with the 2002 collapse of the Kirch media empire.

David Stockman: "We Are Entering The Terminal Phase Of The Global Financial System"

by Eric King via Contra Corner blog,

Today David Stockman, the man President Ronald Reagan called upon along with Dr. Paul Craig Roberts to help save the United States from disaster in 1981, warned King World News that we are now entering the "terminal phase" of the global financial system that will end in total collapse.

Eric King: "David, I wanted to get your thoughts on gold in the midst of this big deflation you think is in front of us. When you look at the collapse of 2008 - 2009, gold was one of the best performing asset classes. Gold went down but it went down much less relative to virtually everything else. Contrast that to 1973 - 1974, where we had a 47 percent stock market collapse. But during that time we had skyrocketing gold and silver. What's in front of us because it looks like gold and silver may be ending a 4 year bear market and ready for a 1973 - 1974-style up-move?"

David Stockman:

"Yes. I think the two periods are quite different. Although at the bottom it's central bank errors that underlie each. But remember that in the 1970s we had just finally exited a semi-stable Bretton Woods Gold Exchange Standard system. There still was, at the end of the day, an anchor on the central banks that was thrown overboard by Nixon in 1971....

"So the first go-round was a rip-roaring price inflation because there had not yet been enough time under the fiat money and balance sheet expansion by the central banks to create excess capacity in the world industrial system. So a ...

U.S. home builder sentiment slips in May: NAHB

NEW YORK (Reuters) - U.S. homebuilder sentiment fell in May but still showed more builders view market conditions as favorable, the National Association of Home Builders said on Monday.

Homebuilder Sentiment Slides, Misses For 5th Of Last 6 Months

Since November, HAHB homebuilder sentiment has only beaten expectations once. May printed 54 (notably short of the 57 expectation). Despite all the previous hope for future sales, buyer traffic has fallen as The Midwest saw the biggest drop in sentiment (what about the post-weather bounce?) and The West rising modestly.

The story was well-known: pessimism now offset by optimism later: present single family sales falls to 59 vs 61 last month, while future single family sales rise to 64 vs 63 last month, even as prospective buyers traffic falls to 39 vs 40 last month.

As for the report punchline:

"Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home," said NAHB Chief Economist David Crowe.

Which may suggest that the S&P at all time highs hasn't quite trickled down to consumers just yet. Oh well, a few more years of record S&P highs should surely seal the deal.

U.S. home builder sentiment slips in May: NAHB

NEW YORK (Reuters) - U.S. homebuilder sentiment fell in May but still showed more builders view market conditions as favorable, the National Association of Home Builders said on Monday.

Goldman Can Now Predict The Price Of Oil In 2020

Back in the summer of 2008, Goldman predicted that oil would rise to $200. Promptly thereafter, oil did rise to $150... and then crashed to $40 when the entire world nearly ended, and when Goldman et al grudgingly accepted a few trillion in taxpayer bailouts so their shareholders could bicker today over the helicopter landing protocol in the Hamptons.

Many were so amused by Goldman's epic inaccuracy of being wrong by about 80% just a few months out, that some got the blasphemous idea that Goldman was merely trading against its clients, who even had an internal codename: "muppets."

Goldman's historical predictive snafus did not prevent the company to come out in July of 2014 and forecast it that "The long-awaited global recovery appears to be getting on track, lifting commodity demand", in the process completely missing the imminent oil rout which saw oil tumble to $40 yet again.

And just to show that predicting 0 out 2 market routs and retaining credibility is about par for Wall Street, overnight the cephalopod company released its latest foreacst. And not just any forecast, but one stretching to 2017, 2018, 2019 and, yes, even 2020!

This is what Goldman thinks will happen not this year, not near year, but in five years.

We now assume WTI oil prices of $57/$60/$60/$55/$50 in 2016/17/18/19/20. We mark to market 2Q 2015 WTI oil price to $57.50/bbl. Our blended average 2H 2015 WTI outlook remains at $51/bbl.

Oil Investors Take a Closer Look at Production

A spotlight has landed on a previously overlooked metric as oil traders drill deeper for clues on price movement.

Gold is Breaking Out Against the Euro and Yen… is the US Dollar Next?

Last week was options expiration week (equities and indexes). This is the week for market gaming as usually two things happen:

1) The Fed juices the market to provide additional liquidity to Wall Street.

2) Wall Street uses the additional liquidity to gyrate the markets to make sure as many options positions as possible expire worthless.

Today is Monday, which has become a rally day for stocks. However, there are several large negatives on the horizon.

The first concerns Greece. For three years now we've been told that Greece was "fixed." It was not for the simple reason that you cannot fix a debt problem with more debt. There are only four ways to solve a debt problem:

1) Default

2) Restructure (partial default)

3) Pay it off

4) Inflation (a default of sorts)

Greece cannot engage in #4 because, as part of the Euro, it cannot print its own currency. This leaves one of the other three. Thus far, the IMF, ECB, and EU Government have managed to avoid facing the music largely because Greek politicians have been willing to sacrifice their economy in order to remain in power.

This appears now to be changing. The current Greek ministers seem far more willing to disagree with the Troika, to the point that there is talk of a Grexit (Greece leaving the Euro) on the other side of the aisle, particularly from Germany.

At the end of the day, it all boils down to money. Greece doe ...

Shape Of Greek Endgame Emerges: IMF Discussed "Cyprus-Like" Plan After Tsipras Warned Of Looming Default

As we said over the weekend, it's all about Riga again for Greece. EU leaders will meet on Thursday and Friday in Latvia where PM Alexis Tsipras will try to secure a more favorable outcome than did FinMin Yanis Varoufakis who, last month in Riga, reportedly did more chiding and lecturing than negotiating, a performance that may ultimately cost him his job once all is said and done. The situation is far more urgent this time around, with Greece having tapped its IMF SDR account to make a payment to the Fund and with the banking sector running dangerously low on collateral that can be pledged for emergency liquidity.

A bit more color from Deutsche Bank:

One thing that is starting to come to a head is Greece. With an EU leaders summit in Riga scheduled for Thursday and Friday, we should have a good idea of where current negotiations stand by the end of the week. Talks may well pick up in pace over the next few days with a spokesman for the Syriza party saying on Greek TV (Mega) that â€'we're striving for a mutually beneficial agreement by Friday' while pushing the party line that â€'our mandate from the Greek people is to reach an agreement where we stay in the euro area without harsh austerity measures'...

One other factor that will likely add pressure to accelerate negotiations this week is the news over the weekend that Greece came close to being unable to pay the May 12th IMF repayment. According to Greek press Ekathimerini, PM Tsipras sent a letter on May 8th to the IMF's Lagarde saying that the Greek government would not be able to repay the €750m unless the ECB allowed for Greece to issue more T-Bills. In the end, the government decided that it would o ...

EURUSD & Peripheral Bonds Tumble As Greek Fears Re-Emerge

The exuberant bounce of last week's IMF default/IMF payment workaround is fading fast as peripheral European bonds and the euro are being sold aggressively this morning, after headlines continue to suggest Greek bank collateral is dropping faster than the pressure in Patriot's footballs. Most notably, bunds are eeerily stable - almost as if some central planner figured out German bonds were the world's flashing red indicator and decided to suppress volatility some more.

As Green banks implode...

PIIGS are contagiously blowing out...

and The Euro is fading...

But bunds are deadstick...

As Bloomberg reports,

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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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