All Eyes on the 50 Day MA

“The stock market has risen steadily since November without any sort of significant pullback.

Since May 22, however, there’s been an exciting twist: stocks have been going down.

At yesterday’s closing level of 1609, the S&P 500 is now down 4.6% from the 1687 high on May 22.

Miller Tabak’s Chief Technical Market Strategist Jonathan Krinsky says now, “all eyes are on the [S&P 500’s 50-day moving average],” and asks, “Will it hold?”

In a note to clients this morning, Krinsky writes:

We have been looking for the SPX to test its 50 DMA, which currently sits at 1604. Specifically, on Monday we wrote:

“…as we look ahead into June, we think the odds of an 8th consecutive monthly gain become slim. That is not to say we are expecting a major downturn, but we think a test of the still rising 50 DMA around 1600 should not be surprising. 1597-1600 also represents the April highs. Below that, the 1576 area will likely be defended as it was prior resistance from October 2007, and represents a major multi-year breakout level.” …”

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“…In his opening statement, Draghi reiterates previous comments about how he sees a gradual economic recovery in the eurozone later this year, and that the ECB will keep policy accommodative as long as needed.

Draghi says the ECB has downgraded its 2013 euro area GDP growth forecast to -0.6%, but upgrades its 2014 forecast to 1.0%. Risks to growth remain on the downside.

On the inflation front, the ECB’s 2013 forecast has been downgraded to 1.4%, while the 2014 inflation forecast is unchanged at 1.3%. Upside and downside risks to inflation remain broadly balanced….”

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“Companies flush with cash remain reluctant to hire or make capital purchases, choosing to reward investors rather than expand their businesses.

Recent economic data exemplify the trend: Private payrolls grew by just 135,000 during May, according to ADP, while employment components both for the Institute of Supply Management’s manufacturing and nonmanufacturing indexes show a flat jobs outlook.

The grim hiring prospects come as nonfinancial firms hold nearly $1.8 trillion in cash on their balance sheets.

Rather than look to expand, though, they’ve chosen to participate in aggressive share buybacks and dividend increases to reward investors.

According to TrimTabs, companies have spent $290.7 billion this year on buybacks, which are aimed at decreasing the amount of available shares—or float—thus driving up stock prices.

That effort, at least, has been a success.

The Standard & Poor’s 500 has gained more than 13 percent in 2013, led by big gains in financials and health care stocks.

Worried about growth prospects, S&P 500 companies have been passing out dividend payments with a free hand as well, rewarding shareholders with a record $37.5 billion thus far, rather than hiring….”

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“DETROIT (AP) — Just two days after refusing a government request to recall 2.7 million older-modelJeeps, Chrysler has decided to do two other recalls totaling 630,000 vehicles worldwide.

The automaker will recall more than 409,000 Jeep Patriot and Compass small SUVs across the globe from the 2010 and 2012 model years to fix air bag and seat-belt problems. It’s also recalling 221,000Jeep Wranglers worldwide from 2012 and 2013 to fix transmission fluid leaks, according to documents posted Thursday on the National Highway Traffic Safety Administration website.

In the Patriots and Compasses, a software error could cause late deployment of the side air bags and seat-belt tightening mechanisms, and that could cause injuries in rollover crashes. Dealers will repair the software for free starting in July.

For Wranglers with 3.6-liter V-6 engines, Chrysler says a power steering fluid line can wear a hole in the transmission oil cooler line. The SUVs can leak fluid, damaging automatic transmissions. Dealers will inspect the lines for free and replace them or install a protective sleeve. The recall begins in July.

No crashes or injuries have been reported in either case, Chrysler spokesman Eric Mayne said Thursday.

The Compass and Patriot recall includes 254,400 vehicles in the U.S., 45,400 in Canada and another 109,400 outside North America, according to Chrysler.

The Wrangler recall includes 181,000 vehicles in the U.S. as well as 18,400 in Canada, 3,300 in Mexico and another 18,400 outside North America.

Concerned customers in either case can call Chrysler at (800) 853-1403….”

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“West Texas Intermediate crude rose for a second day in New York, trading near its highest level in a week after U.S. stockpiles dropped the most this year.

Futures climbed as much as 0.8 percent after gaining 0.5 percent yesterday. U.S. crude supplies slid by 6.3 million barrels last week, the most since December, data from the Energy Information Administration showed yesterday. They were projected to decline by 800,000 barrels, according to a Bloomberg News survey. Monthly U.S. jobs data will be released tomorrow. The European Central Bank and Bank of England kept their benchmark interest ratesunchanged.

“The weekly inventory data yesterday surprised quite a bit,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone today. “We have the U.S. monthly job report tomorrow and central bank meetings today, so there’s potential for a bit of position squaring.”

WTI for July delivery advanced as much as 72 cents to $94.46 a barrel, and was at $94.27 a barrel, up 53 cents, in electronic trading on the New York Mercantile Exchange at 1:01 p.m. London time. The volume of all futures traded was 14 percent above the 100-day average. The contract rose 43 cents yesterday to $93.74, the highest close since May 28.

Brent for July settlement increased 16 cents to $103.20 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $8.90 to WTI futures, down from $9.30 yesterday.

BFOE Loadings…”

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“Commodities are trailing equities for the longest stretch in almost 15 years as Goldman Sachs Group Inc. and Citigroup Inc. predict the end of the decade-long bull market even as the global economy expands.

The Standard & Poor’s GSCI Spot Index of 24 commodities lagged behind the MSCI All-Country World Index for six months, the longest stretch since 1998. Hedge funds cut combined bullishbets across 18 U.S. raw-material futures by 51 percent from a 16-month high in September and are bearish on six of them. Commodities will return 1.6 percent in a year as losses in agriculture and precious metals diminish gains from energy and industrial metals, Goldman said last month.

Investors pulled a record $23.3 billion from commodity funds this year as global equities attracted $182 billion, according to EPFR Global, which tracks money flows. Prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. Gluts are emerging as the International Monetary Fund predicts global growth of 3.3 percent this year, from 3.2 percent in 2012. The group cut last week its estimates for China, the top consumer of metals, grains and energy.

“There are times when you probably should be avoiding commodities, and I think this is one of them,” said John Stephenson, who helps oversee about C$2.7 billion ($2.61 billion) at First Asset Investment Management Inc. in Toronto. “Anytime you have a whole lot of inventory and visible supply, prices are going to be under pressure. The real issue for commodities is the source of demand, China, is weak.”

Natural Gas…”

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“Bank of England policy makers maintained stimulus for the economy after Governor Mervyn King concluded his last policy meeting surveying a recovery that’s not yet strong enough to warrant the “escape velocity” sought by his successor, Mark Carney.

The nine-member Monetary Policy Committee held its target for bond purchases at 375 billion pounds ($580 billion), in line with the median estimate in a Bloomberg News survey of 43 economists. The meeting was King’s 194th, and he will hand Carney on July 1 an economy thatresumed growth in the first quarter and may have picked up in the current period….”

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continuing claims of 2.95m…

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“The euro strengthened to a four-week high versus the dollar amid speculation European Central Bank President Mario Draghi will today reassure investors the region’s economy will recover later this year.

Europe’s shared currency rose against most of its 16 major counterparts after the ECB refrained from cutting its main refinancing rate at its monthly policy meeting. The pound advanced for a second day against the dollar as the Bank of England left its asset-purchase target and benchmark rate unchanged. The Australian dollar slid to the weakest level since 2011 as the nation’s shrinking interest-rate advantage over its peers reduced the currency’s allure.

“Given that some indicators have improved and financial conditions are better Draghi might have a more moderate tone,” said Chris Walker, a currency strategist at Barclays Plc in London. “The euro is at the top of its recent range. At the same time, the medium-term growth outlook isn’t that good.”

The euro rose 0.2 percent to $1.3121 at 12:47 p.m. London time after advancing to $1.3131, the highest level since May 9. The single currency advanced 0.2 percent to 129.97 yen. The yen was little changed at 99.07 per dollar after appreciating to 98.84, the strongest since May 9.

JPMorgan Chase & Co.’s Group-of-Seven Volatility Index, based on currency option premiums, fell to 10.08 percent after rising to 10.24 percent on May 31 and June 3, the highest level since Feb. 26.

Benchmark Rate….”

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“SodaStream International Ltd. (SODA) surged in German trading after an Israeli business website reported that PepsiCo Inc. (PEP) is in talks to buy the home soda-machine maker for more than $2 billion.

The stock rose to the equivalent of $102.28, up 47 percent from yesterday’s closing price in New York. It traded at the equivalent of $78.70 at 1:03 p.m., giving up more than half the gains after PepsiCo Chief Executive Officer Indra Nooyi said in an interview in Myanmar that it’s the first time she had heard about the talks.

Goldman Sachs Group Inc. is managing negotiations between PepsiCo and SodaStream, Calcalist reported today, without saying where it obtained the information. Calls to SodaStream Chief Executive Officer Daniel Birnbaum and head of investor relations Yonah Lloyd weren’t answered.

SodaStream is growing rapidly at a time when the $183 billion global market for carbonated beverages is slowing. The company is seeking to more than double sales to $1 billion by 2016. Researcher Euromonitor International estimates that annual growth in carbonated beverages will weaken to 2 percent through 2017 from 4 percent in the past four years…”

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“German factory orders (GRIORTMM) fell more than economists predicted in April as Europe’s largest economy struggled to gain strength.

Orders, adjusted for seasonal swings and inflation, decreased 2.3 percent from March, when they increased a revised 2.3 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent drop, according to the median of 39 estimates in a Bloomberg News survey. In the year, workday-adjusted orders fell 0.4 percent.

The European Central Bank is expected by economists to lower its economic outlook when it meets in Frankfurt today, a month after cutting interest rates to help the euro region out of its longest-ever recession. At the same time, German business confidence rose in May for the first time since February, and consumers’ optimism is set to climb to the highest since 2007 in June, as higher wages boost spending power.

“A decline was to be expected after significant increases in the previous months,” said Gerd Hassel, an economist at BHF-Bank AG in Frankfurt. “Therefore, it’s not a sign of an economic slump but rather of the usual volatility. German growth should pick up in the second quarter.”

The German economy grew only 0.1 percent in the first three months of the year, less than economists anticipated. The Bundesbank will release new forecasts tomorrow. In December, the Frankfurt-based central bank predicted growth of 0.4 percent this year and 1.9 percent for 2014.

Orders Slump…”

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“The European Central Bank kept interest rates unchanged at a record low as improving confidence underscored President Mario Draghi’s timetable for an economic recovery later this year.

Policy makers meeting in Frankfurt today left the main refinancing rate at 0.5 percent after reducing it by a quarter point last month, as predicted by 57 of 59 forecasts in a Bloomberg News survey of economists. Morgan Stanley & Co. and IHS Global Insight were the only institutions to predict a cut. Draghi will hold a press conference at 2:30 p.m.

A month after Draghi left investors to ponder a menu of further measures that the ECB might consider to aid economic growth, he may point to improving sentiment as justification for keeping borrowing costs unchanged. Still, economist say officials probably need to cut their outlook for growth after data showed the euro region’s recession extended through the first quarter and Germany’s economy barely grew.

“Draghi’s rhetoric is poised to remain dovish, confirming that the ECB stands ready to act further if needed,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. Still, “we do not expect any bold announcement on unconventional policy,” he said.

The ECB held its deposit rate at zero and its marginal lending rate at 1 percent. The Bank of England kept its bond-purchase target at 375 billion pounds ($580 billion) and maintained its key rate at 0.5 percent.

Adding Stimulus…”

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“The Australian dollar fell to the lowest level since 2011 as the nation’s shrinking interest-rate advantage over its peers damps the allure of the currency.

Insight Investment Management Ltd., which oversees about $134 billion in fixed income and currencies, has been selling the Aussie as the yield spread between Australia’s sovereign debt and its global peers narrowed by almost half a percentage point since March. The Australian and New Zealand dollars slid against the yen for a third day as Asian stocks extended a global rout, sapping demand for riskier assets.

“The Aussie’s trend is clearly downward,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest financial group by market value. “The Australian dollar remains susceptible to selling when markets are in a risk-off situation.”

Australia’s currency dropped 0.6 percent to 94.81 U.S. cents as of 5:11 p.m. in Sydney after touching 94.35, the weakest since Oct. 4, 2011. New Zealand’s kiwi dollar fell 0.2 percent to 79.53 U.S. cents after reaching 79.03, the lowest since July 26. The Aussie slid to 93.45 yen, a level unseen since Feb. 27, before trading at 94.18, 0.4 percent lower than yesterday. New Zealand’s currency was little changed at 78.99 yen….”

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“Global markets will face increased volatility as central banks bring interest rates back to normal levels, JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said.

“We should all hope for a normalization of interest rates — that’s a good thing,” Dimon said today during a panel discussion at the Fortune Global Forum in Chengdu, China. “As we go back to normal, its going to be scary, and its going to be kind of volatile.”

Investors have been encouraged to buy riskier assets as global central banks unleashed unprecedented monetary stimulus after the financial crisis of 2008. Concern that the policies would be reviewed grew last month following comments from Federal Reserve Chairman Ben S. Bernanke.

Price swings across assets and around the world are holding below historical aver…”ages.

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Japan,  Italy, Spain, France,  and Germany …

[youtube://http://www.youtube.com/watch?v=RFhyvon9Io0 450 300]

“It all seems so surreal. After being mesmerized by the Fed’s hallucinogenic “Quantitative Easing,” (QE) drug, and seduced by the Fed’s Zero Interest Rate Policy (ZIRP), and rescued by the Fed’s clandestine intervention in the stock index futures market, for the past 4-½-years, it’s easy to forget that there was once a time when the Fed’s main policy tool was simply adjusting the federal funds rate. It’s even harder to recall that two decades ago, the Fed’s raison d’être was combating inflation, whereas today, the Fed’s main mission is rigging the stock market, and inflating the fortunes of the wealthiest 10% of Americans.

The central bank’s purpose is to get ahead of the inflation curve,” declared Wayne Angell, one of the seven governors of the Federal Reserve on June 1^st, 1993. Angell had a reputation as a Fed hawk, and he was pushing for a tighter monetary policy, even before an uptick in the inflation rate showed-up in the government’s statistics. “If we’re ahead of the curve, our credibility and the value of our money is maintained. Some of my economist friends tell me, ‘We don’t feel much inflation out there, but we feel better knowing that you’re worried about it.” Thus, there was a time when savers received a positive rate of return on their money.

Two decades ago, the Greenspan Fed was stacked with hawkish money men. And because their tenures lasted for 14-years, they felt immune to the winds of politics. Thus, if the Fed governors were to make unpopular decisions to hike interest rates, in order to bring inflation under control, or burst asset bubbles, so be it. Of course, it’s much different today – the Fed is stacked with addicted money printers that are beholden to the demands of their political masters at the Treasury and the White House. How did Fed policy swing so radically from Angell’s day – when Fed tightening meant lifting the federal funds rate and draining excess liquidity, to today’s markets, – where a small reduction in the size of the Fed’s massive QE injections is considered to be a tighter money policy?…”

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“We’re finally starting to see the small investor chase equity returns.  And they’re just in time for it all after a 150% rally.  According to the most recent AAII investor allocation survey individual investors allocated their portfolios towards the highest equity weighting since September 2007.  Meanwhile, bond allocations are close to the post-crisis lows and well off the 2009 highs when fear peaked

Here’s more via AAII…”

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“Over the last few years the Financial Industry Regulatory Authority (Finra), the brokerage business’s industry-financed watchdog, has been formally warning investors and retirement savers about the risks of buying into obscure, privately traded investment products that promise high yields. Soon, according to its chief executive, Finra will issue a similar warning about an investment category that generally enjoys a more distinguished reputation: Hedge funds.

Richard Ketchum, Finra’s chairman and CEO, discussed the issue this week at a conference of Reuters reporters and editors; Reuters has the story here. He noted that savers in general, leery of stocks and frustrated with low interest rates, have gotten  themselves into trouble putting money in products likeprivate real estate investment trusts and business development companies that invest in privately held firms—vehicles that don’t trade on public exchanges, don’t disclose much about their holdings and….”

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