New York Stock Exchange

Aside from a very much vacated President's Day trading market, for 1400ET, today is the lowest volume day of the year (in line with Monday's scarcity)... given this lack of real market, the algos are let loose to ply their levitation magic - and sure enough, Dow Transports reach new highs and the S&P pushes on towards that record...

The only major news from overseas was from the UK where Industrial Production fell 1.5% leading many to worry the country would succumb to a triple dip recession. Naturally the pound (FXB) has been taking a beating with pundits recommending long euro short pound pair trade. 

It was a boring enough day that the goings on in Rome caught my attention—a new candidate for pope and he’d be a refreshing change:

Leverage, as measured by NYSE Margin Debt, rose a huge 31.6% year-on-year (YOY) and 10.2% month-over-month (MOM) to $364bn in January, compared to the July 2007 peak of $381bn. Net Free Credits at -$77.2mm (essentially cash balances in margin accounts) have plunged to levels (and at a rate) that BofAML believes generates a sell signal and typically result in market correction. The last time a (2-standard-deviation) sell signal like this was generated was on April 2010 and the S&P 500 subsequently corrected by 16% in two months. While the US equity market has not responded to at or near overbought or contrarian bearish sentiment levels very recently (remaining overbought for weeks) BofAML also notes a tactical sell signal was just triggered that is similar to those from September 14 and April 27, 2012 – both preceded market pullbacks.

U.S. equity markets rallied once again after opening weaker Monday repeating previous performances. There wasn’t much news domestically. The Fed continued modest POMO actions which will grow in scope throughout the week. Stocks were quiet most of the day but got a lift on rumors that Apple (AAPL) will declare a dividend of some kind. If they do this, then the SEC should be monitoring who and what groups were front-running this piece of news.

Someone is obviously not complying with the central-planner script and rotating fast enough into equities.

Bulls remain in control of the tape even if there are only a few of them. There is better economic data in the U.S. as the Employment Report indicates (236K vs 171K expected & prior 151K) while the headline unemployment rate dropped (7.7% vs &.7.8% expected & prior 7.9%). The latter is the headline number HFT & algo traders jump on and “away we go!” Jackie Gleason would shout. Inside the numbers there is less cheerful data but “da boyz” running the programs never pay attention to these like: “4.8 million unemployed greater than 27 weeks and only 63.5% of the workforce engaged in work”. The latter numbers haven’t changed much.

New highs will become a daily headline feature it seems until we actually have a down day. 

Thursday, Jobless Claims fell (340K vs 347K previous), Productivity (-1.9% vs -2% previous) and Costs (4.6% vs 4.5% previous) were very poor reports, and the Trade Deficit grew (-$44.45B vs -$38B). Lastly, Consumer Credit expanded to $16.2 billion from $14.6 billion primarily on student loans (in a bubble) and auto loans (subprime auto loans booming).

Markets reacted without much conviction either way and for the most part took a break even as #024999 !important;" href="http://www.newyorkfed.org/markets/pomo/display/index.cfm?showmore=1%26opertype=orig" target="_blank">POMO was fully operational. One sector leading markets higher were financials, which we profiled in today in#024999 !important;" href="http://etfdigest.com/etf_headlines/ETF-in-Focus-XLF.html" target="_blank">a short video highlighting SDPR Financial ETF (XLF). As premium subscribers know, we’ve been pretty active in XLF and are looking to add to our existing positions.

When you get this close to a record it’s just a matter of time before it gets taken out generally. Why today? Well, China reversed course psychologically by now stating it would expand “deficit spending by 50%” after just Monday putting the clamps theoretically on their housing bubble. That provided a big lift to Asian and European shares. With the latter more ECB talk about defending the eurozone and euro was fed bulls. Global markets also feasted on Fed Vice-Chair (the woman who would be king?) Janet Yellen that QEternity is not gonna change.

We could tell you all about the fact that high-yield credit did not play along with this rally today (and that the underlying cash market for corporate bonds has been weak for well over a week now); we could note that VIX did not take part in this surge today as the stops were run; we could point to the total lack of volume (NYSE or futures) confirming the move; we could highlight the fact that Treasury yields rose a de minimus 1.5bps on the day and while the USD slipped modestly on the day, it is only down 0.22% on the week and that Gold, Silver, and Oil are all unchanged on the week. But - all that matters, in this headline-driven algo-aided market is - The Dow hit all time highs - 'Mission Accomplished' Mr. Bernanke, well played - record stocks, record debt, record food stamps recipients.

Royal Dutch Shell has just released new forecasts for its ‘New Lens Scenarios’ program, which aims to predict how current business decision and policies may unfold over time and affect the markets in the future. The scenarios take two different approaches: one considers the world with a high level of government involvement, and the other looks at the markets when they are given more freedom to develop naturally. The results are intriguing...

Incase you didn’t notice, the sequester is in place cutting the rise in government spending by all of 2%. I woke up this morning expecting the planet to have reversed its rotation, it was no longer winter and I had aged 30 years. But no, everything was the same, except for the bullshit emanating from various pundits or websites. One thing I’ve learned to do, whether its Obama, Boehner, or Reid is just to tune them out. If there’s a national emergency then I don’t know what I’d do or who I’d tune in—Big Sis?  Good grief!

Presented with little comment except to note, each time the NYSE member firms margin-buying has become so vociferously positive over and above the Dow, things have not turned out so well...

Recent news about Federal plans to "help" manage private retirement accounts renewed our interest in the topic of capital controls. One example of capital control is to limit the amount of money that can be transferred out of the country; another is limiting the amount of cash that can be withdrawn from accounts; a third is the government mandates private capital must be invested in government bonds. Though presented as "helping" households, the real purpose of the power grab would be to enable the Federal government to borrow the nation's retirement accounts at near-zero rates of return. As things fall apart, Central States pursue all sorts of politically expedient measures to protect the State's power and the wealth of the political and financial Elites. Precedent won't matter; survival of the State and its Elites will trump every other consideration.  All this raises an interesting question: what would America look like at $5000 an ounce gold?