Tuesday, February 28, 2012

Dow Finally Closes Above 13,000 as Silver Breaks Out

Fueled by ever-larger injections of liquidity from the world's central banks, US equity markets have been disconnected from economic reality for some time, but today's shrug of the shoulders to two key economic reports has to make old-time "investors" wondering if hard numbers actually mean anything anymore.

Prior to the open, the Commerce Department released durable order data for January, which showed a 4.0% decline over the prior month. (Shrug shoulders if you trade stocks)

At 10:00 am, S&P/Case-Shiller data on home prices came in with a loud thud, matching the durable number at -4.0% for December. The widely watched index of home prices has now exceeded the post-crash lows and is at its lowest level since February, 2003, a 33.8% drop from the peak. If there is a recovery in housing, it certainly is well-hidden.

Despite the negativity of stubborn reality, stocks managed to post small gains across the board, with the Dow Jones Industrials closing above 13,000 for the first time since May, 2008. (cue fanfare here)

So, now that everybody can pop the champagne and don their "Dow 13,000" beanies, what's next?

Just in case you've tired of the constancy of the stock market, hovering around Dow 13,000 for more than a week in a very slow-moving, retarded kind of way on abysmally-low volume, take heart! Things are about to get a whole lot more interesting beginning Wednesday.

That's the day the ECB unleases its latest attempt to advance liquidity and goose markets (and inflation) with the second installment of the LTRO (Long Term Refinancing Operation), in which European banks will be offered up to EUR500 billion in three-year loans at the bargain-basement price of 1% (how appropriate!).

Back in December, the ECB did the same thing, and EUR489 billion was snatched up by some 523 institutions, though much of the money was eventually parked right back at the ECB, earning a measly 0.25%, resulting in small, albeit manageable losses for many of Europe's largest banks. To the banks, the 0.75% negative carry seemed a good enough deal to have funds on hand should the crisis deepen or a rogue trader muck up the balance sheet.

Ideally, the ECB would like the funding banks to snatch up more of that juicy sovereign debt that continues to float around in the Eurozone like so much flotsam and jetsam, but the LTRO also carries something of a stench of its own, via the equity markets, where the takers of the nearly-free money are cast under a dubious light.

No matter the particular cases for individual banks, tomorrow's "funding" should be making headlines about the time US stock markets ring their bells of jubilation.

Also tomorrow, America's central banker, Ben Bernanke, chairman of the Federal Reserve, will be before congress, making his required testimony before the House Finance Committee. Since the chairman's stuttering mouthfuls usually carry significant weight for the financial markets, he might make some news, though probably not, being the conscientious type who only prefers to move markets the old fashioned way, by getting the printing presses rolling full boar in the basement at the Fed.

Thursday and Friday feature a full meeting of EU ministers, with the $2 Trillion "firewall" topping the agenda.

Now, to the casual observer, these events may not evoke much excitement, but financial market players will be glued to their tubes, pads or whatever electronic means they have of staying abreast of developments and there just may be some fireworks. Of course, there may not, as these bulwarks of capitalism are about as open-minded and free-speaking as corpses in straightjackets.

On the other hand, any kind of adventurous talk or under-over funding take-up could move markets substantially, which is just what some traders would like to experience, rather than the Chinese water torture of the past seven or so sessions.

Meanwhile, what equity traders hate to admit, is that silver has been outperforming just about every other asset class in the known universe, up 30% on the year and breaking through resistance today on a powerful move forward.

In an interview with King World News, chartist Dan Norcini notes that silver has breached resistance at $35.50 and broken above the 50-day moving average. Today's 4% move higher was largely due to shorts having to cover their positions. Norcini says shorts are panicked and the next resistance level is around $40/ounce.

In the below video, Jon Najarian of Options Monster explains how the big players are looking for a breakout in silver. Enjoy.

Dow 13,005.27, +23.76 (0.18%)
NASDAQ 2,986.76, +20.60 (0.69%)
S&P 500 1,372.18, +4.59 (0.34%)
NYSE Composite 8,171.84, +28.29 (0.35%)
NASDAQ Volume 1,755,641,125
NYSE Volume 3,487,070,500
Combined NYSE & NASDAQ Advance - Decline: 2805-2796
Combined NYSE & NASDAQ New highs - New lows: 253-21
WTI crude oil: 106.55, -2.05
Gold: 1,788.40, +13.50
Silver: 37.14, +1.62

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