Chairman Bernanke is speaking but do not hold your breath for QE3. The failure in commodities, CRB, in recent days paves the road to QE3 but it is not soup yet. When CRB drops under 300, that is when Bernanke will have many sleepless nights ahead; this represents the economy slipping into disinflation. When CRB drops under 280 and heads lower, that is when you will position for the QE3 trade looking for lower dollar, higher gold and higher small caps, but, we are not near there yet.
Dr. Copper fell off the gurney today yelling "Medic! Medic!", tumbling over 2%, a terrible omen for the markets moving forward. CRB, UTIL, JJC and SOX are all firmly in the bear camp and will continue to push the broad indexes lower. The next sectors and levels to watch, as calculated by Keystone's algo, are VIX 19.40, XLF 15.15 and RTH 40.80. Thus, the bears want the VIX to jump above 19.40 (it almost touched 19 today), and the XLF and RTH to drop lower. The bulls are on the other side of that trade.
As today began, AAPL was down causing the tech sector to lead the markets down. But, since Apple is the markets, once Apple recovered in today's trading, this allowed the markets to recover before rolling over late day. The dollar also weakened in the morning permitting market buoyancy. Egan-Jones downgrades the U.S. again. Despite the heat this rating agency continually receives, their calls are typically quite timely and on target. Europe will heat up tomorrow as traders return from the Easter vacation. The action will pick up with the bond market in the morning. NYAD printed -2100 today so it would be agreeable to seeing a slight bounce in equities markets to burn off some negative energy. Note that the Dow Industrials, INDU, the NYSE, NYA, and the Russell 2000, RUT, have all lost their 50-day MA which is bearish. Watch to see if the SPX follows along next.
For the SPX for Tuesday, starting at 1382.20, the bulls will try to stop the bleeding by preventing the VIX, XLF and RTH levels above from occurring. The bears need to push the SPX only four points lower, to drop under 1378.25, and the downside action will accelerate. The bears would then likely attack the critical 1370-1372 support level as well as the VIX, XLF and RTH levels. SPX S/R is 1388-1389, 1386, 1378 and 1370-1372. As forecasted for today, the bulls tried to bounce markets but could not recover the CRB, UTIL, JJC or SOX levels listed this morning, thus, the bulls rolled over into the close.
Markets may flat line in the afternoon session tomorrow as traders await AA earnings after the bell. Keystone is currently long SVU which announces earnings in the morning so keep the stretcher handy to carry good ole Keystone out if the numbers are bad. NFIB Small Business Optimism Index hits at 7:30 AM. Wholesale Trade 10 AM. The 3-Year Note Auction is 1 PM. Volatility, financials and the retail sector are important for Tuesday's trade.
KS, when CRB falls below 280 and QE3 kicks in, where do you think the SPX will be at? Would it be under 1100? SVU bounced today! Was it short covering perhaps?
ReplyDeleteSteve
Hello Steve, nope, not 1100, that would represent a market already lost and heading far lower. Perhaps the CRB under 300 would be with the SPX at about 1340-1380, then CRB 280 perhaps about SPX 1300-1340, then when Chairman Bernanke announces QE3 when CRB is, say, 250-270, the SPX would probably be at 1270-1300, perhaps lower. Thus, about 80 to 100 handles lower for the S&P's, but we just have to take it hour to hour, day by day.
ReplyDeleteAnother key marker for everyone to watch would be the utilities. Watch UTIL, now at 455.80. Focus on the 50-week MA which is now 440.90 and sloping up, each day this will tick upwards making for an easier target to rupture as time moves along, 441, 442, 443, etc....
Think of the 50-week MA for UTIL as representing a trap door for the markets. If this level is breached, the broad indexes will typically collapse, and this is the point at which waterfall market crashes would occur. Thus, Bernanke has about 15 UTIL points before panic will set in and he will have no choice but to announce QE3. Once this scenario plays out, the market reaction can be noted, and if the markets run out of steam as the QE moves continue to provide less and less oomph, that is when we can assess the future damage and just how low the S&P will move, which can easily be 1100, 1000 and even much lower, but this is likely weeks and months in the future.
To monitor the utilities, simply use stockcharts.com and type in $UTIL to monitor the utes, and the 50-week MA.
On SVU, earnings hit at anytime now. So yesterday's action was some short-covering with short traders content with the ride down, covering, and booking the profits. The money flow indicator dipped lower which shows that price may need extra time to base with a bounce, then move back down to these levels, then sustained up. Charts have all information built in to the price, and chart, up to the minute, but, for news pending, such as earnings, it can be a real crap shoot. SVU will obviously react immediately on the earnings news pending.
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