Yesterday was a key reversal day. The SPX opened at the prior days high and closed below the prior days low. Typically for a key reversal, price needs to exceed the prior days high and close below the prior close but this is close enough for government work. The key reversal hints of a change in trend in the air even if markets recover in the days ahead. The 8 MA is under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours and days ahead. Copper started this whole market parade south as it showed the initial indications of weakness last Sunday evening. Copper is weak again this morning. WTIC oil now lost the 94 level. Type 'WTIC' in the search box above to bring up the oil charts from last week for further study. Down oil means down markets. Lower commodities, oil and copper signal a weaker global economy and the move into disinflation and towards the dreaded deflation. The 10-year yield dropped under 2% overnight and is now printing 1.98%. Lower yields means lower equity markets.
The euro lost the 1.32 level overnight, now printing 1.3189. Lower euro means lower equity markets. European markets are lower this morning. The dollar is at 81.395. Higher dollar means lower equity markets. The higher dollar is killing gold which lost 41 bucks yesterday to close at 1564 well off the 1900 levels in the hay day. The SPX did not drop through the 20-day MA support but the Nasdaq ($COMPQ) dropped to 3164 losing the 20-day MA at 3167. Tech weakness is a bearish indication since tech should be leading the rally. Keystone's Inflation-Deflation Indicator is 296.59/100.141 which is 2.96 dropping a few more ticks into disinflation from the 2.99 the other day.
CPI (Consumer Price Index), a gauge of inflation, or lack thereof, and Jobless Claims hit at 8:30 AM. Flash PMI at 8:58 AM. Existing Home Sales, Philly Fed and Leading Indicators at 10 AM will create a market pivot point. Natty Gas Inventories 10:30 AM. Oil Inventories 11 AM delayed one day due to the holiday. Fed's Bullard and Williams are talking after lunch time and the 30-Year Bond Auction is 1 PM. Fed's Fisher talks this evening well after the markets close. Quite a line-up today. WMT and HPQ earnings are important today, also JWN to see if the wealthy are spending.
Keybot the Quant, Keystone's trading algo, is near flipping to the short side. Watch UTIL 468, RTH 45.45, GTX 4930, XLF 17.20 and VIX 15.70. All are in the bull camp so if any one of them jump to the bear side, Keybot will likely flip short. Keybot has been long the market for about two months now. For the SPX today starting at 1512, the bulls will simply focus on keeping all five parameters in their camp. This will stop the downside slide. The bears only need to see slight negativity in the futures and this will accelerate a move lower probably to test the strong 1505 support. The 20-day MA at 1510.06 is key support. The 200 EMA on the 1-hour chart is 1498.16 where real trouble begins. The market bears are finally providing some push back but the 19-point move off the top is small in comparison to the 130-handle move higher this year thus far. Pay close attention to volatility, VIX 15.70, and the retail sector, RTH 45.45.
Note Added 2/21/13 at 7:18 AM: WMT earnings beat by ten cents on the bottom line but was short on the top line, also guiding lower. WMT is down -0.8% pre-market, this will push the RTH lower today, if it holds. S&P futures are down about three. Oil 93.96. Euro 1.3176.
I'm not all surprised that we're seeing this; I don't think any of us are. Even if Keybot flips to the short, how much downside are we looking at? There's the infamous whipsaw. I know we've talked about a wave to 1500 (that's about where we are now). It almost seems like 1500 is the stronghold. If that fails, what's in play?
ReplyDeleteWatch the 1-hour chart 200 EMA, now at 1498.21, above here and you are likely on the right path Shane with a recovery on tap, but if 1498 is lost, things could get very ugly very quickly.
DeleteHello KS,
ReplyDeleteOut of curiosity, how did you determine 1505 is a strong support?
Thanks
By looking at the daily chart and studying the candlesticks, draw horizontal lines where the most touches occur with candles. Keystone tracks all this each day in a data base so the open, low, high and closing prices are all tabulated. What you find is that the price action favors some levels more than others. Some levels are big favorites for price to hang around and 1505 was one of those. 1511 and 1509 are important S/R but not as strong as 1505. Remember, as you look at this data now you have to study the action in 2007 and incorporate those numbers since some folks have held from those levels all these years.
DeleteExcellent, I just came up with an idea, gotta run some stats test now :)
DeleteBy the way, would you mind if I ask some questions regarding the "Keybot the Quant" system? What level of education or what education background are required to develop system like this? I am a finance student but most of what I have learned are just fundamental analysis and I dont recall if any profs mentioned about technical analysis, intermarket analysis, statistical arb, etc. So yeah I really want to learn some quant trading technique myself but I do not really know where to start so I hope you can shed the light on how should I start?
Thanks
Anon, book smarts do not determine your success, look at the Harvard flunkies like a man named Bill Gates. It's a tough question to answer since like any career or field of endeavor, many years are required to become intimate with all the tiny details involved in that particular industry, trading is no different. Keystone was always a trader first that then developed Keybot over many years.
DeleteThe heart of Keybot is essentially trading techniques, formulas, and other goodies that took a decade to whittle down into an algo. The most important sectors, economic indicators and other factors were back tested against the major averages to determine which has the highest correlation coefficients. These market bellwethers make up the heart of Keybot, then the algo was further refined to develop the triggering methods for flipping long to short and back again. So its hard to suggest anything, programmers are a dime a dozen, like any field, the true worth of a program is what makes it up. Obviously Keybot's inner workings are all proprietary, maybe GS or someone else will pay to look at it someday, so it cannot be discussed in detail.
But, simply study the markets and learn how to trade and that will likely lead you to where you want to go. The program itself does not have to be complicated, you can do great things with simple Excel worksheets, it is the knowledge behind it that is most important.
Technical analysis is always given second rate billing by fundamental analysts, there is a place for both. Technical analysis is far more useful in trading short term, day trading, swing and position trading for short duration, fundamentals are useless in this time frame. The fundies are useful to long term traders, that is why the academics focus on that, it gels with all the long term boring formulaic approach to business. As a starting point for TA, go to stockcharts.com and read the Chart School stuff, that will help you get a feel for TA. Good luck.
Much appreciated. I had not ever expected someone on the internet would explain these things to me until I learned about your site and read your answers.
DeleteYeah I should start learning more about the market. Thanks again and wish you all the best :)