Thursday, May 30, 2013

Keystone's Morning Wake-Up 5/30/13; GDP

Two more days remain in May. Those in the Nikkei wish they had sold and went away. Japan's Nikkei crashed -5.2% overnight to 13589.  The broader Topix fell -3.8%. The dollar/yen drops to 100.50 and lower which reflects the stronger yen and causes the sell off. Reference the yen chart from yesterday for further study (scroll back through the previous posts or type 'FXY' into the search box to the right). The overcrowded trade that is short the yen and long the Nikkei reversed in spades overnight. The weakness in Asia, however, did not cascade to Europe. Over the last half hour the dollar/yen recovers back above 101, hence a weaker yen, and yes, the U.S. equity futures go from negative to positive. The BOJ and Fed are the markets.

Watch VIX 13.15, JJC 41.55 and UTIL 480.65. The bulls need VIX 13.15 and/or JJC 41.55. The bears need UTIL 480.65.  The utilities did fail yesterday but only for two minutes before recovering. Usually about seven to ten minutes are needed to lock-in a support failure. The broad indexes will noticeably sell off if UTIL 480.65 is lost.  The 8 MA remains under the 34 MA on the SPX 30-minute chart signaling bearish markets ahead but watch this closely in early trading. The bears must keep the SPX under 1649 and lower to keep the 8 MA heading lower.  For the SPX starting the day at 1648, the bulls need to move above 1656 to touch the 1657 handle and accelerate higher, likely with either the JJC or VIX on the bull train.  If markets move higher but JJC and VIX will not join in, the markets will reverse and head lower again. The bears need to push price under 1640 to accelerate the downside which will likely be in concert with UTIL failing 480.65 creating a potential whoosh downwards. A move through SPX 1641-1656 is sideways action today. Keybot the Quant is short but if the JJC or VIX attain the levels listed, and the SPX moves above 1657, Keybot will likely flip to the long side.

A higher VIX will create larger price swings in the broad indexes. The NYMO drops to -62 consistent where near-term bottoms should occur. If the market bears are going to push lower, the window is open for today and tomorrow, otherwise, they will fold like a cheap suit. The month of May started at 1598-ish so a move down for a potential negative month is not out of the question. This morning's TRIN chart shows behavior consistent with a market sell off ahead. If the markets meander out sideways to end the week, the window remains open for market weakness through next week. When the TRIN prints at 2 or 3 or higher, that will correlate to the low NYMO and both will signal a near-term bottom. Some end of month window dressing may create buoyancy today and tomorrow but considering the erratic and unstable nature of markets right now, this will likely not have much affect. Window dressing will be more important at the end of June since it will be the end of Q2, and H1, which aligns with the quarterly financial statements.

The majority of folks are jumping on the higher yields band wagon. The 10-year Treasury note hit 2.23% yesterday and is now at 2.14%.  Looking at Keystone's Inflation-Deflation Indicator, CRB/10-yr price, 285.91/96.531 = 2.96. This reflects continuing disinflation (between 2.9 and 3.0) although the indicator is moving higher with the higher yields. The 3-4 range is neutral territory and inflation is not signaled until the indicator moves above 4.  Reference yesterday's TNX chart. Those expecting a break upwards in yields may be disappointed. The 2.30% level is very important resistance. At this juncture, the 10-year should remain below that level for the foreseeable future, but, you never know. The utilities, telecom, REIT's and other interest rate sensitive stocks sold off on the higher yields while banks were viewed favorably since the carry trade yield curve steepens. The interesting aspect is that the yields may remain in this 1.6%-2.3% range for a couple more years or more.  The weakness may have staying power in the interest rate sensitive stocks since the future move up in yields will be on everyone's mind. However, as yields pull back down, the 10-year probably coming down to drop under 2% again, this should take the wind out of the financials sails moving forward along with the negatively diverged charts.

Jobless Claims and GDP are released at 8:30 AM about one and one-half hour from now. Pending Home Sales data hits at 10 AM. Natty Gas Inventories at 10:30 AM. Oil Inventories at 11 AM, delayed one day due to the holiday. The 7-Year Note Auction is 1 PM.  COST earnings beat but top line is less than expected. JOY earnings are very important since it is a key global economic bellwether.

Note Added 7:14 AM:  The dollar/yen runs higher now at 101.50 one point off the lows only a few hours ago so the S&P futures gallop higher on the weaker yen. S&P's +7. Watch the direction of the dollar/yen since equities move the same way; the BOJ dictates market direction. The pop in futures is interesting going into the GDP number.

Note Added 9:01 AM:  GDP comes in as expected at 2.4%. Jobless Claims are higher than expected. Dollar/yen pulls back to 101.35, thus, futures should pull back a couple handles, and, voila, the S&P's are +3. The 10-year yield is 2.12%. Gold and silver are higher, copper flat, and oil down so the mining and metals sector may feel some love today.


  1. :)
    hello there! :)
    today, after the spx 500 triangulated the last days in a 4th wave now it has started an intersting move, trying to breakup from the triangle!

    oh, let me tell you a little secret observed: in 75-80 % of triangles observed the first move is not in the real direction :) ;)

    shhhh, don't tell anyone that! :D!
    the target for the up move is 1665 and if doesn't break that level to the upside, next is 1590-1620.

    1. Yep V, many times in sideways symmetrical triangles a breakout above, or break down below will occur about 2/3rds of the way through the triangle formation and this is typically a fake out where price then returns inside the triangle and then moves strongly out the opposite side.


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