Friday, July 12, 2013

Keystone's Midday Market Action 7/12/13

The JPM and WFC bank earnings are in line with WPC top line not impressive but both stocks are up in today's action helping to create market buoyancy. While the market magician was distracting you with the left hand flashing bank earnings, the big news was in the right hand with global bellwether UPS warning with lower forecasts due to a slowing U.S. industrial economy. FDX and UPS are key global economic indicators since shipping makes the world go round. Business contracts, parts and products move through the mail daily and the level of shipping shows the health of the global economy. UPS says the patient is in sick bay and needs an IV stat.

VIX 14.27 is key today. Market bears got nothing unless they push volatility higher. VIX is at 13.89, falling under 14 today. The VIX is slightly lower and the SPX is slightly lower today; one of them is wrong. The hourly and minute charts are showing topping behavior with overbot conditions, rising wedges and negative divergence so market weakness is anticipated today. If markets sell off, but the VIX stays under 14.27, the bears got nothing and markets will recover into the weekend.  If markets sell off and the VIX moves above 14.27, this will tamp down the bullish rally and initiate much stronger market selling. Watch the 8/34 MA cross on the SPX 30-minute chart currently bullish. The bulls only need to touch the 1677 handle and that should open the door to test the all-time high at 1687. SPX HOD is 1675.99. Note how in the uncharted territory the last couple days, the price action is ratcheting up in whole numbers; 1673, 1674, 1675, 1676. TRIN is 0.94 helping the bulls by a hair. Consumer Sentiment is 83.9 and markets continue sideways. S&P downgrades Portugal's banks and the 10-year yield jumps to 7.56% and rising. Looks like Europe has another problem.

Note Added 10:22 AM:  VIX 13.97 so the bears do not yet have the oomph to move above 14.27. SPX HOD is 1676.13 so the bulls do not yet have the oomph to move above 1677. Thus, the markets stagger sideways. TRIN 0.93. UPS is -5.3% a huge move lower for a blue chip company. The central bankers have turned the stock market into a twisted casino.  Bad news means good news since more QE will be pumped to keep equities higher. Looks like sideways action to begin the day. Watch to see if the negative divergence on the 2-hour and 30-minute charts start to send the SPX lower. Time for a slice of apple pie.

Note Added 2:31 PM:  VIX 13.94 so the bears got nothing today. The SPX teased 1677 this morning with a HOD at 1677.41 (pay attention to this number moving forward) but did not have any energy either. So markets stumble sideways. TRIN 1.11 moving into the bear camp.  Markets are following a typical pattern after a large up day, or large down day, where there is sideways action to absorb the energy of the move. The SPX 2-hour, 1-hour and 30-minute charts (reference this morning's charts) are now universally negatively diverged so a smack down in price would be expected. The central banker happy QE talk in recent days keeps the bulls in a happy mood in front of the weekend. Perhaps the mood will change in the time ahead. BA is puking due to a fire on board a 787 Dreamliner so traders are selling first and asking questions later. Use an 8 factor as a rule of thumb for Dow stocks to assess their performance on the Dow Industrials Index. BA is down -4.83 points, -4.5%. So 4.8 times 8 is about 40 points so the news in BA is creating 40 negative Dow points today. The sneaky little OSUR long trade is feeling some love today but with these speculative trades you never know.

Note Added 2:49 PM:  VIX 13.95. SPX 1674.61. TRIN 1.10. Status quo. Keystone took profits on the OSUR long trade exiting the position. Will look to reenter. OSUR should have plenty more upside moving forward. Also bot more MZZ adding to this ongoing long position which is short mid-caps.

Note Added 2:58 PM:  The 8 MA remains above the 34 MA on the SPX 30-minute chart signaling bullishness for the hours ahead, however, the 8 and 34 are slowly converging again. The 8 MA is 1674.03 so if the SPX prints under 1674 and lower it will curl the 8 MA to the downside to set up a negative 8/34 MA cross. The 30-minute chart is negatively diverged as mentioned above. It looks like all you need to do is breathe on the SPX and that would be enough to roll it over to the downside into the closing bell.  The bulls will attempt to string things out for the last hour and try to stumble sideways into the weekend. Watch volatility. VIX 13.90.

Note Added 3:50 PM:  Bulls receive a late-day pump which will lead to another all-time closing high. SPX is approaching 1679. VIX drops to 13.76 providing the bull fuel. TRIN 1.08 dropping towards neutral one.

Note Added 4:02 PM:  The SPX prints a new all-time closing high again at 1680.19, still settling out. The close above 1680 typically hints that a run to 1720's will occur, however, the print is only pennies over 1680, so a more substantive close will be needed above 1680 come Monday or Tuesday to carry out this bull path.  VIX 13.83, also still settling out, allows the bulls to have a happy day into the weekend. Fed's Bullard pumped the markets today so the Fed keeps the good times rolling. They are the third man on the field that can simply step in at any time and pump the market higher. Everything picks up Monday morning right where it leaves off here. VIX 14.27 is key. The 10-year yield is 2.58%.  Lots of folks are concerned over China's data this weekend but they will probably massage the data to be better than the bad consensus. Portugal is a more important story. Next week is Chairman Bernanke's Congressional testimony. Markets are typically bullish through this testimony. Reference the Other Market Signals page to see the past results. Thus, the bears need to push lower Monday and Tuesday since markets may want to be bullish from Tuesday into Friday. The central bankers saved the markets over the last month. The Fed's main function is to pump the stock market higher.


  1. Fitch downgraded France - guess Monday's futures might be down.
    Also: watch carefully China's GDP on Monday ...a little birdie twiteed to me that the result won't meet expectations... just thought to tell you so you won't have big surprises on Monday with a serious gap-down.
    Considering also the neg.div. on 60 min. ...guess there's nothing to add now.


    1. Thanks V, that's good info! May be we can buy the dip and get long until 1720s (I think it should gap down to 1660ish)

    2. Just thinking it on ES (futures of SPX 500+ 5/5.3 points = spx cash value): if 1674 ES is broken to the upside, the target of this move is 1740 ES somewhere at the end of the next week (19 july) or during the week after (22-26 July).

      According to technicals (RSI, MACD, MFI, NYMO, VIX, others) a pullback of 20-27 points is due on Monday/Tuesday. (wave 4 of int V). I don't view that as a shorting opportunity, but as a long portfolio adjustment.

      Also: I don't recommend following the up-move until it's very end (aprox. 1740 ES = ~ 1745 spx 500) because fifth waves after long, multiextended 3rd waves (the up wave from November 2012 until 22 may 2013 was a big 3rd extended wave) might truncate.

      Practically , it's the end of the move, the final road before a short bearish Major 4 wave.

      I certainly won't follow this up-wave more than 1700-1710 it's too dangerous.

      Major 4 (the major wave that will develop after this major 3 up wave ends) has a potential of downside of aprox. 200 points and a life timeframe of maximum 2 months. After that Major wave 5 (final before a true bear market) to get us to 1850-2100 points) sometime in the q1/q2 2014.

      So, I know that here are a lot of stocks/options day-traders (myself included as leveraged options day-trader :D ). But now arises an opportunity for week/month-traders - catching a major wave at it's very start (that's a big thing!).

      So: the best strategy here would be TO NOT LOAD SHORTS (that by covering at higher prices feed the up-trend) and to let the bulls get the market to the very extent of the overbought state of the trend to develop those beautiful strong negative divergences.

      Pay attention to this thing: Major 4 will start during the following period: 25 July-12 August and will roll aprox. 8 weeks (+/- 2 weeks) in multiple flash-crashes followed by some unexpected countertrend up moves. Until we don't meet the minimum 200 points downside expectations don't you even dare touching longs - catching a falling knife might not be a great thing until thins thing will end!

      KS, hope also Arnie, myself will be here to make the follow-through of this expected wave (Major 4 down wave).

      SO: Major 3 might rise a little more to terminate it's rising energies up to 1720-1740.
      If you're a hot futures/options player you can play with some (below 10% of total portfolio) longs loaded at the end of this minor 4 of int V of major 3 - but you have to understand that we are VERY near to the end of this up-move.
      But after that a 10 % (+/- 2 %) downside will follow.

      As time, the maximum extent of Major 4 (down move) will be Mid-October 2013. Use Major 4 as a good shorting opportunity but also as a stocks/longs picking opportunity at the ending stages of Major 4.

      Take care,


    3. Here's one sign that Major 3 is coming to an end:

      SPX 500 versus DB carry trade index show that although the index pumps higher...there is no follow-through as per the real players in the market.
      So , the real players use the 'tail' of the uptrend to GET THEIR MONEY OUT , they don't leverage more, they don't get invested more into this uptrend.

      Keep your eyes open a trend shift is preparing!


    4. one more thing KS related to the Kicklighter's tweets posted in the previous message: have you observed that the very day when appeared a disconect between the index and the Db carry trade index is the very day of ... Bradley Turn ?!?!?!?!? => 22 May! :)

      well, that's a very cool thing!


  2. Yep, Fitch downgrade and S&P downgrade of Portugal banks. Note the jump in Portugal 10-year yield so watch Portugal as a new hot bed of activity for Europe. It's negativity will impact Spain since they are neighbors.

    Stock market bears got nothing without VIX 14.27. This would tell you that the game has changed. So far, the bulls are keeping VIX under 14 today far from the bear danger line.

    1. the VIX will have an up cycle according to MACD daily for 1-2 days - Monday/Tuesday.
      China might help.


    2. Don't forget good news = bad news in this twisted casino. China's bad news may be good news for traders = more QE
      Anything that affect the market = more QE

    3. and about the shadow banking system in China what are you thinking?
      the situation is much more complex there, it's not a matter of QE on/off.
      the chinese authorities are tightening cause they have some serious problems there.
      Premiere Li of China today held a speech where he told that the world should get used with a lower China GDP ....that before the release of China GDP on Monday.
      Think the situation.


    4. In the past when China warns of bad numbers, they always seemed to beat when the data was released, the ole setting of low expectations.

  3. KS, are we now close enough to 1687 on the SPX to call this a double top if we start to decline next week? And if that's the case, would not the resulting M-pattern point to a target below 1560? (Perhaps towards the 200MA of 1518?)

    1. Yep this is definitely an M top pattern, same with the Dow. The negative divergence is encouraging for bears but there is a lot of momo remaining due to all the Fed talk. The SPX may develop a H&S pattern, it would need a right shoulder, so head at 1690 and neck at 1560 would target 1430 if the 1560 fails. A breakdown from current levels would first target the 20 and 50-day MA's again at 1624-1633.

    2. (definitely in the context of that is what the pattern shows now but if the bulls push higher it can become negated) Watch RUT for clues.

  4. KS, Arnie, V, GS Guy: How do you guys see the correlation between the S&P 500 and the international markets moving forward. I am historically a longer term trader. I am still holding RUSS (3x short Russia) and FAZ (3x short financials). RUSS has obviously worked out better for me, but, moving forward my thoughts are that the SPX will push RSX through the bottom of it's descending triangle and the additional profits I get on RUSS will help cover any eventual losses from FAZ at the end of this 200 point correction that V referred to here. Ultimately my question is, where do you see the greatest value for profits? RSX is at it's lows and XLF is at it's highs. Generally you would think financials would have more room to correct but if Russia breaks down then who knows. I am just trying to figure if I should maintain current allocation or just load up on FAZ to 3x short the financials and get my money that way. I know I gotta make my own decision but a little perspective never hurts. I appreciate your thoughts.

    1. well, I specialized somewhat and I work only on SPX. I know that a good trader should have a wide area of interests but I'm new to this job (about 1 year) and have a lot to learn also.
      I worked also on gold and wti oil but abandoned those assets - problems with wild volatility.
      Related to RUSS I don't have any idea. All I know is that the 2 main commercial partners of Russia have/start having problems (E.U. and China). E.U. has it's own internal economical and structural problems and China is in a slow (?) deleveraging cycle that will show it's signs more proeminent in the second part of 2013 to 2014. That will impact Russia's main revenues source on gas, oil and derivates.
      As charts I found for you a chart from Tony Caldaro's site on Russia - he's saying there that Russia now it's uptrending on daily chart, although in a bear market on weekly... roll down the page and search for Russia,ok?

      I can't help you with more than that.


  5. Hi V,
    You have worked with wti oil in the past... can you comment a few words about wti oil moving forward (a month or two), where do you see oil is going?
    Will it back off any time soon?
    I read some where that oil price spike is actually investors have been wanting to push it up, at the same time, they were able to use Suez canal as an excuse due to Egypt turmoil.
    Thank you.

  6. I think wti oil is headed to price convergence with brent oil. That's the first thing I can tell you.
    The second: always, ALWAYS, the peaks in stocks market where "announced" by peaks in oil market. It may be a matter of 6-9 months until we will see a relevant peak of this overextended bull stock market, before a bear market.

    Probably wti oil will register a pullback the next 2-3 weeks (maybe! , don't take my words as granted!) but ultimately wti oil is headed to higher highs.

    That will create problems in US to consumers ... what's next know :). Happened also in 2007-2008 ...peak in oil, peak in stocks ..than ...BOOM! Some bear-show :) ... All will be completely shocked with all the Ben's QE , stocks entering in a bear market :) ...LOL!
    6 months maybe a year until than! SPX 500 - 1850-2100 points - the reference level for the bull peak.
    If we're lucky we go down to 950-1050 points in the new bear market. If we're not lucky we're headed to 545-600 points. All in 12-18 months.
    Then, bye-bye to the sideways since 2000 peak until now : new unbelievable new highs after 2016-2017 period. We will see after year 2020 spx 500 measured in values more than 5.000 - to 10.000 points.
    So pay attention to the last bear market (2014-2015/2016) before a very strong multi-decade uptrend. This is my multi-year vision regarding stocks.



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