Keystone's Morning Wake-Up and Midday Market Action 7/26/13; Consumer Sentiment

China cuts manufacturing capacity. Copper is weak all morning long now near the lows down -1.1%. Japan data shows a hint of inflation so interestingly, the Nikkei drops -3%, with the dollar/yen pair dropping to 98.69 now through the 99 level (stronger yen). Traders must think that the BOJ may pull back on QE since there are signs it is working and creating inflation. Global markets are clearly manipulated 24/7 by central banker actions. GS's Blankfein says the Fed will continue stimulus for a 'considerable time'. 

Next week is a central banker parade with the FOMC, BOE and ECB all on tap. The Fed is all-in so anything new is unlikely. The risk would appear to be on the downside. Chairman Bernanke's main goal with all the Fed shenanigans is 'time'. Time heals all wounds and if Bernanke can keep the stock market elevated, he believes that the entire economy and job market will recover. One thing is for certain is that this will not occur on his watch. The Fed would be very content if the SPX bounced between 1600 and 1700 for the next few years since time should eventually lead to a stable economy. Next week will be interesting to see if the word taper appears again. The Fed may be playing a game of moving the equity markets up and down through SPX 1600-1700 to keep allowing time to pass. The Fed may have to utter the word taper since Bernanke must prevent the new asset bubbles, that he is causing, in the stock market, to not get too out of hand at the same time. Traders are likely thinking a lot about the central banker drama next week. Consumer Confidence, GDP, ISM Mfg and Monthly Jobs Report are on tap and the EOM as well. It will be a big week for markets.

The weaker dollar as a result of the Fed's QE talk during July has sent commodities and the stock market higher. At the same time the weaker dollar elevates the euro to 1.3272 near 1.33. Europe actually needs a weaker euro to help their economy. The dollar is key in the days ahead. The 10-year yield is 2.57% five bips off the 2.62% for much of the day yesterday. Utilities are interesting. Type 'UTIL' in the search box at the right to bring up the last chart. The UTIL 523 level was of interest this week and next week the number only increases to 528. UTIL is at 502 so as long as price stays under the 528 through next week, the utility sector weekly downtrend is ongoing and typically forecasts trouble for equities. As highlighted recently, the NYMO, SPXA150R and CPC and CPCE put/call charts all also hint that a market pull back is near. The bulls have remained bullish, even through the May-June sell off, since the financials have remained buoyant. As pointed out with the XLF chart a short while back, negative divergence on the daily and weekly charts point to a spank down and the recent action starts to show price rolling over. If the financials start selling off and falling, many bulls will rethink their approach to the markets. Financials and tech should lead higher, they always did in the past. Tech is lackluster and if financials lose their shine, market bulls will become disappointed.

Markets are a deer in the headlights this week, frozen in place and ready to leap one way or the other. Copper and volatility remain the key market drivers right now. Watch JJC 39.22 and VIX 14.18. JJC is only pennies away from returning to the bull camp, however, as mentioned above, copper is getting slapped today so JJC will fall at the opening bell. Bulls win with JJC 39.22. Bears win with VIX 14.18.  Everything else is noise and the markets will stagger sideways until one of these two flinch. Semiconductors are very important now as well. If SOX falls under 470.70, that signals lots of market downside ahead. Keybot the Quant remains long but the markets appear very shaky and if either VIX or SOX joins the bear camp, the algo may flip short.

For the SPX, starting at 1690, the bulls need to move above 1691, only one point higher, to accelerate a move 1700. The bears need to push under 1680 to accelerate the downside. If the sub 1680 occurs and VIX moves above 14.18 and/or SOX under 370.70, the equity downside ahead is very real and sustainable. A move through 1681-1690 is sideways action to end the week. S&P futures are -6 but the bears will need more juice than that. About 68% of the earnings are beating the lowered EPS estimates with top line revenue remaining weak.  SWK, TYC and WY (lumber) earnings are of interest as a gauge for housing and industrial sector strength, or lack thereof. Consumer Sentiment at 10 AM will create a market pivot point. JJC 39.22, VIX 14.18, SOX 470.70 and SPX 1691 and 1680 dictate market direction today.

Note Added 9:22 AM:  S&P's -7. Dow -76. Nasdaq -8. Dollar/yen 98.28. Euro 1.3273. The 10-year yield is 2.54%. Gold, oil, silver, copper are all down.  Looks like a move towards VIX 14.18, SOX 470.70 and SPX 1680 may occur but bears will need more gas. Markets will not settle in today until after the 10 AM pivot. Markets will meander until either copper, volatility or semi's make a decision.

Note Added 10:18 AM:  Consumer Sentiment is at a six-year high and slightly exceeding the 85-ish highs in early November 2012 and May 2013. Interestingly, the sentiment readings in the 80's occurred October 2012 into early November which identified the market top with the happy sentiment. Sentiment then fell into the 70's again until May through now with sentiment back in the 80's again. Equities pivot to the downside at 10 AM since traders think the Fed may taper due to rosy sentiment. The central bankers are the third man on the field now fully intertwined with markets. SPX 1683.69. Note the SPX drop at the opening bell was sufficient enough to send the 8 MA lower and maintain the negative 8/34 cross on the 30-minute chart signaling bearish markets for the hours ahead. Looks like it is the bears turn to tease with potential 8/34 crosses only to maintain a lower trend and frustrate the bulls. Bulls got nothing unless they move the 8 MA above the 34 MA on the 30-minute chart. JJC is 38.09 collapsing over one dollar under the 39.22 bull-bear line so copper may be cooked. VIX 13.28 remaining under the 14.18 bull-bear line.  SOX 472.77 now recovering off the LOD at 471.59. This is inching very close to the SOX 470.70 bull-bear line and semiconductors may very well be the decider for markets moving forward. TRIN is 1.00 unable to choose a side today.  Markets stumble sideways into the weekend since JJC, VIX or SOX will not make a decision. Watch SOX today; semi's may make a bearish statement. Dollar/yen 98.10 now about to drop through 98. Lower dollar/yen should mean lower equities. Euro 1.3276 flat. The 10-year yield is 2.57%. The asset relationship, at least over the last few hours, appears to be lower dollar/yen (stronger yen) = lower equities = lower commodities = lower yields (higher Treasury prices), a disinflationary vibe.

Note Added 10:41 AM:  SOX 470.70 is key. Price is coming down for another look with SOX now at 471.77.  If the bulls hold 470.70, markets will recover today into the weekend. If SOX loses 470.70, only one point away now, equities will fall apart and selling will enter the markets in force. A SOX failure would likely occur in concert with the SPX 1680 failure, today's support target. So semi's are the key today, as SOX goes, so goes the markets.

Note Added 11:08 AM:  SOX is teasing 370.70 but for now the bulls are holding the line preventing failure. SPX 1680 failed so price lost four handles to a LOD at 1676.03 but the semi's are holding so price recovers. SOX 470.70 holds the power of up or down today. Pay attention to the LOD at 1676.03 moving forward. VIX 13.59. TRIN 1.30, bearish for today. Perhaps the TRIN may make its move higher after the unprecedented 11 consecutive days of sub one closing prices supporting the bullish case. JJC loses the 38 level.

Note Added 2:05 AM:  The 11 AM excitement was the bottom in equities for today thus far. The TICK a few minutes before 11 AM is -1000 signaling overdone selling and bounce time. Interestingly, the SOX prints a LOD at 470.47 a touch under the critical 470.70 but the bears could not hold the negativity. Bulls have the SOX at 372.02 right now, in the bull camp, but this drama has only started today. VIX is crushed again today. What else is new? VIXis now printing 13.15 dropping from 13.70+ this morning so any drop in volatility sends equities higher. TRIN 1.26 remaining in the bear camp today. Copper is takin' the pipe with JJC at 38.05. For bulls to gain upside market fuel, higher copper and utilities are needed. Neither appears to be cooperating. Both appear weak. The bears have their own problems needing to push volatility higher and semiconductors lower. The SOX 470.70 parameter is the nearest bull-bear danger line so use that as the main rudder into the closing bell and for Monday morning. Bulls win keeping SOX above 470.70. Bears will start selling the markets in force if SOX 470.70 fails.

Note Added 2:16 PM: SPX 1687.26 now only down a couple. Dollar/yen 98.10. SOX 471.65. Semi's now within a buck of failure again. VIX 13.07. TRIN 1.15. Lower volatility and TRIN so SPX floats up a handle or two.

Note Added 3:23 PM:  SOX moves higher to 472.23. VIX moves lower under 13. TRIN at 1.04 down towards neutral.  Higher semi's, lower volatility and lower TRIN takes the wind out of the bear sails and pushes equities higher. Short sellers pare back positions on Friday afternoons for concern over positive news events on the weekend providing market lift. SPX is above 1689 at the highs for today. Dollar/yen 98.27 agreeing with the move up in equities. Nasdaq is positive. Today is a repeat of yesterday with markets dropping until 11 AM when the POMO pump kicks in and floats the markets higher the remainder of the day. The Fed is the market.

Note Added 3:38 PM:  Trannies (TRAN) are down -1.8% this week with the Dow and SPX flat. Small caps (RUT) down -0.3% this week. Tech (Nasdaq) the strongest but with mixed signals up +0.6%. XLF (financials) down -0.6% this week. Trannies, small caps and financials should all be where tech is if the markets are in a healthy robust up move.

Note Added 7/27/13 at 6:29 AM: The 8 MA crossed above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours and days ahead. Looks like the bulls have legs with the late day crush of volatility and the run to SPX 1700+ early next week is back on the table. The bears are foiled again. The Fed will not allow the stock market to correct.