Monday, October 21, 2013

Keystone's Morning Wake-Up 10/21/13; Black Monday Anniversary; Existing Home Sales; MCD; HAL; TXN

The harvest moon is quite spectacular over the last few days lighting up the overnight sky like day time. The SPX catapults from 1650-ish to near 1750 in 8 trading days fueled by the political can-kicking and promises of QE as far as the eye can see. Whatever happened to normalcy in markets? Traders are obviously hooked on the Fed and global central banker's easy money just like a junkie hooked on crack cocaine. The low VIX and low CPC and CPCE put/call ratio's show that the market bears have become extinct. There are only long players in the market and the two-week rally has attracted Joe Retail investor to rush in as the larger players are happy to distribute stock to this reliable bag holder. The behavior in the put/calls (refernce the CPC and CPCE charts from the weekend) indicate that a significant market top is at hand and equities should top out any day forward, say within the next 10 days. The NYMO is above +60 and consistent where a market top will appear at +60 to +100. The bears have been short-changed all year long. The market tops are easy enough to identify but the pull-backs can not gain any downside steam due to the central bankers' money printing. The pending market down move may have legs this time.

With the short-term upside market momo in place, equities are in the good news is good news and bad news is good news mode. Lackluster earnings in blue-chip companies last week did not negatively affect markets while instead traders launch equities higher purely on the GOOG beat. Futures are flat this morning  The dollar remains weak but Keystone anticipates a sideways to sideways higher move for the dixie (DXY and $USD) going forward. The weak dollar keeps commodities, copper and basic materials elevated helping market bulls. Dollar/yen 98.05. Euro 1.3660. 10-year yield 2.59%. Copper is higher this morning and this keeps the bulls content. Existing Home Sales are 10 AM and will create a market pivot point. WTIC oil briefly dropped under 100 minutes ago. One-quarter of the S&P 500 companies report earnings this week and several heavy-hitters are on tap today including BCC (paper), CHKP (payroll), DFS (credit cards), HAL (oil, energy, defense and war spending), MCD (multi-national helped by weaker dollar), NFLX (tech high-flyer), SCCO (copper), TXN (chips and tech) and VMW (tech) to name a few. The Monthly Jobs Report is released tomorrow morning at 8:30 AM, delayed from the 10/4/13 schedule date due the government shutdown.


President Obama is speaking at 11:25 AM EST concerning the Obamacare debacle. Congress is holding hearings this week on the mess but Kathleen Sebelius, the Health and Human Services Secretary in charge of the roll-out, is currently refusing to testify. Will the president support Sebelius or throw her under the bus? The president says the Affordable Healthcare roll-out is unacceptable. Excuse the French, but, no sh*t Sherlock. It does not take a Harvard degree to figure that out. The question is how much responsibility does the president take today for the mess since it is his signature legislation and he had over 3 years to develop the program. He may hire consultants to help but why wasn't that done 3 years ago and where is that money coming from since these folks do not do charity work. One-half billion dollars is already spent on the failed Obamacare web sites. Shameful. Private programmers could have provided a stellar site for one-third or less the cost. Absolutely shameful. The Federal government should be reduced and more power handed to the States and local governments, just as the Founding Fathers desired.


Keybot the Quant remains long but is overbot and overextended to the upside. Watch UTIL 498, GTX 4888, JJC 40.19 and VIX 14.92. UTIL begins at 496 so this will immediately help the market bears at the opening bell--as long as UTIL stays under 498. If UTIL moves above 498, the bulls will have a happy day ahead. The bears need to push commodities and copper lower, and volatility higher, to send the markets lower. If any two of the GTX, JJC and VIX parameters turn bearish, and the SPX drops under 1736, Keybot will likely flip to the short side. For the SPX today starting at new all-time highs at 1745, the bulls only need a smidge of green in the futures and the SPX will move to the 1750 handle today. The bears need to push under 1736 to accelerate the downside. A move through 1737-1744 is sideways action today.


Treasury yields dropping in recent days shows that traders are buying both stocks and bonds.  All that free and easy central banker money has to go somewhere and it continues to pump many asset classes creating new bubbles such as the ongoing dividend stock bubble now in place. Lower yields hint at a slowdown in economic growth. QE Infinity does not have the oomph that QE1 and QE2 had. A limited number of Fed members such as George, fully realize the damage the Fed is doing to the economy and markets. Considering the low put/call ratio's, this is an ideal market time for a dramatic geopolitical event to occur, or flash crash event, or other significant catalyst to send markets strongly south. The coming days, say next week or two, through the FOMC meeting, may write significant stock market history.


SPX support levels are 1745, 1733, 1730, 1726, 1722, 1710, 1706, 1697-1698, 1691-1692 and 1685. The SPX has violated the upper standard deviation band and needs to correct to the 1690's at a minimum. The weekly chart is at its upper band as well; a couple more points higher would also seal the markets fate on the weekly basis. Black Monday occurred on 10/19/87, 26 years ago, which started as a cascading event from Asia to Europe to the U.S. Happy Anniversary. The Dow Industrials dropped 508 points to the 1738 level, a drop of -23% (note how a 500 point drop was much more significant back then; today that would equate to about a 3,500 point drop in the Dow). There are circuit breakers nowadays to prevent one-day events but the drop would simply occur over several days rather than one.


For now, it appears prudent to exit the long side of the market and bring on significant downside protection. The bulls may create a final push higher to satisfy the long-side projections at 1750-1780 but time appears very limited and if this occurs it has to occur in the days ahead, this week. The momo in recent days is strong so it may take this week to burn off the upside energy with sideways behavior followed by a roll over to the downside. Watch UTIL 498, GTX 4888, JJC 40.19 and VIX 14.92 since these 4 parameters dictate market direction to begin the week. A beautiful Autumn day is on tap with the leaves stacking up to a level where the pets are disappearing.

21 comments:

  1. It seems that some sort of pullback is imminent. Are you expecting a watershed? Or five to 10 per cent? And does the baby get thrown out with the bath water, or is there some silver linings? Gold's been a doldrom all year. Will she finally poke up and remind the markets that she's relevant?

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    1. In a market down move, likely everything will be hit across the board. Gold and PM's may hold up more sideways since they have been beaten. Dollar may move higher but in general, metals and currencies may stagger sideways for months. Since the bears have been short-changed all year long, and price has remained far above moving averages continually creating a need to revert to the mean, and since the 18-year secular bear market remains at play (2000-2018), the downside may be very substantive. The end of the year may prove to be history making.

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  2. Wondering how will market react in the 1750-1762 area :)?
    There it's the ultimate resistance of the Big Channel from 2009 until today!

    Yes, we're that stretched!

    V.

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    1. "markets can remain irrational longer than we can remain solvent" ;-) a few more Bernanke dollars and that trendline is toast... LOL..

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  3. if there is a pullback it will be quick and muted - all signs point to another rally through Friday or Monday before a pullback to ??? maybe
    1725 at most - CPC will be denied AGAIN I think as the cycles have inverted into a bullish morph and the Gann shows overall strength until mid November...

    the 60 min AD is almost giving a sell but the VO and the NASI and NYMO are all bullish on the daily

    I dont see a cliff but maybe I'm Wile E Coyote@!

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    Replies
    1. Scott, you've been dead right the past six months or so.

      Mark

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  4. Keystone still has it: " Joe Retail investor.. the reliable bag holder. " FANTASTIC.

    if SPX clears 1750, then 1770 should be next target (50/70 rule). If SPX clears 1790, 1820s are on tap. (80/20 rule). All fits well with EWT and Fib extensions, but as usual. Don't try to look 2 bends ahead in the road; it will kill ya! ;-)

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  5. "Black Monday occurred on 10/19/87, 16 years ago"....I remember it vividly, too, but KS obviously meant 26 years ago.

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    1. Danke for the typo. Time flies when you are having fun.

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  6. http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=4&dy=0&id=p11161732142&listNum=4&a=313591232

    CPC is, like all things, relative...

    http://stockcharts.com/h-sc/ui?s=RSP:$CPCE&p=D&yr=0&mn=11&dy=0&id=p42650465976&a=286337063

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  7. http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p51262049966&a=307800791&listNum=6

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  8. dow divergence needs to be blown off with a move through resistance

    http://stockcharts.com/h-sc/ui?s=$INDU&p=60&yr=0&mn=2&dy=0&id=p02704939699&listNum=4&a=319046691

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  9. http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=11&dy=19&id=p08004979499&a=317567577

    $NYHGH:$NYLOW in relation to trin on this chart is looking fairly bullish

    there are divergences piling up out there but with the employment report tomorrow the surprise is likely to be UP

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  10. these two charts could be more different - take them in relation to the long term meridian that spx broke through and we have a possible end to the secular bear...not confirmed yet to be sure.

    2007:

    http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=2006-05-01&en=2010-10-04&id=p89619670875&a=289471133

    Currently:

    http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=3&mn=11&dy=0&id=p24909116449&a=289471133

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  11. I meant "couldnt be more different"! I cant type

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  12. Are you Scott an analyst working for Keystone, because your conclusions differ a lot from yesterday Keystones articles ?

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  13. no - Keystone has an amazing algo that I respect

    my analysis is based on time/price relationships as determined by Volume momentum

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  14. SPX may play around at 1733-1760 for this week into next but the thinking right now is that this is a significant top perhaps a la 2000 and 2007. The daily SPX chart has the VST momo as described in a previous chart so even a drop today or tomorrow to say 1733 will likely need a recovery move back to the 1745 or 1750, then perhaps the downside will be ready. The SPX weekly continues to set up with neggie d. The RSI has turned down, even though it is short of overbot territory, as price printed higher yesterday but there remains a little bit of juice that is why it may take a couple more weeks to place the top. Perhaps the FOMC meeting is the catalyst next week? Zero traders expect even so much as a hint of a QE tapering so if Chairman Bernanke coughs, and it sounds like he said taper, that would probably mark the top for equities. The more likely outcome is an event out of left field. These events always seem to have timing on their side, so perhaps trouble in Europe, of China. China's housing bubble is the largest in the history of man, when it pops at anytime it will make the U.S. housing bubble look like child's play. Interesting times.

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