Thursday, October 17, 2013

Keystone's Morning Wake-Up and Midday Market Action 10/17/13; Government Shutdown Ends; Debt Ceiling Limit Lifted; Crisis Averted for a Few Weeks; GS; GOOG; PM; VZ

Caligula would be proud witnessing yesterday's upside market orgy with the Dow gaining an obscene 205 points. The political drunkards kick the can down the road a few weeks to avert a near-term budget and debt crisis but the overall drama continues moving forward. The government remains open until 1/15/14 when a new Continuing Resolution will be needed to fund the government. The Debt Ceiling Limit is lifted but will occur again on 2/7/14. Thus, nothing has changed. Perhaps that is why the equity futures markets are relatively unresponsive this morning with the S&P's -2. At 4 AM EST, the S&P's were -7. The dollar drops under 80, the euro pops above 1.36, gold pops above 1300 and the 10-year yield drops to 2.62%. President Obama sums it up best giving himself and Congress sound advice, "the U.S. can't govern crisis to crisis." In business, we joke about companies that employ crisis management. This is where managers comically and cluelessly jump from crisis to crisis, putting out fires, with no clear underlying plan forward to guide them and prevent the problems to begin with. These companies are always doomed to failure; the president and Congress would be wise to study economics.

Traders will now focus on an economic data deluge since the government is reopened as well as earnings which are off to a weak start. Only about 57% of companies reporting are beating which is far below a typical 70% or higher beat expected. IBM laid a Big Blue egg last evening. Ditto EBAY, which may be better served changing its name to Fleabay in honor of their results. Ebay says the holiday season may be weak. Both stocks were dumped -4% or more and should create some overall market negativity today. Housing Starts are scheduled today and a key market metric but likely delayed due to the shutdown. Industrial Production is scheduled at 9:15 AM and Philly Fed at 10 AM. Natty Gas Inventories are 10:30 AM and Oil Inventories 11 AM. Notable earnings releases include GS, GOOG, PM, VZ and many others. GS earnings are imminent.

The VIX dropped under 14.94 yesterday afternoon creating the market rally into the closing bell. Watch VIX 14.94 and the 200-day MA at 14.41 as key metrics today (reference this morning's chart). UTIL 484.08 is very important as well, now creating bullishness. GTX 4888 and JJC 40.19 also remain important. Copper (JJC) is weak this morning. All of these metrics are in the bull camp creating the upside move. Any parameter that drops into the bear camp will send equities lower and create a lid on the market upside. If the bulls keep all four parameters bullish, the SPX will be punching through the all-time closing high at 1725.52 and all-time high at 1729.86. For the SPX starting at the strong 1722 S/R, the bulls only need a smidge of green in the futures and the upside market orgy will continue to test the all-time highs. Bears need to simply stop the bleeding by pushing the VIX above 14.94, or UTIL under 484.08, GTX under 4888 and/or JJC under 40.19. Any one of these four will stop the market upside. The SPX hour and minute charts are setting up with negative divergence so a roll over of SPX price is anticipated moving forward. Key S/R is 1730, 1726, 1722, 1720, 1718, 1715, 1710, 1708 and 1706.

Note Added 7:42 AM:  GS blows the cover off the ball with earnings easily beating estimates and also raising the divvy. Interestingly, the news is sold, GS -3% pre-market.

Note Added 9:48 AM:  Equities tumble at the open but JJC is above 40.19, UTIL above 484.08, GTX above 4888 and VIX plummets under 14 to 13.42. With the lower volatility, the bulls should be able to test new all-time highs. Bears got nothing today. The SPX bounces off 1715-ish support. LOD 1714.12 so watch this number today. Price is now teasing around the 1718 S/R. Watch GTX 4888 since the markets may throw the bears a bone today. GTX is at 4889 only one point from the bull-bear danger line at 4888 which will place a lid on the market upside. JJC is only 3 pennies from failure now at 40.22 but remains on the bull side nonetheless. Bears need to send volatility higher or they will fold like a cheap suit into early next week. VZ beats on earnings and it is up +3%.

Note Added 10:02 AM:  Philly Fed is weaker than expected. GTX 4880 collapsing under 4888 placing a lid on the market upside and helping the bears push lower. JJC 40.18 so it looks like a battle for the 40.19 begins and potentially more downside. VIX is collapsing, now at 13.07, so bulls are not concerned overall. TRIN is 0.90 always appearing to sit on the bull side day in and day out but this will revert back to lots of plus 1.00 numbers as the days move forward.

Note Added 10:09 AM:  JJC 40.22. GTX 4886 with bears hanging hopes on commodities. SPX 2-hour chart shows RSI and MACD line flattening and rolling over (reference this morning's chart) so a higher high in price at 1722-ish and higher should lock in negative divergence. Equities likely need another couple hours or so to sort it out. The Autumn leaves are falling.


  1. Chinese rating agency cuts U.S. to A- from A...The agency maintained a negative outlook on the sovereign rating and said the U.S. "government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future," and Fitch Ratings put the AAA credit rating on the U.S. on negative watch.

    1. That is interesting. Note the Fitch move to negative watch two evenings ago only resulted in a brief down move in the futures then they quickly recovered. It shows how the S&P, Moody's and Fitch ratings mean so little nowadays after they were clueless in front of the Fall 2008 crash. So that would place a Chinese rating agency lower than that, lower than a snakes belly as the saying goes. So the rating agencies are out of favor overall. However, the moves are important and can stir sentiment, especially in other nations around the world, that hold a lot of U.S. debt, like Japan and China, and that use the dollar as the reserve currency, and that benchmark their own notes and bonds against the stalwart Treasuries. An actual downgrade will get a lot of attention but Fitch appears unwilling to go there. Besides, since the rating agencies screwed up so badly, they are likely at the mercy of the government and probably check with them before announcing any decisions, losing all independence and credibility.

  2. KS, DNDN has gotten the smackdown over the past 2 months. I'm thinking this is a good entry point. pos div. on the daily

    1. Yep, but it is a knife-catch so you have to give it some rope. The weekly RSI slipped a touch lower, but it is in oversold territory, so price may need to base for one to two more weeks, but, yes, it should be getting ready for a move higher. There was a big hit to a biotech yesterday, forget which one, and DNDN dropped in sympathy.


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