Tuesday, December 10, 2013

Keystone's Morning Wake-Up and Midday Market Action 12/10/13; Wholesale Trade

The SPX prints a new all-time closing high at 1808.37 but not a new all-time intraday high which holds at 1813.55 from 11/29/13. The Dow and Nasdaq were flat yesterday. The RUT small caps were negative all day yesterday. The dollar/yen ran up through 103 (weaker yen) which pumped the stock market higher. This morning the dollar/yen drops to 102.80, thus, the S&P futures have dropped about 7 points in the last 4 hours. The central bankers are the market. Scroll back to study the XJY yen chart in a previous post since the low print yesterday is in line with the chart expectation and a bounce in yen is anticipated, which would move dollar/yen lower, like today, and weaken the Nikkei and U.S. stock markets.

Analysts boast that the up in yields and up in stocks are a healthy economic sign as money flows out of bonds and into stocks. Remember that there is a yin for this yang where markets would then move lower as yields move lower (deflationary action). Today the 10-year yield drops to 2.82%. Interestingly, the 2-year yield is up a tick to 0.31%, perhaps traders are losing confidence in the Fed, and the 2-10 spread is at 251, under the 255 Keystone needs to see to signal happy bank and financial stocks ahead. Thus, the jury remains out but if the Fed loses control of the short end, and the deflationary affects drive the 10-year yield lower, the yield curve will be flattening not steepening making for sad, not happy, banksters. Keystone's Inflation-Deflation Indicator continues to signal the U.S. mired in deflation currently. Although wages bumped up a touch in the bullish jobs report, wages remain challenged and inflation will never exist without rising wages. The scenario that no one talks about is the disinflation and deflation moving forward where stocks and note and bond yields will both drop. As the stock market becomes challenged moving forward, money will flow into perceived safety keeping the 10-year yield in check.

The retailers are cutting each others throats with sales, textbook deflation. In deflation, a downward spiral develops since folks do not want to spend since the item will be even cheaper a few days or weeks forward. Holiday shoppers are thus waiting to the last minute since they know stores will have no choice but to give items away at bargain basement prices as Christmas approaches quickly. This deflationary behavior drags the economy into a ditch and is what Chairman Bernanke fears the most. This is why he has performed all the obscene money-printing, but, what may occur is that his grand economic experiment fails.  The Fed is out of ammo to handle another economic downturn and the dues we pay moving forward may be far more dark and tragic than taking the medicine as we should have in early 2009. Remember, this is all uncharted territory. There is no one alive that can explain the current market action in the context of the 1929 crash and sick 1930's. If you were a trader back then in your 30's or 40's, where you could understand the market behavior, you would be 110 to 120 years old. Thus, no one knows how this ends, we will all find out together.

The drama continues today with utilities and commodities driving markets lower while copper and tame volatility drive markets higher. If UTIL moves above 492.05 and/or GTX above 4811, the bulls are taking markets to new all-time highs. If JJC drops below 39.65 and/or VIX above 14, the bears are taking markets lower. Watch the VIX 200-day MA at 14.35+ as a bearish market indication. Keybot the Quant is long. If the 4 parameters mentioned remain status quo, markets stagger sideways. If any parameter flips to an opposite camp, it will take markets in that respective direction. If either JJC or VIX hits the target number shown, and the SPX drops under 1806, Keybot will likely flip short.

For the SPX starting at 1808, the bulls need to push above 1811.50 to accelerate the upside and create new highs. The bears need to push under 1806 and price will likely drop under 1800 in quick order to test the strong support at 1798-1799.  The NFIB Small Business Optimism Index was encouraging a short time ago as businesses plan to do some hiring moving forward. Ask them next month. Wholesale Trade and the JOLTS Job Opening Report hit at 10 AM which may create a market stutter step. The 3-Year Note Auction is at 1 PM.  Watch UTIL 492.05, GTX 4811, JJC 39.65, VIX 14 and SPX 1811.50 and 1806 to determine market direction.

Note Added 10:36 AM:  The bears make a run lower, pushing under 1806, so a downside acceleration to the 1803 handle occurs. However, the higher VIX that ran above the bull-bear line at 14 creating market weakness reversed course and is now creating bullishness again at 13.92. In addition, GTX moves above 4811 flipping into the bull camp so the commodities provide the market lift and recovery today. The dollar is weaker since the euro is moving towards 1.38 so the weaker dollar creates lift in copper, commodities, oil, gold, silver and equities. Gold and silver are receiving short squeezes as well catapulting higher. UTIL is 485.40 continuing to cause bearishness and JJC is near 40 causes bullishness. Thus, watch VIX 14 and GTX 4811; bears got nothing unless one or both of these turn bearish.

Note Added 10:45 AM:  Whoopsies daisies. GTX is 4807; see if it stays under 4811, now causing market negativity, or not. VIX is 13.91.

Note Added 11:16 AM: VIX 14.01. GTX 4804. Well bears, do you have what it takes?  SPX 1805.37. If VIX and GTX remain bearish, and the SPX drops a couple more points, and continues lower, Keybot wil likely flip short.

Note Added 1:30 PM: Keybot the Quant flips short at SPX 1803 but markets remain a coin-flip. VIX 14 and GTX 4811 are dictating market direction and both are causing bearishness although they are on the ragged edge. Markets remain a coin-flip but for now, the bears wrestled back the steering wheel and are driving the bus as it careens down the boulevard. The 8 MA stabbed down through the 34 MA on the SPX 30-minute chart about one-half hour ago signaling bearish markets for the hours ahead. Watch to see if the negative 8/34 cross is maintained, or not. Bulls need to spike equities higher right away to stop the market negativity, otherwise, the bears may start to gain traction lower. VIX 14 and GTX 4811 tells the market story forward. Keystone took profits on GDXJ exiting the position for a 2-day trade. Will look to reenter. Gold miners are an attractive sector moving into and through 2014.

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