Wednesday, December 18, 2013

Keystone's Morning Wake-Up 12/18/13 and Midday Market Action; Housing Starts; FDX; Fed Decision and Chairman Bernanke Press Conference

The circus is back in town. Fed head juggler Bernanke will step onto the stage, only to then sit down behind a desk; the last time he sits behind that desk for a Fed press conference. The consensus is strongly split with traders and analysts saying the start of taper rhetoric begins today while an equal amount of others say no taper in sight. Since the Fed lost all credibility in September when they allowed the markets to believe that a taper was to be announced but instead Chairman Bernanke coyly recoiled, anything can happen today. Overnight, traders are sniffing out more stimulus from the BOJ coming later this week, so the yen weakens, dollar/yen recovers up to 102.96, and the S&P futures climb to +6.

The broad index charts continue to show topping and roll over behavior moving forward. The put/call ratios signal complacency and a market top in place. Currency charts hint at more of a sideways pattern moving forward for the dollar, euro and yen. The TNX 10-year yield chart is more consistent with a flat to downward bias in yields moving forward. This is interesting since news of a Fed taper today should catapult yields higher. The 10-year yield remains sticky at 2.80%+ for 2 weeks time and essentially 2.85%+. The banksters need a 2-10 spread of 255 and higher to be happy with the steep yield curve. The 2-year starts to creep higher and the spread continues to languish at this critical 255-ish demarcation line (at this writing the 10-year is 2.85% and 2-year 0.34% for a 251 basis point spread). Financials are important today. Bulls are fine if they keep XLF above 21 but markets are in big trouble if the XLF loses 21. Based on the projection for the 10-year, the conclusion would be that the Fed does not taper, or, if they do announce tapering, the yields will not move strongly higher as anticipated.

Housing Starts are the key data this week at 8:30 AM. The government shutdown held back the data so there will be 3 data sets hitting. In general, Starts in the 900K’s are the consensus, above one million and the housing recovery is well in place which would lead to thinking about tapering coming sooner rather than later, while Starts in the 800K’s handle is disappointing and shows a weakening housing market. GIS and global bellwether FDX earnings are on tap. These early results will set the tone. Markets will likely move flat into the Fed decision at 2 PM and Chairman Bernanke’s press conference at 2:30 PM probably running into 3:30 PM. Oil Inventories are 10:30 AM. The 5-Year Note Auction is 11:30 AM.

Keybot the Quant remains short. Bulls need GTX, commodities, above 4805 to signal happy upside times. Bears need XLF, financials, under 21 to create market mayhem. For the SPX starting at 1781, the bulls need to touch the 1787 handle and the upside will accelerate to the 20-day MA at 1793.93. The bears need to push under 1777 and the downside will accelerate to the 50-day MA at 1765.76. A move thorugh 1778-1786 is sideways action. If the GTX moves above 4805 or the VIX below 14.20, either would do, and the SPX moves above 1787, and stays above, Keybot will likely flip long. If GTX and VIX remain bearish, equities will likely remain bearish moving forward.

Simply following the charts and technicals as the guide today instead of all the media commentary, the thinking is that tapering will not be announced but instead of yields collapsing and stocks catapulting higher on the news, the markets will take it in stride, with yields remaining somewhat flatish and to everyone’s surprise, stocks leaking lower. Of course, this prognostication will likely appear comedic come 2 PM today. The 8 MA is under the 34 MA on the SPX 30-minute chart and the SPX is under the 200 EMA at 1782.89 on the 60-minute both signals indicating bearish markets for the hours ahead, however, equities are dancing on a knife-edge and Bernanke will thwack things one way or the other at 2 PM. Watch GTX 4805, XLF 21, SPX 1787 and 1777 to determine market direction. Here comes the circus parade. Strike up the calliope.

Note Added 9:39 AM: Housing Starts are an upside blowout to 1.091 million, the magic million number, but Mortgage Applications are down. LEN earnings beat, so there are lots of mixed signals in housing. Global bellwether FDX missed on earnings. F guides lower moving forward. The day begins and XLF is 21.21 well above the 21 danger level while the GTX is 4783 under the 4805 bull-bear line, thus, status quo, sideways slop continues. Equities are higher to begin the session, the SPX is 1784.67, above the 200 EMA on the 60-minute at 1782.91, so signaling bullish markets again, but the 8 MA remains under the 34 MA on the 30-minute, bearish, so call it all sideways drama as everyone waits for Bernanke to bring the tablets down from on high at 2 PM. TRIN is 0.88 favoring bulls. The 2-year is up to 0.35%; was at 0.29% a couple days ago.

Note Added 11:56 AM: The bulls spike GTX to 4802 but it falls on its sword unable to attain 4805 that will unleash market upside. The bears are not much better, pushing XLF down to 21.12, at the lows, but still 12 pennies away from unleashing market mayhem. Hence, sideways with the Fed decision about 2 hours away. The SPX is under the 200 EMA on the 60-minute at 1782.82 and the 8 MA is under the 34 MA on the 30-minute favoring bears. The dollar/yen is lofty at 103.15 favoring bulls keeping the stock market elevated. TRIN 1.17 now moving higher starting to favor the bears. The 10-year yield moves to 2.90%.

Note Added 4:05 PM:  Chairman Bernanke hits a home run today. Creating a $10 billion taper, in itself a surprise, but the yields did not pop and equities drop, instead the opposite, yields are flatish to lower and equities sky rocket with the SPX over 1800 and the Dow over 18K again. SPX and Dow close at new highs but do not print new intraday highs. Short traders ran for the exits creating a wild upside short squeeze. Bernanke stressed that low rates will continue, basically forever, so traders latched on to this and ignored the taper. This is a big day in market history. Bulls will likely drive the bus with Santa Claus for a rally for a few days due to the upside momo. Keybot the Quant turn bullish. The VIX dropping under 14.20 is strong bull fuel. If the VIX recovers above 14.20 tomorrow, that will be the first indication that the bull party is short-lived. Equities will float higher with VIX sub 14.20 and will receive further fuel if GTX regains 4805. The put/call ratios will be interesting this evening. Nothing changes in the markets; the bulls are now actually more complacent and relaxed, than over the last 6 weeks, not the least bit concern over any market selling occurring at any time forward.

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