Friday, December 27, 2013

Keystone's Morning Wake-Up 12/27/13

The wrapping paper and broken ornaments are in the trash can. Christmas, Hanukkah and Boxing Day are in the rear-view mirror although the Kwanza celebrations continue. The stock market is in melt-up mode gapping-up daily in a bullish euphoric frenzy. The VIX collapsed under 11 and the put/call ratios remain low signaling complacency and a market top in place. Investors Intelligent Sentiment shows bulls at a euphoric near 60% level (59.6%) and bears at an uber low near 14% level (14.1%). The bull-bear spread has never been this wide since the 1980’s ahead of the 1987 market crash. Only one-fourth of financial advisors expect a market correction. Market bears have completely given up so bulls can only sell stock to other bulls creating the musical chair scenario moving forward.

Keybot the Quant remains long. The algo is tracking several parameters but they remain status quo so markets float sideways with an upward bias. The upward bias is turning out to be a thrust. Watch UTIL 485.33 today. UTIL begins at 487.12 less than 2 points above. If UTIL closes below 485.33 at 4 PM today, the bears plan on flexing their muscles come Monday morning. If UTIL finishes above 485.33, the bears got nothing. The 10-year yield is at 3%. There are only 3 trading days remaining in December and the SPX is 36 points above the 1806 starting number for the month. Thus, the bulls want to log another positive month, however, a drop of 12 SPX points per day through Tuesday will erase the bullish fun. Today will tell a lot since if equities finish higher, a run lower for the bears to finish the month negatively would be less likely. If the bears place a respectable showing today pushing the SPX a few handles lower and closing UTIL under 485.33, then it would be game on for market downside come Monday morning.

The low volume environment will likely maintain markets sideways until early January when everyone is back from the holidays. For the SPX today starting at 1842, the bulls only need one point, to touch the 1843 handle and the upside acceleration continues towards 1850. The bears need to push under 1835 to accelerate the downside. A move through 1836-1842 is sideways action. S&P futures are flat all morning long. Oil and Natty Gas Inventories are released this morning but there is no economic data so a quiet day may be on tap. The dollar/yen remained above 104.75 all day yesterday fueling the stock market with weaker yen and this morning hit 105. Banzai! The BOJ pumps equities higher.  Middle East violence continues with trouble in Turkey, Lebanon, Syria and Egypt keeping oil prices elevated. The DAX prints another record high while France teeters on recession.

The SPX 2-hour chart remains of interest watching for the RSI and MACD line to roll over with negative divergence that will send the SPX lower. Perhaps an updated chart can be posted during the session. Markets remain erratic and unstable. Every trader thinks they can exit the markets before everyone else. Others have full faith and confidence in using stops. This approach may prove problematic moving forward. The flash crash and all-out crash scenarios are on the table currently due to the market technical signals. Stops may trigger creating a dramatic drop in equities, followed by an equally dramatic recovery rally. As traders rush back in expecting the typical near-term bottom, markets may then potentially ratchet down strongly. The coming weeks may be quite treacherous. The safe play for long traders, that especially enjoyed the big gains in 2013, is to simply ditch all longs unless you are willing to hold the long position for several years. Stay in cash for a month or three and watch all the other crazies maneuver the turbulence that likely lays ahead.

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