Sunday, December 8, 2013

Keystone's Weekend Reconnaissance 12/8/13

The long traders are partying this weekend like its 1999 based on the jobs report. The Friday move is easily explainable due to the new month inflows. When any month starts out with 4 down days, the 5th day is guaranteed to be up. Since new money is flowing in, it takes strong negativity to create 4 consecutive down days to begin the new month, and in textbook fashion, markets bounce. Keystone wants to say the last time this happened was about 3 or 4 years ago, you would have to go back to look at the data, and the same result occurred. The jobs number was the catalyst to crate the expected bounce. Markets are confused. The 10-year yield jumped to 2.93% then quickly retreated. Stocks were up, then down, then back up, then ran higher. Each price move is thought in terms of the Fed in these non-free markets with traders wondering if good news is good news or is good news bad news? The jury remains out since the yields could not commit to a direction despite the upside equity orgy.

As the previous charts highlight, the SPX has not tested the 200-day MA in over one year's time so this move is long overdue and about 8 or 9% lower. In addition, equities remain in the 2000-2018 secular bear market, and with this cyclical bull now running for over 4-1/2 years, one of the longest stock market rallies in history, comparable to the 2003-2007 rally, equity weakness is long overdue. Funds will likely not become concerned over a pull back until it hits -5% which is in the area of the SPX 1722 strong support so this number may become important as the weeks move forward. The Friday up move had such bullish euphoria you would expect a more robust move than 20 SPX handles. Typically, all the good news Fed announcements and other events result in 25 or 30 handle moves. The Friday volume was the weakest of all the days off the top from one week ago. All this market drama occurs and the SPX is simply moving through the sideways range of 1782-1808 for the last 3 weeks.

The SPX daily chart shows the standard deviation bands starting to squeeze-in again so a large market move is likely on tap this week, up or down. The charts continue to favor bears but the daily results continue to favor bulls since Uncle Ben is pumping the stock market with the easy money. 6 POMO pumps were needed last week to simply keep the SPX flat on the week. 6 more POMO pumps are planned for the week ahead. For the SPX starting at 1805, the bulls only need one point, to push up through 1806 and this will launch an upside acceleration to quickly test the 1808-1810 resistance gauntlet which would lead to 1814 and new all-time highs, so watch to see if the overnight S&P futures are positive, or not. The bears need to push under 1789 to accelerate the downside. A move through 1790-1805 is sideways action. Pay attention to the 20-day MA at 1792 as a bull-bear line in the sand. The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead. Bears got nothing without the negative 8/34 cross.

The drop in volatility was the bullish trigger on Friday. Keep watching the VIX 200-day MA at 14.38 as a bull-bear market indicator. Keybot the Quant flipped bullish on Friday after one-month's drama. The bulls need UTIL 491.25 and/or JJC 39.68 to signal further market upside. The bears need VIX 13.95 and/or GTX 4810 to reinitiate the market downside. If all 4 parameters remain as is, markets will stumble sideways. Copper and commodities typically move together and would move lower if the dollar moves higher. The euro hit 1.37 and remains stubbornly high hurting Europe's recovery so a lower euro is anticipated moving forward with a higher dollar resulting. Overnight, watch copper since it will provide an early heads up on market direction before the opening bell.  There is no economic data on tap for Monday, but, as usual, the Fed heads will be out in force to pump the stock market higher with Lacker, Bullard and Fisher speaking. Watch the 2-10 yield spread to see if the financial bulls will win the day with a spread of 255 and higher (bulls need the 10-year yield to move higher above 2.85% to move the spread higher and steepen the yield curve), or not. In a nutshell, watch UTIL 491.25, JJC 39.68, VIX 13.95, GTX 4810 and SPX 1806 and 1789 to determine market direction.

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