Tuesday, January 7, 2014

Keystone's Morning Wake-Up and Midday Market Action 1/7/14

Janet Yellen is confirmed as the new Fed Chair, the first woman ever to lead the Fed, and will replace Bernanke on 2/1/14. The vote is 56-26 with 11 republicans voting in favor of Yellen. 18 senators do not vote with several using weather as an excuse even though they were aware of the conditions the last few days. About 75% of the senators, 3 or 4, are in favor of Yellen illustrating that both republicans and democrats are supportive of Keynesian monetary policies that dig a deeper debt hole for the US without providing any appreciable improvement in the economy. The Fed policies make the rich richer and the senators are part of this wealthy club so of course they vote in favor of making themselves wealthier at the expense of the average American. Fed's Rosengren is speaking now and Williams speaks at 2:10 PM so more cheer leading is on tap for markets. The trade deficit shrinks due to robust oil output from the States; this should bump GDP higher moving forward. The 3-Year Note Auction is 1 PM.

The drama with Keystone's 2-10 Spread Indicator continues. The banks receive love yesterday. Keystone uses a 2-10 spread at 255 to signal happy bankers ahead due to a steepening yield curve. The spread climbed to 260, even a touch beyond, which starts to light the way higher for the financials, however, the 10-year yield now falls to 2.95% and 2-year is 0.41%, creating a spread at 254, so the happiness turns to sadness again. The drama continues. The 255 number for the 2-10 spread will tell you if the banks win moving forward, or not.

The bears could not gain downside juice since the VIX is under 14.11. UTIL is above the 482.19 trap-door now helping bulls but price is only pennies above and can revert back to the bear side easily. The retail sector dumped -1% yesterday and RTH tumbles to 59.98 only 9 pennies above the 59.89 bull-bear line in the sand. Keybot the Quant remains short, however, with VIX, UTIL and RTH all bullish, the bulls only need to push the SPX above 1837, and keep it above, for Keybot to likely flip long. The bears need to turn any one of the three parameters bearish to reinitiate the downside.

For the SPX starting at 1827, the bulls need to push up through 1837 to accelerate the upside back to all-time highs. The bears need to push under 1824 to accelerate the downside. A move through 1825-1836 is sideways action. S&P futures are +7. The 8 MA is under the 34 MA on the SPX 30-minute chart (see this morning's chart) signaling bearish markets for the hours ahead, however, the bulls are going to try and create a positive cross this morning. The bullish euphoric confidence and complacency remains in the markets as traders and pundits poke fun at the bearish move to begin the year calling it insignificant. UTIL 482.19, VIX 14.11, RTH 59.89 and SPX 1837 and 1824 dictate market direction today.

Note Added 12:18 PM:  Keybot the Quant flips to the bull side today at SPX 1837. The price action is very erratic and unstable. Remain cautious moving forward. UTIL, VIX and RTH all become more bullish which provides the market lift today. The erratic nature of markets is evident with another gap-up and flash crash event, today in NYA, a major market index that moved up +10% and down -9% in only 2 minutes time. Stay alert.

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