Tuesday, February 11, 2014

Keystone's Evening Nightcap 2/11/14; Debt Ceiling Limit Raised; Yellen Aftermath

Banzai! The dollar/yen moving from under 102.20 today to above 102.70 provides bull fuel for markets courtesy of the BOJ. Chair Yellen's debut performance in front of Congress was far overshadowed by the debt ceiling vote. The stock market boost was due in far greater proportion to the solution to the debt ceiling rather than Yellen. A short time ago, the House passed the debt ceiling limit vote as a clean bill and the Senate will rubber stamp it no problemmo so the debt ceiling will not be an issue for another year. Typically, the drama would have continued until an 11th hour vote on 2/27/14 where it would have been resolved ending in a huge upside rally. Instead, the debt ceiling resolution rally occurred today. It is surprising that something so obvious went over most everyone's heads.

Retracing the saga, Yellen's written testimony was available at 8:30 AM. The testimony was not as dovish as many traders wanted to see. Yellen is simply continuing ex Chairman Bernanke's path. In fact, if you shaved Bernanke's beard and placed a white wig on his head you would not have been able to tell the difference. There was nothing new from the Fed and S&P futures sold off nearly to the flat line after being up +9 in the early morning. The dollar/yen plummeted back down to 102.20. Traders realized the rally was too far extended based on Yellen dovishness since she toed the line and really offered nothing new. Sure, everyone wanted to hear her speak to see if she made any mistakes, but she had everyone eating out of her hand during the testimony.

When the opening bell rang, the markets had immediate lift and as the minutes continued became more and more robust to the upside. Funny thing, however, was that the Congressional hearing did not begin until 10 AM, and that is with the hot air introductory statements, so Yellen did not begin speaking until the hearing was moving towards 10:30 AM. Now some credit can and must be given to Yellen since she was on her maiden voyage and there was a bump higher but the real move was due to the happy debt ceiling limit resolution. The rumors about the clean debt ceiling bill occurred minutes before the opening bell. A few minutes after the opening bell most traders were aware that the debt ceiling limit appeared to be resolved. This is why the markets ignored the weak futures and equities started moving higher from the get-go. Yellen was still in the ladies room practicing her lines in front of the mirror.

The politicians made a bunch of dough today. They are the only ones allowed to legally trade on insider information so they bot calls and went long stocks, including the staff and underlings, knowing that the announcement on the debt ceiling would pump the stock market higher. Voila, instant money. The politico's are all eating steak dinners this evening. This is how politicians come to Washington as citizens of average means but leave as millionaires. It is easy to win the bet when you always know the outcome.

The SPX jumps above both the 20-day and 50-day MA's a very bullish signal. The VIX drops under the 200-day MA (only by pennies) another bullish signal. The put/call ratios drop today confirming the bullish euphoria and a return to rampant trader complacency. The volume was the lightest over the last couple weeks. Tech and small caps are lagging the broad indexes and this is starting to become more of a trending pattern; the opposite of what you want to see for a bullish market. The 10-year yield remained relatively flat at 2.72% all day long.

UTIL leaped higher. XLF jumped above 21.37. The VIX dropped. These parameters create the bull fuel. For Wednesday, the bears need to push XLF under 21.37 to stop the market upside. The bulls need VIX under 14.15 and the SPX is likely headed to the all-time highs. The SPX pushed through the important 1808-1809 resistance, now support, and price set its sights on the 1820's. Reference the SPX S/R missive on the weekend and you can see how the 1824 resistance created a ceiling. The 1828 is far stronger resistance. The 1824 is also a 76.4% Fibonacci retracement of the move down from 1851 to 1737.

Since the charts were hit with a double whammy of joy (debt ceiling limit is raised and Yellen), a little bit of time is needed for the charts to absorb this action. The SPX 2-hour chart is in nearly the same technical shape as this morning so the same analysis holds. The SPX should top out and roll over tomorrow or Thursday. Resistance above is 1824, 1828, 1832 and 1838-1843. The 1838-1843 is a strong resistance gauntlet. If price moves up through, then 1880 may be next. Bears will have to hold the line at 1838-1843. It would not be surprising to see price top out at 1824 or 1828 tomorrow. From the bear perspective, the debt limit ceiling rally is off the table now and the bulls cashed in two chips from their bag of tricks today.

For Wednesday, watch XLF 21.37, VIX 14.15, and SPX 1824 and 1828 to determine market direction. Support below is 1818, 1812-1814, 1808-1809, 1806, 1803, 1801 and 1796. The bulls need to touch the 1824 handle to accelerate the upside into the 1830'sAsia will likely rally following the US. The dollar/yen is 102.51 continuing to leak lower off the highs today, hence the futures are slightly negative.

Keystone took profits on WLT; no use in passing up 6% off the bottom. Will look to reenter perhaps at 10.4-10.6. WLT may simply continue higher without pulling back but a reloading at 10.5-ish appears a prudent strategy. WLT should have more upside ahead and the launch off the positive divergence likely began today. Also bot more SJB which is the thinly traded ETF that is short high-yield. HYG came up for another higher high and the weekly chart looks sick with negative divergence. Other plays that appear attractive include long SMN (which is short materials), and short FB, MYL and XLV. FB was showing weakness until an analyst told everyone today to buy Facebook with both hands no doubt pumping his own position. FB ended higher on only one-fifth the average volume; vapor, the lightest volume since the July 4th holiday. FB has a lot of momo so it will likely need a couple weeks to burn off some energy before rolling over to the downside.

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