Friday, February 14, 2014

Keystone's Morning Wake-Up and Midday Market Action 2/14/14; Consumer Sentiment

Volatility holds the key today. As previous missives highlight, VIX 14.15 is the key bull-bear line in the sand and this market metric holds more clout controlling market direction than any other indicator today. Bulls win if the VIX remains under 14.15 (now at 14.14) and heads lower under 14. Bears win if the VIX crosses above 14.15 and heads higher.

For the SPX starting at 1830, the bulls need only a smidge of positivity and price will likely launch through the 1832 resistance and march higher. The bears need to push under 1809 to accelerate the downside. A move through 1810-1829 is sideways action into the weekend. The important 50-day MA support is 1510.39. The SPX hourly and minute charts are setting up with negative divergence so the anticipation is that price should roll over to the downside. The 8 MA remains above the 34 MA signaling bullish markets for the hours ahead, however, as discussed in this mornings chart, a negative 8/34 cross is anticipated moving forward. Markets will pivot at 9:55 AM on Consumer Sentiment.

Markets are closed on Monday for the Washington/President's Day holiday so today is the last day of trading until Tuesday morning. Typically, equities are bullish moving into a 3-day holiday weekend. In addition, a full moon occurs at 5 PM EST today and markets are usually bullish moving through the new moon. Don't forget to howl as the closing bell rings. On Monday and Tuesday, the BOJ meets so if Kuroda yells Banzai! and pumps more stimulus weakening the yen and sending dollar/yen currency pair higher, US markets would catapult higher come Tuesday. Next week is OpEx and typically markets are bullish from a Tuesday low to a Wednesday high. This month is odd, however with the holiday, so perhaps the bullishness would right-translate one day. The 'Three Amigo's Summit' is on tap for Wednesday where the US, Canada and Mexico meet so it provides an ideal time to announce the Keystone XL pipeline approval which would pump the stock market higher. President Obama, however, continues to crush this pipeline project that would create thousands of high-paying jobs since he does not want to lose the votes of the environmentalists. Considering all of the above, why the bears may as well just go home and give up, or should they?

On the bear side, the hourly and minute chars are setting up negatively as described above and in the previous charts. In addition, February is an odd month, it is one of the weakest stock trading months of the year, and interestingly, the move through the Washington/President's Day holiday is typically negative. Thus, even though holiday seasonality wants to see bullishness, the previous data over the years indicates weakness from now through next Thursday, 2/20/14. So, choose your poison. There is something for each side to tout. The neggie d on the charts should exert its force favoring bears and the history of weaker markets at this time of the month would reinforce this direction. However, the BOJ early next week, and perhaps to a lesser extent the Three Amigo's (since the president may stand firm and continue to crush the Keystone XL project) are wild cards that could create bull fuel.

As always, take it one day at a time especially with all the mixed signals. Watch VIX 14.15 and SPX 1832 R and 1828 S to determine market direction. The bears can throw confetti if the 8/34 MA negative cross occurs on the SPX 30-minute, however, bulls will celebrate with a 3-day alcohol binge if they can prevent the cross. Dollar/yen is 101.88 dropping from the 102.20+ level yesterday afternoon. The drop in the dollar/yen (stronger yen) slams the Nikkei -1.5% overnight and creates the flat to softer futures. The Fed and BOJ control the stock market so a lower dollar/yen means lower equities while a higher dollar/yen, if it moves back above 102, will result in another bullish up day into the holiday weekend. The 10-year Treasury yield remains flat all day yesterday into today at 2.73%-2.74%.

Note Added 2:28 PM: Volatility is crushed today. The BOJ is idle allowing the dollar/yen to remain flat all day at 101.88 but the tag team approach is alive and well with the Fed stepping on the neck of the VIX keeping it at carpet level. Type 'Bernanke VIX beachball' into the search box at the right to bring up Keystone's cartoon from the Fall that perfectly describes the action today. Instead of ex Chairman Bernanke holding the VIX beachball underwater, Chair Yellen has taken over the duties. When the torch was handed from Bernanke to Yellen, the VIX beachball exploded up and out of the water but Yellen has wrestled it lower and has the VIX beachball completely submerged again. Volatility is key today and the VIX is bludgeoned lower. VIX continues to print new lows now at 13.50 and dropping creating a rocket launch for stocks. Equities remain in melt-up mode. The bulls push through 1832 resistance so a move to 1838 R was on tap, which occurs, and importantly, the bears could not even hold that level. Price is now in the important 1838-1843 resistance gauntlet that either charts the path to 1880, if 1843 is taken out, or lower if the bears can close under 1838 support, then 1832 S. The Dow leads the way higher, and SPX, while COMPQ and RUT lagging. Tech and small caps were actually negative before lunch now marginally on the plus side. On the Dow Industrials, CVX is up 1 point, DIS 1.5, IBM 2.3, MMM 2, PG 2, TRV 1, UNH 2.2, V 1.4 and XOM 2.7. Now that is an upside orgy. Total points are 16.1, thus, using a rule of thumb of 8, these stocks are creating 130 points of upside, hence the whole upside. Simply taking IBM, MMM, PG, UNH and XOM, these five stocks are creating 90 upside Dow points. Traders are chasing into blue chip dividend stocks like there is no tomorrow. Any short traders that held on through the debt ceiling resolution upside catalyst this week threw in the towel today and gave up. All that is left is raging bulls creating the happy move into the holiday weekend. Since 1838 was taken out, the SPX will likely want to play around inside the important 1838-1843 resistance gauntlet into next week. Traders must sniff out some happy talk from the BOJ come early next week after their 2-day meeting so they are getting a head start on an anticipated stock market rally. Kuroda will have to deliver the goods before US markets open on Tuesday morning and this is fully expected by the long traders (weaker yen which will send the dollar/yen up through 102 on the way to 103). Traders expect a brand new shiny pony from Kuroda come Tuesday and he better show up at the NYSE with that shiny new pony when US markets reopen providing free rides for all the long players.

Note Added 2:48 PM:  Look at equities go. SPX 1841. The Nasdaq is at new 13-year highs. Yellen just stuck here high heel into the eye of the VIX making it crawl even lower. VIX LOD 13.44.

Note Added 2:57 PM: SPX over 1841 near 1842 only a point or so from busting through 1843 resistance which will guarantee the test of the all-time high at 1850.84 and higher. SPX is within 9 points from the all-time high. For the bears, the Nasdaq is now above the mid-January price high with the weekly chart showing nasty negative divergence across the board so an M top, or double top, for markets may now be in the offing. Biotech, the favorite son, is down today with IBB dropping -0.8%, but this fades into the background as the bullish euphoria consumes traders.

Note Added 3:41 PM: VIX is 13.59 recovering slightly off the lows so stocks come slightly off the highs. The SPX 1838 is key S/R so it will be interesting to see which side it closes on. Regardless, the bulls punched strongly higher today so price likely wants to play around in this 1838-1843 resistance gauntlet as it plans the next move. Volume is shamefully low for such a strong up move at less than two-thirds of a days average expected volume. TRIN is 1.01 dead flat neutral. For such a strong up day, the TRIN would be expected to be down under 0.80. Keystone bot more SMN adding to this ongoing long position which is a double X inverse of basic materials. SMN is thinly traded so caution is required.

Note Added 3:58 AM on 2/15/14: VIX was key in Friday's session and it collapsed through 14 down to 13.57. Markets rally strongly with SPX and Dow up over +0.5% but Nasdaq and RUT flat so tech and small caps did not lead. The volume was light. Interestingly, gold rallied, now up over 1300 to 1319. The 10-year Treasury yield is 2.75% remaining flat for the last three days. Nikei plummets the last two days but the US markets sky rocket. Dollar/yen sits stone cold flat all day at 101.80-101.90. The debt ceiling limit resolution was the key bullish catalyst this week that created 30 points of upside and it was a surprise when the House buckled under on Tuesday creating the past week's upside orgy. Price exploded up through the 50-day MA at 1308-1310 which tags the 1340-ish. This places price in the important 1838-1843 resistance gauntlet where the stakes are high. Traders expect BOJ's Kuroda to deliver a bright shiny pony when the US returns Tuesday morning; he had better deliver it.

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