Tuesday, February 25, 2014

Keystone's Morning Wake-Up 2/25/14; Consumer Confidence

The markets are very fast-moving these days and it is difficult to keep pace. Ukraine, Turkey, Venezuela, Thailand, bitcoin drama, new market highs, there is a lot of wild stuff occurring. Turkey trouble is heating up again with the lira weakening so this may take the front seat in the drama parade today ahead of Ukraine. Yesterday was a huge short-covering rally. The bears have given up. Markets float higher since there are no sellers remaining. Buyers are selling to other buyers. The bullish euphoria was clearly evident yesterday. Traders, analysts and television pundits are giddy and joyous with calls of SPX 1900 echoing along the halls of the exchange yesterday. Funny how many turned somber into the close when the SPX could not print a new closing high despite printing about 10 handles above during the session.

The retail sector provided the upside juice yesterday and this was odd since many retailers were smacked. As soon as the RTH jumped above 58.63, equities thrust higher. The bulls need further upside juice from lower volatility but the VIX would not move sub 14 yesterday afternoon so the bears returned late day and pushed equities lower. Bulls need VIX under 13.92 to continue the market rally.

As always, look to the BOJ and Fed's collusion to determine market direction. Before yesterday's open, the dollar/yen was dropping towards 102.20 so equities were soft. The dollar/yen then ran higher to 102.70 to push equities higher with the rocket launch move. As the afternoon played out, the dollar/yen softened down to 102.50 so equities sold off. Japan's NIKK gained overnight following along with the US upside but the dollar/yen further drops to 102.33 as this is typed. Thus, lower dollar/yen means a stronger yen and lower equities and the S&P futures are -3. Kuroda and Yellen are on the telephone now plotting today's manipulation. Plain and simple, if the BOJ is printing yen, the dollar/yen moves higher and so do equities. If the BOJ stops the printing presses to take a break, the yen strengthens sending dollar/yen lower and equities lower.

Four parameters are controlling market direction currently; RTH 58.63, XLF 21.43, VIX 13.92 and JJC 39.85. Keybot the Quant flipped to the bull side yesterday but the markets are very erratic, unstable and unpredictable. The bulls need VIX below 13.92 and JJC above 39.85 to receive upside juice. The bears need RTH under 58.63 and XLF under 21.43 to receive downside juice. The RTH is within 7 pennies of 58.63 (on the bull side) so watch this closely at the opening bell for an immediate market directional signal. One of the 4 parameters will flinch and dictate market direction. If all 4 stay status quo today, then markets float sideways with a slight upward bias.

For the SPX starting at 1848, dead flat for 2014 thus far, the bulls need to touch 1859 to create an upside acceleration. The bears need to push below 1837 to accelerate the downside. A move through 1838-1847 is sideways action. Copper is very weak but everyone ignores the doctor. No one is worried about getting sick even though the only doctor in town is ill laying on a gurney in the emergency room. The CPC and CPCE put/call ratios continue to signal complacency and a market top at hand or developing in the days ahead. The BPSPX gave the market buy signals a couple days ago as highlighted in a previous chart so that bullishness followed through and helped create the market thrust higher yesterday. The buy signals remain on the BPSPX. Bears will need to move the BPSPX under 70% or they got nothing. The VIX is under the 200-day favoring bulls but this fight is ongoing and must be monitored to see who wins. Bears need the VIX above the 200-day MA or they got nothing.

The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead but the 8 MA is curled over to the downside and may create a negative cross today. Bears need the negative 8/34 MA cross on the 30-minute or they got nothing. The SPX all-time intraday high is 1858.71 so the 1859 is strong overhead resistance. The all-time closing high remains at 1848.38The strongest S/R is 1859, 1851, 1848, 1843, 1841, 1839, 1828, 1815.25 (50-day MA), 1808, 1803 and 1800.

Consumer Confidence is 10 AM and will create a market pivot point. Richmond Fed Mfg data is also at 10 AM. Fed's Tarullo spins a yarn at 10:10 AM. The 2-Year Note Auction is 1 PM. Housing data including the S&P Case-Shiller House Price Index hit before the bell. Watch RTH 58.63 and VIX 13.92 today. Also the 8/34 MA cross on the SPX 30-minute and VIX 200-day MA cross. These four will tell the market story.

Updating the housekeeping on ongoing trades, all shorts are hammered as the indexes run higher. Keystone exited JCP as a flat trade last week which appears to be sheer dumb luck. JCP slipped -7.2% yesterday ahead of earnings tomorrow. It makes you wonder if insiders have already received the word ahead of time. A move lower would be expected to fill the gap at 5.7-ish but price has now dropped to 5.23. Everyday someone is bashing JCP and yelling the bankruptcy word to keep the fear elevated and that occurs again this morning. The bottoms in NFLX, BBRY, BBY, WLT and others followed the same dramatic path although the retail sector is more worrisome. Five is an important level since the funds are typically obligated by their by-laws to not own a stock that is priced under five bucks. That is why garbage C did the reverse split a few years ago. C is 48.98 so taking away the 10:1 reverse split means the piece of garbage (from a price perspective) is 4.90, a sub 5-dollar stock in drag. It would be negative if JCP chooses the reverse stock split route. As a rule, a reverse split simply indicates further trouble ahead; C is a very good example. JCP's charts remain attractive from a bottom-picking and positive divergence perspective. Anything can happen with earnings but the thought would be a bounce since the news has been all negative for weeks. The charts did not require price to drop lower again but the recent negativity may cause further sideways basing. Keystone will look to reenter JCP and it remains an attractive, albeit highly speculative and dangerous, stock to play on the long side. The prior customers of JCP are likely far more loyal than everyone thinks and may return to the stores a lot faster now that the Ron Johnson debacle is flushing out.

The FB short trade is getting killed because of the slap from the WhatApp acquisition; that entry short was unfortunate timing. You win some and lose some. The FB short trade will remain in place for now. The price action adds some oomph to the charts for Facebook but a top is expected in here at 71-73, then potential move down to 56-60. Biotech and pharma stocks are parabolic. MYL takes another jump higher so this short trade may have to be taken as a loss since shorting it appears futile. For now it will remain on. Keystone still likes shorting high-yield. Most all stocks benefited from the upside thrust in equities yesterday which creates more oomph that may need a couple few days to play out. Shorting HYG or longing SJB (thinly traded) are possibilities to scale into. JGBS will be added to as time moves along, also the micro cap MGPHF. SMN is in an inverse against basic materials and was enjoying upside despite the higher equity markets yesterday. Other assorted inverse ETF's are held that short the broad market but all are underwater as equities keep printing new all-time highs. Keybot, that handles two-thirds of the overall portfolio, is on the long side currently.

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