Thursday, April 3, 2014

Keystone's Morning Wake-Up 4/3/14; ECB Rate Decision and Press Conference

China provides a mini-stimulus but like a hungry Oliver Twist, traders say, "please sir, I want some more." The dollar/yen moves briefly above 104. Banzai! Yesterday the dollar/yen moves steadily higher and now at 104 the weaker yen drives the stock market gains. The Yellen rally continues fueled by the weaker yen. Fed's Bullard says the taper may be tapered so easy money sends stocks higher. The SPX prints a new all-time high at 1893.17, so pay attention to this number, and a new all-time closing high at 1890.90, another key number to watch at today's closing bell.

The Dow is a hair away from new all-time highs and has lagged this year. Trannies continue to print new highs so Dow Theorists are looking for confirmation with new highs in the Dow. The Dow all-time high was printed the last day of last year, 12/31/14, at 16588.25 and closing high at 16576.66. Yesterday, the Dow printed the HOD at 16588.19 only six pennies from a new all-time high and closed at 16573.00 about four bucks below the all-time closing high. Watch to see if the Dow punches up through for new all-time highs since it will create joyous bullishness and send equities higher; the SPX will likely chart the path above 1900.

GTX 4879 controls market direction to begin the day (as dictated by Keybot). Equities float higher if GTX stays above 4879. A top will be placed for stocks if GTX drops under 4879 and heads lower. Bulls can receive upside juice and guarantee SPX well above 1900 if copper moves higher and JJC prints above 37.80. JJC is 36.93. Copper is weak today in early trading. Bears can receive downside fuel if RTH drops under 59.60 and/or VIX moves above 14.46. RTH is 60.18. VIX is 13.09. Volatility was higher for much of yesteday and ended flat even though markets were higher. The VIX should have finished under 13 considering the ongoing robust rally. Thus, either the SPX is wrong, or the VIX is wrong, and this will be resolved today.

For the SPX today starting at a new all-time high at 1891, the bulls only need two points, to punch up through 1893, and the upside rally party continues with price heading to the 1900 handle in quick order. The bears must push under 1884 to accelerate the downside. A move through 1885-1892 is sideways action today. S&P futures are +2. In the afternoon, traders must position ahead of the Monthly Jobs Report in the morning. Consensus is for over 200K jobs and some analysts are proclaiming 250K jobs so traders are bullish going into the jobs number.

The ECB Rate Decision is 7:45 AM EST and the Press Conference is 8:30 AM. Draghi's words will be studied to note any signs of dovishness. Draghi needs to weaken the euro to help European manufacturers and exporters recover and drive the economy but he is playing it coy in recent weeks. The consensus is that Draghi will not announce a stimulus program today, however, he may provide dovish lip service at the press conference which may cause the euro to weaken. Jobless Claims and International Trade is 8:30 AM. PMI Services 9:45 AM. ISM Non-Mfg Index 10 AM which may create a market stutter step. Natty Gas inventories 10:30 AM.

Complacency remains in the market. The VIX dipped under 13 yesterday to print a 12 handle and CPC and CPCE put/call ratios are printing uber low numbers indicating that a market top is in place or will be in place during the days or week or so ahead. The SPX is gapping-up day after day so the gaps left behind will likely need filled moving forward. The 10-year yield is 2.80%.

Concerning housekeeping on trades, Keystone exited the EUO euro short taking profits. No use giving up those gains if Draghi plays coy causing the euro to pop. A bounce in the euro to 1.39-1.40 will set up another nice short opportunity. If Draghi does not act with stimulus it is going to be almost a given for next month so a weaker euro is likely moving forward for the weeks and months ahead. Keystone took profits on the ARO long and will look to reenter. There is likely lots of upside ahead for ARO and it is receiving the positive divergence bounce projected the other day. Keystone bot more SJB adding to this ongoing long position which is short high-yield. HYG appears to be peaking out currently with the weekly chart hinting that a multi-year top may have just been placed or is in progress. Also bot SSNI opening a new long position which is a power grid play. SSNI, MGPHF and MUX are stocks mentioned as attractive long term buy and holds (LTBH). There are not many LTBH's considering Keystone's expectation for the broad indexes to move sideways to sideways lower for the weeks and months ahead.

Note Added 8:02 AM: The ECB leaves the key benchmark rate unchanged at 0.25% as expected. Futures are non-reactive. The euro moves slightly higher to 1.3772. Dollar/yen 102.92. S&P's +1. Nasdaq futures turn negative. Gold and silver are moving lower. Copper is down -1%. Oil is flat. The 10-year yield remains flat at 2.80%. All eyes and ears now focus on Draghi’s press conference in the minutes ahead listening for any hints of dovishness and a stimulus program to combat the ongoing European disinflation and deflation. Draghi is finishing a glass of orange juice at the free buffet brushing the jelly donut stains from his neck tie.

Note Added 8:53 AM: The Trade Deficit increases. Jobless Claims jump 16K higher to 326K. Draghi takes the stage and provides commentary on the ECB’s policy. Draghi says, “inflation is expected to remain low this year and then move higher in 2015 and reach the 2% goal in 2016.” He says, “do not rule out unconventional easing (QE).” Draghi says the “risks to the economy are to the downside” and “unemployment remains high.” Draghi’s comments are dovish so the euro leaks a hair lower to 1.3740 but overall the trader response is not to weaken the euro unless Draghi delivers something more substantive than dovish lip service. Draghi is not too dovish if he is content with disinflation and deflation to remain this year patiently waiting for inflation to arrive in 2015 and 2016. European exporters may be belly-up by then. Futures are flat not knowing which way to turn. Dollar/yen 103.95.

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