Monday, April 7, 2014

Keystone's Morning Wake-Up 4/7/14

RTH 59.53 and VIX 14.50 provide the market answer today. Keybot the Quant is short but the markets remain a sideways circus. The RTH dropping uncer 59.53 created Friday's weakness so the bulls can stop the downside selling if RTH moves above 59.53. Despite the strong equity selling, the VIX did not move above the important 14.50, identified by Keybot the Quant algo, so the selling is not yet impressive. Futures will send the SPX lower to begin the new week of trading but if the VIX remains under 14.50, the bears got nothing. Market trouble and selling pressure increases if VIX moves above 14.50.

For today with the SPX starting at 1865, the bulls need to regain the 1897 level to regain their mojo, a formidable task, so instead bulls will focus on stopping the downside bleeding by pushing the SPX above the strong 1868 resistance and pushing RTH above 59.53. The bulls must recover the 20-day MA at 1865.79 or they got nothing. The bears need to push under the strong 1863 support to accelerate the downside. The 200 EMA on the 60-minute chart is 1862.31 which determines the near term market direction so watch this number closely. Ditto the strong 1859 support since a failure leads to a test of the 1848-1851 support gauntlet.

Note Added 9:33 AM: Markets trade mixed to begin the session. SPX falls to a LOD at 1859.97 and pops. The 1859 support is strong. Price is fighting at the 200 EMA discussed above to determine the fate of markets. VIX is 14.90 so the bears place a feather in their caps, however, watch the VIX 14.50-14.60 to see if the bears can remain happy, or not. Copper recovers higher off this morning's weakness which will help bulls.

Note Added 9:37 AM: VIX 15.01. SPX 1859 support is violated. Bears are making a push. As long as VIX stays above 14.50, bears will have a happy day. Dollar/yen 103.06 down from 103.30 a few hours ago so stronger yen creates selling pressure.

Note Added 9:49 AM:  Price bounces off the 1855 support. Reference this morning's SPX S/R missive to monitor the support and resistance levels. The SPX will likely explore the 1855-1859 range for the minutes ahead. Bulls win above 1859; bears win below 1855. VIX 15.40. The SPX is under the 200 EMA on the 60-minute chart signaling bearish markets for the hours and days ahead. Watch to see if the bears can maintain the negative cross all day long. The 8 MA is under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours ahead. TRIN is 0.90 on the bull side (under 1.00) which should help the bulls create some market lift. Bears need to push the TRIN above one to lock in firm downside all day long.

Note Added 2:27 PM: The bears keep pushing. VIX 15.86. Dollar/yen 103.06 so lower but holding on to the 103 level; this is why equities have not flushed today. If dollar/yen loses 103, the broad indexes should take a strong leg lower. Financials are breaking down and will cause another leg lower in markets if they do not recover. Watch XLF 21.87; now at 21.84, failure, which will usher in more market negativity. If XLF recovers above 21.87, equities will recover into the closing bell. Bulls got nothing unless they push XLF above 21.87. TRIN is 1.18 representing orderly and continued selling. No panic at all; simply traders weeding out longs from the portfolio as the day moves along. SPX is nearing the 50-day MA at 1839.12. The SPX 1855 failed which led to the test of 1848-1851 a strong support gauntlet. Bad things happen under SPX 1848. Bulls must hold the line at 1848 but they could not. LOD 1841.57 so price already sliced through and bounced off the very strong 1841 support. With the 50-day in here, the 1839-1841 level is strong support. Big trouble is ahead if the 50-day MA fails. Keystone bot ARO opening a new long position. This is the beaten down retailer where the positive divergence bounce was ridden higher seven days ago then the trade exited three days ago. Keystone gives Aeropostale another whirl on the long side. ARO is a dangerous and speculative trade. It displays attractive positive divergence in place or developing. There may be a better entry 10 or 20 cents lower over the next couple hours but the anticipation is that ARO will receive a boost from positive divergence again and start higher.

Note Added 2:42 PM: VIX tagged 16.01 a few minutes ago. The 10-year yield drops under 2.70% and it was at 2.80% on Friday morning. Lower yields is in line with disinflationary and deflationary effects. The Friday jobs number shows flat to falling wages. Inflation will not exist without wages increasing. Economies do not recover if people do not have money to spend. No one shows respect to the disinflationary and deflationary scenario's for the economy moving forward. Everyone expects the 10-year yield to jump above 3% and head to 4% lickity-split in an inflation scenario. The consensus typically gets it wrong. The obscene money printing will guarantee inflation if not hyper inflation but the big up in yields may be more in line timing-wise with the end of the secular bear cycle 2000-2018 so inflationists may have to be patient for another two to four years.

Note Added 2:50 PM: SPX is 1847.06 bouncing off the lows. A new LOD printed at 1841.48. XLF 21.89. Say no more. Bulls know they must maintain strong financials or they will lose the game so they pushed XLF above 21.87, albeit two pennies, creating equity buoyancy. It is enough to send equities higher and stop the bleeding. Bears will try to push XLF back under 21.87, if so, the markets will flush lower into the closing bell. VIX drops to 15.53 continuing to cause negativity but the downward action intraday provides market lift.

Note Added 2:57 PM: The SPX is back testing the strong 1848 resistance, remember, it was support on the way down now turned resistance. This 1848-1851 is a sturdy gauntlet so treat the whole three-point range as resistance. Time for a bounce or die decision. Bulls will recover and dance to happy hour if SPX moves above 1851. Bears will accelerate the market selling if price fails from here at 1848-1851. If the bears win with a successful back kiss and collapse from 1848, price will set its sights on the 50-day MA at 1839.23. Simply watch XLF 21.87. Price is now 21.90 so the market bulls receive the nod. Dollar/yen 103.13.

Note Added 3:47 PM:  XLF 21.86. "Houston, we have a problem." The fight continues; now XLF 21.87 smack-dab on top of the bull-bear line in the sand. Dollar/yen maintains above 103. VIX 15.33. SPX was playing around the 1848-1851 gauntlet; price is now under 1848. XLF 21.86.

Note Added 3:54 PM: XLF 21.84. "Houston, the problem is getting worse." SPX 1845. Dollar/yen 103.08.

Note Added 4:01 PM: XLF 21.83. Financials will be the key tomorrow. If XLF recovers back above 21.87 a relief rally will occur for equities. If XLF remains under 21.87 and moves lower, equities will collapse another leg lower with the SPX likely testing the 50-day MA at 1839.16. The SPX fails the 200 EMA on the 60-minute chart at 1861.51 (reference this mornings chart) signaling bearish markets for the hours and days ahead. If bears can make this cross stick through tomorrow, sustainable downside is ahead for markets. TRIN finishes at 1.47, at its high, but by no means a big spike to 2, 3, 4 or higher which would signal panic selling. The selling is very orderly and steady which hints that continued steady selling and downside pressure would be expected moving forward (a panic move with TRIN of 2, 3, 4 or higher typically creates a bounce since the selling is overdone but steady-eddy selling, like today, at a TRIN of 1.47, can continue indefinitely). The SPX is under 1848 now negative on the year. Watch XLF 21.87 as described above since it dictates market direction.

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