Thursday, May 29, 2014

Keystone's Morning Wake-Up 5/29/14; GDP

The palindrome SPX all-time closing high remains at 1911.91 from Tuesday. Yesterday, however, the SPX prints a new all-time record intraday high at 1914.46. Markets are typically weak through the new moon which was yesterday afternoon and interestingly, the SPX peaked above 1914 and closed under 1910. Q1 GDP is released at 8:30 AM and is expected to be negative. The first GDP read last month was a paltry +0.1% one single hair positive. GDP will set the market tone to begin the day. S&P futures are +1 as this is typed 2-1/2 hours before the opening bell.

The 10-year yield slips to 2.425%. The 200-week MA at 2.39% will act as near-term support. Traders and analysts discuss the reasons behind the drop in yields. The majority consensus, the same folks that called for higher yields this year, now say that lower yields do not indicate a weaker economy. Do you believe them? The 150-day MA slope on the RUT continues to flatten but it remains positively sloped so the cyclical bull market in stocks remains. Watch the slope of this moving average since it will identify the conception of a cyclical bear.

The BPSPX remains on a strong market buy signal. The VIX and put/calls remain low indicating that traders are complacent and without worry. The Fed tapering of QE has no impact on the stock market. The $85 billion per month QE stimulus is down to about one-half of this amount now and headed to zero in October-ish. The question is when does the market react to the slowing spigot of easy money? What is critical mass? In the prior QE's, that typically ended in June time frames, the markets would start selling off about one month ahead of time in May. Therefore, the end game for stocks should arrive by October since the program will be at zero by then, or, anytime prior to that depending on when the light bulb goes off in trader's minds that the Fed easy money will end.

Keybot the Quant is on the long side and RTH 58.58 remains a key sector and level of interest by the algo. The bulls sent the retail stocks higher and just when it looked like they would break up through RTH 58.58, which will guarantee SPX to the 1920's, the bulls folded like a cheap suit, and the RTH drops to 58.37 continuing to cause negativity and placing a ceiling on the equity upside. Bulls must attain RTH 58.58 to move markets higher. Although the bears have created a ceiling on equities, they cannot yet create downside without lower financials, copper and commodities. The lower euro, creating a higher dollar, will create lower copper and commodities. Copper is weak today.

The SPX 2-hour, 1-hour and 30-minute charts are poised to move lower technical-wise but positive news can always create a thrust higher out of left field. The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullish markets ahead, however, the SPX price is under the 8 MA at 1912-ish curling it lower for a potential negative 8/34 cross today. The bears need to create the negative 8/34 cross on the SPX 30-minute today or they got nothing. For the SPX starting at 1910, the bulls need to push up through 1914.50 and the upside will accelerate to 1920 in quick order. The bears need to push under 1907 to accelerate the downside. A move through 1908-1913 is sideways action.

May began at SPX 1884 so the bears need 26 handles of downside to print a negative month with two days remaining. Watch RTH 58.58, SPX 1914.50 and 1907, and the 8/34 cross on the SPX 30-minute to determine market direction. Watch to see if the Dow Industrials can print new all-time highs to match the Dow Transports, or not. A negative GDP is expected so the market risk appears to be to the upside since any positive print will likely send the bulls running higher today. What say you GDP?

Note Added 6:51 AM on 5/30/14: GDP is weak at -1% but the stock market ran higher. The lows were printing about 10:30 AM but a bottom was placed when the RTH moved above 58.58. Equities ran higher and did not look back pumped by stronger retail, materials and energy stocks. The SPX punched through 1914.50 so it accelerated to close at 1920. Watch RTH 58.59 in the Friday session. Bears got nothing without sending RTH under 58.59. Keybot the Quant remains long and the algo is in overbot territory. At the same time, the low VIX and CPC and CPCE put/calls verify the ongoing complacency. Traders have no worries about markets and are buying both stocks and bonds, and most anything else, without fear or concern. The low volatility across all asset classes is very odd market behavior and no doubt caused by all the Fed and other central banker intervention for the last five years. Markets may stumble sideways until Draghi brings the tablets down from on high on Thursday morning.

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