Friday, July 11, 2014

Keystone's Midday Market Action 7/11/14; Portugal Contagion Worries Subside; WFC Kicks Off Q2 Bank Sector Earnings

The clean-up crew arrives in Portugal and begins papering-over the banking crisis. The Portugal 10-year yield drops to 3.88% off the 4% high yesterday so some calm is returning, for now. The market selling was short-lived yesterday since the bears could not create negativity with the retail sector, financials or volatility. Keybot the Quant algorithm remains long. The VIX popped above the critical 13.16 bull-bear level yesterday but dropped back under. XLF dropped to test the 22.46 bull-bear level but bounced. WFC earnings and commentary create a negative vibe on the banks today and XLF drops down again to tease the danger line. Watch VIX 13.16, XLF 22.46 and RTH 59.34. The bears need at least one of these three parameters to move into the bear camp or they got nothing. If one of the three turn bearish, and the SPX drops under 1953, Keybot will likely flip short.

The 8 MA remains under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours ahead, however, the SPX price, 8 MA and 34 MA are now all scrunched together at 1964-1966 with a direction decision necessary over the coming hour. The 8 MA is 1965.51 so as long as the SPX stays under 1965 the bears can keep applying downward market pressure. If price moves above 1966, the bulls will start to run higher into the weekend. The SPX is now printing 1965.01.

The 10-year yield is flat at 2.52%. The dollar/yen is flat at 101.30. The broad indexes trade flat. VIX drops to 12.19 helping the bulls. TRIN is 1.28, however, representing a preference for steady-eddy market selling today. RTH is 59.69 well above the 59.34 danger line. XLF is 22.62 with a LOD at 22.51 only one nickel from the 22.46 bull-bear danger line. Therefore, financials are the best hope for market bears currently. There are more bank earnings on tap next week; WFC was the kickoff. If the XLF loses only sixteen pennies and drops under 22.46, all Hades will break loose in equities today into the weekend. If XLF stays above 22.46, markets will remain calm and move sideways into the weekend.

Note Added 6:52 AM on 7/12/14: The three current key parameters most affecting stock market direction currently, VIX 13.16XLF 22.46 and RTH 59.34, all remain in the bull camp so the bulls easily finished the day positive. One of these three are going to crack which will verify market downside ahead, until then, the markets float sideways with an upward bias. XLF 22.46 is the best chance for bears right now. XLF ended at 22.69 exactly at the top of the sideways 22.53-22.70 channel for the last two days (check out the XLF 10-minute chart). Bulls win above XLF 22.70 and this will indicate that the stock market will remain elevated for a few days forward. If the XLF 22.70 resistance holds, it tells you the bears are in the game and pushing. If XLF loses 22.53 a test of the critical bull-bear danger line at 22.46 is guaranteed where price either bounces, or dies, and takes the stock market in the same direction. Pay close attention to any bank news, as well as retailer news.

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