Thursday, July 17, 2014

Keystone's Morning Wake-Up and Midday Market Action 7/17/14; Russia Sanctions Bite; Housing Starts; Malaysian Airplane Crash

The bulls pump markets higher yesterday but the Russia sanctions are dampening the global market mood. Russia stocks are down and the ruble is weakening with the ruble currency pair at 35 moving higher. Money is leaving Russia. At the same time, the sanctions will hurt Europe as well that remains mired in recession and depression. Germany's manufacturing data leaks lower for the last three months and the sanctions will only serve to continue the European malaise. President Putin threatens retaliation.

The world remains a mess deteriorating daily. Syria, Iraq, Iran, Ukraine, Egypt, Libya and Israel remain in chaos with global traders not concerned and not pricing in any geopolitical risk. Traders are drunk on the Fed wine and buy stocks without concern. The CPC and CPCE put/call ratios drop and the uber low multi-year print under 0.40 with the CPCE one-month ago has yet to be resolved with a market sell off. The VIX is at 11 further verifying the ongoing market complacency.

Geolpolitical risk is entering markets today as the S&P futures have gone from -3 after the Russia sanction announcement last evening to -6 a couple hours ago and -12 now, about 2-1/2 hours before the opening bell. The 10-year Treasury yield is at 2.50% about to lose this important psychological level. The economic slip into disinflation continues as has been highlighted with the commodities. The dollar/yen drops overnight down to 101.50 so the stronger yen creates weakness in Japan and US stock markets.

Keybot the Quant remains long ever since 5/22/14. A  few bear traps have been snared over the last couple weeks as equities have threatened a sell off only to recover sharply poking the bears in the eye with a sharp stick each time. With the S&P futures pointing to a weak start, watch RTH 59.47, JJC 38.65 and VIX 13. The algorithm identifies these three parameters as most greatly impacting market direction currently. As the markets sell off, any one of these three parameters turning bearish verifies the negativity and a more extended and sustainable downside market move begins. If none of the three parameters turn bearish, then the bears got nothing and equities will recover higher. If one of the three parameters listed fail into the bear camp, and the SPX drops under 1976, Keybot will likely flip to the short side ending the 8-week rally.

For the SPX starting at 1982, the bulls only need two points, to touch the 1984 handle and it is smooth sailing to new all-time highs and 1990 in quick order. Alas, the S&P futures say this is not going to happen, at least at the start. The bears need to push the SPX under 1976 to accelerate the downside. A move through 1977-1983 is sideways action. The weak projected opening would easily slice down through 1976, however, the all-important monthly Housing Starts are on tap at 8:30 AM and will move the futures. MS, PPG and PM earnings are due out before the opening bell.

The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead so watch to see if a negative 8/34 cross occurs to verify an extended downside market move ahead, or not. Bears got nothing without the negative 8/34 cross on the 30-minute. The 20-day MA is 1967.08 so look at this for support where price will make a bounce or die decision. The Tuesday to Wednesday OpEx bullishness occurs as forecasted; ditto the bullishness expected through the two-day Fed testimony. Today brings on a different tone.

In a nutshell, watch RTH 59.47JJC 38.65 and VIX 13. Bears got nothing without one of these three joining the bear camp (lower retail and financial stocks and higher volatility). If one of the three turn bearish it is likely that Keybot the Quant will flip to the short side. Keystone will probably not be able to provide updates until this afternoon but the criteria above clearly explains the game plan today. The retail and bank stocks, and higher volatility, will determine if the bears got the beans to push equities lower, or not.

Note Added 7:19 AM: MS beats on top and bottom line so the banks will be happy and futures may recover. S&P -12. Dow -65. Nasdaq -25. Copper is selling off. Dollar/yen 101.44.

Note Added 7:42 AM: The MS earnings improve the market tone. S&P -9. Dow -42. Nasdaq -20. Dollar/yen 101.45. The 10-year yield is 2.51% fighting to maintain the 2.50% support with all its might. Watch retail, financials and volatility, especially RTH 59.47and JJC 38.65, to determine the path ahead.

Note Added 6:05 PM: The initial market moves today looked same-o same-o. Stocks drop but RTH, VIX and JJC remain bullish and sure enough markets recover. At 11 AM, the Malaysian airplane tragedy news comes across the tape and equities collapse. This action still was not enough to convince the Keybot the Quant algorithm to turn bearish. In the afternoon, traders started a mini-panic over geopolitical events and this spiked the VIX higher which was the main trigger of the sell off. RTH 59.46 failed as well verifying the downside. Keybot the Quant flipped to the short side at SPX 1963. RTH 59.46 is the key since it sits directly on the bull-bear line in the sand. Whichever way retail stocks move at the opening bell, the broad market will move in the same direction. Listen overnight for any positive, or negative, news concerning retail stocks. At the close, Keystone bot ARO opening a new long position. Aeropostale will probably be held for a few months. It is beaten down and laying in the emergency room but the charts are set up with attractive positive divergence and it is a takeover target. Thus, Keystone will likely hold ARO long moving forward and continue scaling-in buying more every couple weeks.

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