Thursday, August 14, 2014

Keystone's Morning Wake-Up 8/14/14; German Bund Sub 1%; WMT

Russian President Putin's words pump the stock market starting last Friday morning and also this morning a couple hours ago as he says he will do "everything in his power" to resolve the Ukraine civil war peacefully. Promises, promises. Nonetheless, each time Putin speaks positively, the S&P 500 bounces a few handles. The German 10-year yield drops below 1% today for the first time on record. Comically, European and other global central bankers cannot bring themselves to say the 'D' word; deflation. The IMF coins a new word; lowflation. Europe is mired in deflation likely starting a decade or two funk a la the Japan deflation from the 1990's to present.

WMT earnings are in line and the stock trades higher after a knee-jerk selloff on the release. The poor results are likely priced in. A weak consumer says the economy is not doing as well as expected. CSCO trades down -1.5% pre-market after last nights earnings results and commentary so this will slightly hurt the tech sector today. The four-day stock market relief rally continues yesterday with a strong up day. Two major factors create the upthrust. The VIX falls below the 200-day MA at 13.64 a bullish signal so the bulls stab the bears deeply. Market bears need the VIX above 13.64 pronto or more pain is ahead for the bears as the bulls party.

The other market mover was financials with XLF moving above 22.53. Keybot the Quant remains short and the algorithm identifies the sectors and areas of the market most greatly impacting direction at any point in time. Right now, financials, volatility, semi's and utes rule the roost. Bulls need to keep XLF above 22.53, send VIX under 12.87, SOX above 617 and UTIL above 543.81. Bears need to send XLF under 22.53, keep VIX above 12.70, keep SOX under 617 and keep UTIL under 543.81. In other words, bulls win with lower volatility and higher semi's and utilities. Bears win with lower financials. Since the XLF is near the 22.53 bull-bear line in the sand (XLF is at 22.55 creating market bullishness) and the VIX is near the 12.87 line in the sand (VIX is three pennies above at 12.70 causing market negativity); financials and volatility will immediately identify the correct market direction at the opening bell. Bears claim victory if XLF drops under 22.53. Bulls claim victory with VIX under 12.87. If volatility, semi's or utes turn bullish, Keybot will likely flip long.

The SPX recovers towards the critical 1949-1951 resistance area discussed over the last few days. Remember the SPX 2-hour chart continued to show a long and strong MACD line so as previously mentioned price was expected to come back up to 1945+ to place matching and higher highs, which it did yesterday. A violation of the 1949-1951 zone will send price to 1960-1961. The 50-day MA is 1956.22 which will offer resistance if price makes a run higher. Ditto the 20-day MA at 1952.98 and dropping (the 20-day MA will drop into the 1949-1951 resistance zone providing this level even more clout and street cred. The 200 EMA on the SPX 60-minute chart is 1948.27. The SPX begins today at 1946.72 only 1-1/2 point under this key level signaling bearish markets for the hours and days ahead. Bulls will take over control of markets above 1948.27. Bears must keep SPX under 1948.27 to maintain control and resume the downside selling.

Bulls will run strongly higher and likely through the 1947-1951 resistance gauntlet if the SPX prints only a point or two higher at the opening bell. S&P futures are -2, that's funny. US futures are a ping pong ball down about -3 a few hours ago, then flat, then up +3 on Putin happy comments, now negative again; all over the map today in erratic trading. The bears need to push under 1936 to regain their mojo and accelerate lower. A move through 1937-1948 is sideways action for Thursday.

In a nutshell, watch XLF 22.53, VIX 12.87, the VIX 200-day MA at 13.64, SOX 617 and UTIL 543.81 since these metrics dictate market direction. Another day at the circus is set to begin. Markets are at a major inflection point now. The bulls had it on a silver platter yesterday (note how close the prices are to the levels that the Keybot the Quant algo provides) but did not take advantage. Today will likely determine if the relief rally has legs, or, if it ends. The SPX 200 EMA cross at 1948.27 provides the firm answer to who is winning going forward.

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