Tuesday, September 16, 2014

Keystone's Midday Market Action 9/16/14

The markets stumble sideways into the Fed announcements tomorrow afternoon at 2 PM (7 PM London time) with the SPX threatening to squeeze out a strong move higher out of the tight standard deviation bands. The SPX 1988 resistance is holding price back for now. The 8 MA remains below the 34 MA on the SPX 30-minute chart forecasting bearishness for the hours ahead, however, the 8 MA is rising rapidly and should make a positive 8/34 bull cross over the next hour or so. The market bears must punch the SPX price lower right away to prevent the positive 8/34 cross otherwise they will fold like cheap tent. The SPX remains above the 200 EMA on the 60-minute chart at 1983.70 signaling bullish markets for the hours and days ahead. Bears got nothing until they break below the 200 EMA at 1984-ish.

Key S/R is 2011, 2007, 2005, 2002-2003, 1998, 1991, 1988, 1985-1986, 1973, 1968 and 1963. The market is staggering around in front of the Fed with utilities, semiconductors and volatility most affecting market direction. Keybot the Quant remains short but the algo is on the verge of flipping long. The bulls need VIX under 12.39 and Keybot will likely flip long. The bears need to push UTIL under 550 and/or SOX under 632.81 to get their mojo back. UTIL is 555.25 testing its 200-day MA at 555.02 from the underside. SOX is 636.13 also testing its 200-day MA at 636.72 from the underside.

VIX is 14.06 well above the 12.39 danger line identified by the quant creating negativity. VIX also remains above the critical 200-day MA bull-bear signal line at 13.58. Considering where the parameters mentioned above are trading, each well within their respective camps, the VIX 13.58 will provide important insight for today. Market bears are fine with VIX remaining above 13.58. If the VIX drops under 13.58, the bulls receive some juice, enough to push through SPX 1988 resistance and move towards 1991. The SPX is banging up against 1988 R as this is typed so the 1991 may come regardless then the lower volatility would create the move higher to 1998. Market bears will continue growling moving forward if the VIX moves above 14 and higher.

The tight bands on the SPX daily chart sets up high drama for the Fed announcements. The Scotland vote occurs Thursday as well as the important Housing Starts data in the States on Thursday that will move markets. The much-awaited and hyped BABA IPO will trade Friday morning. This is OpEx week so higher volume at the opening and close on Friday may create further volatility. Typically, stocks move higher from Tuesday into Wednesday during OpEx week and today is playing that pattern out with the SPX creating a low at 1979 and moving up ever since, so far. Congress is in session for another week or so until Rosh Hashanah next Thursday and markets are typically bearish when in session and bullish when not in session. Next week, the week after OpEx in October, the market are typically down 80% of the time so the bears are favored strongly for next week.

The confessional season begins as Q2 earnings reports dwindle to an end. Companies that expect lower earnings will pre-announce to take some of the surprise out of the game when Q3 earnings hit in October and November. Of course the number of pre-announcements, or lack thereof, will provide insight into the intermediate trend for stocks. Other upcoming events are the European bank stress test results due in October where the ECB will throw a token handful of banks under the bus to create the illusion that the house is cleaned-up but in reality it is smoke and mirrors like the Fed stress tests in the States. The mid-term elections occur in the States the first week of November, now only 7 weeks away, where the Senate may turn to a republic majority that may lift stocks since republicans are perceived as more business-friendly. (The House already has a republican majority. There are two branches of Congress in the US; the Senate and the House).

The Fed circus is tomorrow. The two-day FOMC meeting begins today. The previous message describes the current market zeitgeist around the "considerable time" phrase so there is no use to beat that dead horse here. While everyone is thinking about a word change, the wind down of QE Infinity is very near and may create the actual surprise in its projected wind down. Fed Chair Yellen said that QE will end in October. The current rate of Fed money printing is $25 billion per month (these are the POMO pumps that occur each day between 10 AM and 11 AM that goose the stock market higher) and must go to zero by the end of October. Yellen previously said she would drop another $10 billion to bring QE down to $15 billion (tomorrows meeting) and this is the last $15 billion that will disappear in October-November ending QE Infinity forever. If Yellen wants to appease the hawks, she can always reduce QE by $15 billion instead, a simple token move but it would satisfy the hawkish narrative in the press over the last few days and allow only $10 billion in money printing to finish out October. The Fed can be tricky sometimes so everyone simply has to wait for Yellen to bring the tablets down from on high tomorrow and tell the markets which direction to go.

Stocks have rallied 5-1/2 years off the March 2009 bottom due to the pure belief in the Fed, like a cult following a charismatic leader. As long as traders believe in the Fed's easy money stocks go higher. Up through the present, the economic data keeps teasing that a recovery is in place, only to disappoint, and now it is at another inflection where the couple months of encouragement may be squashed again like an ant at a summer picnic. Keystone wrote at the start of the year that the end game occurs when confidence in the Fed is lost. How many more fits and starts in economic data can be tolerated before traders realize that if the recovery is not here after six years of money printing it is never coming? This realization would be devastating for stocks. Will this occur if Yellen remains dovish tomorrow and maintains the excessively accomodative and loose monetary policy? Will all confidence in the Fed finally be lost? She can keep printing money but if it has not worked in six years, it will not work, and at the same time the Fed has created a deep hole of debt. On top of that the rich have become wealthy beyond their wildest dreams by raping the stock market upside while the middle and lower class, and poor, suffer through structural unemployment watching their hopes and dreams squashed under the wealthy's expensive wingtip shoes.

The RUT small caps are threatening a death cross pattern where the 50-day stabs down through the 200-day MA indicating bearish markets for the weeks and months ahead. The death cross should occur tomorrow. The 150-day MA slope is far more important. The 150-day is at 1155 and flattening and moving sideways. If the 150-day MA continues to roll over to the downside a cyclical bear market in small caps is guaranteed and the broad indexes will likely follow suit. Thus, use 1155 on the RUT as a key indicator. Each day the RUT is under 1155 is another nail in the bulls coffin. If the RUT moves above 1155 going forward, the bears got nothing. The RUT is currently printing 1142. The death cross should be taken with a grain of salt; technicians do not pay it much attention. Typically price will actually bounce when a death cross occurs and drop when a golden cross occurs but overall, the crosses do point the path forward for the weeks and months ahead.

So bulls want to maintain UTIL above 550 and SOX above 632.81 while pushing VIX under 12.39. Bears need to push UTIL under 550 and SOX under 632.81 while maintaining high volatility with VIX above 12.39. The VIX 13.58 is also a key bull-bear gauge. The direction forward the remainder of the week is key since it will verify the direction out of the tight standard deviation bands on the SPX daily chart and equities will likely continue in that direction for 80 or 90 handles.

On the esoteric side, yesterday was a key date for Keystone's Eclipse Indicator that is used to forecast potential major sell off windows. Over the next couple weeks, a window is open for a major market sell off to begin. If the bears are unable to move lower as October begins then the next eclipse sell off window is between late October and late November. Although esoteric in nature, the eclipse indicator has quite a good track record. The forecast jives with the 80% down week seasonality projected for next week. With volatility hinting that it wants to start moving higher, the markets may take on larger and larger intraday and day to day point swings going forward. All eyes and ears are waiting for the Fed circus to come to town tomorrow.

Note Added 11:38 AM: Utilities and semi's are catapulting higher sending equities higher. VIX is 13.71 teasing the 13.58 support and bull-bear line explained above. The SPX keeps running higher with its OpEx Tuesday to Wednesday rally move with price piercing through the 1991 R to 1993 so 1998 resistance is on the table. If the VIX loses 13.58, the SPX will likely print and test the 1998. If VIX bounces and refuses to give up the 13.58, stocks should drift lower. Traders are pricing in the thought that Keystone has discussed this morning that the Fed will likely not change the "considerable time" wording in the statement. The strong pop in the stock market over the last one-half hour is due to Jon Hilsenrath, a journalist at the WSJ that is perceived to be a mouth-piece of the Fed, saying the Fed statement will likely stay as is. By Hilsenrath providing his blessing, the stock market is off and running higher. The thought of continuing easy money policy and ZIRP Forever creates the stock market bounce and joy. The central bankers are the market. Watch the VIX 13.58 level as a key market metric today.

Note Added 11:50 AM:  VIX 13.60 only pennies from the 200-day MA bull-bear line in the sand now at 13.57. VIX must bounce or die and whichever way it goes the SPX will move opposite. What say you VIX? Bounce or die.

Note Added 11:52 AM: VIX collapses to 13.41. Boiiiinnnggg. The SPX launches to towards the 1998 R. So the VIX 13.57 remains key. Bears must focus on pushing VIX above 13.57 as soon as possible. Each minute that goes by with the VIX under 13.57 hurts the bear case. Bingo. The 8 MA crosses above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead. Everything is going the bulls way ahead of the Fed announcements. The thought of the Fed changing the "considerable time" phrase is tossed out the window as traders drink from the Fed punch bowl staggering around buying stocks and singing songs. The bond market remains calm, steady and flat through all this circus-like action at 2.58%.

Note Added 12:01 PM: The SPX breaks above the 20-day MA at 1995.24 another feather for the bull's cap. HOD is 1997.44 stopping at the 1998 resistance, for now. All Hail the Fed and Hilsenrath! All Hail the Fed and Hilsenrath!! Shamefully, the Fed and other central bankers remain in full control of the non-free markets pumping stocks higher for nearly six years. Watch the 20-day into the closing bell.

Note Added 12:17 PM:  VIX 13.50. SPX 1996.46. 20-day MA 1995.24. The TRIN is bullish under one by a wide margin down at an uber low at 0.60 fueling the upside.

Note Added 12:17 PM:  VIX 13.34. SPX 1998.34 so the door is open to the 2002-2003 R. The bears are falling down the steps and need to push the VIX above 13.57 to fight back. The Dow is up 110 points. Today is a wild bull party with Hilsenrath handing out the Fed booze to everyone.

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