Friday, December 12, 2014

Keystone's Midday Market Action 12/12/14

The bears are finally receiving a turn at bat. Keybot the Quant algo remains short. The NYA losing the 40-week MA at 10750 is a very serious and negative market development signaling a cyclical bear market ahead for stocks. Continue watching the 150-day MA slope for the major indexes as another indicator of the cyclical (months and/or years) path ahead. The Russell 2000 small caps (RUT) show a flat 150-day MA for the last five months. One side or the other will win and identify the correct path ahead. If the 150-day MA slope rolls over and moves down as we move into 2015, the markets will be toast. An upward move in the RUT 150-day slope will forecast more market upside ahead and the NYA would be expected to overtake the 40-week MA to the upside. The coming weeks are critical in determining if a multi-year top a la 2000 and 2007 is in place.

Oil should receive at least a dead-cat bounce in the near term which should create a recovery into January but weakness should resume for oil prices after that. The consensus continues to tout an oversupply problem causing the drop in oil prices but it is actually a double whammy effect with oil demand playing a strong part as well. OPEC and the IEA have lowered demand estimates for oil going forward and China's economy is slowing. Equally important, everyone is too afraid to talk about the 900-pound deflation gorilla sitting on the living room sofa.

The SPX is under the 200 EMA on the 60-minute chart signaling bearish markets for the hours and days ahead while the 8 MA is under the 34 MA on the SPX 30-minute chart signaling market bearishness for the hours ahead so the bears are enjoying  a double-whammy of near-term negative joy. The SPX 50-day MA support is 2001 and rising
Therefore, said jokingly, 2001 is both a space, and stock market, odyssey. The SPX daily chart show a falling wedge pattern for the last 14 days and the point of the wedge pattern targets the 50-day MA.

Key SPX S/R is 2065-2067, 2056-2057, 2052, 2046, 2040, 2038, 2032, 2024, 2018, 2011, 2007, 2005, 2002-2003 and 1998. The HOD is 2032 so that resistance held. The LOD is 2012 so the 2011 support held. Price is now printing at 2018 exactly at the 2018 S/R deciding which way to go.

Check the CPC and CPCE put/call ratio's after the closing bell to see if higher numbers are printed to indicate fear and panic as explained in previous charts, or not. Watch the BPSPX now at 72.60 topping at 76.40 five days ago. A six percentage-point reversal is 70.40 and 70 is also a critical level. If the BPSPX falls through 70, the markets receive a double-whammy sell signal and serious trouble begins to the downside. There sure are a lot of double whammy references in this missive. If BPSPX stays above 70%, the market bulls will recover and create a happy ending for stocks to finish the year.

Seasonality factors are in play with tax loss selling occurring this week perhaps into next creating weakness. Reference the December Seasonality article posted a few days ago for further insight into this month's behavior. Basically, the remainder of the month will develop a bullish bias into the New Year from the seasonality perspective only. The new moon is 12/21/14 so there may be weakness or a negative event occurring through that weekend 12/19 to 12/21 leading into market upside into Christmas Day. The Fed is on tap next week on Wednesday, 12/17/14 so that will serve as an important inflection day for December.

Monitor the tools mentioned above to gauge market direction. On trades, Keystone has been kicking back lately due to the circus behavior in stocks. When markets become goofy, it is usually best to sit back and watch but today some changes were made. The SJB trade that was short the high-yield instruments (basically the same play as shorting the HYG) was exited taking profits. Will look to reenter. A new long position was opened in SDP which is a double short ETF against utilities. Utility charts are creating negative divergence while SDP shows possie d. Keystone opens a long position in sugar with SGG and this may be picked as his favorite commodity for 2015. Both SGG and CANE are long plays for sugar. This trade may require a few entries into early 2015. Keystone also bot the beaten down gold miner MUX opening a new long position as it is set up with positive divergence. Also bot MGPHF which is an ongoing speculative long play (just buying shares and throwing them on the back burner and forgetting about them). All these trades are extremely dangerous and speculative and require further due diligence and fundamental and technical analyses.

Interestingly, tomorrow's date is 12-13-14 and the date progression for today through Sunday is 12/12, 12/13 and 12/14. Japan's snap election is Sunday. Will it go as expected with a vote of confidence for Abenomics, or, will people snap and reject the obscene Keynesian approach to economics?

Note Added 3:06 PM: The SPX is slipping under the 2018 S/R so price may want to test the 2011 support again. Otherwise, a move sideways through the 2011-2024 S/R levels is a reasonable expectation into the closing bell.

Note Added 3:42 PM: Price fell through 2011 support so 2007 support is next. Price is at 2007.82 with a LOD at 2007.52 so a bounce may occur, otherwise, 2005 is next support as the SPX ventures nearer to the 50-day MA at 2001 and rising. The technicals form a strong gauntlet of support here at 2002-2007.

Note Added 3:47 PM: The 2007 fails so here comes the test of 2005 S. LOD 2005.22.

Note Added 3:52 PM: The 2005 holds, so far. LOD is 2004.75. The 50-day MA is 2001 and rising. Price is at 2004.83 trying to hold the 2005 support..........

Note Added 3:54 PM: Failure. Price is at 2003.97 and dropping. This a major last stand for market bulls at 2001-2003 support but the bell will probably save the day--until Monday. The Dow is down over 300 points collapsing into the closing bell.

Note Added 4:06 PM: Price closes at the LOD at 2002.33. The 50-day MA is 2000.75. Support is 2002-2003. The SPX will chose to bounce, or die, from this 2001-2003 support level, come Monday morning.

Note Added 7:22 AM on Saturday morning, 12/13/14: The smoke is still clearing after the stock market drubbing last week (SPX down -3.5%). The SPX sits on the 50-day MA so that pivot on Monday tells you who wins going forward. Usually markets are sideways with an upward bias into the Fed decision and press conference on Wednesday. Next week is OpEx so Monday tends to be higher, then a Tuesday low typically leads to a Wednesday high. The new moon is Saturday and markets are typically weak moving through the new moon, then the happy pre-holiday action should kick in for Christmas. Using the seasonality and market factors stocks would be up Monday then softness into Tuesday where a bottom will lead to a top on Wednesday perhaps timed with the Fed in the afternoon, then a transition day Thursday, then a weak Friday and weak Monday, 12/22/14, that would create a low with stocks then moving higher Tuesday into Christmas Eve on 12/22/14. Of course news events or other geopolitics take precedence. Using the tools mentioned above, the NYA remains under the 40-week MA a dire signal for stocks and ushering in a cyclical bear market. The RUT 150-day MA slope remains positive maintaining a cyclical bull market so either the NYA is wrong or the RUT is wrong. Early 2015 will identify the firm winner. For the near term, the SPX remains under the 200 EMA on the 60-minute chart and the 8 MA is under the 34 MA on the SPX 30-minute chart so bearish markets are expected for the hours and days ahead. The strong 2001-2003 support for the SPX is an important pivot point for Monday. Bulls win above 2003. Bears win under 2001. The CPC put/call is up to 1.13 still subdued, however, not showing any extensive panic or fear despite the weak week. Ditto the CPCE at 0.79. Traders remain fully convinced and complacent that the December positive seasonality will play out and a big rally is at hand. Nearly everyone remains on this side of the boat. The VIX is at 21.08 showing elevated concern among traders but not at the 30+ level that identified the mid-October bottom with fear in the air. The BPSPX is 72.60 remaining on a market buy signal. Markets are in big trouble with BPSPX under 70 but bulls are fine if they keep BPSPX above 70. The Japan elections will create the stock market mood to begin the new week.

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