Friday, February 6, 2015

Keystone's Morning Wake-Up; Monthly Jobs Report; Picks

The jobs number hits shortly. The consensus for the Monthly Jobs Report is 230K jobs compared to last month’s 252K jobs with a steady unchanged unemployment rate at 5.6%. The consensus range is from 215K to 275K jobs and an unemployment rate projection of from 5.5% to 5.7%. The extremely important wages data is expected to be up +0.3% compared to last month’s disappointing down -0.2%. The robust +0.3% expectation is likely due to minimum wage increases occurring at the start of the year. The consensus range for wages is from +0.1% to +0.4%.

The market bulls are at an advantage since the wage data will likely be a positive perhaps robust number (due to minimum wage increases) that will propel stocks higher since traders will think the obscene central banker money printing is working to create inflation (inflation can only occur if wages are rising). A weak wage number would be troubling since the number would not benefit from the minimum wage tailwind (meaning that wages are even weaker than thought). The average workweek is expected to remain steady at 34.6 hours.

The previous CPCE put/call chart hints at a potential market top at hand but the jobs report is a wild card that may send markets violently one way or the other. The CPCE either identifies the top already with the low 0.55 print, or, if stocks rally strongly, the CPCE will probably come back down and a market top would occur during the first half of next week. The SPX 2-hour chart  shows indicators negatively diverging but the RSI and MACD are creating further juice. If markets rallly, but the move up is steady and small, more incremental, than a market top should be placed today or on Monday. The jobs number needs to be factored into the charts.

The full moon was overnight from Monday into Tuesday so it was interesting to see stocks rally as is typically the case. This year is repeating last year's behavior where stocks ran higher as the month of February began. Last February 2014 was a big wall-to-wall upside rally month. The NYA is above the important 40-week MA at 10809 signaling a cyclical (weeks and months ahead) bull market, however, this indicator is flipping back and forth each day so keep watching to see who wins in 2015.

Keybot the Quant algorithm is long but the whipsaw choppy sideways market action continues. Each day is a coin-flip in the markets. Keybot is fixated on XLF 23.86 and VIX 16.48. Market bulls win big if the VIX drops under 16.48 (now at 16.85). Stocks will take a strong leg higher and the SPX will tag 2067 resistance and probably punch up through. Market bears need to push the XLF under 23.86 (now at 23.95) to stop the stock market rally. Bears would further need NYA under 10809 and SOX under 670.05 to gain downside mojo. So watching these parameters tells you the strength of the market in either direction.

On trading, the markets have been nutso lately. Keystone took profits on BTU after the positive divergence created the launch exiting the trade. A couple additional adds to the long side were needed as the trade initially kept falling (catching a falling knife). The coal sector remains an attractive trade for this year and will probably surprise many on its outperformance. Keystone will likely reenter BTU or other coal plays. Keystone still likes sugar as the commodity of choice for this year so SGG and CANE are possible long plays although both are thinly traded. Keystone will be adding to the SGG long. Two long trades were cycled in and out of VJET successfully and then with pure dumb luck, Keystone was out of the trade when the bombshell news from SSYS rattled the 3-D printing businesses. SSYS, the fave of traders in the space, was bludgeoned and DDD, VJET and XONE followed lower. Keystone bot XONE on that failure as the chart has attractive positive divergence. Keystone is already in and out of XONE with two successful long trades. Keystone will likely reenter XONE today; it remains attractive for a continued possie d boost. The oil, gas and energy plays recover and have stabilized. There is likely a lot of sideways digestion needed in the oil patch. Keystone still likes the idea of bringing on utility shorts and is adding to the ongoing SDP long, a dangerous double inverse ETF that is very thinly traded. People are buying utility and dividend stocks blindly without looking at a chart. Utilities are in bubbles and very extended on charts so those thinking they are receiving safety and a divvy while they wait out any broad market downturn are going to have their heads handed to them on a platter. Keystone still likes MUX, the little gold miner, that is coming down for more entry points long. Ditto the penny stock MGPHF; Keystone keeps buying shares now and then and throws these on the back burner. Keystone also traded BALT in and out taking advantage of a positive divergence bounce. Keystone will likely renter BALT; it is a matter of picking an entry since it spurted higher already. The BALT daily chart points to more upside ahead. All of these trades are dangerous and speculative and require due diligence and scrutiny before any consideration.

Note Added 9:10 AM: The jobs reports are always interesting. The Monthly Jobs Report is 257K jobs beating the 230K expectations easily. Last month’s 252K is revised 77K jobs higher to 329K. November results are revised up to an astounding 423K jobs the best individual month since 2010 and 1997; a huge robust revision. The big revisions higher in jobs creates a three-month 336K average a very encouraging sign for the economy. The unemployment rate rises to 5.7% missing the 5.6% expectations. More people are looking for jobs so that sends the unemployment rate higher (the unemployed must be actively looking for a job to be counted in the unemployment rate).

The critically-important wage portion of the data is + 0.5% the biggest number since November 2008 which, as explained above, is boosted by standard minimum wage increases. Nonetheless, the market bulls wave this banner and buy the futures. The labor participation rate is 62.9%. The U-6 measure of unemployment is 11.3% up from last month’s 11.2%. The knee-jerk reaction in notes and bonds are a leap higher in yields with the 10-year to 1.90% and the 30-year towards 2.50%. The US dollar index runs higher to 94.21.

Futures react positively. S&P +4. Dow +44. Nadsaq +6. European indexes recover from the day’s gloom and march higher back to the flat line. The euro drops to 1.1365 due to the stronger dollar. The dollar/yen pair jumps to 118.39. Pound 1.5265. WTIC oil 51.76. Brent oil 57.94. Natty gas 2.581. Gold 1253. Silver 17.095. Copper 2.594.

US Treasury yields are; 2-year 0.60%, 5-year 1.40%, 10-year 1.88%, 30-year 2.47%. German bund 0.364%. Japan 10-year yield 0.342%.

At 8:42 AM, the bulls gather a firmer footing. S&P +8. Dow +72. Nasdaq +11.

At 8:47 AM, S&P +10. Dow +90. Nasdaq +14.

Note Added 9:43 AM: The market bulls slap the bears in the face with strong financials; the XLF jumps to 24.26 keeping the bulls in control. However, the bulls are battling at VIX 16.48 to try and gain more upside market juice. VIX is under 16.48, then moves above back on the bear side, then under back on the bull side causing market strength, then back above causing weakness in stocks. Watch VIX 16.48 as the key rudder steering the market direction ship today. As this is typed, boom, VIX pops to 16.78 more bearish so this will help create a lid on stocks and sideways action into the weekend. Bulls need VIX under 16.48 to receive more upside fuel, otherwise, they got nothing. If VIX remains above 16.48, stocks will stagger sideways with a tiny upward bias.

Note Added 10:16 AM: The market bulls slap the bears in the face with VIX dropping under 16.48. The SPX pushes up through the strong 2067 resistance and will set its sights on the 2075 strong resistance next. Bears need to push VIX above 16.48 or they got nothing. If you are timing a potential short play on the markets, wait until VIX pops above 16.48 since that will signal market weakness and boost your chances. If VIX stays below 16.48, the stock market will party higher into the weekend and several bulls have already broke open the lock on the liquor cabinet door and are beginning the celebration early. Key SPX S/R is 2088, 2082, 2079, 2075-2076, 2067, 2061, 2046, 2040, 2038, 2032.

Note Added 9:15 AM Saturday morning, 2/7/15: The SPX 2075-2076 resistance level holds in Friday trading. Keystone added more to the SGG long sugar position and bot XONE opening a new long position in this under performing 3-D printer company with positive divergence on daily and weekly charts. It's a dangerous falling knife trade. Note the collapse in utilities yesterday so the losing ute short trade mentioned above catapults into the black. Shorting utilities a couple weeks ago is a great trade with individual names down as much as -10% off the top or more.

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