XLF Financials Weekly Chart Positive Divergence

Financials weekly chart shows positive divergence now setting up over the last few months. Stochastics and MACD line, however, is not positively diverged over the last couple months (red lines). The red circles show how the indicators wanted to see lower lows with financials as the low prints were made in August 2011. Now we see those lower lows satisfying the red circles and creating positive divergence for a bounce (green lines).

Keystone pointed out the top in the financials as it occurred earlier this year, that ominous top, along with copper's top, forecasted the broad market trouble we are in now. The pink H&S targets 10. The chart shows that price wants to bounce in the short time frame and then continue along sideways thru the 10-13 range for the weeks and months ahead. Banks around the world are in big trouble now, however, so the news flow can easily usher in increased weakness at any time. Generally, the banks have received a severe beating that is far along and long in the tooth at this point; the XLF falling from 17 to an 11 handle since its February top, thus, some price moderation is in order. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

XLF Financials Daily Chart Positive Divergence

XLF daily chart is set up with positive divergence over the two month and two week time frames with the exception of the RSI and MACD line which are starting to trail lower in the two week time frame (short red lines). The blue lines in the price chart shows a falling wedge pattern which would actually target 11-ish at its lower apex if you extend the lines to the right. The red circles show that price wanted to see lower lows than the August lows, and now we have those lower lows.

The news is very negative with financials now, BAC web site problems yesterday after they decided to gouge customers with fees, MS has a 35% chance of going belly-up according to CDS spreads, GS broke 90 yesterday not seen since early 2009, etc..., so there is momo to the downside, but, the chart is set up for a positive divergence bounce. The 10.80-11.20 area, now, is an attractive entry point for a long play. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Note Added 10/4/11 at 4:08 PM EST: XLF bounced 4% today off the positive divergence. FAS, the 3x financial bull ETF, gained 9%.

SPX S/R 10-4-11

SPX support and resistance. Note the strong support cluster at 1076-1079.

·         1128

·         1127

·         1124

·         1123

·         1122

·         1121

·         1119

·         1118

·         1115 (EOY 2009)

·         1114

·         1112

·         1111

·         1109

·         1104

·         1101 (1101.54 LOD 8/9/11)

·         1099 (1098.92 LOD 10/3/11)

·         1097

·         1095

·         1094 (LOD 5/7/10)

·         1092

·         1088

·         1087

·         1083

·         1079

·         1078

·         1076

·         1074

·         1072

·         1071

·         1066 (LOD 5/6/10)

·         1065

·         1063

·         1057 (2/8/10)

·         1049

·         1047

·         1044 (LOD 2/5/10; critical S/R summer 2010)

·         1039

Keystone's Evening Nightcap 10-3-11

That was an exciting finish today with the markets breaking key technicals with only one minute remaining in the session.  The SPX lost the 1101.54 low from 8/9/11, thus, anyone that said the August lows would hold, was wrong.  UTIL losing the 424 level today is very important as described graphically in the previous blog post. The old-timers follow the utility 15-week look-back technique and most of the algo's have it programmed as well, Keystone's algo, Keybot the Quant, does.

Thus, for tomorrow (Tuesday), watch UTIL 424 and 418. If UTIL moves above 424, the market bulls are back in the game and the indexes will move up. If UTIL stays between 424 and 418, the markets will sell off but the selling will be orderly and steady. If UTIL 418 fails, a trap door opens for the indexes and they will go over the falls.

The banks led the downside today and GS broke 90 but finished a few pennies above. This takes it back to levels near the March 2009 bottom.  The weekly and daily charts for GS, however, are setting up with positive divergence so the worst appears over, and it is actually more prudent to think about upside.  Looking at the banksters more generally, via XLF, the same set up is in place with positive divegence on the weekly and daily charts. Despite all the naysayers, the financials appear much friendlier for the upside now than the down side. As usual the pundits fought the charts the whole way down and now that things are setting up to bounce, the same pundits are preaching doom and gloom.

Even BAC, that shafted their loyal customers with a gouging fee, is set up with positive divergence on the weekly and daily charts so a bounce is in order. Looking across many sectors, the two months of selling is getting overdone now with the charts setting up for bounces. Commodities maintain a sick look but oil is setting up for a short term pop. Semi's and tech are close to setting up with positive divergences but they are not in as good a shape as financials. The daily chart on the VIX is setting up with negative divergence which is also market positive.

Put/Call CPC is 1.25 consistent with where the indexes should bounce.  NYAD prints a -2500 today which is fully consistent with a reversal for the markets back to the upside.  NYHL prints a big -889 number matching two other drastic low numbers, again, consistent with a need for markets to reverse and bounce upwards. TRIN closed at 3.32 which also signals a need for the market bulls to receive a bounce. A TRIN above 3 denotes strong selling and is an indication that things should reverse back tothe upside. Do you notice a theme here?

The failure of the utes, UTIL 424, at the final minute today was a surprise. Since it was tucked into the last minute there is no way of knowing if the move under 424 has staying power. We find that out when the bell rings tomorrow.  The financials are ready to rebound now, and the index internals are all agreeable to a bounce as well.  In an ideal world it would be nice to see the indexes drop at the open tomorrow since this may provide a nice buying opportunity. If you see UTIL creep back above 424 you will know the bulls are ready to recover.

For the SPX tomorrow (Tuesday), any hint of red in the futures will cause the indexes to tumble at the open. As shown above, this actually may set up for a buying opportunity. Use the UTIL 424 and 418 levels to guide the action. The market bulls want to simply stop or stall the fall in the indexes and the way they can do that is to push UTIL back above 424, that will be the tell. If the indexes start to motor south, then watch UTIL 418, that will be the last chance for the market bulls to hold the broad market selling. If UTIL 418 fails, it is over for the markets.

Even if the markets bounce tomorrow, now that the SPX 1101 failed, 1044 is in play. The failure of 1101 today occurred on lighter volume than the 8/8/11 closing low and 8/9/11 intraday low indicating that this intial move lower today may not have too much steam. SPX support and resistance of interest tomorrow is 1124, 1119, 1115, 1112, 1104, 1101, 1099, 1095, 1094, 1092, 1088, 1087, 1083, 1079, 1078, 1076.

Factory Orders and Chairman Bernanke's speech hits at 10 AM, one-half hour after the open. AAPL's iPhone release may help add a positive vibe to things.  Ending this missive on a humorous note, Jim Beam plans on chasing the woman demographic with Skinnygirl Cocktails. That is not the first time that some Jim Beam chases women; it is not called 'liquid courage' for nothing.

UTIL Weekly Chart Loses 424 Watch 50 Week MA

Based on the 15-week look-back technique for utilities, 424 is a critical number for UTIL all this week. If this level fails, which it did in the final minute today, this signals that the utilities have fallen into a weekly down trend, and typically the broad markets follow the utes lower.  Thus, the key item to watch after the opening bell on Tuesday is if price stays under 424. If not, and UTIL moves above 424, then the market bulls will be back in the market buying again. If UTIL stays under 424, the markets are in trouble and lower numbers for the indexes will continue.  

The utility technique is a two-step process, first the 15-week number fails, which occurred today, then second, you watch the 50 week MA.  Consider the 50 week MA to be a trap door for the markets that will signal waterfall selling for the indexes.  The 50 week MA is 417.91, call it 418. Thus, above 424, the market bulls wrestle back control and today's late day swoon is just a minor scare. Stay under 424 but above 418 and the markets will be trailing lower but the move will be orderly without extreme market failure. If the 418 trap door opens, the broad markets will collapse, typically within a half hour of the UTIL 50 week MA failing.

Note the large volume sell candles from March and August. March was an important low and since it occurred at such high volume, price had to come back down to test it again, which it finally did in August and the volume was even higher, thus, the market bears got game.  So price has to come back down to test the sub 415 area again and this is ominous since it is below the 50 week MA. So you have the road map for Tuesday, the utes will lead the broad markets, watch UTIL 424 and 418. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Keystone's Midday Market Action 10-3-11

BAC stock is tumbling, down 4% currently with the BAC site experiencing slowness. Perhaps that $5 per month gouging surcharge placed on deposit holders has the depositors voting with their feet? MS also tumbling over 4% while the defenders say all is fine. Denial is a sure sign of trouble.

SPX just lost support at 1119, now on the verge of completely losing the descending triangle baselines as described with the SPX chart a few blog posts back. Retail and utilities remain the key.  RTH now well below the 103.60 level, calculated by Keystone's algo, with a 101 handle, firmly bearish for markets.  UTIL, now at 428.65 is only four and one-half points away from the critical 424 level for this week. As long as UTIL stays above 424, the market bulls will prevent any significant selling in the broad markets. If UTIL loses 424 any time this week, the bottom will fall out and the broad markets will drop sharply lower.

SPX support and resistance in play is 1131, 1124, 1121, 1119, 1115, 1104, 1101, 1090.

Note Added 10/3/11 at 1:20 PM EST: UTIL now printing 427.19, just had a 426 handle minutes ago, this is becoming serious.  The fate of the markets are held in balance by the UTIL 424 level. The market bulls are hanging on by the skin of their teeth--as long as they maintain 424 or higher.

Note Added 10/3/11 at 1:48 PM EST: UTIL now printing 425.60, slipping away. Bulls are hanging in there if they maintain 424, now only a point and one-half away, but if they lose 424, they lose the markets. The UTIL 424 level will probably correspond to the SPX 1101, August's low. Keep watching. High drama. Note that the Nasdaq percent drop is less than the S&P so this gives the market bulls a sliver of hope that they can hold on today.

Note Added 10/3/11 at 2:30 PM EST:  RTH has an 100 handle now, far below the 103.60 level so this is firmly in the bearish camp forecasting bearish markets overall. UTIL, now at 425.27 is only a point and change from disaster if the 424 level is lost. The Nasdaq percentage move remains less than the S&P move lower that is why the move down in the indexes is occurring slowly rather than sharply. If UTIL 424 fails, you will see the sharp move down in the broad markets.  For now, the market bulls continue to hang on by a thread, but hanging on nonetheless. High drama continues.

Note Added 10/3/11 at 2:50 PM EST:  SPX down to 1103, still above the 8/9/11 intraday low at 1101.54. UTIL is at 426.60, now exploding upwards from 424.75 to 426.60 in only the last four minutes. Looks like the market bulls are saving the day currently. UTIL has only managed to spike to an intraday low of 424.44 thus far today, remaining 44 cents above disaster.

Note Added 10/3/11 at 3:10 PM:  UTIL spiking up and over 428, now at 427, a full three points above the danger level of 424, thus, the market bulls saved the day by spiking the utes at 2:47 PM. UTIL 424 is the key, it looks like the bulls stopped a disaster for the markets, but, keep watching.

Note Added 10/3/11 at 3:33 PM EST:  Here we go again, market bears are making a run lower.  UTIL just lost the 425 handle.  Watch to see if UTIL loses the 424.44 intraday low from ealier today, then the all important 424. There is the invisible hand again, at the 3:33 PM mark, 50 cent boost in UTIL in one minute saving the day again. UTIL now printing 425.50. Many algo's will key off the 424 level and sell the markets off in a substantial way if it is lost, for now, the market bulls continue to save the day and keep their heads above water. Can the bulls stumble into the close and avert disaster?

Note Added 10/3/11 at 3:50 PM EST: The fix is in for today, UTIL was launched at 3:42 PM, from 425.25 to 428.25, three points, in only 7 minutes. The UTIL 424 level held today so the bulls held on.  Now tomorrow...........simply keep your eye on UTIL 424.........

Note Added 10/3/11 at the close, 3:59 PM, whoa!!  High drama! Into the close, UTIL collapsing from over 428............., just printed 424.19!!  Steady....steady............424.03...........424.08..........FAILURE AT THE CLOSE!!!!   423.68............423.45..............423.52.   THE UTES FAILED AT THE CLOSE BUT TIME RAN OUT BEFORE THE MARKETS COULD COLLAPSE.  SPX FAILED THE 8/9/11 LOD AT 1101.54. NEW SPX CLOSING LOW AND INTRADAY LOW. WHAT A FINISH. THIS IS EXTREMELY BEARISH AND NOW EVERYONE HAS A NIGHT TO SLEEP ON IT. Interesting how Keystone commented earlier in the day that UTIL 424 and SPX 1101 would probably line out together--and they did.

XEU Euro Daily Chart Descending Triangle Positive Divergence

Daily chart updated to show the descending triangle target we forecasted over the last month at 133-ish was satisfied. There are a couple juicy gaps remaining below but they will more than likely wait for the future. Note the pink lines over the last month showing a falling wedge, oversold conditions and positive divergence now in place across all indicators, thus, the euro is ready to bounce back upwards for the days ahead.

The ADX is at 34 indicating that the down move was a strong trend so the bounce in the euro that should occur now will be a simple relief rally and the overall downtrend will resume in the future. Note how the euro is now below the start of the year number (red line). Projection is a bounce in the euro from the positive divergence over the coming days but with the strong trend downward indicated by the ADX, the weak weekly chart, the RSI, stochastics and money flow under 50%, and price under the 20 MA, the weakness will resume as October moves along.

The euro bounce in this short term would target the gap at 133.80-ish, and perhaps 135.30-ish, but a lower euro is in the cards for the weeks and months ahead with price moving lower to test support at 130-ish. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Note Added 10/3/11 at 4:25 PM ST:  RSI lost its positive divergence with the sharp drop at the close but the positive divergence remains for the other indicators above.

Keystone's Inflation Deflation Indicator Signals DEFLATION

We're here. Over these last few weeks, the fight between inflation and deflation forces has played out. Inflation was never a real concern, sure it was elevated, but it was only transitory in nature just as Chairman Bernnake always said it was. But, Bernanke's hot easy QE2 money is what created the new asset bubbles in emerging markets, copper and commodites that just popped. The food inflation was a result of added pressures from Mother Nature and the Arab Spring.

Keystone's Inflation Deflation Gauge:

CRB/10-Year Price = 295.19/102.25 = 2.89

Over 4 = Inflation
Between 3 and 4 = Neutral; inflation and deflation fight it out
Between 2.9 and 3.0 = Disinflation
Below 2.9 = Deflation

Markets will continue to ebb and flow but make no mistake, we are falling into the same deflationary funk like summer 2010. Now that we are in Deflation, Chairman Bernanke will be preparing the plans for a QE3 announcement in the near future.

Note Added 10/3/11 at 12:17 PM EST: The  indicator moves back into Disinflation. Latest prints; 298.82/102.562 = 2.91 which signals Disinflation.  The ebbs and flows will continue but the disinflation/deflation environment is here to stay. Bernanke will announce QE3 when the indicator is firmly in Deflation at 2.5-2.6 so keep monitoring the indicator as October and November play out.  Enjoy the Autumn foliage along the way.

Keystone's Midday Market Action 10-3-11

New month but same old stuff. Since the futures were red, and the indexes closed at the lows of the day on Friday, the bears drove the markets lower out of the gate.  In addition, comparing the indexes, the Nasdaq percentage was lower than the S&P percentage which typically indicates weaker markets.

ISM Manufacturing and Construction Spending data just released at 10 AM and appear a bit better than expected.  We targeted this time as a potential market pivot point, and there she goes. Instant recovery rally.  SPX moved from 1122 to 1132 in two minutes, high volatility continuing to play a major role with markets.  Dollar continues its upswing.  The 79 level on the $USD was Keystone's initial inverted H&S target from two or three months ago.

On a sour note, Keystone's Inflation Deflation Indicator now has slipped thru Disinflation into Deflation. The dreaded "D" word is here. Chairman Bernanke will now ready the plans for QE3.

Watching the technicals, we lost SPX 1131 so the flush down to 1122 occurred, then a bounce off the data release that created a pivot point.  The RTH, retail sector, is at 103.31 last print, below Keystone's algo number of 103.60, but not by much.  If RTH moves above 103.60 today, the market bulls will be running the markets higher. The utes remain the only bullish sector currently. UTIL, now at 434, is comfortably above the danger level for this week at 424.

The Nasdaq is up 0.14% and the S&P is up 0.08%, thus, a flip flop from the futures and opening numbers. Even though it is only a smidge above, the Nasdaq above the S&P means the bulls are making  a run currently. Watch RTH closely, it will dictate the broad markets. RTH last print is 103.52, a few more pennies higher will give the market bulls some further upside. This will be a critical test for today.

Note Added 10/3/11 at 10:30 AM EST:  See how the RTH got rejected at 103.60-ish? The market bulls did not have the juice to get her up thru, so the markets weakened. Keep watching RTH 103.60 today to see if the market bulls develop any oomph. If the bulls cannot move the RTH above 103.60, the day will finish flat or in the bears favor. The Nasdaq percentage is down 0.10% and the S&P is flat, thus, the temporary momo favors the bears.  Operation Twist starts shortly so watch the effects of the POMO moves on the markets, especially 10:45 AM thru 11:30 AM.

10-Year and 30-Year Rate Spread Falls Below 100

The 30-year is at 2.82% and the 10-year is 1.86% which is a 96 bip spread. When Chairman Bernanke announced Operation Twist nine days ago, the 30-year was at 3.25%. Thus, the 30-year has lost over 40 basis points since the announcement so the long end of the curve is coming down.

The last time the 10-30 spread was below 100 basis points was in July 2010, when the markets were falling into Deflation and Bernanke stepped in with QE2. Keystone's indicators show that we are currently in Disinflation.