Keystone's Nightcap 5-12-11; Re-Posted 5-14-11

Note:  This blog post is re-posted today, 5-14-11, since it was lost in the Blogger outage over the last few days.  The Friday session shows financials and copper continuing their slide.  Semiconductors lost ground as well and are sitting on the bull-bear fence this weekend. Retail strength is remarkable.  Retail and utilities, along with low volatility, are supporting the bulls currently. Note that the SPX could not get thru the 1351 resistance yesterday, thus, price collapsed.  But, despite the selling, bears did not make headway since the volatility, measured by the VIX, remained low, and bears could not push the SPX under 1332.  Thus, both sides went home calling a draw, the week ended flat after all the drama.

The bulls failed to push thru 1351 and the bears failed to push thru 1332.  To start the new week of 5/16/11, the bracket tightens, and bulls now need to push thru 1350, while the bears need to push under 1333.  One side will win.  Whichever side wins, the indexes will accelerate in that direction. Thus, watch 1350-ish resistance and 1333-ish support tomorrow to see which side runs with the ball this week.  SPX begins at 1338.

Looks like the markets tempted fate yesterday and walked under that ladder.



Keystone's Nightcap 5-12-11

The markets jump from bull to bear, and back to bull again, on this eve of Friday the 13^th to close out the week.  CPI inflation data hits at 8:30 AM EST and University of Michigan Consumer Sentiment hits at 9:55 AM.  Keybot the Quant clicks off a pre-scheduled number at 10 AM tomorrow; the algorithm is bearish in front of the opening bell tomorrow, but as this week shows, anything can happen, expect the unexpected.  Markets remain unstable.

New POMO schedule was released yesterday where the Fed announced operations thru 6/10/11, but not thru the full remaining schedule thru 6/30/11.  The operations thru 6/10/11 will total 650 billion so that leaves 50 billion remaining of the targeted 600 billion, and the assumption would be that this will be announced on 6/10/11 to finish out June and finish the QE 2 POMO pumping scheme.  Chairman Bernanke saved the markets from collapsing last August when he announced QE2, what is his next trick? Market weakness is expected once the POMO pumps start and more than likely, in advance of the POMO pumps stopping in seven weeks.

Financials, XLF, failed thru 16 this morning but managed to make it back up to close there, on the dot, 16.00.  GS negative news and downgrade forced the down move today.  Broad markets have limited upside without financials.  Further, financials and technology are kissing cousins so they want to move together, and if financials continue to weaken, technology will not provide an impetus for further index up moves either.

The 2-10 spread continues to dance along the 259-265 area.  Keystone’s 2-10 Spread Indicator uses 255 as the spread number designating sad bankers and happy bankers.  Of interest is that the bankers are sad these days but that is despite the spread in their favor; think how weak the banks can get if, when, the 2-10 spread goes sub 255. Today, we see the 10-year at 3.22% and 2-year at 0.55%, thus, 322-55=267 spread.

Copper and financials are the two major sectors that led the recent weakness in the commodities and the markets.  They held steadfastly bearish in the face of everything else bullish and the markets ended up following these two characters, albeit only a few days, so far.  Copper continues to roll over and this should be viewed as a major bear signal for the markets moving forward.

Copper pulled the commodities, as well as silver and gold lower.  No wonder the doctor carries all that clout.  The utilities are another major sector of interest these days.  The broad markets will not sustain extended selling until the utes cooperate to the downside. So far that has not happened at all.  In fact, many traders are buying utilities as a defensive safety play.  With the utes maintaining their current strength, any pull back in the broad markets will again result in the indexes coming back up to these current price highs again, until the utes lead down.  UTIL almost hit 440 today, at these levels, long term bulls can afford to still be somewhat complacent.  UTIL needs to drop down towards 410, now 30 points lower, before the utes would signal extended selling in the broad markets.

AAPL remains unable to attain the 352-ish price level which represents Steve Jobs’ appearance in early March to release the iPad2.  This is telling and AAPL carries a lot of weight in the indexes.  Similarly, GS’s legal and downgrade problems began at the 184-ish price point, now a lofty 40 points above where it closed today, testimony ot the weakness in financials.

Higher volume continues to favor selling days while lighter volume on buying days.  The last couple days in the markets can be described as goofy, with the wild bull to bear and back again swings, no use studying volume again until next week.  TRIN is in the same boat, if today is really as bullish as it seemed, then why did the TRIN print 1.27?  A more reasonable value would have been sub one, perhaps around 0.8, to validate the bullishness.  In fairness, the market goofiness the last few days shows this occurring the other way as well, with bearish days showing a sub one TRIN when it should be over one.  This behavior confirms the indecisive, unstableness, to the markets currently.

Continuing with the TRIN, daily chart shows the 20 MA above the 50 MA, and price wanting to move up and out of a sideway symmetrical triangle, thus, the TRIN indicates it wants to meander higher moving forward, favoring market bulls.

Keystone’s SPX:VIX Indicator remains well above 68 which is a big feather in the market bulls cap. This and other examples above showing some of the market cross currents occurring these days causing the markets to meander sideways with continual fake outs in each direction.  SPX has moved in the 1330-1370 range, 40 spoo points, for the last 15 days, since mid April.

For tomorrow, if the SPX moves above 1351, the market bulls are going to run the indexes up stronger into the weekend.  Market bears need to drive volatility higher, VIX would need to move above 17.60 tomorrow, if any growling is to occur before the weekend.  be done tomorrow. Above all, watch out for any black cats and do not walk under any ladders.