Keystone's Nightcap 5-9-11

Tyson, TSN, laid an egg today. Good ole Keystone sits in front of the computer tonight to write a Nightcap just so he could use that joke.

Market bulls ran a bit today, nothing special, lower volatility the main reason for market buoyancy, semiconductors actually cracked in the morning session but managed to pull it together by lunch time and return to the bullish side.

The volume on the NYA was running at about only 60% of average during the session and even after increasing as the close approached, could not manage to get over 80% of average volume.  For comparison, NYA volume runs the average or greater on the market selling days.

For tomorrow, the SPX HOD today at 1349.44 is critical, also volatility, watch VIX, and, also the semi’s, watch SOX.  If the SPX travels over the 1349.44, then the market bulls will assume full control of these markets and start running them higher.  If, however, the futures are red, and the SPX cannot attain that 1349.44 handle in the morning, then the market bears are getting ready to reek havoc again.  This market bearishness will be verified if the VIX gets back above 17.66, now at 17.16, and/or the SOX loses about a point and drops thru the 441 level, now at 442+. Further, if bears push the SPX under 1339, then the broad market selling will accelerate.  That’s the simple road map to light the way in the broad markets tomorrow.

The CME raised margin requirements on oil products this evening, that ought to cause oil to sell off tomorrow, perhaps we will see a mini silver event in oil now.  If the Mississippi River waters recede and the refineries are no longer in danger, this would only help a slide in oil price since many traders thought the refineries would be in jeopardy.  WTIC oil price is much more reasonable at 80-85 but markets are never reasonable.

China inflation data will shine a further spotlight on commodities on Wednesday and may provide insight into when China’s next rate hike will occur.  Keystone projects June, say within the next six weeks, probably 25 basis point hike.  This should hurt commodities and precious metals (PM’s).

Retail sales data on Thursday will tell us if this sector is ready to accept its negative divergence fate and proceed over the falls.  Perhaps we will see effects of higher gasoline prices in the retail data.  Consumers are borrowing more money again; some see this as an encouraging sign of recovery.  Keystone does not.  The crack addict is simply running up the cards again to buy junk that it is not needed and will only end up on the curb two years from now after non-use.

It’s fun to watch the 2-10 spread each day, ticking down from the 270’s, to the high 260’s, to 265, 264, 263, 262, 261, 260.  Today, the 10-year hit 3.13% while the 2-year was 0.54% for a spread of 313-54, or 259.  The Keystone 2-10 Spread Indicator uses a 255 spread number to signify that the banks are in a heap of trouble.  This is why you see continued weakness in the banks lately, the yield curve is flattening.  If the spread falls below 255, the financials will get hit hard.

On Citigroup, C, Keystone had to laugh.  What Einstein’s they are.  They could not get the stock above the five dollar threshold that permits many larger institutions to start buying their stock the legitimate way—by running a solid company, so they resorted to the next best thing, said cynically, using a reverse stock split.  Reverse stock splits are typically the beginning of a cancerous malignant tumor. The reason Keystone had to laugh was that of all price levels, why on earth would they pick 10 to 1.  Even my Cousin Larry, working on his GED at age 53, knows how to multiply by ten, simply move the decimal one place.

Thus, for example, tonight’s close is 44.16, hence 4.416.  The very thing they wanted to get away from with a smoke and mirrors reverse split will continue to follow them. Sure the stock is higher priced which was the means to the end, but traders will always do the simple math, and not feel good about this stock, until it is well over 5, or, I should say, 50.  The dolts must have skipped Marketing 101; why not make the split an obscure number, 7 to 1, 8 to 1, 9 to 1, where the math is not so easy, that way they could get out from the under sub five vibe easier.

CPC put/call is 0.79 so the dip-buying bulls were out in force today, as complacent as could be.  Volatility dropped as well to show the lack of fear. SPX:VIX at 78 well above the 68 level that signals significant market selling.  TRIN had an odd day, spending some time above one, a lot of time in the high 0.90’s, closing at 0.99.  For a market bullish day like today, the TRIN should have been well below one, down around 0.8 or lower, to show that the bulls really mean it. Looks like they didn't.

Complacency reigns showing that traders are not fearing a large sell-off at all. Volatility drifted lower causing market buoyancy today.  Bulled-up dip buyers jumped back in today.  The lower volume buying days and large volume selling days trend remains in place.  Tomorrow is the decision maker.  If SPX gets over 1349.44, the market bulls are going to be running the indexes up big time.  If SPX cannot attain that level, however, the market bears are going to attempt to get it under 1339, if they succeed, the markets will significantly accelerate the selling.