High drama if you are following today's playbook laid out last evening. The SPX closed the 1360 gap after the opening bell. The key resistance numbers above are 1363.61 (last years closing high) and 1370.58 (last year's intraday HOD). SPX HOD today is 1363.40, wow, only 21 cents away from signaling strong equities markets moving forward. The 1363.61 may develop into an epic fight today. At the same time, the Dow Industrials are trading above last year's intraday HOD at 12928 but the Dow has yet to close above. The 12928 must be achieved before anyone can even begin to think about Dow 13K.
Utilities popped at the open. UTIL now printing 452.92 above the 451.17 so the bulls are liking this. SPX:VIX ratio explodes higher to 74.12, six points above the 68 danger level, placing wide smiles on bullish faces. Copper is red by two tiny ticks but commodities in general, CRB remain elevated with more weakness showing in the dollar. The market bears got nothing unless they see the dollar move higher and euro move lower. Volatility, VIX, drops under the 20-day MA today, now printing 18.36, representing a lack of fear by traders. From over 21.50 yesterday to under 18.50 today says the traders are drinking the wine and figure that nothing but good times lay ahead. This is a contrary indication so stay cautious for a market reversal if long the broad indexes.
The Nasdaq is red while the broader SPX is green, thus, tech is not leading the upside, even though AAPL is green. The whole year plays out day after day with tech leading the bull charge, watch to see if there are finally cracks appearing in this tech enthusiasm. Tech is very much a Q4 play into the beginning of a new year. Traders typically exit technology positions in February each year.
Markets tend to be buoyant in front of a three day weekend and yesterday that occurred in spades. So today we see if the bulls continue this happiness or if fear returns to markets over the outcome to the Greece drama supposedly coming on Monday. The SPX fell 21 cents short of last years closing high so far today. Would not that be something if the SPX pushed higher these last few weeks only to fail 21 cents short of its goal? Look at that. The Dow is smack dab on top of 12928 right now. Every day is a new day for market theatrics and drama, well worth the price of admission.
Note Added 2/17/12 at 10:26 AM: Copper continues to weaken, JJC now printing 48.60, the 47.90 represents danger and where the market bears will kick in and drive the broad indexes lower. For now, Dr. Copper remains on the bull side. TRIN is 1.12, above one, which actually favors the sellers today. Watch the VIX 20-day MA now at 18.78. VIX is printing 18.20 now, 58 cents under. If the VIX stays under the 20-day MA this is a big feather in the bulls cap. If you see the VIX move above 18.78 today, that will show you that the market bears are mounting a charge. The VIX close today is important in reference to the 20-day MA as well, since it will already set a tone for next week, so check the closing print at 4 PM today.
Note Added 2/17/12 at 10:38 AM: UTIL now sporting a 451 handle, market bears trying to push it under the 451.17 to get some negativity started. Dow wrestles with that important 12928, the pundits tell everyone to watch 13K, good ole Keystone tells you what to watch instead. 13K can be discussed if the Dow closes above 12928 today, otherwise, ignore the hype.
Note Added 2/17/12 at 3:14 PM: UTIL is printing 452.61, above the 451.17 favoring bulls but next week the number to watch is 452.91. Thus, at the current level, next week's trading will actually start in the bears favor again, so bulls will need to try to close UTIL today above 452.91. The SPX continues to try to attain the critical 1363.61 level. How will the day end? The Dow is above the critical 12928 level. Volatility is beaten down hard, the VIX fell thru 18, showing complacent bulls becoming even more relaxed with the markets, not fearing any kind of pull back. Copper is weak today and bulls need to take note of this action. JJC dropped under 47.90, currently trying to stay under, which will indicate broad market weakness is ahead. Lots of excitement to play out in this final hour. SPX:VIX ratio is 76 well above 68 so market bears got nothing until they drop the ratio under 68.
Note Added 2/17/12 at 3:38 PM: SPX is puking into the close, folding like a cheap suit. The Dow Industrials are at 12952, watch the 12928 as we close things out. UTIL is printing 452.76 dropping under next week's level of interest at 452.91 but remaining above this week's level at 451.17. Still plenty of trading remaining today as traders square positions knowing that the die will be cast until Tuesday. The tech weakness today is placing a ceiling on the broad markets, we saw that from before the open this morning with Nasdaq futures finally lagging the S&P's, uncharacteristic given the first six weeks of the year where tech led the markets higher day after day.
Note Added 2/17/12 at 5:17 PM: SPX finishes at 1361.23, not achieving the 2011 closing high of 1363.61 level today, which is bearish since it was only 21 cents away intraday. The Dow, however, did close above the 2011 intraday HOD at 12928 which is very bullish for markets. UTIL closed above 451.17 for the week so the last three weeks show two downtrend weeks and now one uptrend week which is a push back at the bears that were trying to roll the utes over and thus roll over the broad markets. Interestingly, however, the market bears are sneaky since they did succeed in setting up next week with the UTIL starting under 452.91 which should create broad market bearishness on Tuesday. Copper is very weak today which is not good for the global economy; houses (construction) and cars are the two main users of copper. JJC finished at 47.75 but the level that Keystone's algo now requires is 47.60. If copper is weak on Tuesday, the broad markets will quickly tumble into trouble. Tech led to the downside today which is a major change from the non-stop bullish action this year thus far. SPX:VIX ratio is 76.56 well above 68 crushing bear hope as if it was an aluminum can. Keystone shorted the semiconductors at the close. Other current shorts are in retail, energy, housing, and silver sectors, and the broad indexes. The retail sector hit new highs again today taking Keystone out back for a beating. Volatility was whipped with the VIX down to a 17 handle. This should rectify next week. The long side for volatilty continues to look attractive and a second upward thrust would be anticipated. This week AAPL moved up and over $500. Keystone's proprietary algorithm, Keybot the Quant, flipped to the short side on Tuesday this week only to be whipsawed back to the long side yesterday. If weakness appears in the utilities and copper come Tuesday morning, Keybot will probably flip back to the short side again. Watch UTIL 452.91 and JJC 47.60 at the Tuesday bell.
KS, will KeyBot go to short with a sustained print below SPX 1356?
ReplyDeleteHello Arnie, there are a lot of moving parts, today was pretty much a lock that Keybot would simply idle sideways. There are a lot of sector affects that are programmed in as well as short term triggers.
ReplyDeleteCopper weakening is very important and it will place Keybot in a bad mood. Likewise the utilties that are always mentioned. The UTIL 452.91 is uber important at 4 PM today. Thus, if utes and copper give up the ghost, Keybot can go short from, say, 1357 on Tuesday.
So its tricky to gauge how its going to react, and then anything can come out of left field, but watch copper and utilities closely, weakness in both will mean trouble for markets. Will not be surprised to see Keybot flip back to short side on Tuesday, but, just have to take things day to day, hour to hour.
(Keybot this trade = -1.0%; Keybot for 2012 = +5.7%)(Actual this trade = -2.0%; Actual for 2012 = +8.2%)
ReplyDeleteCan you explain why Keybot -1% but actual trade -2%? Does Keybot trade a leveraged 2x ETF like SDS?
Hello Alex, yes, that is correct. The -1.0% tracks the algo program itself and that trade went the wrong way, Keybot was short as the SPX went from 1342 to 1356, thus, Keybot lost 14 handles, so, 14/1342 is a one percent loss.
ReplyDeleteWhen Keybot triggers the change in direction, an ETF, either a direct one-for-one ETF, or a 2x ETF, is used for the trade. The actual trading also accounts for commission fees. But when a whipsaw move occurs like yesterday (where a flip flop occurs within 48 hours), the algo drops down into a lower risk mode since the markets are choppy, and now is only trading a one-for-one ETF, and will do so for a time of 45 days, then the algo will be allowed to use a 2x ETF again. The time allows for markets to settle down and trend so the 2x ETF's can operate more effectively.
Hi alex in choppy markets does a 2 x ETF respond differently (other than the 2x multiple) to a one for one ETF ?
ReplyDeleteHello Anon, choppy, sideways markets tend to chew up bulls and bears alike, since once you step in to short, and the trade starts to go your way, wham, the markets reverse and move higher before you can cash in, then the long side is played and right when it gets to the point where some juicy profits are accumulating, wham, the markets reverse down.
ReplyDeleteThus, if you have a one-to-one style ETF, that will simly feel the same magnitude moves as the underlying index. But if you are in 2x or 3x ETF's, obviously the losses realized are much larger. It is simply somethinig to think about and forces a trader to always think about the overall market trend which is always important.