Keystone's Evening Nightcap 4/3/12

The markets are moving up mainly due to quantitative easing so when the Fed's minutes were leaning towards less QE and not more at 2 PM today, traders sold first and asked questions later.  The dollar popped from 78.8 to 79.5, +0.9% in minutes. This action sank commodities, gold, oil and equities.  The money leaving the stock market typically finds its way into the bond market, and visa versa, but bonds sold off as well with yields rising; the 10-year yield jumping from 2.15% to 2.28%. Why?  The Fed's words show less support for bonds so it makes sense that the bond yields jumped. The question is where is the money going? This action is reminiscent of two weeks ago when yields were jumping for Treasuries but the dough that was moving out of notes and bonds was not finding its way to the stock market. Perhaps one, folks sold on the news today and are using the money for expenses, food and gasoline instead of tempting fate by leaving the dough in the equity and bond markets, and/or two, the Chinese may be gathering up some marbles and going home.

Quantitative easing has disasterous affects on markets; it is only a sugar high that allows the party to continue a limited while longer.  If anyone was on the fence about whether or not stocks moving up is due to QE or actual economic strength, the answer is obvious from today's action.  The traders are junkies that need more crack (stimulus), if Chairman Bernanke throws money from helicopters all is fine, when he stops, the markets sell off, it is that simple, this is the current status of U.S. equity markets.

The CRB stays under 312, after two back tests today that resulted in failure.  UTIL stayed under 463 so the bears have two sectors in their camp that will continue to contribute to broad market weakness, unless the CRB moves above 312 or UTIL moves above 463.  Copper, JJC, closed with a 49 handle (by only two pennies) but the bears need to fall under 49 before it will contribute to market weakness.  The semiconductors require close watching moving forward.  The SOX is in trouble if 425 is lost and the broad indexes will definitely feel the affects of falling semi's.  To perhaps start the ball rolling downhill, SNDK releases news this afternoon stating that 'the demand is weak in electronics' as they cut first-quarter sales forecasts. That ought to put a damper on the tech trade tomorrow.

The 8 MA crossed under the 34 MA on the SPX 30-minute chart which is bearish. Keystone's SPXA150R Indicator remains under 90 so the bears will continue to sell the markets, unless the bulls can force the indicator back above 90. 

For the SPX for Wednesday, starting at 1413, the market bulls need to touch the 1419 handle, if so, an upside acceleration will occur and the bulls will start to think about a weekend holiday party. The market bears need to drop under 1405, the same level as last evening's missive, if so, the downside will accelerate and a test of 1399 will be on tap.  Today, the SPX dropped under 1405 but only for a few minutes before recovering.  Price needs to stay under 1405 for about ten minutes and that should kick in the accelerated selling.  A move thru 1406-1418 is sideways action.

Tomorrow's installment of the ongoing soap opera will center around the Challenger (7:30 AM EST) and ADP (8:15 AM EST) Job Reports. They take on a heightened meaning since the Fed's Job Report on Friday occurs while the equities markets are closed, therefore, traders will use the Challenger and ADP information to trade ahead of the holiday.  Thus, futures are expected to be jumpy before the open. ISM Non-Mfg Index is at 10 AM so a market pivot point may occur, and Oil Inventories are 10:30 AM, another market pivot. Before the markets open the ECB Rate Decision (no change expected) and Press Conference occurs so traders will be looking for more crack cocaine from Draghi especially in light of the Fed taking away the punch bowl yesterday.

Markets are typically buoyant the two days in front of a three-day holiday weekend and also buoyant in front of the full moon that occurs Thursay night into Friday. Thus, seasonalilty-wise, bulls would be favored to finish the week. If markets sell off tomorrow morning, the professional traders may come in and buy the dip since they will be banking on the seasonality. More importantly, watch CRB 312 and UTIL 463 as a guide, also JJC 49 and SOX 425. If the markets sell off, the move under 1405, and then under 1400, will start to perform serious damage to the broad indexes. The bulls will try with all their might to move either the CRB above 312 or UTIL above 463 to create market buoyancy and provide a means for the bullish seasonality to take hold, otherwise, the bears will cruise.