Keystone's Midday Market Action 7/19/12

The bulls are slapping heads, continuing to power higher on talk of QE.  Overnight, China is hinting at easing with a triple R cut, so copper launches to the upside, as well as commodities and of course, equities. Weakness in YUM earnings (a proxy for China) perhaps prompting talk of QE. Traders expect the Fed to announce some level of easing at the 7/31/12 and 8/1/12 meeting, so the dollar weakens and commodities and equities continue higher. The run-up in equities is surreal in comparison to the Spain 10-year yield now moving over 7% signaling increased tension and turmoil in Europe. The Spanish bond auction did not go well this morning; there is a wekening demand for their bonds.

Earnings are beating the lowered estimates.  The trick companies use is to lower the earnings bar ahead of time to where the bar is on the floor and even Grandma Nellie easily steps over, orthopedic shoes and all. IBM hides a black box 'hedge' gain in their profits. More and more companies, think CHK, appear to be taking stock holder money and placing it on black and red. At least this quarter, the bet on black came thru in a big way for Big Blue.  Tech led the rally yesterday and is set up for another healthy run today, which provides street cred to the market move. QCOM says smart phone sales look healthy (they provide the chips), but even AAPL acknowledges that China is seeing a drastic slowdown in electronics sales. Many mixed signals exist but the fact remains that independent of the bottom line beats, the majority of top line revenue numbers are falling short of estimates which does not forecast a strong economy. MS earnings laid an egg this morning which may cause weakness in the banking sector.  VZ earnings matched estimates without any beat so the stock should get hit hard, taking T and other telecoms south as well.

The markets have already priced in any language change by the Fed. For example the low rates may now be extended thru 2015 whereas now the Fed is committed thru 2014. The run up in the stock market yesterday and today has the China triple R cut priced in, that is what is occurring in the futures markets currently.  SPX S/R is 1366, 1370, 1370.58, 1372, 1374, 1378, 1385, 1389 and 1391. For the SPX today starting at 1373, the bulls only need to move two points higher to ignite an upside acceleration and the futures are already pricing this move in.  The bears will try to keep JJC under 44.20 but with the China easing on tap, this task is unlikely. JJC should travel straight up thru 44.20 at the open and much higher. JJC is trading at 44.80 pre-market.  Watch SOX since the tech sector is strong.  SOX is at 364, if the 376 level gives way another strong upside leg will occur for the broad markets.  XLF is at 14.69, watch the 14.45 level.  RTH is at 42.54, watch the 41.75 level.

Philly Fed and Leading Indicators hit at 10 AM so look for a market pivot point one-half hour after the opening bell.  Interestingly, despite all the recent bullishness, the new moon occurs tonight (have you noticed how pitch black it is the last couple evenings?), and typically markets sell off about two-thirds of the time moving into the new moon. Since copper is blowing out to the upside, the semiconductors, SOX, will limit the market upside, as long as 376 does not give way. If SOX 376 gives way to the upside, the SPX is likely headed over 1400. Considering the negative divergence in retail and utilities, and the current complacent leanings of the markets, the market upside should be limited.

Note Added 7/19/12 at 9:37 AM:  JJC blows thru 44.20 creating market bullishness. The SPX runs higher with an acceleration to 1377.75, where the 1378 R listed above holds, for now. If 1378 gives way, 1385 is next. The SPX daily chart clearly shows negative divergence in place with the higher high in price which hints that the rally is running out of gas now and should reverse. Here's the test of 1378.  SOX is jumping large but under the 376 number, but revise that number to now watch as 378 instead. The market upside will stall as long as the SOX stays under 378.

Note Added 7/19/12 at 9:50 AM:  The pivot point is minutes away. If the data is bullish (the Philly Fed has recently been a downer for markets, however), the SPX should punch up thru 1378 and move towards 1385. Weak data should reverse today's happy start. SOX is 372.46 continuing to print new highs today but under the critical 378.

Note Added 7/19/12 at 10:04 AM:  Economic data is weak so the broad indexes pivot lower. SPX drops and bounces off 1374, so the 1374-1378 S/R range is in place thus far today. VIX moves up from 16.

Note Added 7/19/12 at 10:29 AM:  SPX continues to fight for the 1374 support/resistance level. VIX is up to 16.60.  Natty Inventories cause natty price to spike; the hot, humid weather is increasing gas demand.  Keystone bot TECS, opening up a new position, which is a dangerous triple X short against technology. The TECS minute charts are setting up with attractive positive divergence.

Note Added 7/19/12 at 11:01 AM:  Tech is leading the broad indexes higher so that helps keep the markets elevated. VIX moves lower, now at 16.10. SOX is printing new highs, now at 373.41, inching closer to the critical 378. The RUT (small caps) is red. Keystone added more SPXS.

Note Added 7/19/12 at 12:32 PM:  The SPX punched up thru 1378, a back kiss would be in order, then, if 1378 suppoprt holds, the road to 1385 begins.  VIX drops to 15.68. SOX printed 374 remaining four short of 378 so a lid on the market upside should remain in place.

Note Added 7/19/12 at 12:46 PM:  Here it is, the back test of 1378 support; the SPX will either bounce, or die.

Note Added 7/19/12 at 3:13 PM:  The SPX died, falling thru 1378, but then placed an intraday bottom at 1372-ish at 2 PM. The SPX is now moving back up and over 1374 R for another look at 1378 R.  The 1374-1378 range was favored from earlier this morning. VIX signals trader complacency under 16.  SOX is hitting a ceiling at 374 all day which creates a market ceiling by not being able to move above 378. TRIN is at 1.00 not favoring bulls or bears.  Tension increases as GOOG and MSFT earnings after the closing bell will determine if this tech-led market rally continues, or collapses.  Keystone sold the CUR position taking profits, an excellent speculative trade that caught the bottom. It took three days to unwind the position. Keystone continues to like CUR and would rather still be in the stock, but those types of profits must be booked.  Will reenter CUR as soon as possible.  Keystone also bot more SPXS.

Note Added 7/19/12 at 3:45 PM:  GOOG has been moving sideways thru 560-600 for about three months. The price move out of this range will be very telling.  Mr. Softy is throwing off a similar vibe, moving thru 28.50-31.00 for the last three months, so the move out of this price range will be very telling.  Both tickers have moved to the top of their respective ranges today; the charts hint that prices will drop to maintain the sideways vibe and ranges shown.

Note Added 7/19/12 at 3:49 PM:  The markets appear to be giving the bulls the benefit of the doubt moving into the close. The XLF is weak today but at 14.60 remains well above the critical 14.45 that would usher in market weakness. JJC jumped at the open and never looked back. This signifies that traders are convinced that a China triple R cut will occur at anytime but at the same time, the markets appear to have it price in now, so the announcement of the tirple R cut will likely be a sell the news event.

Note Added 7/19/12 at 3:56 PM:  SPX came up to tap on 1378 resistance and received a spank down. The bulls did not have the juice to punch up thru 1378 since SOX is moving sideways and not supplying further bull fuel. Markets want to hear the MSFT adn GOOG results. MS loses over 5% today giving the banking sector a black eye. The 10-year note yield sits at 1.50%. The NYSE volume is slightly above a days average volume, just like yesterday, so this encourages the bulls. Interestingly, the CRB is 305 now, no where near the sub 270 that will cause Chairman Bernanke to act with QE3, so this ongoing market rally, based on stimulus, is in a disconnect at this point.

Note Added 7/19/12 at 4:01 PM:  GOOG results follow the ongong pattern, showing a beat on the bottom EPS line but falling short on the top revenue line. The stock jumps higher for the initial knee-jerk reaction. Mr. Softy provides fuzzy numbers, looks like a slight beat on EPS with a shortfall on the top line revenue. MSFT's reaction is flat. With top line revenue numbers continuing to exhibit weakness for stock after stock, a slower earnings growth environment is expected moving forward.  For now, GOOG and MSFT are buoyant in the AH's trade as analysts sort thru the releases. CMG is choking on a burrito, dropping 5% after their bottom line beats but once again, another company falling short on top line revenue.