There is no shortage of market drama. This circus lives up to the billing as the Greatest 'Show' on Earth. Global markets are in a happy mood following along from the strong recovery rally in the U.S. yesterday. The euro is almost at 1.30. Up euro means up markets and the S&P futures are elevated overnight and up about eight points. As highlighted in this morning's chart, the SPX bounced 15 points off of the euro goose and Boehner optimistic comments, 10 points off President Obama's promise for a fiscal cliff solution before Christmas (about three weeks away), and 8 points on the WSJ article discussing upcoming Fed money-pumping likely to be announced at the FOMC meeting on 12/12/12. Traders are addicted to the quantitative easing crack cocaine so any hint of this candy and the bulls run. Markets may now shift into a mode of pricing in the upcoming Fed happy talk in December when they should replace Operation Twist with an even grander scheme. Early December is the heightened activity for tax-loss selling in the markets. Traders will throw losers overboard so they can write the losses off against this year's gains. At the same time this year, the worries of capital gains taxes jumping from 15% to perhaps 40% has traders running to the exits to take the money now and receive the lower tax rate. Thus, oddly, juxstaposed against a now bullish rally is a double whammy of potential selling over the next couple weeks. Simply group this with the other ongoing mixed market signals.
The run-up yesterday was about 0.8% for the broad indexes, with the Nasdaq and RUT lagging. Tech and small caps should be leading if a rally is real with long legs. Watch the BPSPX chart to see if the bulls can create a maket buy signal. Scroll back a few pages to study the last BPSPX chart or type 'BPSPX' in the search box above to find the chart. The BPSPX placed a near term bottom at 58.4, so a six percentage point reversal buy signal is 58.4+6 = 64.4. The BPSPX is 63.00 only 1.40 away; check this tonight after the close to see if the bulls will place a large feather in their caps, or not. The TICK did not become overdone to the downside yesterday but excessive bullish prints over +1000 did occur. The TRIN was well-behaved for the selling yesterday at 1.0-1.3 but the bullish move resulted in an uber low excessively-bullish TRIN in the 0.5's. The NYAD did not become overdone to the downside yesterday before the rally started. These three musketeers tell you that the market drop yesterday morning did not end as a panic low as you would expect for such a dramatic comeback. Quite the contrary, the selling was steady-eddy, and the rally move actually created overdone upside bullish orgy action. Also of interest is the 10-year yield at 1.61-1.63% not wanting to fully jump on board with the equities rally, yet. The yield should have jumped much higher, at least 1.65% or more. The yield is at 1.63% at this writing not showing enthusiasm for the bull rally.
AAPL was down a couple bucks yesterday. The CPC and VIX continue to remain low, both these fear gauges indicate that all is well with the trading world, no worries at all, markets will stay elevated forever. Remember, the fear gauge is a contrarian indicator, when no one is worried, that is when you should worry. The SPX 50-day MA is 1423.37. The 20-week MA is 1414.68. The SPX is above the 200 EMA on the 60-minute chart and the 8 MA is above the 34 MA on the 30-minute chart so the bulls rule for the hours and days ahead.
Watch SOX 372.42, XLF 15.65 and VIX 15.85, all three contributing bullishly to markets. If any of these three flip sides, the markets will weaken, however, the strong futures this morning will assure that all three of these parameters likely remain bull friendly for now. Therefore, the next parameter the bulls need to launch to create more market upside is copper, JJC 44.85. The JJC is twenty cents below contributing bearishly but copper is up a huge 1.6% this morning. This action will launch JJC thru the 44.85 and send the bulls to strongly higher numbers in the SPX such as 1419, 1429 and 1433. Watch JJC 44.85 this morning since it is a useful tool when considering the short side. If copper runs up, then the SPX has another ten handles after the cross would occur, thus, the bear side may not be prudently considered for adds or new shorts until the SPX is at 1424 (50-day MA), 1429, 1433 or 1435.
Refernce Keystone's Key Events and Market Movers missive posted on the weekends to see what is on tap schedule-wise each day for the markets. GDP was just released showing a jump to 2.7% likely on the election year spending. Pending Home Sales are 10 AM so markets may take a slight stutter step, Natty Gas Inventories are 10:30 AM, Kansas City Manufacturing Index at 11 AM. The oddball 7-Year Note Auction is at 1 PM. Watch the interplay with Geithner and Boehner today. The full moon and lunar eclipse occurred last night. The cosmic effects must have manifested in the market behavior yesterday and perhaps this continues a day or two more. TIF earnings took the pipe this morning, the poster child of luxury spending, and a key global indicator since half their sales are international. This bellwether says caution ahead but the stock market is only looking for crack cocaine stimulus that will keep it happy one day at a time, just like a junkie. In a nutshell, watch JJC 44.85, XLF 15.65, SOX 372.42 and VIX 15.85, also the key resistance levels that offer potential shorting opportunities at 1419, 1424 (50-day), 1429, 1433 and 1435.
Note Added 11/29/12 at 9:38 AM: JJC explodes higher; copper sends equities another leg higher. The 10-year yield remains a paltry 1.63% not wanting to follow equities higher. The SPX punched up thru the 20-week MA at 1415.03 and is shy of the 50-day MA at 1422.49. Price will set its sights on 1419 and the 50-day. Keystone took profits on HPQ exiting the trade. HPQ remains attractive moving forward, it was beaten badly and is in the recovery room and should continually improve moving forward and move higher, Meg is a very capable manager. Also bot ZSL, a double X inverse ETF, opening a new long position, a very dangerous speculative trade that moves opposite to silver price.
Note Added 11/29/12 at 9:57 AM: The four parameters of interest today (XLF, SOX, VIX, JJC) are all bullish and considering that copper was shot out of a cannon today, and semi's leaped as well, focus on XLF 15.65 and VIX 15.85 as the two key signals for broad index movement. Both are bullish and markets will remain bullish unless one of those two characters turns bearish. The day is settling in waiting to see if Geithner and Boehner are skipping hand-and-hand along the Whitehouse sidewalk, or, if they are at each other's throat's like pit bulls. The euro just moved over 1.3000 (reference this morning's chart). The euro topping at 1.3030-ish and the SPX at the 50-day MA may prove to be an inflection point on deck. Keystone added more ZSL.
Note Added 11/29/12 at 10:51 AM: The euro punched up thru 1.3000 and then promptly fell on its sword, now down to 1.2975, thus, the SPX moved up to a HOD at 1419.70, less than three points away from the 50-day MA), and has now pulled back to 1416. The Nasdaq is up 0.7% and the SPX is up 0.5%, thus, tech is leading the broad markets higher providing bull street cred for today. This is probably just a lull in the action. Once Geithner and Boehner are shown arm and arm dancing the Last Waltz together, the markets should pop higher. The Fed manufacturing data is a few minutes away.
Note Added 11/29/12 at 11:47 AM: Speaker Boehner steps up to the microphone and proceeds to fire a missile at the fiscal cliff negotiations blowing all the 'happy talk' sky-high. Boehner says the meeting with Geithner was cordial but direct. He said that there has been "no progress with the talks over the last two weeks and that the democrats need to get serious." The SPX immediately drops five handles and the Dow Industrials drop over 50 points in a heartbeat. The 10-year yield is 1.62%. The euro is 1.2957 far from 1.3000. The VIX, XLF, SOX and JJC remain bullish so the markets will remain elevated. The markets are a treacherous road to drive with the politicians dropping tape bombs (news bites) from above. Right now, traders are watching Geithner to see if he coughs, or Reid to see if he picks his nose.
Note Added 11/29/12 at 12:28 PM: Harry "Happy Talk" Reid steps up to the podium dishing out his same schpeal. Senator Schumer grabs the microphone and tells everyone that progress is being made so the markets recover. He must have an app on his cell phone and wanted to reverse the negative market action. One side says no progress is being made while the other says there is progress. Who do you believe? Probably neither. The old political joke comes to mind. How do you tell if a politician is lying? His lips are moving. The XLF and VIX stays in the bull camp so markets recovered. If one of them would have turned bearish, then the broad indexes would have weakened. The euro is 1.2968. The 10-year is 1.62%, yields are not moving up. During the excitement and drama at 11:40 AM, the semi's, SOX came down to test the important 372.42 level, and bounced. Watch SOX 372.42 since this will create broad market weakness should it fail. The sideshow continues.
Note Added 11/29/12 at 2:27 PM: Status quo. Traders need a rest after yesterday's excitement. The 10-year yield is 1.61%, very interesting. The SPX is 1417. The 20-week is 1415.02 and 50-day is 1422.48. The 1419, 1416 and 1413 are strong support levels. Resistance is 1422, 1424, 1427 and 1429.
We may have seen a big spike in the stock market last night on hopes that the fiscal cliff issue will be resolved, but the fact is the Democrats and Republicans are still miles apart. If you’re interested in knowing where they actually stand then this quote from ZeroHedge gives you a good insight into where things are really at:
ReplyDelete‘Any deal on the cliff requires an acceptance of the relative role of revenues and outlays in closing the budget gap. The official positions of the major players are miles apart. President Obama has proposed a roughly $4 trillion 10-year deficit reduction plan that is $1.5 trillion (or 40%) tax increases, mainly from allowing the Bush tax cuts to expire for upper income households. His plan has been roundly rejected by Republicans. They argue that most of the spending cuts are not real: his $4 trillion includes almost a trillion in savings that were already agreed to in the first part of the debt-ceiling agreement and almost another trillion in savings from the winding down of the war in Afghanistan. Stripping those items out, the tax increases become three-fourths of a $2 trillion deficit reduction plan.
‘By contrast, the two main House Republicans, speaker Boehner and Budget Committee chairman Paul Ryan, have suggested that spending cuts should account for all or the vast majority of the cuts. In his negotiations with the President in 2011, Speaker Boehner was apparently close to agreeing in principle on $0.8 trillion in tax increases, or 20% of a $4 trillion dollar plan. However, that deal quickly fell apart once it began to be fleshed out and vetted with the rank and file members in Congress. Moreover, the plan’s reliance on “dynamic scoring”- raising revenues by stimulating growth-has already been strongly rejected by Democrats. Paul Ryan has offered budgets in each of the last two years that include dramatic cuts in spending – including effectively eliminating all of non-defense discretionary spending – but no increase in taxes.
‘To reach a deal, the two parties must not only bridge a huge gap in terms of the tax share-somewhere between 0% and 75% – they must also agree on the same accounting system.
A big precedent
‘The outcome in this initial round of negotiations could set the tone for future deals:
■What is the percentage split between revenues and outlays?
■What kinds of revenue increases are acceptable?
■Will the deficit reduction be “dynamically scored”?
■Will the austerity be relatively big or small?
‘Members of both parties feel that their leaders have given too much ground in the past. Democrats were upset when President Obama agreed to extend all the Bush tax cuts. Republicans are upset about extending the payroll tax cut and extended unemployment benefits. For different reasons, neither party was happy with the outcome of the debt-ceiling debate: for some fiscal conservatives, any debt-ceiling increase was wrong and neither party liked the sequester.
‘For Democrats, there will never be an easier time to raise upper-income tax rates, since they are set to go up automatically at year-end. This is why many liberal leaning politicians and analysts are arguing that it is better to let all the tax cuts expire-go over the cliff-and then offer to restore tax cuts for just low- and middle-income families. At the same time, if they raise revenues by closing loopholes, it will be harder to do comprehensive tax reform later. On Medicare, there are limits to how much payments to providers can be cut without seriously impairing service. Moreover, as we have seen with the “doc fix”, if the cuts are too big, they simply become part of the annual mini-cliff.’
Perhaps we will need a stronger fall in the markets before the parties negotiate seriously. I would not be surprised to see the S and P 500 hit below 1300 before an agreement is announced.
Interesting and detailed info. For today, Geithner has a big powwow with all the players. Focus on the Geithner-Boehner relationship and body language; the markets will be watching these two circus performers more than the other.
ReplyDeleteBut how do you think the fed will effect all of this? The last time we were looking at any kind of QE, TA was saying the markets are stupidly overbought, but there was enough irrational exuberance that we went to the moon anyways.
ReplyDeletePlease do you self a favor stop listening to the doom and gloom. It's all an illusion and right now it needs to get better for the government to keep control.
ReplyDelete:)
Deleteyes it's all about illusions .. but isn't that great to dance with illusions ?
Like KS said: Last Waltz .... :)))
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The technicals always rule since news is continually built into price. So the technical levels, trend lines, TA, etc..., gauge and provide the basis for trading, the Fed and other events affect markets since the news comes in a bombshell and the charts have to immediately price things in, so this creates the craziness, like soundbites yesterday, but the TA can calm the noise. The bulls are running now due to JJC, XLF, SOX and VIX. When any of these turn back into the bear camp that will mark the inflection in the SPX.
ReplyDeleteSPX testing near the 1419 resistance and was knocked back down. The 50-day is so close that it would be anticipated that price at least pays its respects to 1422-1423.
Anon, that's precisely correct about the players being miles apart and both sides feeling great pressure from their constituents that they have budged too much already. Also, a lot of our major players frankly don't know what the hell they're talking about. When I hear nonsense about cutting from Social Security, it says they don't even understand how it's funded. https://www.youtube.com/watch?v=ihUoRD4pYzI
ReplyDeleteHmmm...
ReplyDeleteand now maybe..... "Pop, goes the bears" ???? instead of "pop, goes the weasel"?
:D?
p.s. the "B" from the word "bears" comes from "B"oehner
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I'm somewhat curious if my prediction of a crash (or a mini-crash) in the late 4-5 american market hours is appliable to reality ...
DeleteI'm watching the show - it's greater than Muppets this fiscal cliff democrats-republicans situation ....
V.
Yep, Speaker Boehner shows up with a bazooka at the press conference, only instead of borrowing Chairman Bernanke's money bazooka, he grabbed the wrong one, a real bazooka and blew a hole thru the fiscal cliff negotiations. The 'happy talk' has officially ended. The talks are now in flames. Note that VIX remains under 15.85 and XLF over 15.65 so there are no great shakes to the market, as yet.
ReplyDeleteHey KS et al., sorry I've been AWOL, but haven't had time to "blog" much. I've read most post and was more than pleasantly surprised my trades have followed KB Quant almost to the T. I added shorts on Tuesday late afternoon, then saw them all got burned yday (I failed to put stops in place; I never pressed "send" from my trading platform... stupid). So this morning I quickly went long (1410ish) so the quant and I are aligned again. :-)
ReplyDeleteI don't have much to add, besides that FB has been on a tear. Gap fill underway now. seriously overbought so sold at 26.75, from 21.50. Serious coin! It may go to 28-29 before a serious retrace to 24 ish starts. I'll be a buyer again at that level if all indications are there for another push higher.
Shane, OT, but I'm not so sure you understand SocSec, either. As Reagan accurately describes the original concept, payroll taxes from current workers are supposed to cover the costs of current retirees. Trouble is, a slower economy plus med cost inflation plus demographics now make it impossible. As more babyboomer hoardes start to draw benefits, the payroll taxes from the smaller working age cohorts can't keep up with the ballooning cost of SocSec and especially Medicare. (For cherry on top, Big Pharma thanked Congress with $$$ for Part D.)
ReplyDeletePayroll taxes just won't be enough. Then what? The shortfall will likely be funded from massive new government debts, unless future Medicare and SocSec costs are tamed AND taxes go up. The sooner we get the cost/revenue ratio under control, the less painful the changes can be.
There's a limit to how much more payroll tax you can ask from student-debt-and-mortgage-burdened 25-to-50-year-olds. It's not their fault Boomer lawmakers over-promised benefits. For decades actuaries have warned us that some day the in/out math would come back to bite us. We're there.
today looks like classic ramp-and-camp. Tomorrow may be the "tell" day.... Dr. Copper mainlined speed today, absolutely no fundamentals behind the injection, that looks unsustainable....
ReplyDeleteI think so too, Smith. I think this is one of those days where you just have to let it play out. If we sit watching it all day, then we second guess ourselves. Every credible person that I follow on the fundamental side is in agreement. Best case scenario and the market still has nothing. If a deal passes, it's likely to resemble austerity. We saw how well that played out for Greece. I don't look for us to bottom out in the Great Depression, but there's not a lot of upside in the near future. The market cannot ignore reality forever. Sooner or later, the booze will wear off. We'll all sober up and feel the hurt. But sometimes hurt is good. It lets us know that something's wrong.
ReplyDeleteSPX sneaking back up towards the 1419 resistance. 1419 wold lead to 1422 and the 50-day MA test. The euro fell from the 1.30 touch this morning and is dumbfounded, staggering around in a daze all day unable to get sturdy footing. With the euro not moving up, this places markets in sidestep mode. SOX, XLF, VIX, JJC all bullish so markets will maintain elevated status and drift higher. The euro weakness is interesting. Also the low 1.61% yield on the 10-year. TRIN is in the 0.6's, uber bullish. NYAD hit +1800 today which is starting to get elevated but still short of +2000. NYMO is 41, see what it is tonight, since the 60-ish plus level will signal a sell off at the door step.
ReplyDeleteDon't hold your breath, no ones going to ruin the holidays. Remember that. JUst liek last year after the Thanksgiving that didn't give, everyone was calling for a meltdown before xmas. Markets going to rally into the holidays. The sell off last few weeks was the proper correction the market needed. Very healthy really. Look at APPLE. KS, I hate say no way on 480. Stop listening to the doom and gloom, no more down 200 point days until next year.
ReplyDeleteUntil defense and entitlements are cut, there really is no debt reduction. This payroll tax/250k discussion fight is for places in the cruise buffet line while the Titanic sinks...
ReplyDeleteAnyhoo, started a short at 1416 ES today. Though I think 1424 or higher is possible, 60 minute is rolling over. Don't think this is the big fall yet.
No major roll overs till after the holidays as the the prez said yesterday
ReplyDeleteWhile it is usually a bad idea to expect the same thing to happen twice in a row, this is looking like the same setup as the last one: An impulse up, followed by an ugly A,B, and now working on a C wave "crash" down for a handful of points (if it even comes down much at all), then right back up to another short term high.
ReplyDeleteI thought a little about this before but dismissed it as unlikely, but the case is looking possible now (as also posted by Anon above): The happy feelings from the coming holidays may keep the markets buoyant until after the break, so the bears may likely just have to be patient for a bit longer.
I am holding off on adding any more shorts in the general market for now until things clarify. Time to re-focus on better opportunities elsewhere for a few days once again.
The rupee was at 60.64/67 in early trades as against Thursday’s close Of 60.43/44. Agri Tips
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