Most everyone is sanguine over the Cyprus drama. Folks are patting Cyprus on the head as if patting Fred the dog or Shadow the cat. No one is taking the drama seriously. Folks are calling Cyprus a tiny nothing. When the boat is loaded with folks telling you that something does not matter, it usually matters. The news that the ECB will lend support to Cyprus bounced the markets off the lows this afternoon so score another stick save for central bankers. Any news from the Cyprus-Russia meeting tomorrow will affect markets. The potential bank run fear and paranoia will grow larger and larger the longer the Cyprus banks and markets remain closed. Germany's Finance Minister Schaeble says 'only Cyprus is to blame for its mess' and the country has a 'bad business model'.
While the majority of traders treat Cyprus as a joke that will have no affect on markets moving forward, at the same time bearish analysts and forecasters have now jumped ship to the bull side. Analysts such as Adam Parker at MS have set far higher targets for the SPX. The bullish complacency rules, everyone is drinking from the Fed punch bowl. The CPC put/call is 0.97 no where near the 1.20 plus that will signal fear and panic in the markets. Volatility is moving higher the last couple days and jumped over the critical bull-bear line at 14.95 but collapsed back below when the ECB saved the markets today with talk of money-pumping. Market bulls win if the VIX stays under 14.95; bears win if the VIX moves above 14.95. The SPX covered a 20-handle range today. Expect to see more of this wide and wild type action moving forward due to the higher VIX. The intraday and day-to-day point swings will become much more violent. Semiconductors are also important so watch the SOX 421 level where bad things will happen to equities if it fails.
For Wednesday, the FOMC rate decision is 2 PM and Chairman Bernanke takes the stage at 2:30 PM for his desk conference. Bernanke will no doubt be selling the stimulus and handing out Benjamin's to anyone with a palm extended, however, the Fed is likely growing nervous of the damage they are doing to markets. They have destroyed price discovery, no one can be really sure what anything is worth when it all is floated higher on some amount of printing-press money. Further extending the bullish market sentiment, nearly everyone expects Bernanke to tout QE and expect the money spigots to run forever. Please, someone step up to show a trader not thinking this way. On face value, it appears that the risk is to the downside tomorrow rather than the upside since no one expects any negativity. If Bernanke makes mention of a stronger economy, and if the level of stimulus is the same, then that should hint that stimulus at least has some liklihood to end sooner than was expected before the announcement, even if that means 2014 the programs would end instead of 2015 (way out in the future). The Fed may be a non-event tomorrow overshadowed by Europe.
FDX earnings tomorrow are the most important earnings release of the week. FDX is a key barometer of shipping and if shipping is slow, so is the global economy, if shipping is healthy, the market bulls will rejoice. LEN earnings will affect the housing sector. Mortgage Applications are down 4 of the last 5 weeks so watch for that data at 7 AM EST. Oil Inventories are 10:30 AM followed by the Fed drama for the last two hours of trading. To place a cherry on top, the China HSBC Flash PMI hits at about 9:45 PM EST and will provide a key gauge on China's economic health and will immediately move the copper and commodities markets as well as the Aussie and Canadian commodity currencies.
For the SPX, starting at 1548, the bulls need to push above 1557 and it is blue skies and rainbows above. The bears need to push under 1539 and the downside will accelerate. A move through 1540-1556 is sideways action. In a nutshell, VIX 14.95, SOX 421, and SPX 1557 and 1539 will tell the market story. If the VIX remains under 14.95 and the SPX moves above 1557, Keybot the Quant will likely whipsaw back to the long side. If the VIX moves above 14.95 the market selling will increase. If SOX 421 is lost with the VIX above 14.95, the SPX will be falling like a stone and 1525 would be on the way. Also use the 10-year yield as a guide. If the yield falls under 1.90%, the bears will do a jig of joy. If the yield moves above 1.90% and heads higher, the bulls will pour another drink and light a cigar. Wednesday is the Vernal Equinox, the First Day of Spring. Will green shoots appear, or wilted, dead sprouts, frozen from the extended winter?
Note Added 3/20/13 at 8:35 AM: The Cyprus drama continues with a jumpy tape reacting to each news bite. LEN results beat handily encouraging the housing recovery. Big miss on FDX with top line revenue only in line. That says they cannot cut anymore workers and the global economic environment is stumbling along sideways at best. The guidance is lowered moving forward. China business is trailing off. FDX is down over 3% pre-market. This is a negative for markets and it takes the S&P futures from +7 to +3 but a short time later, the futures leap higher to +9 with the 10-year yield to 1.95% and euro jumping to 1.2942. So the bulls recovered quickly from the FDX negativity. Mortgage Applications fell for another week which is down 5 of the last 6 weeks. This is more pertinent data rather than the other lagging housing data and the weakness is interesting considering the spring season is upon us.
Ks, you must be suffering losses with your short positions, obviously Keybot flipping short was premature and wrong. The numbers just do not add up and you are grasping for straws with your analysis that has proven not true, so you are trying to emphasize the importance of Cyprus on the markets? This again is cognitive dissonance. and when the market sells off, which it will eventually, you will point out Cyprus as the catalyst? Please be conscious of the "noise". You haven't been since the "fiscal cliff". Remember the big bad sell off and collapse that that was to cause? What about the stimulus you said wasn't going to happen in September? I like your site but you are wrong about many things, TRIN as an indicator, and others.
ReplyDeleteI would very much like to fade you. Please adopt a moniker or signature so I can distinguish you from other Anonymouses.
DeleteYep, Keybot took a one percent loss. The quant may flip short at anytime again as well. This is the nature of the market action this year.
DeleteAnon,
ReplyDeleteKeybot is an algorithm; it works off the values that it's given. Like any algorithm, it's only as good as the data it gets. You act like, he sticks his thumb in the air and makes an assessment based on the wind direction. That's insipid. Every post reminds you that this is for educational purposes only, which means you need to do your own homework. Cyprus is important only to the extent that it is important to the Euro (which may be a short-lived relationship).
Shane, the point is keybot is a rear view mirror algorithm. Much like a statistics accumulator that let's you know the player has a high scoring percentage, so when he get's in the red zone he "probably" will score from that point or won't if his scoring hasn't been so great as of late. Wow. Thumb in the air no, but understatement in general direction yes. Cyprus is "noise" nothing else.
ReplyDeleteAnon,
ReplyDeleteIf you have a way to invest in the market that has a better track record than Keybot, then go for it. In fact, however, Keybot's record is exceptional and I see no reason why it shouldn't continue to be so.
And, btw, all stock market systems/investing methodologies etc. are rear view algorithms. There is nothing else unless, of course, you have a way to look into the future.
Frankly, this blog enjoys the traffic that it does because over the years people who come here have found Keybot to be right more often than the talking heads in major media outlets.
ReplyDeleteThis is true, Shane.
DeleteFor me it's a AAA site. I've learned a lot of things here.
V.
Over the last year Keybot has been wrong. Yesterday at 1540 going bear, a whipsaw is not 1556. Sorry just wrong. Wake up, a chimp throwing darts would be more correct.
ReplyDeleteThanks for your concern over Keybot Anon. But it is a healthy robot only needing occasional oil. Keybot has gone as much as 32 handles in reverse before, opposite of the trade, and either capitulated, or remained as is which worked out. So a 17 handle whipsaw is no biggie. The SPX's range yesterday alone was 20 handles.
DeleteAnon,
ReplyDeleteThen I suggest that you use the profits you made trading to buy a good set of darts and fulfill your destiny.
Dear KS... just wondering, how come Keybot is still in bearish mode despite VIX being at 12.59?
ReplyDeleteThank you for all you guidance.
San
San, things are getting updated now. Keystone had some additional pie this morning requiring additional R&R hammock time in the basement.
DeleteAnon, if "a chimp throwing darts" is more correct, then why are you still here? I've found a lot of sites over the years that were wrong. I moved on and I didn't look back. You wouldn't keep coming back, if you didn't get something out of it. KS, ignore this jackass. He's the troll of the year. It's funny how people like to take crack shots and post them anonymously.
ReplyDeleteAnon,
ReplyDeleteIf you devoted half the energy you expend in trolling and putting people down - if you put half that energy into improving your trading - you just might be a better trader.
Great comments all. Another day at the circus. Watch VIX 14.95, now at 12.49 helping bulls. Watch TRIN, now at 0.85, bullish as well. The VIX will tell you market direction, the 14.95 is the most important thing to watch now. Watch the high prints in SPX as well, the HOD so far today at 1561.27.
ReplyDeleteThe erratic nature of the markets are simply the way they are trading this year. The Fed and other central banker involvement is the third man on the field. For example, yesterday the bears were ready to rock, but the ECB stepped in to stick-save the situation, those are smart men and women, they have economic models as well and they know when things are getting out of control. Thus, trading is different these days. Think of it like playing a game of football, the bulls v. the bears, but the referees on the field are allowed to bat down passes or catch the ball or tackler players as well, whichever team they feel like. It makes for tricky and treacherous trading. Markets continue to feel very toppy. CPC tonight will be interesting.