Keystone's Morning Wake-Up 4/26/13; GDP; Consumer Sentiment

The BOJ pledges continued monetary easing moving forward but instead of fanfare, traders were asking for more, like Oliver Twist pleading, "Please sir, I want some more."  Once traders become addicted to the crack cocaine stimulus, they need more and more to keep the party going. The Fed boosts markets strongly in January and February and the BOJ chimes in to continue the equity push higher in March and April.  The Nikkei charts posted this morning, however, show that the majority of the move higher in equities (weakening yen and higher dollar/yen) waning. Watch dollar/yen today which dropped from over 99 yesterday to 98.60-ish this morning and 98.20 now.  As dollar/yen drifts lower, so will equities (yen strengthens); as dollar/yen drifts higher, so will equities (yen weakening).

The GDP data, first read on Q1, is 2.5% well below the 3.2% consensus.  The consumption data is strong as the cash society in America grows. As discussed previously, Greece crumbled as its society was operating at about a 25% to 30% cash transaction level.  When governments raise taxes, people simply find ways to avoid the paper work and avoid paying taxes all together (a cash society where employees work 'under-the-table' and bartering and other cash methods are used resulting in zero tax income for the government--raising taxes will lower the money coming into government coffers, not raise it).  The U.S. is likely operating around an 8%-ish level of cash transactions and this is increasing. Considering the GDP data perhaps the U.S. is already moving up through 10% as citizens use cash and find other imaginative ways to pay for goods and services and avoid paying taxes. In Keystone's youth, the 1960's and 1970's were very much a cash society, as a teenager, most kids worked under the table in one capacity or another. As credit card use increased, and the great secular bull ran from August 1982 to March 2000 (18-year cycle), the wine flowed like water, and the cash society shrank. No one minds paying taxes when the good times are rolling along. But, as Bob Dylan sings, the times are a changin', and society will now shift back to using cash more to avoid paying taxes. This is America's path forward.  The GDP number keeps the futures on the negative side.

The NYMO chart this morning shows that a market top is at hand, or near.  The TRIN prints two days of uber low numbers, even though it recovered to near one at 0.94 as the day ended yesterday, so it is reasonable to expect the TRIN to print above one today which would be in concert with equities selling off. The CPC put/call ratio signals topping action as well, with complacency in place. The negative divergence in the SPX hourly and daily charts rolled price over to the downside into the closing bell. Of interest on the SPX daily chart is the doji candlestick from Wednesday, that indicates a trend change (top), but, alas, for bears, yesterday resulted in another upside orgy on news that central bankers have gone completely bonkers now buying equities as part of their obscene money-pumping programs. Price discovery is lost at this point, the mystery remains as to just how much air does exist under the markets and when will it be exposed? The 10-year yield started at 1.72% yesterday and remained flat, even falling to 1.71%. This told you that the markets would weaken into the closing bell. The 10-year yield has a 1.67% handle this morning, folks want the perceived safety of the U.S. Treasury.

It was interesting to see the SPX fill the tiny one-penny gap at 1588-1589 from 4/12/13 and 4/13/13 yesterday. That action actually helps the market bears since it sealed up all loose ends above; there are no further gaps above, so price has no reason to go higher for any gap fills. The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead, however, the 8 MA is curling over to the downside now, and the futures indicate a weaker open, so watch to see if the bears can regain control of the markets if the 8 stabs down through the 34 MA.  Consumer Sentiment hits at 9:55 AM so a market pivot point will occur. VIX 14.15 remains the key. If VIX stays under 14.15, the bull party continues; if the VIX moves above 14.15, it is time for the bears to growl.  For the SPX starting at 1585, the bulls need to touch the all-time closing high at 1593.37, the key resistance level, which would lead the way to a test of the all-time high at 1597.35. Above there is the 1600 psychological level that would occur quickly and then the trek upwards to the 1620's. Therefore, the markets are at a critical juncture. The bears must push under 1579 to accelerate a downside move that will test the strong 1576 support in quick order, and then lead to lower prices.  A move through 1580-1592 is sideways action today.

Note Added 10:17 AM:  Markets pivot lower on the Consumer Sentiment number even though it was a better than expected. Note the VIX is 14.07 teasing the 14.15 level which would set the market bears loose.  VIX 14.15 and SPX 1579 are two very important numbers today. Keybot the Quant will likely flip short if both of these numbers are hit. Dollar/yen leaks down under 98.10 but recovers. If the dollar/yen drops under 98 that would be another signal that equity markets are selling off. The 10-year yield is 1.68% remaining lower showing a demand for bonds instead of equities.  Whoa, look at volatility, VIX 14.14.....what will happen? Bounce or die.  This is very important for markets; VIX either shoots higher above 14.15 taking the stock market lower, or VIX collapses lower under 14.15 again and allows the broad indexes to recover. TRIN is 0.94 neutral today.

Note Added 10:43 AM:  VIX 14.02.  SPX 1581.  TRIN 0.97.  The 8 MA is running lower towards the 34 MA on the SPX 30-minute chart. The bulls have to reverse the broad indexes here and now and send them sharply higher to stop the 8 MA from crossing down through the 34 MA.  Thus, the Fed and BOJ mid-morning money-pumping is important today to see if it has the juice to push equities higher. The dollar/yen falls under 98 now at 97.78.  It is surprising that equities are not selling off more. Perhaps the yen effects are waning now. The 10-year yield remains at 1.68%. Markets are tentative but must make a decision. The next hour or so of trading is important. The drama continues. VIX 14.15-14.16 is the bull-bear line in the sand and will tell you everything today.

Note Added 10:51 AM:  Dollar/yen 97.66 two points lower than yesterday (yen strengthening). VIX 14.06.  SPX 1580 handle. TRIN 0.98, check that, now 1.01 on the bear side.

Note Added 11:03 AM:  Dollar/yen 97.75. VIX 14.11. SPX 1580 handle. TRIN 0.97. The 10-year yield 1.67%. Markets are dancing along a tightrope right now but must choose a side. Bounce or die.

Note Added 4/27/13 at 5:23 AM:  Friday was a paint-drying session with the SPX stumbling sideways.  The market bears were given the markets on a silver platter, only needing to move the VIX above 14.16 to create a down leg in the broad indexes, but, the bears did not eat their morning Wheaties and did not have the energy to get the job done. Therefore, the markets recovered, the dollar/yen moved back above 98, the VIX dropped under 14.  During the last fifteen minutes of trading, the TRIN leaped higher to close at 1.31 creating the drop into the closing bell.  All in all, an uneventful day once it was obvious the bears did not have the oomph to overtake VIX 14.16.  The 8 MA stabbed under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours and days ahead, however, the recovery Friday afternoon has curled the 8 MA upwards and the 8 MA, 34 MA and SPX all sit at 1582-1584. The price move from this 1582-1584 cluster at Monday's opening bell, along with VIX 14.15, will dictate market direction. Monday's opening bell is very important and the initial market move will likely set the tone for the week ahead; bulls win above 1584, bears win below 1582. Interestingly, the Monthly Job Report Market Indicator (on the Other Signals page), says April should log a down month. April began at 1569 and is now at 1582. There are two trading days remaining in April. So add this to the drama list for early next week.