Keystone's Morning Wake-Up 5/14/13

Fed's Plosser would like to taper QE and says that lower inflation is not a concern. He is a hawk so the taper comments are no surprise but he may be running cover for Chairman Bernanke, a scholar of the Great Depression, who fears deflation. If the disinflationary and deflationary conditions continue (Keystone's Inflation-Deflation Indicator has signaled deflation in March-April and now signals disinflation in May), the Fed may be hinting to traders in advance to not expect further QE, likely realizing their policies may be doing more harm than good. Or, the statement can be simply taken on face value. The Fed just added the 'increase' word for QE so they will likely not turn immediately around and 'taper'. However, the Fed may be no longer in control and the markets will make the decision.

The dollar/yen is 101.60 moving lower (strengthening yen). German ZEW sentiment is weaker than expected. European social mood in general, as shown by a PEW study, indicates an overall gloomy mood across the pond. The Italy 10-year yield moves above 4%. Interestingly, traders are taking the Fed and BOJ easy money and tripping over themselves buying European stocks and bonds, the riskier the better, thinking they are getting in on a ground-floor opportunity.  As the folks in Brooklyn say, 'good luck wit dat'. Foreigners and outside investors that likely never even set foot on European soil, are investing while the folks living there are depressed about their future. To pile on the gloom, a second SARS case is discovered in France.

X-class solar flares and coronal mass ejections (CME) occur over the last day. The X2.8-class is the largest solar flare of the year thus far so the peak solar cycle this year may be ramping-up. If the ejections hit the earth, electronics, communications, satellites, and of course market functions, may be affected, as well as the human psyche, typically to the negative side, as evidenced by the solar flare that hit earth at the start of the August 2011 crash.

On the happy side, Tuesday's are an up day for markets in 2013 so the bulls will be ready to buy. During OpEx week, a Tuesday market low typically leads to a Wednesday high, however, markets appear very shaky currently. NYMO topped at 60 and is moving lower but the broad indexes have not yet responded negatively. The CPC put/call ratio prints 0.75 one day ago indicating market complacency. The VIX was flat yesterday. The TRIN logs straight eight days of sub one numbers, for the most part, which begs to see a counterbalance to the plus one side which would be in concert with market selling. The BPSPX is over 86 which is signaling a market top just like all prior market tops. The SPXA150R is 92.80 indicating a market top currently and a very comfortable level to short the market. Crude oil drops under 95. The 10-year Treasury yield is flat at 1.91%. Copper and volatility remain the key market drivers currently. Copper is weak this morning. The bulls need JJC 41.92 to receive upside market fuel. The bears need VIX 13.25 to receive downside market fuel.

The 8 MA is above the 34 MA on the SPX 30-minute chart signaling bullishness for the hours ahead but watch to see if the 8/34 bear cross occurs today. The market bears need the SPX to remain under the 8 MA at 1633.56 and lower to pull the 8 MA downwards towards the 34 MA. Bulls of course want the party to continue with the 8 above the 34. For the SPX today starting at 1634, bulls need to move above 1636 for an upside party to the 1640's while bears need to move below 1627 to accelerate the downside towards 1618. A move through 1628-1635 is sideways action today.  Markets remain erratic and unstable. Keybot the Quant is long but if the VIX moves above 13.25 and SPX moves under 1627, the algo will likely flip short. JJC 41.92, VIX 13.25 and SPX 1627 and 1636 tell the story today. NFIB Small Business Optimism Index is 7:30 AM. Import and Export Prices are 8:30 AM. The 'Benghazi-gate', 'IRS scandal' and 'Bloomberg Breach' drama's add to the market theatre today.

Note Added 7:51 AM:  David Tepper, Appaloosa Management, appears on business television and repeats his bullishness so the S&P futures turn positive. Tepper, a native Pittsburgh boy, told everyone to buy the market in late 2010 after QE2 was announced, and he turned out to be correct, so the rally was dubbed the 'Tepper Rally'. Tepper announced his bullishness this year as well and he turns out to be correct again.  Now he repeats the bullish talk and says to party-on bulls, so traders are listening and reacting to the positive side. Copper is takin' the pipe.