The market drama continues overnight. The bombshell Fed news was that QE may moderate this year and end in the middle of next year. The SPX drops like a stone when Chairman Bernanke utters these words in the opening statement at 2:30 PM EST yesterday. The SPX drops from 1651 to 1629, 22 points, in 90 minutes time. Treasury yields leap higher. The 10-year yield jumps over 2.30% and at this writing is 2.42%. The dollar bounced on the Fed news, sending the euro lower and the dollar/yen pair higher, big moves for currencies. The China PMI is weak pointing to a continued and perhaps accelerating slowdown. Commodities, copper, gold and silver are crushed overnight and gold loses the 1300 level a short time ago. Copper is at a 7-month low, perhaps the doctor is finally receiving the attention it deserves. Copper and the CRB Rind Index have signaled an economic slowdown since April.
The Asia markets are hit with the double whammy of the Fed and China PMI. The Nikkei as well as European markets are down from one to two percent, or more. The global sell off is cascading around the planet so far and continuing into the U.S. open with the S&P futures -16, the Dow -126 and Nasdaq -31. Crude oil is 96.14 after touching 99 yesterday. The RUT (small caps) begins at 986 after moving above 1000 yesterday. The dollar/yen is 97.86 moving up big figures since yesterday. When the yen is affecting the dollar/yen currency pair, the movement correlates to the stock market. Weaker yen = higher dollar/yen = higher equities and stronger yen = lower dollar/yen = lower equities but the drastic jump higher in the dollar is creating the spike in dollar/yen so this may need a day or two to settle. The euro is 1.3194 now losing the 1.32 level after being above 1.34+ yesterday, also dropping due to the spiking dollar.
So a lower start appears on tap today. Keystone's trading algo, Keybot the Quant, wants to flip short but did not complete the move before the closing bell yesterday. Keybot should flip short today, however, a gap-down may delay the move for up to 90 minutes. The first couple hours of trading today will be interesting. UTIL 481.10 remains key. This is the trap-door for markets. If the bulls can move UTIL above 481.10, the markets will stabilize and recover. Alas, with the Treasury yields rising, this will pummel utilities, home builders and REIT's, just like yesterday. Watch XLF 19.30 now at 19.60 causing market bullishness. If XLF loses 19.30, that will create much greater market negativity and pave the way for sustainable and extended equity market downside ahead.
Typically, when a large down day occurs on a Wednesday, there is follow through on Thursday with a lower print. Traders that are fortunate enough to be blindly long all year sitting on bags of money are likely headed for the exits to lock in the gains, take the summer off and enjoy the beach, and then pick things up again in the Fall. The asset relationships require study moving forward. The higher dollar did create lower euro, lower commodities, lower copper, gold, silver, and lower equities, so that is all in sync. The yields are a mystery. In deflation, the yields may fall and equities may continue to fall. The coming days determine if a sea change has occurred and yields will continue higher with equities moving lower. The jury is out. The 8 MA stabs down through the 34 MA on the 30-minute chart and the SPX drops under the 200 EMA on the 60-minute at 1632.14 signaling bearish markets for the hours and days ahead. Pay attention to the 1632.14 today as well as the 50-day MA at 1618.24 where a big fight will likely occur at the opening bell.
Jobless Claims hit at 8:30 AM and more importantly, Existing Home Sales, Leading Indicators and Philly Fed are all released at 10 AM, so expect markets to pivot on the news. If the opening is weak, the 10 AM data may provide a recovery point. The Fed will be POMO pumping this morning as well. In a nutshell, watch the SPX 50-day MA, UTIL 481.10 and XLF 19.30. If UTIL moves above 481.10, bulls are fine. If XLF loses 19.30, the downside is real and extended.
Note Added 7:00 AM EST: S&P futures -14. Dow -102. Nasdaq -28. Dollar/yen 97.77. Euro 1.3195. Gold 1303. Crude oil 96.39. 10-year yield 2.42%.
Note Added 7:44 AM: S&P futures -15. Dow -111. Nasdaq -28. Dollar/yen 98.00. Euro 1.3199. Gold 1304. Oil 96.82. 10-year yield 2.44%.
I have a tiny strange intuition that a lot of folks will be squeezed Friday, during OPEX.
ReplyDeleteI'll keep an eye on $cpce after the end of Thursday... if 0.8375-0.855 is registered at the end of Thursday , well, dear fellows, that area is the maximum point marked by some 3-4 slowly declining peaks on $cpce (weekly) ... the higher $cpce goes, the more shorters are in the market...
Keep it cool and rational, don't get over-emotional, trading is not based on emotions.
V.
Along the lines of the CPCE, the VIX did not spike higher yesterday afternoon as would be expected for the market sell off. CPC and CPCE not spiking up either so overall traders took the sell off in stride. Perhaps today will instill some good old-fashioned fear and panic? UTIL 481.10 and XLF 19.30 are key when the bell rings and at 10 AM markets will pivot perhaps reversing whichever way they move the first one-half hour. Bulls want UTIL 481.10+. Bears want XLF 19.30-.
DeleteNo Emotions, so true. Gold is falling...yes..Soon time to set up and by the miners, bloodshed is good for profits take.
ReplyDeleteAnon,
DeleteGold is in a bear market.
Start thinking going long gold at 1000-1050 $/oz.
Start thinking taking physical gold at 250-400$/oz.
It was a bubble and now it has exploded.
V.
I just don't think Gold will get to 1000, seems to predictable.
ReplyDeleteKS, I'm not sure I understand exactly how much trouble China is in this morning. Moments ago, the Bank of China came out and denied that it was defaulting. What's your level of concern here?
ReplyDeleteLarge, the hens are apparently coming home to roost in China and the huge property bubble is probably popping now.
DeleteKS we would all benefit from your take on gold as well. For the record, I am long UUP (the dollar) and SPXU (short SPX). I agree with anon that the miners are looking interesting here as GDX will likely fill a gap around $25 left from 2009. Do you see any downside target for gold? Others have pegged $1219 to $1250, others $1100. Some agree with V, the bottom is even lower.
ReplyDeleteGold daily chart fell through the descending triangle this morning. so 1350 base failure places 1200 on the table, however, the indicators are positively diverged hinting that the bark may be worse than the bite. Gold weekly chart is agreeable to a bounce but the money flow never reached oversold. The low prices are attractive for at least a dead-cat bounce. Keystone bot SLV, GDXJ this morning. There can be more weakness but the metals are probably due for a relief bounce. The miners may need a bit more time to base but miners and the shippers are attractive areas to consider longs since they have already been beaten the most.
DeleteBK,
ReplyDeleteIf you're here: the market opened with a gap down below the wedge support (spx 500 - 1615). If it doesn't gets over support (1615) in the first 30-60 min and/or if it breaks 1598, my opinion is that you should hedge with shorts (if you still have cash)/close the longs.
If 1598 crumbles as support 1520/1540 will follow without any guarrantee that a lower high might reach 1628 previous to reaching 1520-1540. Watch closely 1615 and 1598 (all values are in cash market, not futures).
V.
close longs only if you have to, if 1598 is reached and is broken to the downside.
DeleteRSI on 60 min is very oversold and a bounce is due.
V.
Thanks, V. I just exited calls on SPXU for a nice gain. Best not to get greedy, I suspect there will be plenty of opportunities ahead. For example, maybe the SPX bounces off 1598-1600. That could set up a nice trade.
ReplyDeleteyes, but if 1598 is lost, a cascade might appear in seconds due to stop losses orders.
DeleteV.
Yep, the 1597-1600 is the key bounce or die level. If it fails, the 1593 would appear in an instant.
DeleteIs Keybot still long?
ReplyDeleteNope Alex, Keybot is short now. Lots of whipsaw action these days with zig-zag markets but that is the nature of the markets these days. XLF under 19.28 will tell you that markets will stay week an extended period of time.
Delete