Keystone's Morning Wake-Up 9/18/13; Housing Starts; Fed Decision Imminent

Fed Day is here. Chairman Bernanke is likely taking advantage of the free buffet this morning to build energy for the afternoon events.  The Fed tapering decision is at 2 PM followed one-half later by Chairman Bernanke's press conference at 2:30 PM. So markets will pivot at 2 PM and remain erratic as Bernanke provides commentary and clarity on the path forward. The consensus is for a 10 to 15 billion per month taper. A 10 billion reduction, would reduce the Fed purchases from 85 to 75 next month, then 65 the month after, and so on, with the tapering take the Fed to zero in June. As the taper missive discusses this morning, Keystone's guesstimate is a 12 billion per month taper not starting until December and ending in June, with an equal mix of mortgage debt and Treasury debt reductions. It is time to place you guesses on the table to see who has bragging rights when the story is written in about five hours.

Markets stumbled sideways yesterday with the SPX stuttering at 1705 unable to punch up through. The 8 MA is above the 34 MA on the 30-minute chart signaling bullish markets ahead, however, the 2-hour, 1-hour and 30-minute SPX charts are more favorable to a rolling over to the downside (see this morning's SPX chart). For today, the bulls only need to see a smidge of green, to push up through 1705.50, and the 1707 gap fill will occur and a test of the all-time highs at 1709.67 in quick order. The bears need to push under 1698 to accelerate the downside. A move through 1699-1705 is sideways action today. Keystone's trading algo, Keybot the Quant, remains long but the caution flag is out. If the VIX moves above 14.64, now only pennies away, and if the SPX drops under 1698, Keybot will likely flip to the short side.

Four key parameters currently determine market direction; commodities GTX 4888, volatility VIX 14.64, copper JJC 39.90 and utilities UTIL 483.35. Commodities, copper and utes are creating market bearishness while low volatility maintains the market upside. The bears need the VIX to move above 14.64. Note that yesterday the VIX closes at 14.53 one single penny under the critical 200-day MA at 14.54 which determines if the bulls rule the markets, or the bears. The VIX 14.54-14.64 gauntlet is uber important today. A move above VIX 14.54 will cause market bears to crack a smile. The bulls need to push commodities, copper and/or utes higher, and this will seal the continued upside market move. Copper is up in early trading today and will send JJC into the 39.70's and 39.80's near the 39.90 bull-bear line in the sand. GTX 4888 must be watched at the opening bell since this will provide a direct read on market direction right away.

Housing Starts are 891K with a slight downward revision last month, a far cry from the one million plus that would typically provide an all-clear signal for housing. A Tuesday low typically leads to a Wednesday high during OpEx week and the nimble traders that caught the 1697-ish low, or even the 1695 low late Monday, are up almost ten handles. Keystone's Eclipse Indicator identifies the current window right now through 10/10/13 as having a high potential for a major market sell off. GTX 4888, JJC 39.90, VIX 14.64 and UTIL 483.35, as well as SPX 1705.50 and 1698, dictate market direction today. At 2 PM, the fireworks begin. The trading day may be slow until the final two hours which will be a circus.

Keystone took profits on the SCO short oil plays exiting the trades. Also took profits on the DNDN long trade exiting the position. Will look to reenter DNDN long.  Also bot SSG, a double inverse ETF that moves up if semi's move down (see this morning's SOX charts), opening a new long position. Also bot DXD, a double inverse ETF that shorts the Dow Industrials Average, opening a new long position.

Note Added 9:58 AM:  The festivities begin with the bears holding GTX under 4888 but the bulls push copper higher with JJC over 40 now in the bull camp. Thus, the market negativity created by GTX is offset by the positivity in copper. VIX remains under the 14.54-14.64 bull-bear gauntlet favoring bulls. TRIN 0.75 giving the bulls the nod today so far. SPX HOD 1706.10 still short of the 1707 gap fill. The bulls are trying to push the SPX up through the important 1705.50 today but so far they cannot attain their goal.

Note Added 10:38 AM:  GTX 4897. TRIN 0.69.

Note Added 12:28 PM:  GTX way up over 4900. JJC over 40. UTIL 481. VIX 14.59, under the 14.64 bull-bear line identified by Keybot, but above the critical 200-day MA at 14.54 which single-handedly causes market weakness despite the higher commodities and copper. The VIX above the 200-day MA is a very bearish market signal so watch this closely today. Markets are idling sideways waiting for the Fed. The VIX is within the 14.54-14.64 gauntlet; if VIX exits the gauntlet below, equities move higher, if VIX exits above, equities move lower. TRIN at 0.73 helps the bulls today.

Note Added 12:40 PM:  VIX 14.68 above the 14.64 bull-bear line which will create market negativity. Can the bears hold volatility higher in the minutes ahead and through the Fed?

Note Added 1:45 PM:  VIX 14.52. JJC 40.15. GTX 4915. UTIL 482. TRIN 0.69. Things are going the bulls way today despite the slightly negative indexes, however, the 8 MA just sliced down through the 34 MA on the SPX 30-minue chart signaling bearish markets for the hours ahead. Markets are at an inflection point with the Fed tapering decision minutes away at 2 PM followed by Chairman Bernanke's press conference at 2:30 PM. Bulls must catapult markets higher right now to reverse the negative 8/34 cross. Place chairs in the upright position and fasten all seat belts.

Note Added 2:01 PM:  NO TAPER!!!! What a shocker!!! The low and no taper folks were correct. The 85 billion per month of purchases, the easy money crack cocaine, continues. Order more syringes. Equities jump up to the SPX 1718 target from the ascending triangle on this morning's chart just like the jump from the Summers news on Monday morning. The SPX prints new all-time highs. VIX plummets to 13.55. The 10-year yield collapses to 2.76%. The 8 MA is above the 34 MA on the 30-minute signaling bullish markets ahead. Dollar drops to 80.60. Interesting, SPX is up 9 or 10 handles right now. This type of shocking positive news you would expect the SPX to be 25 handles higher. Gold jumps 30 bucks higher to 1340. The economy is so bad that the Fed cannot even reduce the QE by a tiny smidge.

Note Added 2:21 PM:  UTIL 490 due to the lower rates. So utilities add strongly to the upside market fuel now as well. All four key parameters mentioned this morning at the top of this missive are bullish. Dow at new all-time highs. Dow and SPX leading higher. The semi's, tech and small caps are surprisingly lagging. A day of surprises. The 80/20 rule played out with 1680 leading to 1720's. The 1718 leads to 1722 and price just blew through that over 1723. SPX is up 18 handles now more in line with the positive surprise. Chairman Bernanke wipes the jelly stains from his tie as he makes his way to the podium.

Note Added 3:04 PM:  There's the 24-handle up move on the SPX, a slow motion melt-up. Bernanke is moving through the press conference taking Q and A without incident. Sounds like QE Infinity continues for infinity. SPX now running towards the 1730 handle. HOD 1729.44. The 10-year yield is crushed to 2.71%, check that, now 2.69%, creating more and more distance from 3%.  Dollar/yen 98.04.

Note Added 3:08 PM:  Traders are running into stocks and bonds spending all the easy money. The 10-year yield is 2.68%. The 'taper' is now pictured on a milk carton.

Note Added 3:15 PM:  Trannies receive a boost from FDX today but it is surprising to see them lead most indexes higher considering higher oil. FDX is +5.3%. The small caps, tech and semi's continue to lag the broad indexes although the small caps are gaining ground. Two TICK numbers today at +1400, that is off the scale bullish. NYAD over +2200. Bernanke really knows how to spike the punch bowl and throw a par-tay.