Keystone's Morning Wake-Up 10/31/13; Fed Aftermath; Chicago PMI; CLX; NEM; XOM

Happy Halloween. Fortunately, for one day a year, Keystone does not need to wear a mask. Global markets are responding to the Fed's trick rather than treat yesterday. Let's take a look at yesterday afternoon. The FOMC Meeting Announcement is as expected; the Fed continues the 85 billion per month purchase program without changes. Equities immediately spike higher on the news but the headline statement is followed by the Fed saying ‘labor market conditions show some improvement’ and ‘downside risks to the outlook have diminished’. The Fed also does not mention the government shutdown so the overall tone on the economy is more positive than anticipated (thus, less QE, not more, and now traders are thinking a December or January taper may actually be possible). Markets quickly reverse and sell off. How ridiculous it is for markets to be purely driven off the Fed's actions; fundamentals be d*mned. The Fed is the market. The Dow drops over -100 points but recovers. The dollar pops and euro drops.  Commodities and copper weaken on the stronger dollar. The 10-year Treasury yield jumps from 2.48% to 2.52% then to 2.54% which chases the utility sector lower. At the bell, the SPX is down 9 points, -0.5% to 1763. The Dow loses 61 points, -0.4%, to 15619. The Nasdaq drops 22 points, -0.6%, to 3931. The RUT is crushed 16 points, -1.5%, to 1105. Tech and small caps lead lower. After the bell, V misses on earnings. SBUX misses on earnings due to weak China sales and drops -3%. FB earnings are stellar, however, the tween participation on FaceBook is dropping off dramatically. Anecdotally, young people now refer to the popular social site as MomBook. Mobile ad revenue continues to grow which is a big plus despite the loss of teen interest. FB pops +18% on the headline earnings but drops back to the flat line during the conference call. President Obama speaks on Obamacare and promises to fix the situation.  C and JPM currency traders are placed on leave when it is discovered they colluded through instant messaging for 3 years exchanging internal information and potentially rigging the Forex markets. A NBC News/Wall Street Journal poll shows a large drop in President Obama’s approval rating with only 42% of the country in favor of his actions (the lowest level for his presidency thus far) while over one-half of the country now disapproves of his actions. 70% of the country now says the U.S. is on the wrong track forward. The 3 years of lying about allowing folks to keep their current health insurance and doctors, which is untrue, is hurting his credibility.

For today, this is the EOM and October will print another up month. The monthly charts receive new data points today. Asian markets sell off in response to the weaker U.S. markets. Bad debt on China’s bank balance sheets continues increasing. Beijing’s tourism drops 50% this year due to the nasty air pollution. The BOJ meets and plans to continue stimulus measures without changes which helps the Asian markets slightly recover. The BOJ also upgrades GDP estimates moving forward despite a higher sales tax. Sony cuts profit forecasts. German retail sales and confidence data falls. ECB’s Nowotny hints at more stimulus coming so the euro weakens to 1.3700 (weaker euro will send the dollar higher and commodities lower). Royal Dutch Shell misses on earnings. AB Inbev (Budweiser) beat on earnings but volumes are dropping. Eurozone unemployment rate remains above 12%.   The Challenger Job Report hits in a few minutes. Jobless Claims 8:30 AM.  Chicago PMI at 9:45 AM after the opening bell. Natty Gas Inventories 10:30 AM.  Farm Prices are released at 3 PM so commodity markets are of interest today. Notable earnings today include AIG (financial), CLX (staple), COP (big oil), FLR (engineering and construction), GBX (M&A), GTLS (LNG), MOD (housing), NEM (gold) and XOM (big oil). PMI's are released overnight tonight.

On the technical side, the bulls need to push UTIL above 506.22 and/or GTX above 4874 to reestablish the market upside. The bears need to push JJC under 40.20 and/or VIX above 14.60 to increase the market selling. If all 4 parameters remain in their respective camps, the markets will stumble sideways. For the SPX today starting at 1763, the bulls need to push above 1775 to regain their mojo, a formidable task, but not impossible. The bears need to push under 1757 to accelerate the downside. A move through 1758-1774 is sideways action. S&P futures are -5 as this missive is written. Keybot the Quant remains short through all this market drama and despite the market buoyancy the last few days. If UTIL moves above 506.22 or GTX attains 4874, and the SPX moves above 1775, and stays above, Keybot will likely flip long. The 8 MA stabbed down through the 34 MA on the SPX 30-minute chart signaling bearish markets ahead in this VST time frame so watch to see if the bears maintain control, or not. Bring up an SPX daily chart and note the 5/22/13 market top which occurred on Chairman Bernanke's words. Yesterday's candlestick and Fed announcement is very similar where price leaped higher early in the day and then failed. The fractal from late May may repeat moving forward (price dropped for 2 days after 5/22, then popped to a lower high, then began the May-June selloff into the June low). UTIL 506.22, GTX 4874, JJC 40.20 and VIX 14.60 dictate market direction.

Note Added 10:19 AM:  The status is quo. Chicago PMI blows out to the upside so perhaps traders are worried about QE ending in these bazaar markets. UTIL is collapsing with a 497 handle. GTX is 4786. JJC 40.54. VIX 13.89.Thus, all 4 parameters remain in their respective bull and bear camps so the expectation is sideways equities but clearly utes and commodities are weakening further with volatility popping which provides a slight edge to bears so the SPX is down slightly leaking 4 points lower to 1758. Bears need a couple more points to create a downside acceleration. TRIN is 0.79 favoring the bulls today. Perhaps traders need a day of rest after yesterday's drama, plus time to prepare for trick or treating this evening. Bernanke and Yellen masks are the most scary masks of all. Keystone took profits on EUO (double X inverse euro ETF) and will look to reenter; it should have plenty of upside ahead (this is the short euro long dollar theme highlighted over the last few days).