Keystone's Morning Wake-Up 1/14/13

Tech and small caps led the broad market lower yesterday. The SPX sideways channel at 1824-1850 failed. The 20-day MA is 1824.04. Price broke lower from 1827 so this 1824-1827 area is an attractive back kiss target for price. S&P futures are higher so this test may be on tap today. The 8 MA is under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours ahead, however, the SPX is above the 200 EMA at 1817.12 on the 60-minute chart signaling bullish markets for the hours ahead. Either the SPX will drop under 1817 and lower to confirm the bear path forward, or, the bulls will recover and send the 8 MA above the 34 MA on the 30-minute. Use this as a confirmation guide for the path ahead.

Retail and biotech sectors were taken out back and beaten yesterday. Biotech, and the trannies, printed outside reversal candlestick days, typically a bearish indication moving forward. The trannies (TRAN) printed a new high before retreating and the Dow did not come up to confirm the new high from a Dow Theory perspective. Bulls need either RTH 60.03 or UTIL 494.12 to stop the market selling. Bears need to keep retail and utilities weak, respectively, and either move JJC under 40.40 or VIX above 13.90 to create another large market down leg. Keybot the Quant flipped to the short side yesterday. Retail and utilities are causing market bearishness and copper and volatility are causing bullishness. Minutes ago, Retail Sales were better than expected although the previous months were revised lower.

Business Inventories at 10 AM will create a market stutter step. Fed's Plosser speaks at 12:45 PM and Fisher talks at 1:20 PM. Both will likely hint that tapering should continue without interruption so this may usher in some market weakness. A full moon occurs tomorrow eveing at 10 PM EST. Equities are typically bullish moving through the full moon. Markets are also usually bullish in front of a three-day holiday weekend and Martin Luther King Day holiday is Monday, 1/20/14. During OpEx week, a Tuesday low typically leads to a Wednesday high. Therefore, the bulls have seasonality factors on their side to finish the week and a potential near-term market bottom may print today or tomorrow. Purely based on seasonality, equities would recover today into tomorrow morning where they would sell off again printing lower lows, then recover moving into the weekend. If wanting to play a quickie long trade, it may be prudent to simply wait until tomorrow to see how things shake out.

For the SPX starting at 1819, the bulls need to push retail and utilities higher to stop the market selling. The bears need to push under 1816 to accelerate the downside to 1808 and 1803 support. The 50-day MA is 1801.12. A move through 1817-1842 is sideways action. Pay attention to RTH 60.03 at the opening bell for an immediate read on market direction. Watch RTH 60.03, UTIL 494.12, JJC 40.40 and VIX 13.90 to gauge broad market direction. Any move in any of the 4 parameters will send equities in that respective direction.

Note Added 9:42 AM: All is status quo as the day begins. The 8/34 cross is bearish. The 200 EMA cross bullish. Retail and utes bearish. Copper and volatility bullish. Price comes up to back kiss the 1824-1827 area and now staggers along. Bulls will not confirm the upside without achieving either RTH 60.03 or UTIL 494.12. HOD 1827.35. The 20-day MA is 1826.49; watch this closely. Bulls got nothing unless they regain the 20-day. Note that the financials, XLF, sit directly on the 20-day MA at 21.72. You know what that means, yes, it is bounce or die time. Markets will likely move in the same direction as the financials (the pivot from 21.72, up, or down). What say you banks? Bounce, or die.

Note Added 6:44 PM: Bounce. XLF moved away from the 20-day MA ledge and climbed higher all day long to finish at 21.88. The four important parameters did not change; RTH 60.04, UTIL 494.12, JJC 40.40 and VIX 13.87. Retail and utes remains bearish while copper and volatility remains bullish. The expectation would be for flat markets with an upward bias but today the markets retraced yesterday's down move. The Nasdaq bounced stronger than yesterday's down move printing new 13-year highs. With VIX down at 12 now, and the Dow moving about 150 points per day either way, just think how wild it will be down the road when the VIX is above 20 and the Dow will be moving 300 points and more per day. Always trace the action back to the central bankers. The Fed and BOJ are the markets. Yesterday's market selling results from the dollar/yen dropping from 104 to 103, even briefly under 103, reflecting the stronger yen. Today the opposite. The BOJ shows up yelling Banzai! bludgeoning the yen with a baseball bat; the weaker yen catapults the dollar/yen from 103 to 104.18 and sends equities strongly higher. The 8 MA pierces up through the 34 MA on the SPX 30-minute chart signaling bullish markets for the hours ahead. Keep an eye on RTH 60.04 at the bell tomorrow, only 6 pennies on the bear side, since it will tell you the answer forward. Keybot the Quant remains short but if the RTH moves above 60.04 and SPX runs above 1839 and higher, and both stay elevated, Keybot will likely flip to the long side in Wednesday trading.