Keystone's Weekend Reconnaissance 1/26/14; CAT

CAT earnings will set the market tone for Monday. Of course the Asian and European markets will provide insight as well as the currency markets considering the ongoing Turkish Lira and Argentine Peso trouble, as well as other emerging country currencies (South African Rand). Of course pay attention to the yen. Stronger yen = lower dollar/yen = lower equities. Weaker yen = higher dollar/yen = higher equities. On top of all this drama is the ongoing violence in Egypt, Turkey, Syria, Libya Ukraine, Brazil, Thailand, everywhere you look people are protesting and growing increasingly violent. Some are frustrated at their governments. Some are frustrated at the wealthy that created the financial meltdown five years ago and are now all wealthier than ever while everyone else is left holding the bag. This class separation is worrisome for the globe moving forward and also the US where most people probably think social unrest and protests on a violent level could never happen. They are sadly mistaken.

The bears performed some technical damage to the markets last week. The Dow and SPX lost the 50-day MA's but the RUT and Nasdaq have not. The 8 MA is under the 34 MA on the SPX 30-minute chart, and the SPX is under the 200 EMA on the 60-minute chart, both signaling bearish markets for the hours and days ahead. Keybot the Quant remains bearish. For the SPX starting at 1790, the bears only need to see a smidge of red in the futures and price will likely visit the 1821 support at a minimum. There are 3 key support areas below in this direct area; 1788, 1781 and 1772-1775. The SPX may bounce off one of these three support levels to create a recovery rally. The SPX is down 60 handles off the 1850 top. A move through 1791-1826 is sideways action for Monday.

The breakdown in utilities on Friday afternoon created the market mayhem into the closing bell. Watch UTIL 494.50 and 496.05. UTIL begins with a 491 handle causing market negativity. The bulls desperately need UTIL above 494.50 to stop the market selling. If the bears keep UTIL under 494.50, the markets have lots of downside ahead. The bulls will also try to push GTX above 4780 to stop the market selling. Bears need SOX under 522 to create another strong down leg for the broad markets. The CPC and CPCE put/call ratios and the VIX are heading higher indicating that fear and worry is increasing so these tools will be useful in identifying a near-term market bottom. Reference the charts this weekend for further color.

New Home Sales are released at 10 AM and may create a market pivot point. Dallas Fed Mfg Survey will provide insight into the manufacturing sector at 10:30 AM. Traders will try to start to front run the president's speech and there should be active trading this week in solar, coal, natty gas and energy stocks. In a nutshell, to begin the week, the bulls need UTIL 494.50 or GTX 4780 and they can breathe a sigh of relief since they can stop the market slide. The bears need a smidge of red in the futures to accelerate equities lower tomorrow and also the SOX under 522. If UTIL stays under 494.50, the bulls are in big trouble moving forward. UTIL 494.50, GTX 4780 and SOX 522 dictate market direction. Will the CAT pounce higher and help stop the market slide, or, cough up a hairball and create further negativity?

Note Added 6:15 PM:  Ukraine violence continues and the situation appears to be worsening. For the futures, the S&P's are -3.5, Dow -37 and Nasdaq -7.5. Dollar/yen is 102.03 so lower dollar/yen = stronger yen = lower equities. Asia markets are beginning in a downbeat mood. The S&P's are set up for the bears in the morning but the opening bell is a long way off and lots can happen overnight. The week is only now beginning.

Note Added 6:19 PM: S&P -5. Dow -50. Nasdaq -9. The 10-year yield is 2.72%. 2-year yield 0.34%. This places the 2-10 spread at 238 well under the 255 level and higher the banks need to be happy with a steepening yield curve. Therefore, the banks are sad. Copper is weak. The pressure mounts for the CAT earnings.

Note Added 7:50 AM on 1/27/14: Asian markets are bludgeoned playing catch up to the US sell off. The Nikkei drops -2.5% to play catch-up despite the weaker yen. The dollar/yen moves higher all night long from 102 now up to 102.90. Banzai! The higher dollar/yen, due to the BOJ weakening the yen, sends the futures strongly higher. S&P +9. Dow +63. Nasdaq +11. CAT earnings deliver the happy news today. Earnings beat on top and bottom lines which would bounce the stock a couple percent or so higher, however, the magical 'buyback' word is mentioned so a rocket is launched. Caterpillar announces a $10 billion stock repurchase program catapulting CAT +7% towards 92. Companies do not take cash and spend on equipment or new employees. Instead, the cash, and the Fed's easy money, are used to fund the obscene buybacks which sends the stock price strongly higher making the wealthy wealthier. Everyone that was told ahead of time that the buyback would be announced went long and now they are thinking about what to do with all their winnings as the little guy continues to hold the economic bag. CAT improves the market mood this morning. The currencies are of great interest including Turish lira, Argentine peso, South African rand and several others. The Turkey central bank calls an emergency meeting so the lira tries to stabilize knowing that further banker intervention is on the way.