Keystone's Midday Market Action 7/25/14

The market drama continues. Semiconductors suffer a serious breakdown today. The news on chips has been weak over the last couple weeks. SOX collapses to a 619 handle. Keybot the Quant remains long but is in position to go short in part due to the weak semi's. Keybot is only hanging on to the long side by a thread and the algo will likely flip to the short side if the SPX drops under 1979 and holds this lower level for about five minutes time. The SPX is currently 1981.

If the SOX recovers today from 620 up to 622 and higher, equities will recover. Keybot the Quant identifies the SOX 624 level as a bull-bear line in the sand. SOX collapsed under 624 at the opening bell and this is what creates the majority of market directional weakness today. If the SOX drops further through 619, 618, etc..., the stock market will be falling like a stone. The VIX is 12.12 helping the bulls. Keybot identifies VIX 12.95 as the bull-bear line in the sand. Thus, the markets will fall apart if the VIX moves above 12.95. If the bulls can send the SOX steadily higher into the closing bell and keep the VIX tame at 12.12, equities will stabilize and float higher into the weekend. Any weakness in SOX or increase in VIX will send equities lower.

Interestingly, as this missive is typed, the SPX recovers to 1983 but the SOX remains flat across 619.49. VIX is 12.07 so the slight drop creates market lift. TRIN is 0.75 firmly bullish so it will help the broad indexes recover. Dollar/yen 101.82 dropping from the 101.90 plus highs only an hour or two ago so a stronger yen creates market weakness. The 10-year yield is 2.48% after teasing a hair above 2.50% earlier.

Keystone bot JJG opening a new long position. This long trade requires a nimble touch since a positive divergence bounce is expected from the daily chart but then weakness should return via the weekly chart. So perhaps a launch and gain of a few percent will be good enough to exit the trade quickly and move on. Reference previous chart on JJG a few posts back.

Note Added 10:36 AM: SOX 619.68. VIX 12.04. TRIN 0.76. SPX 1982.43. The 8 MA stabs down through the 34 MA on the SPX 30-minute chart at the opening bell today signaling bearish markets for the hours ahead.

Note Added 5:51 PM: SOX 616.65 so semiconductors knock stocks lower. VIX rises to 12.69 but the bears need another 26 cents or so to create mayhem. TRIN came up to 1.03 a single hair on the bear side as the day worked out. Retail stocks are weak and will play a key role next week. The main market directional drivers currently are semi's, volatility and retail stocks. Listen for any news in chip land or retail land over the weekend. Dollar/yen 101.82 remaining steady during the session so equities remained steady. Keybot the Quant flips to the bear side today at SPX 1975 at the lows of the day. The new moon occurs tomorrow and stocks are typically weak moving through the new moon. The Russian sanctions play a key role in markets now. When the threat for the deeper Level Three sectoral sanctions is on the table stocks drop when the fear of sectoral sanctions subside, stocks move higher. Germany is getting whacked on sanction concerns. Late in the day the rumor mill says stronger sanctions are coming early or mid next week.