The on-again off-again Greece bailout deal drama continues. Greece announced an imminent deal yesterday creating a big rally in European and US stocks but today German finance minister Schaeuble says he is not aware of any deal and he is involved in the deal making. Greece is playing a dangerous game of chicken. This morning Greece says a deal will be reached by Sunday but the markets did not eat that news bite with stocks subdued in Thursday trading. Chinese stocks are crushed and the action is explained at Keystone the Scribe's site.
Keystone's algorithm, Keybot the Quant is tracking utilities and retail stocks as the key market directional drivers currently. Bulls win with RTH above 76.40. Bears win with UTIL under 584.32 (its 50-week MA a critical broad market signal). UTIL is at 585.84 so the bulls laugh in the bear's face. However, RTH is 76.14 so the bears are laughing at the bulls. One of these two parameters should flinch to indicate market direction forward. If utilities remain bullish, and retail stocks bearish, then equities will float along sideways with a slight upward bias.
The SPX began May at 2086 with tomorrow the EOM and last day of trading. The price action over the coming eleven hours determines if the month finishes positive, or not. The SPX is currently printing 2116. The SPX is above the 200 EMA on the 60-minute chart at 2109 so the bulls are incontrol for the hours and days ahead. Bears got nothing unless they can send the SPX under 2109. The SPX 20-day MA is 2110.59 and 50-day MA is at 2098.87 two key support levels. The RUT (Russell 2000 small caps index) is at 1250 exactly at its 50-day MA support/resistance so this pivot will likely send the broad indexes in the same direction.
In addition to EOM tomorrow, key economic data is on tap including GDP, Chicago PMI and Consumer Sentiment.
Thursday, May 28, 2015
SPX S&P 500 60-Minute Chart 200 EMA Cross
Market bulls are fine as long as they keep the SPX above 2109. Market bears win going forward if the 200 EMA at 2109 fails. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added Monday morning, 6/1/15, at 5:45 AM: The bears keep fighting late last week and push the SPX under the 200 EMA at 2109 signaling bearish markets for the hours and days ahead. Of course the dance will continue in Monday trading. Bulls win above 2109.83 and bears will accelerate the downside if price remains under 2109.83. S&P futures are flat about 3-1/2 hours before the opening bell giving up +8 only a couple hours ago.
DDD 3D Systems Daily Chart Falling Wedge Oversold Positive Divergence
The charts indicate that the beatings have gone on long enough and some recovery is in order. For DDD, and the others, SSYS, XONE and VJET, the daily and weekly charts show positive divergence across all indicators so as knife-catch speculative plays, the 3D arena is very attractive. DDD, SSYS, VJET and XONE can all be viewed as attractive speculative long plays. Keystone bot DDD opening a new long position. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added Monday morning, 6/1/15, at 5:50 AM: DDD bounced +5% on Thursday and then gave back one-half on Friday. There is a high short interest in the stock so any sound bites create potential catalysts for the stock. A rumor hit on Thursday that GE is exploring a takeover of DDD at 32-42 per share. This appears to be market shenanigans with someone long DDD trying to pump the shares higher. The positive divergence as described above, along with the potential short-covering fuel, are both bullish but the play remains speculative. The new week of trading may prove quite interesting for the 3-D printers.
Wednesday, May 27, 2015
SPX S&P 500 Daily Chart Rising Bearish Wedge Versus Ascending Bullish Triangle
The battle of the red rising wedge pattern (bearish) versus the green ascending triangle pattern (bullish) continues. Bulls broke out to the upside but upon returning to the 2120 level for a back kiss, price collapsed back inside the triangle. Price remains inside the red wedge and now drops to the lower trend line of the wedge.
Allowing for some leeway and using the horizontal S/R levels below, between 2091 and 2135 is likely sideways noise. Bulls win big above 2135 since price will seek 2180 and 2200. Bears win big below 2091 with the road to the 2020 gap fill likely.
The SPX is under the 200 EMA on the 60-minute chart at 2108.44 so the bears are in control for the hours and days ahead. Bulls need the SPX above 2108.44 so they can place the party hats on their heads. Three days remain in May that started at 2086.
2135 (5/20/15 All-Time Intraday High: 2134.72)
2134.72
Previous Week’s High
2132
2131 (5/21/15 All-Time Closing High: 2130.82)
2129
2126 (4/27/15 Intraday High: 2125.92)
2124
2123
2122
2121 (4/24/15 Intraday High: 2120.92)
2120.01
Previous Week’s Low
2120 (2/25/15 Intraday High: 2119.59)
2118 (4/24/15 Closing High: 2117.69)
2117 (3/2/15 Closing High: 2117.39)
2115
2114
2113
2111
2110
2109.72 (20-day MA)
2108.44 (200 EMA on 60-Minute Chart a Keystone Market Turn Signal)
2108
2107
2104
2103
2100
2099
2097.20 (50-day MA)
2097
2094 (12/29/14 Intraday High: 2093.55)
2091 (12/29/14 Closing High: 2090.57)
2089
2088
2087
2085.51 May Begins Here
2082
2081
TRAN Dow Transports Daily Chart Death Cross
TRAN is at levels not seen since last October seven months ago. Price fails from the red descending triangle which forecasts far lower prices in the future. Perhaps a short term bounce will send price up for a back kiss of the triangle base line at 8600 but weakness would be expected to resume. The trannies have not made new highs to match the Dow industrials over the last few months so the Dow Theory non-confirmation of the stock market rally remains. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Keybot the Quant Turns Bearish
Keystone's proprietary trading algorithm, Keybot the Quant, flips to the short side after yesterday's opening bell at SPX 2121. Weakness in retail stocks, copper, commodities and utilities create the downside pressure in stocks. Watch UTIL 584.32. UTIL begins Wednesday at 584.39 helping the bulls. Markets will sell off if UTIL 584.32 fails. More information is found at Keybot's site;
Keybot the Quant
Keybot the Quant
Tuesday, May 26, 2015
SPX S&P 500 Daily Chart Rising Wedge Versus Ascending Triangle Negative Divergence Upper Band Violation Strong Trend Higher is Lost
Price tagged the upper standard deviation band so a move to the middle band, the 20-day MA, at 2110-ish is on the table and also a move to the lower band at 2079. The 2108-2110 level continues to identify itself as a key support gauntlet. The ADX line is down to 10 which is very interesting. There is no longer a strong trend occurring in the SPX's move higher despite the record all-time highs. The strong trend higher for the SPX ended in February (ADX under 23-25). The red lines show negative divergence across all indicators. The MACD line is trying to roll over but today needs to play out to see if it does or if it can eke out a couple more days of elevated stocks prices before giving up the ghost. The stochastics are overbot.
Bears need the RSI under 50 to prove they have the beans to take stocks lower. The expectation is for the SPX to leak lower for a potential major test of 2108-2110 where a critical bounce or die decision will be made. May began at 2086 with only four days remaining in the month; EOM is Friday. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
SPX S&P 500 1-Hour Chart
The blue lines show a closer look at an H&S pattern that targets the 2111-2113 zone and the 2108-2110 level is an important and strong support level. Thus, market bulls are fine as long as they keep the SPX above 2108-2110. Market bears win going forward if the 2108-2110, and the 200 EMA at 2109, fails. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
SPX S&P 500 2-Hour Chart
The MACD cross is bearish. The stochastics are under 50% in bear territory. Watch to see if the RSI drops under 50% which will signal further price weakness ahead. Price needs to revert back from its elevated status above the moving averages. The blue lines show a funky H&S pattern with a skinny middle head occurring within one 2-hour candlestick. To keep the math easy, the head is 2135, neckline at 2125, so target is 2115. A neck at 2123 targets 2111. Reference the SPX S/R missive previously posted where the 2108-2110 level is very strong support and would lead to trouble if it fails. A test of this landing zone is likely if price slips under 2123-2125. Lower prices are anticipated for a few hours forward unless Fed Chair Yellen or other central bankers flap their dovish wings handing out easy money to pump stocks higher. S&P futures were down -9 a couple hours ago but have recovered to down -4 with the opening bell about 90 minutes away. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
SPX Support, Resistance (S/R), Moving Averages and Other Important Levels for Trading the Week of 5/26/15.
SPX (S&P 500) support,
resistance (S/R), moving averages and other important levels are provided for
trading the week of 5/26/15. Levels shown in bold are strong resistance
and support. Bold and underlined levels are very strong and important S/R.
The SPX all-time intraday high is 2134.72
on 5/20/15 and the SPX all-time
closing high is 2130.82 on 5/21/15. The
low for this year is 1980.90 which
identifies the starting point of the huge February rally.
For Tuesday after the Memorial Day holiday with the
SPX starting at 2126, the bears only need a smidge of weakness to create
downside acceleration and the S&P futures are down -6 three hours before
the opening bell. Bulls need to retrace Friday’s down move to regain their mojo
above 2132. A move through 2127-2131 is sideways action to begin the week. The
SPX began the year at 2059 so stocks are positive on the year up +3.3%.
The last day of trading for May, EOM, is this Friday,
5/29/15, only four trading days away so the 2086 level is important since it
determines an up month, or not. The SPX is elevated above its moving averages
so a mean reversion lower is definitely on the table like prior market tops
over the last few months. Direct critical support levels below are 2131, 2126,
2123, 2121, 2118, 2110, 2108 and 2091. The support gauntlet at 2108-2110 is key
since the 20-day MA at 2109.95 and the 200 EMA on the 60-minute chart at
2108.72 is within this range. Bad things will happen to stocks if 2108-2110
fails.
Looking at the big picture the strongest S/R is 2135, 2131, 2126, 2123, 2121, 2118, 2110, 2108, 2091,
2081, 2076, 2067, 2061, 2046, 2040, 2038, 2032, 2030, 2023, 2019, 2011, 2002-2003,
1997-1998, 1993, 1988, 1985-1986 and 1982. The SPX moves choppy sideways through the 1990-2120 for the last six months
with price attempting to break out above at 2120-2130 for the last seven
trading days.
Bulls win big above the 2126-2135 level. Bears win big under
the 2108-2110 level. The battle continues between 2111-2125. Pay attention to
May’s starting number at 2086. If the 50-day MA at 2096.18 fails then the month
of May will surely end negative.
2135 (5/20/15 All-Time Intraday High: 2134.72)
2134.72
Previous Week’s High
2132.15
Friday HOD
2132
2131 (5/21/15 All-Time Closing High: 2130.82)
2129
2126.06
Friday Close – Tuesday Starts Here
2126.06
Friday LOD
2126 (4/27/15 Intraday High: 2125.92)
2124
2123
2122
2121 (4/24/15 Intraday High: 2120.92)
2120.01
Previous Week’s Low
2120 (2/25/15 Intraday High: 2119.59)
2118 (4/24/15 Closing High: 2117.69)
2117 (3/2/15 Closing High: 2117.39)
2115
2114
2113
2111
2110
2109.95
(20-day MA)
2108.72
(200 EMA on 60-Minute Chart a Keystone Market Turn Signal)
2108
2107
2104
2103
2100
2099
2097
2096.18
(50-day MA)
2094 (12/29/14 Intraday High: 2093.55)
2091 (12/29/14 Closing High: 2090.57)
2089
2088
2087
2085.51 May Begins Here
2082
2081
2080.66
(20-week MA)
2079 (12/5/14 Intraday High: 2079.47)
2077.99
(100-day MA)
2076 (11/28/14 Intraday High: 2075.76)
2075 (12/5/14 Closing High: 2075.37)
2073 (11/26/14 Closing High: 2072.83)
2072
2071 (11/21/14 Intraday High: 2071.46)
2069
2067
2065
2063
2061.45
(150-day MA; the Slope is a Keystone Cyclical Signal)
2061
2058.90 Trading for 2015 Begins Here
2057
2056 (11/18/14 Intraday High: 2056.08)
2054
2052
2050
2049.91
(10-month MA; a major market warning signal)
2046 (11/13/14 Intraday High: 2046.18)
2041
2040
2038.02
(200-day MA)
2038
2034
2032.50
(12-month MA; a Keystone Cyclical Signal) (the cliff)
2032
2030
2028.29
(50-week MA)
2024
2023
2021
2019 (9/19/14 Intraday High: 2019.26)
2018
2016
2014
2012
2011 (9/18/14 Closing High: 2011.36) (9/4/14 Intraday High: 2011.17)
2009
2007 (9/5/14 Closing High: 2007.71)
2005 (8/26/14 Intraday High: 2005.04)
2004
2003 (8/29/14 Closing High: 2003.37)
2002
2001
1999
Thursday, May 21, 2015
SPX S&P 500 2-Hour Chart Negative Divergence
Upon the higher price print the indicators display universal negative divergence with the two green lines turning neggie d with the new price high so price was spanked lower into the closing bell. The RSI never made it to the overbot territory but all indicators are neggie d across the one-month time frame and the shorter few-hour time frame. The expectation is that the market bears will send stocks lower from here, however, as always, the Fed lurks in the shadows ready to manipulate stocks higher.
Federal Reserve Vice Chairman Stanley Fischer who was the mentor of both former Fed Chairman Bernanke and ECB President Draghi, and now the right-hand man for Fed Chair Yellen, speaks at 1:30 PM EST. Thus, the bulls may pin their hopes on more Fed chatter to pump stocks higher and stocks may idle until his words are known after lunchtime. If the Fed was not manipulating markets, the chart would send stocks lower but since we live in different times where the central bankers are the market, Fischer's speech must be monitored. If he does not provide dovish talk, then the technicals will take over as described above sending equities lower. If Fischer flaps dovish wings to pump stocks higher, another price high will then result with the turnover to the down side delayed for a day or two. The Fed may use a tag-team approach to goose stocks since Yellen speaks tomorrow and she will flap her dovish wings.
Memorial Day is Monday and US markets are closed. Typically, stocks are buoyant the two days preceding a three-day holiday weekend. Thus, if Fischer spews dovish talk to pump markets higher, he may succeed in keeping stocks elevated into and through the holiday weekend, sending the RSI into overbot territory, and the bears will have to wait until Tuesday or Wednesday to start the move lower for equities. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Wednesday, May 20, 2015
SPX S&P 500 Daily Chart Rising Wedge Versus Ascending Triangle
Tuesday, May 19, 2015
BPSPX Bullish Percent Index Daily Chart
The market bulls need to reverse the BPSPX six percentage points which would be to 69 to receive a buy signal and above 70 for the double-whammy market buy signal. The BPSPX lags the actual real-time price moves in equities so it is more of a confirmation signal. The bears simply need to maintain the downward path and keep the BPSPX under 69 to maintain the double-whammy market sell signal. It is very odd behavior for such a big thrust higher in stocks but the BPSPX remains subdued. The BPSPX hints that the bears should be pushing markets lower despite the higher prices in equities. The central bankers are extremely powerful, as seen today with the ECB happy talk and European stocks catapulting higher. The central bankers are the market. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
SPX S&P 500 2-Hour Chart Overbot Negative Divergence
The RSI did not move into overbot territory so if the central bankers come out with more happy talk like the ECB this morning, the bulls may extend the elevated price for another couple days with the RSI moving into overbot territory. Barring the central bankers pumping markets with happy talk, the SPX should peak out and roll over on Wednesday. The red dots show price extended above the moving averages so a mean reversion lower is in play. If the retail company earnings are weak that may provide enough bear juice to roll the SPX over to the downside. Price may come up as stated to print at 2133 again or a smidge higher but that should top out the SPX due to the universal neggie d. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
INDU Dow Industrials and TRAN Dow Transportation Indexes Daily Charts Dow Theory Non-Confirmation Continues
The transports need to recover to 9250 and higher to confirm the move higher in the industrials and add credibility to the ongoing, never-ending, central banker-fueled US equity rally. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Sunday, May 17, 2015
SPX S&P 500 Daily Chart Moving Average Ribbon Shows Price Extended
Note Added 8 AM EST on Tuesday morning, 5/19/15: The SPX prints a new all-time record high at 2131.78 and new all-time record closing high at 2129.20 in Monday, 5/18/15, trading. The over extended price action continues.
SPX Support, Resistance (S/R), Moving Averages and Other Important Levels for Trading the Week of 5/18/15
SPX (S&P 500) support,
resistance (S/R), moving averages and other important levels are provided for
trading the week of 5/18/15. Levels shown in bold are strong resistance
and support. Bold and underlined levels are very strong and important S/R.
The SPX all-time intraday high is 2125.92
on 4/27/15 and the SPX all-time
closing high is 2122.73 on 5/15/15. The
low for this year is 1980.90 which
identifies the starting point of the huge February rally.
For Monday with the
SPX starting at 2123 the all-time record closing high, the bulls only need one
point, to touch the 2124 handle and bingo, a multi-handle upside acceleration
will occur with a new all-time record intraday high printing above 2126. Bears need to
push under 2117 to accelerate the downside which will immediately target the
strong 2110 support. A move through 2118-2123 is sideways action to begin the
week. The SPX began the year at 2059 so stocks are positive on the year up +3.1%.
Last week, note how price went down to tap the May starting
number at 2086 and bounced. The last day of trading for May, EOM, is on Friday,
5/29/15, so the 2086 level will become very important as the week progresses. A
new moon peaks at 12:15 AM EST (1:15 PM Tokyo Monday time), a few minutes after
midnight Sunday night tonight, and stocks are typically bearish moving through
the new moon.
The SPX is elevated above its moving averages so a mean
reversion lower is definitely on the table like prior market tops over the last
few months. Direct critical support levels below are 2110, 2108, the 20-day MA
at 2105, the 200 EMA on the 60-minute chart at 2100 and 2091.
Looking at the big picture the strongest S/R is 2126, 2123, 2121, 2118, 2110, 2108, 2091, 2081, 2076,
2067, 2061, 2046, 2040, 2038, 2032, 2030, 2023, 2019, 2011, 2002-2003, 1997-1998,
1993, 1988, 1985-1986 and 1982. The SPX
moves choppy sideways through the 1990-2120 for the last six months with price
now at the top of the range trying to break out from 2120-2123. The SPX is in a sideways choppy range at
2080-2120 for the last 6 weeks. Bulls win big above the 2123-2130 level.
Bears win big under the 2104-2110 level.
2126 (4/27/15 All-Time Intraday High: 2125.92)
2124
2123.89
Previous Week’s High
2123.89
Friday HOD
2123 (5/15/15 All-Time Closing High: 2122.73)
2122.73
Friday Close – Monday Starts Here
2122
2121 (4/24/15 Intraday High: 2120.92)
2120 (2/25/15 Intraday High: 2119.59)
2118 (4/24/15 Closing High: 2117.69)
2117 (3/2/15 Closing High: 2117.39)
2116.81
Friday LOD
2115
2114
2113
2111
2110
2108
2107
2104.78
(20-day MA)
2104
2103
2100.43
(200 EMA on 60-Minute Chart a Keystone Market Turn Signal)
2100
2099
2097
2094 (12/29/14 Intraday High: 2093.55)
2091 (12/29/14 Closing High: 2090.57)
2089.41
(50-day MA)
2089
2088
2087
2085.57
Previous Week’s Low
2085.51 May Begins Here
2082
2081
2079 (12/5/14 Intraday High: 2079.47)
2077.26
(20-week MA)
2076 (11/28/14 Intraday High: 2075.76)
2075.82
(100-day MA)
2075 (12/5/14 Closing High: 2075.37)
2073 (11/26/14 Closing High: 2072.83)
2072
2071 (11/21/14 Intraday High: 2071.46)
2069
2067
2065
2063
2061
2058.90 Trading for 2015 Begins Here
2057
2056 (11/18/14 Intraday High: 2056.08)
2054
2053.07
(150-day MA; the Slope is a Keystone Cyclical Signal)
2052
2050
2049.58
(10-month MA; a major market warning signal)
2046 (11/13/14 Intraday High: 2046.18)
2041
2040
2038
2034
2033.00
(200-day MA)
2032.22
(12-month MA; a Keystone Cyclical Signal) (the cliff)
2032
2030
2024.75
(50-week MA)
2024
2023
2021
2019 (9/19/14 Intraday High: 2019.26)
2018
2016
2014
2012
2011 (9/18/14 Closing High: 2011.36) (9/4/14 Intraday High: 2011.17)
2009
2007 (9/5/14 Closing High: 2007.71)
2005 (8/26/14 Intraday High: 2005.04)
2004
2003 (8/29/14 Closing High: 2003.37)
2002
2001
1999
1998
1997
1995
1993 (1/15/15 Closing Low for 2015: 1992.67)
1992
1991 (7/24/14 Intraday Top: 1991.39)
1988 (7/24/14 Closing High: 1987.98)
1986 (7/3/14 Intraday Top: 1985.59)
1985 (7/3/14 Closing High: 1985.44)
1983
1982
1981 (2/2/15 Intraday Low for 2015: 1980.90)
1979
1978
1976
1973
1970
1968 (6/24/14 Intraday Top: 1968.17)
1965
1964
1963 (6/20/14 Closing High: 1962.87)
1962
1961
1960
1958
1956 (6/9/14 Intraday Top: 1955.55)
1951 (6/9/14 Closing High: 1951.27)
1949
1947
1946
1942
1940
1937
1936
1931
AAPL Apple Weekly Chart Overbot Negative Divergence Price Extended
Price is trying to hold the trend line but remains far above the moving averages requireing a mean reversion lower. AAPL is not attractive from the long side and instead is a far better stock to potentially short on bounces. The only fly in the ointment for Apple bears is that the monthly chart, although negatively diverged, displays a higher MACD line so price may want to come up for one more look at the highs in June or July. However, the upside is likely extremely limited here on out. If you enjoyed long term profits on AAPL, cash out and put the money elsewhere or simply hold it in cash to guard against a major multi-year top in the stock market that is likely playing out over the coming weeks and couple or few months.
AAPL is expected to top out and roll over call it sideways to sideways lower moving forward. A move back above 130 will likely provide a great shorting opportunity. The sneaky money flow indicator over the last month is long and strong hinting that price may try to move back to 130. Overall, do not add to any Apple long position and quite the contrary begin trimming it back in earnest while contemplating shorts on any bounces. AAPL is not an attractive long play going forward. One year from now, AAPL will likely be under 100 perhaps under 90 which is a -20% to -30% haircut off current prices. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 8:10 AM EST on Tuesday morning, 5/19/15: Activist investor Carl Icahn says AAPL should be priced at 240 about double the current prices. He cites an Apple television and Apple car products in the future so AAPL jumps +1.1% on 5/18/15 to 130.19. Apple says this morning that the television concept was abandoned and instead the focus is on a set-top box product. Obviously, CEO Tim Cook is not keeping Icahn in the loop.
BTU Peabody Energy Weekly and Daily Charts Falling Wedges Positive Divergence
Forgetting about the politics, the charts say that coal is washed out. The weekly chart shows major capitulative selling last September, January of this year and last month as traders give up on coal's future. Even coal miner's desperate for money after losing their job have given up cashing in their coal stocks. The cab driver and shoe shine boy are telling everyone to avoid coal stocks like the plague. The only thing hated worse than coal is the Boston Marathon terrorist bomber.
Both charts are coming off oversold conditions displaying falling wedges (a bullish pattern) and most importantly, universal positive divergence across all indicators for the daily and weekly charts. As a speculator, this is a very attractive set-up for the long side but of course catching falling knives is an extremely dangerous occupation. Prices are under the moving averages desperately requiring a mean reversion higher. Peabody is a very dangerous and speculative trade but the expectation is for a large recovery bounce. Keystone opened a long position in BTU on Friday and will add if the stock drops further. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 8:15 AM EST on Tuesday morning, 5/19/15: BTU is beaten in Monday trading, 5/18/15, dropping -8.4% to 3.93. Knife-catches are never pretty. Price may want to seek 3.70-3.85 since the 4 level was breached. The above analysis holds for now although the bottoming of BTU may take several weeks due to the bludgeoning. Coal is the most unloved sector and coal stocks are the most unloved in the entire market.
America Remains Mired in Deflation; A Graphical Representation of the Keystone Speculator Inflation-Deflation Indicator
The 10-year yield is currently at 2.19% printing a 21-month low at 1.65% on 2/2/15 . In early 2009, the Fed saved the stock market with QE1 beginning the obscene Keynesian money-printing scheme that continues six years later. This central banker intervention continues globally along with low rate polices and the ongoing Fed ZIRP (zero interest rates) Forever policy.
Global central bankers collude to keep stock prices high that creates vast wealth and riches for the elite class that hold large stock portfolios while the middle class and poor, that do not own stocks, are thrown under the bus. Former Federal Reserve chairmen Greenspan and Bernanke, current Fed Chair Yellen, President Obama and democrat and republican politicians impose policies and back the Fed's decisions that make the wealthy wealthier and the poor poorer. This is America in 2015 that will surely lead to social unrest as the months and years play out.
The inflation versus deflation debate rages on between traders, investors, economists, analysts, strategists, students and all market participants and enthusiasts. Each side highlights anecdotal evidence to prove their case. Inflationists tout high food, energy, oil (energy and oil now lower), insurance and college tuition costs, as well as increasing home prices, while deflationists highlight long-term weakness in commodities (oil and commodities are weaker in recent months), lack of wage growth, falling Treasury yields (now moving slightly higher) and stagnant house prices to bolster their case.
The flat to lower wages is very important. Inflation will not exist without rising wages; this is why you want to watch the wage component in the monthly jobs report the first Friday of each month. Last month the average hourly wages remain weak up a paltry +0.1%. Wages are generally remaining flat so inflation remains on a milk carton (missing). The wage data in the Monthly Jobs Report is more important than the actual headline jobs number and unemployment rate. The UK economy appeared to be in solid recovery mode but is now waning as realization sets in that wages are not increasing and noninflationary, or more correctly, disinflationary pressures are developing or remain in place globally.
In the States, the US economy slipped back into Deflation in August 2014 as per the Keystone Speculator Inflation-Deflation Indicator. During the spring time in 2014 one year ago, the inflationists were on a roll. Oil prices were rocketing higher as well as energy costs and everyone took notice of the rising food prices at the super market choosing to eat spam instead of steak. The inflation-deflation indicator was above 3.00 in the middle neutral zone where inflationists and deflationists fight it out but the indicator never moved anywhere near inflation at 3.60 and higher.
In July and August 2014, the indicator drops into disinflation playing around between 2.90 and 3.00 due to the falling 10-year Treasury yields down towards 2.30% and lower and the dropping CRB Commodity Index under 290 and lower. Keystone's indicator falls into deflation in August 2014 which always creates a huge gasp of shock and surprise from the vast majority of investors and traders that say deflation will never exist and inflation should be arriving any minute (due to the obscene Fed money printing). They are wrong.
Money managers parade across television and computer screens daily 100% guaranteeing that note and bond yields will move higher--and some have been promising that since late 2009. The consensus continues to have the Treasury yield direction wrong and stubbornly remains on the soap box for higher rates since, well, more time has passed and rates have to go up, don't they? That at least is the thinking but remember, there is no one alive now that traded through the Great Depression that can provide insight into this current epic and historic market period that perhaps only occurs at an 80-year-ish cycle period or multi-decades stock cycle period a la a Kondratiev Winter.
The Treasury yields typically move in the same direction as the equity markets since money usually moves from stocks into bonds and from bonds to stocks depending on risk-off, or risk-on, respectively. Higher yields (lower Treasury prices due to low demand) = higher stocks = a move towards inflation. Lower yields (higher Treasury prices due to high demand) = lower stocks = a move towards deflation.
In normal markets, copper and commodities will push and pull markets in the same direction but the central banker money overrules all market fundamentals. Price discovery is lost across all asset classes due to the six years of obscene central banker intervention. No one truly knows what any asset is actually worth anymore. As long as global QE and the Fed's ZIRP Forever policy continues flooding the markets with cash, the stock market floats higher. The big upward move in commodities earlier in spring 2014 is what created the inflation buzz. The CRB went from 275 at the start of 2014 to nearly 315 at the June 2014 peak so this move pushed Keystone's indicator above 3.00. The CRB then collapses from near 315 down to 207 in March this year (two months ago) an epic -34% bear market failure that quiets the inflation talk.
The economy was in disinflation and deflation for much of 2013 but this did not have a negative effect on the stock market. The Fed's easy money funds dividend and buyback programs to pump stock prices higher nullifying regular expected negative market affects. In addition, the easy money is used to help fund buyback programs, M&A and tax inversion strategies. The Fed's easy money is making the wealthy super wealthy since they own stocks at the expense of the middle class and poor that are knocking on doors unable to find a job. The Fed has created an elite society in America; the rich are richer and the poor poorer. America is now the land of the have's and have not's rather than the land of opportunity due to the Federal Reserve's policies. President Obama is in full agreement with this direction since he appointed Fed Chair Yellen, Queen of the Doves, to the FOMC. She is a Keynesian that prints money to send the stock market higher. The president and republicans and democrats in Congress are all part of the elite class and cheer money printing that makes them all super wealthy.
The 10-year Treasury note price is used for the denominator of The Keystone Speculator Inflation-Deflation Indicator. The 10-year Treasury price is 99.844 with a yield at 2.15%. The 10-year yield was at 3.00% to begin 2014 about 85 basis points higher. The CRB Commodity Index is 231.46. Taking a look at the numbers;
CRB/10-Year Price = 231.46/99.844 = 2.32
Over 4.40 = Hyperinflation
Between 3.60 and 4.40 = Inflation
Between 3.00 and 3.60 = Neutral; Inflationists and Deflationists Battle
Between 2.9 and 3.00 = Disinflation
Under 2.90 = Deflation
The last time that rampant inflation existed in the US was from 2006 into 2008 as the stock market peaked out. During the Fall 2008 market crash into early 2009, commodities collapsed and investors ran to the perceived safety of US Treasuries driving yields lower. The pundits pound the table currently that low oil and commodity prices lead to great things ahead but it did not work out that way in 2008-2009. Instead, lower commodity prices was a harbinger of deflation and a stock market crash.
The indicator collapsed into deflation in early 2009. Former Fed Chairman Ben Bernanke is labeled as a 'student of the Great Depression' and his main takeaway is that the Fed did not provide enough stimulus quickly enough to prevent the depressionary malaise that developed through the 1930's. Therefore, Bernanke fired the huge QE1 money bazooka in March 2009 to save the country from a deflationary spiral. As the chart shows, the quantitative easing programs did work sending the indicator up into the neutral zone headed towards inflation. Bernanke must have been proud with his chest puffed out as he signed autographs. However, the US budget crisis and other economic softness created more concern in 2011 which led to the August 2011 stock market waterfall crash.
In May 2011, the indicator was above 3.60-3.70 signaling the existence of inflation but it was very brief. If you blinked you missed it. The indicator peaked out in 2011 and quickly retreated (inflation was very noticeable but it did not have staying power) as the stock market collapsed. The Fed has received a lot of heat over the last few years for remaining worried about disinflation and deflation but the chart clearly shows the Fed is correct to worry. The only thing the Fed has been correct about is its ongoing concern over disinflation and deflation. The FOMC is likely monitoring a similar technical presentation as explained in this article which definitely shows a country mired in deflation with inflation nowhere in sight despite the obscene Keynesian spending (the goal of the Federal Reserve's money printing scheme is to create inflation).
Since the 2011 peak, the indicator has moved steadily lower from above 3.60 down to 2.20 (from neutral down through disinflation into deflation) in April 2015.
Chairman Bernanke announced QE1, QE2 and Operation Twist to stop the free-fall into a deflationary spiral from 2009-2012. In late 2012, the Fed threw the kitchen sink at the markets with the promise of QE3 Infinity, timed with the ECB's OMT Bond-Buying program, and also QE4 Infinity and Beyond (which replaced Operation Twist with outright purchases), when the stock markets were already somewhat elevated (the QE3 and QE4 pumps are now simply referred to as the QE3 Infinity program). This orgy of Fed quantitative easing, along with the BOJ bludgeoning the yen (sending dollar/yen currency pair and Japanese and US stocks higher), creates the bullish equity markets all through 2013 adn 2014. In addition, the PBOC (China's central bank), the BOE (UK) and ECB (Europe) are all pumping the markets with easy money as well. The ECB announced and began its quantitative easing program this year in January which is pumping global stock markets higher.
The current 2.32 reading matches the level to begin the year coming off th euber low 2.20 in April one month ago. The chart sends a shiver down the spine that a Great Depression redux definitely remains on the table despite six years of obscene Keynesian spending. Keep in mind that the majority of strategists and analysts now proclaim that deflation is officially a thing of the past and will never occur--they are wrong. Folks continue to tighten their spending to stretch family budgets. Purchases are delayed since store discounts are increasing and the item will be cheaper in a couple weeks (a hallmark sign of deflation). A cash society is growing in the US since common folks can avoid paying government taxes putting more money in their pockets.
The wealthy, made wealthier by the Fed with obscene stock market gains are spending their winnings on luxury goods, high-priced real estate (creating a house price bubble), art (creating an ongoing art bubble), vintage cars and collectibles (all asset classes are in bubbles despite traders, investors, analysts, strategists and the media and pundits refuting this claim). The central bankers threw the kitchen sink at markets over the last 2-1/2 years but the US remains mired in the deflation quagmire anyway. Deflation is a powerful force that extracts pounds of flesh for prolonged periods of time. Japan is mired in deflation for the last two decades. Will the United States suffer a similar fate? Deflation was cheated and not permitted to play out in March 2009 when Bernanke stepped in with QE1. The stock market was never permitted to properly wash out in 2009 as capitalism dictates. Therefore, capitalism and free markets are a farce and actually do not exist in America. The central bankers are the market.
An over leveraged economy like 2006-2008 needs to result in failures so the slate can be cleared as capitalism dictates. Free markets and capitalism are dead in America since the government now saves companies from failure; especially the corrupt banksters that are in bed with the politicians. Society, especially the elite class, does not want to experience the negativity and pain associated with the cleansing side of capitalism. People only want to experience the happy side of capitalism (a rising stock market). The Fed tries to paper over the problems using time to an advantage but as time goes on, the chart above says the Fed's grand experiment is failing.
The lackluster action in the Baltic Dry Index (BDI) and shippers indicate a global slowdown is ongoing. Ditto the drop in commodities and weak copper. It is interesting to watch the power of the central bankers as they pump equity markets higher but without the global economy kicking into gear it will be all for naught. The debt created will only end with a more drastic fall from grace than late 2008 early 2009 since a healthy market bottom was never allowed to occur (free markets were destroyed as the bad side of capitalism was not allowed to take place to clear the market in early 2009).
The pundits and analysts that say Inflation and even hyperinflation are at the doorstep are incorrect. Inflation and even hyperinfation is definitely expected in the years ahead but it may be years away still yet (perhaps sometime in 2018-2025). Keystone is thinking that inflation will occur in sync with the 18-year stock cycle of 1964 (bear), 1982 (bull), 2000 (bear), and 2018 (bull). So the thought is that inflation and hyperinflation are perhaps two to four years away (2017-2020). Even if the 18-year stock cycle left translates a couple years, that would be 2016 still many months and a year or two away before Treasury rates would rise substantially.
The expectation remains that Treasury yields should move sideways for the next year or three. The 18-year bear stock market cycle (2000-2018) should raise its head moving forward for the last four years of its cycle (now through 2018). Judging from history, it would not be surprising to see the stock market down 3 of the next 4 years to finish the 18-year secular stock market cycle. It is very common to have sharp and strong cyclical bull rallies (2003 to 2007 and 2009 to present) within a secular bear market.
Deflation is nasty and will surely affect everyone's lives. Since prices drop precipitously in deflation, consumers do not spend money since next week the price will be even cheaper. This economic behavior leads to a stagnant and very sick economy with businesses closing doors due to the lack of demand. Companies are hanging on currently with skeleton work forces hoping for business to pick up. Note that top line sales and revenue numbers for all companies across all sectors have been flat to lower for the last two years and more. A downward deflationary spiral occurs since companies fire workers that are no longer needed due to falling product demand. Europe is on the verge of falling into a deflationary funk a la Japan's lost two decades. This is why ECB President Draghi began Europe's obscene Keynesian QE program this year to try and create inflation and the easy money is stimulating the economy.
The structural unemployment problem remains in the U.S. and the current stagnant wage growth (wage deflation) reinforces an ongoing deflationary and disinflationary theme. Technology, computers and the Internet are huge deflationary machines. Robots continue to replace human's on the job. The GOOGL driverless vehicle technology already has trucks operating on the road in California for several months and the accidents that have occurred are all the fault of other drivers. Last week, Google commits to expanding its driverless vehicle program. Just think of the impact to the trucking industry. Trucks could transport goods driverless allowing companies to drop-kick more workers across the parking lot. The pattern of 'more tech--less human's' will continue. The structural unemployment problem will continue in the US for years and perhaps decades forward. The unemployed and underemployed create a burden on the economy over time. The wealthy on Wall Street, in bed with the Fed, are enriching themselves taking advantage of the 2008-2009 stock market crash (with QE and ZIRP) while the middle class and poor (that do not own stocks) are thrown under the bus.
Companies are meeting EPS (earnings-per-share) by laying off workers and squeezing more production out of existing workers (as evidenced by flat to lower top line revenues for companies across all sectors for the last couple years!). These deflationary signals are ignored in the media. At some point, everyone will have to utter the 'D' word, deflation, and show respect to the 900-pound gorilla sitting on the living room sofa.
Watch Keystone's formula above, you can crunch the numbers to check on the indicator every few weeks. It is shocking to see equity markets print new record highs in recent months against a disinflationary and deflationary back drop. This behavior can only be chalked up to the amazing power of the central banker money-printing.
Inflation is not in sight despite the inflation-deflation indicator moving a touch above 3.00 in early 2014 due to rising food and beef costs. Corn and wheat prices have plummeted back to earth. Crops are producing yields at record highs over the last year so the food inflation will continue subsiding. The cheaper grain prices will bring down the cost of beef especially as herds increase after the culling due to drought 1-1/2 year ago. Stagnant wages in America will prevent inflation from occurring. When wages rise, that will tell you inflation is coming fast and Treasury yields will then rise strongly. As long as wages remain flat or lower, inflation will not exist. Think back to the last period of rampant inflation in 2006-2008; you were likely enjoying happy raises at work, right? And probably not so much from 2009 to present? Correct? Food price increases tend to be seasonal and weather-related and work through the system over time. Note how corn and wheat prices fell drastically back to earth during 2014. Folks are no longer complaining about high food prices.
What does all of Keystone's wind-bag mumbo-jumbo above say in a nutshell? The current answer to the ongoing inflation-deflation debate, is, Deflation; as much as everyone tries to fight it. After six years of obscene Fed and other central banker money-printing, the economy is mired in deflation proving that Bernanke's grand Keynesian experiment, blessed, implemented and continued by Fed Chair's Greenspan and Yellen, as well as dovish Fed members such as Evans, is likely tragically failing. Prepare yourself and your family by raising as much personal cash as possible and paying off debt. Avoid taking on new debt. Cash is king in deflation. Make sure you have plenty on hand. History may repeat. The bum standing on a street corner holding a tin cup in the 1930's Great Depression would ask a passerby, "hey buddy, can you spare a dime?"
Note Added 8:22 AM EST on Tuesday morning, 5/19/15: UK CPI is -0.1% in deflation missing the zero estimate. The UK falls into deflation for the first time since 1960.