Keystone's Morning Wake Up 11-2-11

Futures are happy, traders thinking that the latest Greece olympic-sized games will resolve without futher trouble while at the same time expecting happy details on the Fed's upcoming quantitative easing program. That is called looking at the glass half-full. In this environment, the Euro mess can blow up at any second, and instead of quantitative easing talk this afternoon, traders may hear crickets.

Sticking to the technicals to gauge today's action, watch XLF at the bell, now at 12.86. Keystone's algo is now watching 12.92, so if XLF moves above 12.92 at the bell, the market bulls will drive the indexes higher, if the 12.92 ceiling holds price down, the bulls got nothing.

If the XLF moves back above 12.92 favoring bulls, then look to copper and volatility to dictate broad market direction today. Use JJC as a copper indicator, watch 46.50, now at 45.35, over a point below, favoring market bears. For volatilty, VIX, watch the 30 level, now at 34.77, comfortably above in the bear camp.

Thus, if XLF jumps upwards, and it looks like it will since the futures are bright currently, JJC and VIX will lead the way.  If JJC stays under 46.50 and VIX stays above 30, the market bulls got nothing, the relief rally will simply serve as a countertrend pop. If either JJC moves above 46.50, and/or, if the VIX drops under 30, the market bulls will be returning the indexes to rally mode. Current thinking is that the JJC and VIX should remain bearish but with the European news flow, markets can, and do, change on a dime.

The CPC put/call at 1.35 is favorable to a market rally occurring now since it is over 1.2; bearishness increased quickly and this is a contrarian indicator.  NYAD printed an intraday low of -2400, closed at -2158, and Monday it was -1900, all are very low numbers consistent with wanting to now see a market bounce although there is a little wiggle room to go lower before a bounce would occur.  NYUD is at -1168, the early October market bounce occurred from -1400, so this area favors a market bounce. TRIN printed two closes the last two days at 2.9-ish, which represents strong selling, so this is agreeable to a snap back rally as well.

Keystone's SPX:VIX Ratio Indicator fell under 35 yesterday to verify the large down side move that occurred.  At the final print, in the final minute, however, the ratio popped from 34 to up over 35 by four pennies, final print is 35.04. Thus, if the ratio stays above 35, the market bulls are happy, below 35 and the bears rule.

Recently, countertrend moves have occurred in a shortened time frame. Instead of the countertrend move occurring for a day or three, in this wild market environment, subject to any news any minute, the countertrend moves have only been half day events. Thus, the short term indicators mentioned are agreeable to see a snap back rally but we will see if it lasts the day, or if the pop collapses as Chairman Bernanke takes his seat at the Desk Conference this afternoon.

Futures show the Nasdaq percentage up less than the S&P percentage at this writing hinting that the up move will not have legs today.  As described above, watch XLF 12.92 to get your bearings. Then watch JJC 46.50 and VIX 30 to gauge the strength of any up move.  Watch the SPX:VIX ratio to see what side of 35 it favors. These tools are all you need to know to determine broad market direction today.

SPX S/R 11-2-11

SPX support and resistance shows that price collapsed down thru the starting year number at 1258, thru 1242, 1227 gave way, 1225 failed, and even the critical 1220 level collapsed today, with the SPX finally closing at 1218. Thus, strong resistance is 1220 (support now becomes resistance) and strong support is 1210. The break out of this 1210-1220 range will tell a lot about market direction.

For Wednesday, if the bears can manage some red futures and push the SPX down to the low 1215's after the opening bell, about three points lower, then the large block sellers will enter and the indexes will tumble several more handles in short order, the SPX would test 1210 quickly and more than likely look to 1204 as stronger support. The market bulls are simply trying to stop the bleeding tomorrow, with a goal of preventing a 1215 handle from appearing with all their might.  That way, they can muster up some sideways action to absorb the two days of losses and regroup.

·        1259

·        1258 (1257.64 is the starting number for 2011)

·        1257 (3/16/11)

·        1254

·        1252 (9/14/08 pre-LEH bk)

·        Tuesday HOD 1251.00

·        1249 (LOD 3/16/11; failure at this level 8/4/11)

·        1247

·        1244

·        1242

·        1240

·        1235 (12/15/10; also HOD 12/7/10 large volume)

·        1233 (LOD 12/16/10)

·        1229

·        1227 (HOD 11/9/10)

·        1226 (11/5/11)

·        1225

·        1224 (12/7/10 large volume)

·        1222

·        1220 (HOD 4/26/10)

·        1219

·        Tuesday Close 1218.28

·        1217 (4/23/10)

·        Tuesday LOD 1215.42

·        1215

·        1213

·        1210

·        1209 (HOD 4/29/10)

·        1207 (4/29/10 Top)

·        1206

·        1204

·        1201

·        1199

·        1198

·        1196

·        1195

·        1193 (9/15/08 post-LEH bk)

·        1191

·        1189

Keystone's November Seasonality; Thanksgiving Turkey, Holiday Schedule, Palindromes, Eclipse and Emergency Alert System

The months roll along and good ole Keystone gets older. Before looking at November's seasonality, a look backwards at September, one of the expected worse months of the year, proved to be correct, and October, which typically finishes positive, showed stellar performance not seen in many years.  Although October is associated with the historic stock market crashes in history, those are one-off events, and October typically finishes up and is a good time to buy for the expected largest gains in the market that occur between November and April.  The point being that October was not as much an upside surprise as the media made it out to be. When October finishes positive, as it did, then the Dow Industrials are typically up 1.3% for the November that follows.

November is the month when turkey's try to hide from Farmer Brown. After the Thanksgiving meal, the men lay on the couch, with a belt buckle loosened, watching football in between bouts of nodding off from the tryptophan ingestion.  The markets will be closed Thursday, 11/24/11, to enjoy the holiday. Markets will also close early at 1 PM EST on Friday, 11/25/11. This day after Thanksgiving is known as Black Friday, which used to represent the largest retail day of the year, hence, many companies went into the black with their strong sales this day.  In recent years, other dates nearer Christmas have taken the lead as the largest retail sales day, but the day after Thanksgiving is always in the top three.

The month has 21 trading days.  This first week of November begins with four trading days.  The monthly Jobs Report is the first Friday, 11/4/11. Next week, the week of 11/7/11, is five full trading days.  OpEx week is the week of 11/14/11 so watch for the Tuesday to Wednesday market buoyancy from 11/15/11 to 11/16/11. Housing Starts is vital data on 11/17/11. OpEx Friday, 11/18/11, is typically an up day. The Thanksgiving holiday week begins 11/21/11 and will consist of 3 1/2 days of trading, the markets are closed on Thursday with a half day Friday. This Friday day of trading is typically the most likely up day of the entire year. Typically, markets are buoyant in front of a holiday. The month closes with three days of trading and the month ends on a Wednesday.

November, on average, finishes up 0.9%. That would be an upward move in the SPX of about 11 points for the month.  The largest gains in the market are made from November thru April (typically a 7.2% gain over this five-month period); flat returns May thru October. Many traders look to invest money in early November although this year does not appear typical. Q4 is typically the best quarter during the year with an average return of 4.3% during October-December. Tech and biotech are typically strong in Q4.

November and December are typically considered the two best months to buy stocks with traders getting in on the ground floor to take advantage of the bullish November to April period.  Pro's look at buying a New York REIT, such as NLY, since much of Wall Street bonuses are spent on real estate, but, perhaps the bonuses will be paltry this year.  The NLY daily chart is agreeable to some buoyancy in line with this seasonality but the weekly chart forecasts much lower prices in the weeks ahead thus nimbleness would be the operative word.

An old Wall Street adage says, "Buy on Thanksgiving and sell on New Years to pay the Christmas bills," thus, markets typically reward the long players from mid-November into the first week of January.  Congress in session is a market negative.  The markets are buoyant when Congress is not in session so keep an eye on the political schedule. Congress will be a major news maker this month since an agreement must be reached on budget cuts by 11/23/11, the day before Thanksgiving, and then a final vote occurs the day before Christmas. All the rating agency downgrade fears will be reexplored this month, obviously a market negative.

Watch the retail sector and holiday spending closely since this will push the broad markets one way or the other.   Retail stocks typically peak 12/1/11, and this year looks to be occurring earlier. Steel stocks typically run up from November into the end of the year. Traders like to buy steels the last week of November and sell them the last week of December, and short them in January. AKS sees upside option action today, perhaps some traders already have this seasonality play in mind. Tread softly since this year is anything but typical. The Dawali Festival is in November so gold buying in India tends to trail off afterwards.  Some investment houses close out their books ending November so this sometimes leads to EOM selling. Markets are typically down one-half percent for the final two days of November.

On the more esoteric side, several palindromes occur this month, all the single digit days early in the month are palindromes, also the 11th and 22nd; 11-1-11, 11-2-11, 11-3-11, etc...  This has no significance as far as trading is concerned although it always pays to keep your radar up during these days. Palindromes are letters or numbers that read the same forwards or backwards, such as "Some men interpret nine memo's." (Read it backwards) Also of interest will be 11:11 AM on 11/11/11, not that anything special should happen, the time will probably come and go unnoticed, but then again, that will be a time and day to pay attention.

The Nationwide EAS (Emergency Alert System) will conduct a test on the broadcast air waves (television) on 11/9/11, Wednesday, at 2 PM EST. No trading disruption is anticipated but it is another day and time to pay attention.

Keystone's Eclipse Indicator highlights certain areas of the year as potential large market selling event areas. The May-June sell off occurred, mid July and late July sell offs as well. Markets are in this eclipse window currently, a couple weeks or so on each side of 11/3/11, say from late October thru mid-November, so simply be aware of this.  Markets tend to be buoyant at the full moon and tend to sell on the new moon.  The Full Moon this month is 11/10/11 and the New Moon is 11/25/11, the day after Thanksgiving, Friday, which is a shortened trading session.  Interestingly, the projection for any selling on 11/25/11 due to the new moon is in direct conflict with the expected result that this is the most likely day of the year to show a positive market move.

Keystone's Midday Market Action 11-1-11

Wild start to the month today.  The Nasdaq percentage down and S&P percentage down are lining out together now at -2.1%, thus the markets are stumbling along sideways.  If the Nasdaq strengthens in relation to the S&P, then the broad markets will move back up.  If the Nasdaq worsens in relation to the S&P, it should drag the overall broad markets lower.

Continue to watch the four key sectors and critical levels for each as identified by Keystone's algo; XLF 12.95; RTH 107.25; SOX 371.50; and UTIL 439.  The financials appear most vulnerable, now printing 13.04 as compared to the 12.95, only nine pennies from failure which would also drag the broad markets lower.

For the bulls to resume the rally fun, copper, JJC, needs to recover from the China PMI slap down overnight, and regain the 46.50 level. Now at 45.36, that requires over a point move and appears formidable considering the lower growth projections now apparent from the PMI number. Also, for bulls to resume the fun, they would need the VIX to drop under 30 and at 35 last print, this is a ways away. Thus, the market bears are flexing their muscles today. Use the above guidelines to forecast broad market direction.  Last check, the Nasdaq is down 2.14% and the S&P is down 2.18%, let's call that even-steven, so the broad markets continue to move along sideways. Last check, XLF is 13.02, watch this closely.

Note Added 11/1/11 at 11:33 AM:  Watch the XLF, it may be cracking here, 12.98.....12.97....if 12.94 fails, all Hades will break loose..............

Note Added 11/1/11 at 11:44 AM: Broad markets dropping but the four sectors above are still holding.  XLF now 12.97........it remains safe by three pennies.  If the XLF does not crack and fail the 12.94 level, then this market selling over the last few minutes will subside again and markets will recover. If XLF fails 12.94, the broad market downside will accelerate.  XLF now back up to 12.99.......keep watching, the first test down to 12.94 did not punch thru, wait to see if there is another go at it.

Note Added 11/1/11 at 11:48 AM:  There she goes.......XLF 12.94.....whoa, recovery back to 12.96.........12.97.....the bulls are trying to hold back a collapse with all their might.........

Note Added 11/1/11 at Noon:  The XLF is putting up a fight, hanging on to 12.94 currently.......note the Nasdaq pecentage is now down 2.9% versus 2.8% for the S&P, thus the move down is developing street cred.  XLF is failing, 12.94.......12.93.......the XLF is now determining the fate of the markets today..........

Note Added 11/1/11 at 12:04 PM: XLF failed.........12.90...........12.92......21.91........see if XLF holds under 12.93 for the next seven to ten minutes, if so, markets will continue to sell off substantially taking the next leg down.

Note Added 11.1.11 at 12:07 PM: Stick save. XLF now 12.97. Broad markets will recover again and there they go, spoo's up about 3 or 4 handles.  The XLF 12.93-12.94 level is holding the fate of the markets in its hands. At 12.97 now, so the bulls cheated the devil once again. Keep watching.

Note Added 11/1/11 at 12:57 PM:  Here we go again.  XLF now printing 12.94.......12.93 is key, see if the market bears can push it down thru this time and make it stay. Now 12.93..........

Note Added 11/1/11 at 1 PM:  Bingo. XLF 12.92. Now 12.91. If this holds, the broad market selling will accelerate.

Note Added 11/1/11 at 1:07 PM: Stick save again. XLF 12.93 is the level to watch. A move below will usher in large block selling.  The market bulls recovered again with XLF now printing 12.94. Can the bulls maintain XLF above 12.93? The broad markets are watching...........

Note Added 11/1/11 at 4:10 PM:  XLF failure at 3:46 PM that helped push markets lower into the close.  At the final print, XLF closes exactly on top of 12.93.  How does Keystone always know these numbers before they happen? For the Wednesday session, XLF will provide an immdiate clue on market direction. If XLF rebounds above 12.93 tomorrow, then the broad markets will be buoyant. If XLF drops lower under 12.93, the market selling will continue.

Note Added 11/1/11 at 5:02 PM:  The 'final-final' settlement of XLF now shows a 12.86 print. Same game plan for tomorrow. The market bulls need to see XLF back above 12.93, if not, the bulls got nothing and the bears will continue with the market weakness.

Keybot the Quant Turns Bearish at SPX 1233

Keystone's algorithm, Keybot the Quant, turns bearish after the opening bell this morning. Volatility spiked and is remaining above 30, at least for now.  Copper price collapsed on the weak China PMI news. The broad market direction forward can be gauged by watching four key sectors and levels; XLF 12.95; RTH 107.25; SOX 371.50; UTIL 439.  If any of these levels fail the market selling will increase substantially.  If none fail, then the market selling will moderate and the indexes will move sideways.

As always, and especially now in these highly volatile wacky markets, stay on guard for a whipsaw move today or tomorrow.  More information at Keybot's site; http://www.keybotthequant.blogspot.com

11/1/11: Keybot the Quant flipped to the short side at 9:30 AM at SPX 1233; for the year thus far SPX Benchmark is down 2.0%; Keybot algo is up 26.0%; Keybot actual trading is up 35.6%. Watch for a whipsaw today or tomorrow.
10/24/11: Keybot the Quant flipped to the long side at 9:30 AM at SPX 1238; for the year thus far SPX Benchnmark is down 1.6%; Keybot algo is up 26.4%; Keybot actual trading is up 36.5%. The Fed's quantitative easing talk on 10/21 and 10/22 bounced markets. Watch for a whipsaw today or tomorrow.
10/20/11: Keybot the Quant flipped to the short side at 10:59 AM at SPX 1206; for the year thus far SPX Benchmark is down 4.1%; Keybot algo is up 29.1%; Keybot actual trading is up 40.3%. Watch for potential whipsaw. SPX 1220 is important, also SOX 363.65 and XLF 12.62.
10/6/11: Keybot the Quant flipped to the long side at 10:21 AM at SPX 1146; for the year thus far SPX Benchmark is down 8.9%; Keybot algo is up 23.9%; Keybot actual trading is up 35.5%. Watch for a potential whipsaw.

This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or on any links associated with this site. Consult your financial advisor before making any investment decision.

Keystone's Morning Wake Up 11-1-11

November kicks off on a sour note. China PMI overnight tanked the global markets. The growth picture from South Korea is not good either.  Banks are under severe pressure.  Italy bond yields are moving up indicating that faith is lost in the Europe debt solution. The dollar index is moving up. Futures show a large sell off on tap at the open, the S&P is down 38 handles, or 3%, the Dow Industrials down over 200 ticks, or 2%, and the Nasdaq is down 56 points, or 2.4%.

Note that the Nasdaq is not down more than the S&P in percentage terms so even though the selling appears to be severe, the move down should be muted. Keystone's algo is long going into today but a flip to the short side is definitely on the table.  The quant is watching voaltilty and copper price closely, and considering that the volatility should spike at the open, and copper is already trading weak, a flip to the short side appears on tap.  The market behavior, however, has whipsaw written all over it, considering that the Nasdaq percentage move is not leading the down move. Watch after the open to see how the Nasdaq/S&P relationship progresses.

The CPC put/call is up over 1.2 which is more agreeable to a rally, thus, after a strong down day today the CPC would be even more elevated for a reversal back up for the markets. NYAD printed -1908 at the close yesterday, a strongly negative number but not down towards -2500 where a market reversal to the upside is expected, but the selling today should deliver that -2500-ish number. NYUD printed near -1000, again, moving towards, or already at a point, where a market would be agreeable to see a relief bounce. And today should take the NYUD lower.

This week was set up to be an epic week of trading and so far, it has not disappointed.  Keystone's algo will probably flip short today but the move down will be suspect for the reasons described above. Strap yourself in for some choppy wild trading.

Since copper is already in a sell off, and volatility will spike, watch RTH in the early going. RTH begins at 109.58 and if the 107.50 level is lost, the market selling will be very real and expected to accelerate moving forward.

UPS United Parcel Service Weekly Chart with 20 and 50 MA Cross Secular Bear Market

Here is the fourth secular signal that Keystone tracks, the cross of the 20 and 50 week MA's for UPS. Shipping is the life blood of the economy, if lots of packages are moving, biz is good, so are markets, if the packages drop off and UPS earnings and stock price falls, that is not good for the economy or markets, it signals a slowing economy. Note the 20 MA crossing above the 50 MA in summer 2009. This served as confirmation that the March 2009 bottom was real, and that the good times are rolling along with QE1. The wine flowed like water and the bulls began a long 2 1/2 year party. What a glorious path lay ahead.

But, in August 2011, the punch bowl is dry and the party ended. The 20 MA crossed under the 50 MA signaling that the broad markets have fallen into a Secular Bear Market pattern moving forward, thus, lower indexes are anticipated for the weeks and months ahead.  This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or on any links associated with this site. Consult your financial advisor before making any investment decision.

NYA Weekly Chart with 40 MA Cross Secular Bear Market

Another of Keystone's secular signals is the NYA 40 week MA cross. The broad markets enjoyed a secular bull move up into the April 2010 top, then price fell under the 40 MA ushering in a bear market. Chairman Bernanke stepped in to save the markets from collapsing in August 2010 with QE3. Note the return of the secular bull market from September 2010 thru August 2011. Then, price collapsed under the 40 week MA indicating that the secular bear market has begun.

Note how the chart is very clean and respectful of the price versus 40 MA relationship, with only two stutter steps occurring, one in the summer of 2010 just before QE3 saved the markets, and the second in June 2011 (small teal circles). The market bulls are about 400 points below where they need to be.  The broad markets remain in a secular bear pattern so lower indexes are anticipated for the weeks and months ahead. Note the positive divergence which bounced price off the bottom in early October. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here or on any links associated with this site. Consult your financial advisor before making any investment decision.

SPX Daily Chart with 150 MA Slope Secular Bear Market

Remember how important it has been over the last few days to note if the SPX 150 day MA slope wants to change from downward-sloping to upward-sloping?  When the 150 day MA slope is down, a negative slope, the broad markets are in a secular bear market pattern.  When the 150 day MA slope becomes positive again, sloping upwards, then the secular market bulls are in control again.  After Chairman Bernanke announced QE3 in August-September 2010, the 150 day MA slope went positive to verify a bull market but as last Thanksgiving approached, November 2010, you see the stutter step. The slope of the 150 day MA went negative indicating trouble ahead and the markets did sell off in November 2010, but then recovered.  Note how from December 2010 into August 2011, the secular market bulls ruled, the stimulus was in full swing, money was dropping from helicopters.

Note the peak of the 150 day MA on 8/2/11; then it went negative ushering in a secular bear market. The 150 day MA slope has remained negative since 8/2/11 but in recent days, with the euphoric bull rally, the numbers were on the verge of wanting to turn the slope positive again, but so far, it has  not.  Check the 150 day MA each evening to keep track. The last few days show prints for the 150 day MA of 1264.89, 1264.43, 1263.98, 1263.79, 1263.62 and yesterday's print, 1263.18.  Note how each number drops a little bit each day verifying the negative slope. The secular market bears remain in control of the broad markets as long as the 150 day MA slope remains negative.

Also of interest on the chart, note the last move up with higher highs in price.  The MACD histogram, stochastics and money flow are all negatively diverged wanting to see a spank down, and price did pull back down yesterday, however, the RSI and MACD line remain in a long and strong profile for the recent move up, indicating that they would like to see a matching price high again, thus, stay on guard for a stutter step in here, where the markets drop, then spike back up again, before resuming a more steady downward trend. This action would also serve to slap the bears that jump on board quickly today, then the bulls that buy during a spike back up, and the markets are always out to frustrate the maximum number of traders at any given time. This information is for educational and entertainment pruposes only.  Do not invest based on anything you read or view here or on any links associated with this site.  Consult your financial advisor before making any investment decision.

SPX Monthly Chart with 12 MA Cross Secular Bear Market

Here is a long term look at Keystone's SPX monthly 12 MA cross.  If price is above the 12 MA, the broad markets are in a secular bull trend, if below, a secular bear trend.  The markets dropped into a secular bear in August, and as of yesterday's print, is now there for three months in a row; August-September-October. This ended the secular bull market that started September 2010 when Chairman Bernanke announced QE3. The secular bears remain in control of the broad markets, thus, lower indexes are projected for the weeks and months ahead. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view on this site or on any links associated with this site. Consult your financial advisor before making any investment decision.