The CPC and CPCE put/calls are at high readings, the NYMO is at a low reading, the NYAD shows a washout in negativity, the TICK machine prints an uber -1200 low yesterday, the SPX 2-hour chart prints universal possie d and the overnight yuan fixing is not as weak as expected (although the PBOC has now crossed the Rubicon by setting the yuan midpoint above 7.00 (weaker yuan) for the first time since April 2008). All these parameters are bullish for VST (very short term) tactical traders and the intraday lows yesterday provided a great entry opportunity.
It does not mean that the official all-clear has sounded for stocks. A tweet from President Trump or a central banker comment can immediately send the stock market wildly in one direction or the other. The TICK machine hit -1200 yesterday when trading started. A -1200 reflects uber negativity, all hope is lost, the end of the world is near. Of course that is when you buy. If you ever see a -1200 tick as a day trader, you buy, buy, buy. Conversely, if you see a +1200 tick, you go short. A -1000 and lower number reflects excessive negativity in the stock market and usually a bounce occurs while a +1000 and higher tick number reflects excessive euphoria and complacency and the stock market then typically retreats. 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.
The CPC and CPCE put/calls are at high readings, the NYMO is at a low reading, the NYAD shows a washout in negativity, the TICK machine prints an uber -1200 low yesterday, the SPX 2-hour chart prints universal possie d and the overnight yuan fixing is not as weak as expected (although the PBOC has now crossed the Rubicon by setting the yuan midpoint above 7.00 (weaker yuan) for the first time since April 2008). All these parameters are bullish for VST (very short term) tactical traders and the intraday lows yesterday provided a great entry opportunity.
It does not mean that everything is sunshine and roses ahead. A tweet from President Trump or a central banker comment can immediately send the stock market wildly in one direction or the other. The NYAD shows that the advance-decline issues hit a washout down at -2500 which is lower than the low after the Fall 2018 crash. 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.
The CPC and CPCE put/calls are at high readings, the NYMO is at a low reading, the NYAD shows a washout in negativity, the TICK machine prints an uber -1200 low yesterday, the SPX 2-hour chart prints universal possie d and the overnight yuan fixing is not as weak as expected (although the PBOC has now crossed the Rubicon by setting the yuan midpoint above 7.00 (weaker yuan) for the first time since April 2008). All these parameters are bullish for VST (very short term) tactical traders and the intraday lows yesterday provided a great entry opportunity.
It does not mean all is hunky-dory. A tweet from President Trump or a central banker comment can immediately send the stock market wildly in one direction or the other. The NYMO is down to levels consistent where stock market bottoms occur. 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.
Panic and fear return to markets during the selloff. As explained at the end of July, the put/call ratios were uber low signaling complacency and complete lack of fear. Traders were throwing darts at the stock pages to pick longs since everything goes up everyday forever. The Fed and other central banks plan on printing money forever so there is no need to ever worry about stocks going down again. When the joy is rampant, it is time to smack everyone in the face and bring them back down to earth. Stocks top out on the euphoric sentiment and retreat as expected.
The bloodbath over the last couple weeks receives everyone's attention and the bulls are no longer singing songs. Instead, the bulls are drowning their sorrows with booze. During the drop in stocks, Timmy Trader, a novice to such sharp retreats, could not take the pressure. Timmy flipped his wig, running across the trading room and jumping out of the window. Fortunately, he was on the ground floor. The blood is running in the streets the last few days. The baby was thrown out with the bathwater. You know all the ole Wall Street adages after a selloff.
Alas, just as night follows day and day, night, the pendulum swings back the other way. Investors are screaming bloody murder unwilling to buy stocks at any price. Traders seek protection driving the put/call ratios higher and reflecting the underlying fear in the market. Of course in trading, you want to buy when everyone is panicking and you want to sell when everyone is complacent and euphoric.
The green circles show stock market bottoms occurring at times of excessive worry and fear while the red circles show market tops when traders were complacent without worry. What do you think will happen?
The green circles at the right margin are purposely drawn large since people can always work themselves into a larger fear and panic resulting in more downside. After the Fall 2018 crash, note how the fear and panic was rampant during the third week of December. Stocks bottomed a few days later on Christmas Eve. The stock market was starting to collapse on 1/3/19 but that is when the Fed, colluding with the ECB, BOJ and other global central bankers, stepped in to save the world's stock markets. The early June stock market low is interesting. The fear an panic peaked about 2 or 3 days before the stock market bottomed; we are noiw in a similar type of window.
The CPC and CPCE put/calls are at high readings, the NYMO is at a low reading, the NYAD shows a washout in negativity, the TICK machine prints an uber -1200 low yesterday, the SPX 2-hour chart prints universal possie d and the overnight yuan fixing is not as weak as expected (although the PBOC has now crossed the Rubicon by setting the yuan midpoint above 7.00 (weaker yuan) for the first time since April 2008). All these parameters are bullish for VST (very short term) tactical traders and the intraday lows yesterday provided a great entry opportunity.
The rally will only have legs if the VIX drops below the 200-day MA at 17.19. If stocks continue to float higher but the VIX is unable to move lower, equities will roll back over to the downside and fall apart. Of course, there is also the unknown tweets from President Trump that may occur at anytime, good or bad. Central bankers rule the roost. 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.
The US 10-year Treasury yield drops to 1.64% below the level during President Trump's election in November 2016. The 10-year yield is at levels not seen since October 2016. Back then, republican Donald Trump defeated democrat Hillary Clinton and it was off to the races for stocks. Treasury bonds and notes sold off (yields rise) as traders expected a robust economy and strong growth ahead. The money leaving bonds flows into the stock market.
President Trump hacked away at banking regulations when he came into office which sent the stock market higher and yields higher (notes and bonds selling off). Like all prior presidents, Trump takes care of the wealthy first since this privileged class bankrolls the reelection campaigns in the future. Such is the crony capitalism system in America. Trump then cut taxes rewarding the richest folks in the US with thousands of dollars. This privileged class then contributed one-third of the tax gains to Trump's reelection campaign. This is how the corrupt republocrat and demopublican two-party system functions in America; both parties are two sides of the same coin.
Treasury yields move higher in 2017 and 2018 as the belief that good times, and inflation were ahead. Trump is unleashing the economy and investment banks, such as JPM, were touting a 4% yield in the months ahead. Alas, yields peaked last Fall, when the stock market peaked, and have collapsed ever since. Now the yield is below when President Trump took office. The move higher in yields a couple years ago is now matched, and exceeded, with a down move in yields since Fall 2018. The luster is off the orange rose.
Worries increase over the ongoing trade wars, protectionism and a slowing global economy. Investors and traders seek safety in US Treasuries sending note and bond prices higher and yields lower. The global central banks continue reducing rates which also forces US rates lower. The German 10-year bund yield is down to -0.60%. The world's Westernized financial systems are likely slipping away into chaos.
The chart has an island reversal vibe (blue lines) with yield gapping higher on the election and then sitting on the island for 2-1/2 years, and then coming down and gapping lower back through the same gap (or at least in the neighborhood). No one talks about inflation anymore. Dropping yields go hand in hand with a sick global economy, falling equity markets and a disinflationary and deflationary vibe. The end game may be near for the sick central banks that have controlled markets since March 2009. 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.
Gold overtakes 1500 for the first time since 2013 now printing 1507. Those tight standard deviation bands squeeze out the big up move. Price has exploded above the upper band. Bigtime. Price will have to relax at some point and perform some backing and filling. Gold will likely remain in that 1480-1530 range for a week or few.
Keystone's 80/20 Rule says 8's lead to 2's so the move above 1480 opens the door to 1520. The chart is in negative divergence, and price is overextended above its moving averages and the upper band, requiring a mean reversion. Gold is in demand, however, as a safety play as the stock market is on shaky ground. Thus, additional buoyancy in the yellow metal would be expected. There are many willing buyers currently. Gold price has momentum.
A two-leg bull flag pattern played out. The first leg was from 1185 to 1350 which is 165 dollars. The sideways consolidation flag occurs with a downward bias, this is textbook chart behavior, and the second leg begins at 1270-ish. The target is 1435 which was achieved as well as a lot more. Gold and bitcoin are two winners during the multi-day pull-back in stocks. 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.
The VIX is above the critical 200-day MA at 17.19 so the bears are in control of the stock market in the short-term time frame. Remember when Keystone posted this chart a couple months ago highlighting the brown circle? May was a tough month for stocks and as June started, the VIX was perched on the 200-day MA. The VIX direction from this pivot dictates the path ahead for the stock market (VIX and SPX move inversely about 90% of the time) and the VIX collapsed below the 200-day sending equities on a 7-week joy ride (green arrow) with new all-time record highs printing for the major indexes.
Alas, as the joy continued in stocks and highs were printing day after day, the VIX would not fall day after day as would be expected. When the SPX printed its all-time high at 3028 (3027.98 on 7/26/19) a couple weeks ago, the VIX lays flat (blue line); a divergence. Considering the epic new all-time record highs, the VIX should have been printing an 11-handle on its way to 10. Instead, it hung around the 12-13 range and then the central bankers could no longer hold the VIX beach ball underwater. Whoosh. Volatility pops and stocks drop.
Bears continue winning as long as the VIX remains above 17.19. A big relief rally will occur and bulls win below 17.19.
The Keybot the Quant algorithm is on the short side these days and tracking VIX 14.74 as a key bull-bear line in the sand. Thus, bears win and markets fall apart with the VIX above 17.19. Between 17.19 and 14.74, stocks will chop sideways and begin favoring an upward bias the closer the VIX gets to 14.74. Below 14.74, the bulls will rule the stock market as they send indexes back towards the record highs.
If stocks rally over the next few days but the VIX does not drop below 17.19, the rally is phony and stocks will sell off again. On say a week or two basis, if stocks rally for several days, but the VIX does not fall below 14.74, the bulls got nothing and equities will roll back over to the downside again. Bulls must push the VIX below 14.74 to guarantee stock market joy ahead. The VIX is printing at 20.27 on Wednesday morning 90 minutes before the opening bell for the US regular trading session. 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.
The yuan (renminbi) is the Forex rock star these days. The USDCNY currency pair, dollar/yuan, weakens past 7 for the first time since 2008; over one decade ago. The escalation in the US-China trade war rhetoric exacerbates the move. USDCNY is the onshore yuan; China's domestic currency. The USDCNH pair is the offshore yuan and better reflects the yuan price if the currency was allowed to free float. USDCNY prints at 7.0325 and USDCNH at 7.0759. In actuality, the yuan would likely weaken far further past 7.5, maybe past 8 and even 9 if it was ever allowed to free float.
As the yuan weakens, the USDCNH dollar/yuan currency pair number increases. The yuan is in the denominator of the fraction, or ratio, so a lower number sends the ratio higher. A stronger yuan will send the USDCNH lower. Thus, the move above 7.0 popping to 7.05 reflects an ever-weakening yuan; the yuan is weakening against the US dollar.
The red-letter date is 8/5/19 when the yuan crosses 7. The 7 level has taken on immense importance as a line of demarcation for yuan bulls and bears to ponder and battle. The plot thickens. Treasury Secretary Mnuchin proclaims China to be a "currency manipulator." Of course, President Trump likely told Mnuchin to make that proclamation or he loses his job. Comically, if convenient, Trump will throw Mnuchin under the bus in the weeks and months ahead if things do not go well.
A country devalues its currency to gain an advantage with its exports. This helps boost the country's economy by adding manufacturing and support jobs for increased exports. Many times, this activity will jump-start a country out of an economic malaise. However, if everybody and his bro has the same idea, the situation can turn into throat-slitting protectionism.
Overnight, the RBNZ (New Zealand) cuts rates by a surprise 50 basis points (0.50%). The RBI (India) joins the party and cuts by 35 bips another surprise. India has cut rates four times this year. Not to be outdone, Thailand cuts its key rate to 1.50% which was not predicted by any analyst. Next up at bat is the Philippines tomorrow, which will cut rates, and then Peru will cut on Friday morning and then Australia, the RBA, which will likely cut in September. The world has gone batty under the decade-long global central banker intervention in markets. The race to the bottom is underway with countries slitting each other's throats competitively devaluing their currencies and cutting rates a la the 1930's.
As mentioned above, the yuan would likely weaken significantly if allowed to float, and this fact makes the 'currency manipulator' comment peculiar. Typically, a country is actively cutting rates and seeking to devalue their currency, as the central banker examples show, but China is a horse of a different color. The yuan wants to weaken so the communists are actually shoring up the yuan to prevent it from falling further. This is the wacky world we are in after a decade of corrupt humans destroying the planet's financial systems.
So Mnuchin's comment labeling China as a currency manipulator is not what you think. Who knows if people in leadership even understand any of this economic and market mumbo-jumbo. This being the case, China is between a rock and a hard place. When a country is devaluing its currency, it is typically not concerned with it falling too far where capital flight would become a concern. However, this is China's main worry. Sure, the communists benefit from the yuan weakening past 7.00 to perhaps 7.10, 7.20 and even 7.30, since their export market will receive a big shot in the arm, but the concern over capital flight is far greater.
China has clamped down in recent years at capital leaving the mainland. The commie leadership has put the kibosh on Chinese citizens buying American property. Very tight controls are implemented to prevent cash from leaving China. Of course people will always find ways to get their money out of the commie nation (because the government may take it at any time). The rally in bitcoin is a great example. Bitcoin pops nicely in recent days and you have to figure a lot of Chinese buyers would rather take their chances with the digital currency rather than their own government.
Interestingly, the correlation between the yuan and volatility (VIX) is at a 3-year high. In other words, as the yuan weakens (the USDCNH currency pair moves above 7 and higher), the VIX increases and visa versa, as the yuan strengthens, volatility subsides. A rising VIX correlates to stocks selling off and a falling VIX occurs when equities rally.
In summary, China is far more worried about capital outflows from their corrupt communist nation than the trade war or any US comments on currency manipulation. The worries over capital flight create an incentive for the Beijing leadership to prevent (not allow) the yuan from falling much past 7.00, 7.10 or 7.20. China will collapse into a financial crisis if the capital outflows become excessive.
China wants the yuan (renminbi) to develop into a major global reserve currency competing with the US dollar but instability and a collapse in the yuan would push this communist goal far into the future.
The weaker yuan offsets trade tariffs and worries but is a double-edged sword that may cut the communist's heads off if cash continues leaving China. The PBOC, China's central bank, is intervening in markets to prop-up its currency rather than aid it in weakening. That's funny. There will likely be lots of drama ahead at the 7 level for yuan but at least now you understand the game in progress.
It is key to watch the daily yuan fixing rate by the PBOC. Stocks may remain weak if the PBOC fixes the yuan rate above 7 (weaker yuan) but may rally if the communist central bank maintains the fix below the 7 currency pair number.
History may not repeat exactly but often rhymes. Trade wars, currency wars, protectionism and the race to the bottom are well underway around the world. Countries have the knives out and are starting to slit each other's throats a la the 1930's which extended the Great Depression. We are experiencing historic times. 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: The chart is provided by XE which has great currency info and is annotated by Keystone.
Note Added 4:45 AM EST on Thursday Morning, 8/8/18: China sets the yuan midpoint at 7.0039 the first time it is set above 7 (reflecting a weaker yuan) since April 2008. The communists set the yuan midpoint at 6.9996 the day before a whisker from 7. China has now crossed the Rubicon and is allowing the yuan to weaken above 7 against the US dollar. Interestingly, US stocks stage a historic intraday turnaround in the Wednesday session. Futures are higher for the Thursday session. With the PBOC fixing the daily yuan rate above 7 for the first time in 11 years, the expectation would have been further selling in equities. Analysts, however, were expecting the yuan fix to come in at 7.0205 today far weaker than the 7.0039 announced by the PBOC. This is why stocks are rallying. It appears that China is perhaps setting a floor in the yuan. As discussed above, the communists are extremely concerned about capital flight out of China and a collapse in its currency so they are actually propping-up the yuan. As time moves along, and if further US tariffs are implemented against China, the PBOC would likely start fixing the yuan rate at weaker levels such as 7.01, 7.02 and 7.03. This behavior would likely result in a selloff in equities since the trade war, protectionism and bad will would be increasing between the US and China.
Note Added Monday Morning, 8/12/19: The PBOC fixes the yuan above the 7 level (weaker yuan) for three consecutive days. The currency war is underway.
The revisions to the employment data in the US Monthly Jobs Report are extremely important. By the Fed's own admission and data analysis, the revisions to jobs numbers tend to be higher when the economy is doing well but tend to come in lower when the economy is in, or headed into, a recession.
The revisions to the employment numbers are now on a four-month skid signaling a recession on the come. Remember that the economic data does not pinpoint exactly when a recession begins until a couple years later when all the revisions to GDP and other data are revised several times and finalized. It is likely that the US will be in recession this year despite the Wall Street analysts, television pundits and optimistic fund managers telling everyone and his brother that there is no recession in sight.
In the December 2018 jobs report, the prior month's jobs number was revised higher from 155K to 156K.
The following data is for this year;
For the 1/4/19 data, jobs are revised down from 312K to 222K
For the 2/1/19 data, jobs are revised up from 304K to 311K
For the 3/8/19 data, jobs are revised up from 20K to 33K so the bulls are feeling good
For the 4/5/19 data, jobs are revised down from 196K to 189K
For the 5/3/19 data, jobs are revised down from 263K to 224K
For the 6/7/19 data, jobs are revised down from 75K to 72K
For the 7/5/19 data (revised on 8/2/19), jobs are revised down from 224K to 193K
On 8/2/19, there are 164K jobs reported so watch the revision to be released in the next jobs report on 9/6/19.
Note how even the pitiful 75K jobs number in June was revised lower. The US is slipping into recession whether anyone wants to hear that bad news or not. If you are a young person, reference Keystone's prior article, "Clueless Millennials Must Prepare Financially, Mentally and Emotionally for the Coming Recession; A PSA (Public Service Announcement) for Millennials Explaining the Ugly Realities of Economic Recession," by K E Stone.
Keystone's proprietary trading algorithm, Keybot the Quant, flips to the bear side at SPX 2976 during yesterday's market mayhem. Stay alert for a potential whipsaw in these erratic and unstable markets.
Keybot the Quant
