Friday, October 31, 2014

SPX Daily Chart Upper Gap Fill Halloween Rally on Double-Whammy Japan Stimulus

Banzai!! The BOJ creates an orgy rally for Halloween. The SPX performs a complete 100% Fibonacci retracement of the September-October selloff from 2019 to 1820 a near 200-handle move down and back up in one-month's time. These are not your grandfather's markets. The central bankers control the markets. A 1.236% Fibonacci extension is 2066 (in play if the SPX moves above 2019-2020). The upper standard deviation band is 2025. Keystone's 80/20 rule says 8's lead to 2's so the breach of 1980 leads to the 2020's. So there are three upside targets at 2020-2066.

The gap fill is accomplished (small green circle). That was hanging over the bear's head during the entire selloff and move back up and the bulls finally fill the gap. Note the gaps on the downside that will need filled going forward (small red circles).The SPX all-time intraday high is 2019.26 on 9/19/14 and the SPX all-time closing high is 2011.17 on 9/18/14. Intraday today the HOD is 2016.18 above the closing high but not yet a new all-time intraday high. The SPX will need to close above 2011.17 for a new all-time closing high. The Dow printed a new all-time high this morning.


The strongest S/R is 2019, 2011, 2007, 2005, 2002-2003, 1998 and 1985-1986. So price is playing around in the 2011-2019 zone. The SPX started the month at 1972.29 and the month ends today so October will be a positive month. The monthly charts receive new prints today and the bulls may have enabled the stock market to maintain these highs for one to three more months when as of last month the SPX monthly chart was finally set up to roll over after six long years. The central banks knew this so they are goosing equities higher to keep the party going.


The green lines show long and strong indicators so higher highs are desired after any pull back occurs. The stochastics are pegged at the ceiling and negatively diverged so this will create an initial pull back early next week but then price should continue higher. Interestingly, the red lines show negative divergence across the multi-month time frame except for ROC. This hints that the new highs will continue for a few days or week or three but may run out of gas in a relatively short time frame. The RSI is not in overbot territory so that opens the door to more upside and price is very near the upper standard deviation band at 2025 which will probably be tagged. Note the violation of the lower band led back up to the middle band and now upper band.


The ADX shows a strong trend in place for the July-August selloff (pink box) and the September-October selloff is even a stronger trend. The huge rally over the last three weeks shows an ADX down at 23. If the move higher in stocks was a strong trend the ADX should be at 35 or 40 right now not 23. Volume is above average but let the day play out to see where it shakes out. It looks like the bulls are painting a happy tape into Thanksgiving targeting 2020-2066. Just as the market picture changed quickly overnight, it can very well change quickly the other way especially if negative geopolitical events occur. Charts will need a few days to absorb all the upside momentum.


Keybot the Quant remains long but there are two interesting things happening; copper and volatility. Whoa. As this missive is edited and finished the VIX actually turns a hair positive. For such a strong rally, the VIX is positive? Figure that one out? This is extremely odd market behavior. The Keybot algorithm identifies JJC 37.15 and VIX 13.94 as two critical bull-bear lines in the sand. The bulls need one or both of these levels to verify the upside market orgy and surprisingly neither has yet capitulated. The rally will be in question and likely top out and fail at these levels unless either JJC moves above 37.15 and/or VIX drops under 13.94 so watch these levels like a hawk (these general levels should be in play through next week).


The bulls play a trick on the bears today and take the treats. The bears only have rocks in their pillow cases like Charlie Brown. However, if copper remains low and volatility high, those rocks will turn into candy in the days ahead for the bears. JJC is currently printing at 36.82 and VIX at 14.53 both remaining in the bear camp. The stock market remains extremely erratic and unstable. 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 12:07 PM: SPX 2013. JJC 36.83. VIX 14.72.

Note Added 12:22 PM: SPX 2011.23. SPX all-time closing high is 2011.17 on 9/18/14. SPX is only 6 pennies from dipping under the all-time closing high. Price needs to close above 2011.17 at 4 PM to print a new all-time closing highJJC 36.79. VIX 14.81.

Note Added 1:16 PM: SPX 2014. JJC 36.83. VIX 14.50.

Note Added 1:40 PM: Keybot the Quant algo identifies VIX 13.94 as a bull-bear line in the sand but another metric you can always follow as a market gauge is the 200-day MA for the VIX now at 14.08. VIX is 14.51 on the bear side. So monitor both the 14.08 and 13.94 levels.

Note Added 1:56 PM: SPX 2011.72 teasing down towards the prior all-time high again. JJC 36.83. VIX 14.52.

Thursday, October 30, 2014

SPX 2-Hour Chart Overbot Rising Wedge Negative Divergence Upper Band Violation

Here is an update of the SPX 2-hour chart saga we have been watching since late last week. Back then, the RSI did not reach overbot territory and the MACD line was long and strong so more up in price was expected. The Fed decision throws a wrench in the works as the new week begins since markets tend to be positive in front of the FOMC meeting. In addition, markets are typically bullish the week in front of mid-term elections which is this week. Also, traders are perhaps sniffing out a republican takeover of the Senate and perhaps more business-freindly legislation on the way. To add on to the bullish orgy, and now that the Fed ends QE, global traders realize that Draghi will likely fire the QE money bazooka in the coming weeks and pump the European stock markets higher for months to come. Some of that ECB QE will filter into the States to keep stocks buoyant. Last year, 2013, the bulk of the +30% gain in the broad indexes was due to the BOJ easy money.

There were a couple fake-outs with the chart this week. Getting everything to line up properly can be like herding kittens sometimes. When the MACD line negatively diverges then the RSI decides to become long and strong and visa versa. Everything has to line up with neggie d to signal the near-term top. The chart is set up favorably for a pull back now (red lines).

Price has violated the upper standard deviation band (pink) so a reversion back to the middle band, at a minimum, at 1973 and rising, is on the table; also a move to the lower band at 1946 and rising is on the table. Clearly all indicators are neggie d now (red lines) where price moves higher but the indicators are sloping lower showing that price is out of gas. The expectation would be for the SPX to receive a negative divergence spank down. The strongest S/R is 2019, 2011, 2007, 2005, 2002-2003, 1998, 1985-1986, 1978, 1973, 1968 and 1965. The HOD is 1999.40 so price actually punched up through the 1998 R but on closer inspection, price punched up through, then failed a few minutes later, then again, and failed again, so the 1998 R holds.

The SPX started the month at 1972.29 and the month ends tomorrow so October will be a positive month unless the bears can take away 22 handles from here by 4 PM EST tomorrow. So the overbot conditions, red rising wedge and universal negative divergence should create a spankdown. Keep an eye on the MACD line cross that is a smidge away from crossing negative. Obviously, for the downside to occur, the MACD lines need to cross and move lower. 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 3:12 PM: The SPX receives an initial spank down from the neggie d to 1988 and now pulses higher. The MACD lines create a negative cross with the black line now under the red line but keep an eye on it to see if it holds. The S/R above shows a big zone between 1998 and 1986. Drilling down between these two strong levels the S/R is 1998, 1997, 1993, 1991, 1988 and 1985-1986. So price bounces now and hits its head on the 1991 R. So there are the two key levels, 1991 and 1988. Bulls win above 1991. Bears win under 1988. Price is staggering sideways at 1990.

Note Added 3:21 PM: Here's the test of 1991 R so price will either bounce or die.

Note Added 3:26 PM: Die. So the bears get a turn at bat and test the 1988 S to see if they can punch out of this 1988-1991 zone. So bounce or die from 1988.

Note Added 3:30 PM: Bounce. SPX is 1989. So the battle continues. Bulls want 1991+. Bears want to push under 1988. Who will win?

Note Added 3:35 PM: Here's the test for the bulls at 1991 R again. Bounce or die.

Note Added 3:47 PM: Bulls poke up through 1991 R so 1993 R is targeted. Bears need to push under 1991 that is support now. The negative MACD cross on the 2-hour chart remains and along with the universal neggie d, overbot stochastics, rising wedge, and upper band violation, as discussed above, the expectation would be for the SPX to sell off moving forward. Of course if a positive news event occurs charts would have to reset again but barring a positive news event the direction should be down. With the robust two-week momentum rally price has a lot of power and juice so some sideways movement is reasonable as price rolls over.

Note Added 3:53 PM: The bulls poke up through 1993 R, well maybe not, looks like 1993 is holding. If price moves up through 1993 R then 1997 R would be the next target. The MACD cross remains negative but the bulls are trying to reverse it into the closing bell to squeeze out more juice.

Note Added 3:56 PM:  The 1993 R is holding with only four minutes remaining.

Note Added 3:58 PM: The SPX pokes up through 1993 R and turns the MACD line cross positive--that is the bullish momo remaining in price. Note that the NYA moves above the 40-week MA which places the cyclical bull market pattern back in play. This keeps flip-flopping back and forth in recent days and is an important indicator for the weeks and months ahead. The fight for the NYA 40-week MA should continue tomorrow and even through next week.

Note Added 4:01 PM: The bulls print 1995 at the closing bell spending the overnight in the 1993-1997 zone. The bears will need to turn the MACD cross negative again on the chart above tomorrow. The expectation remains that the SPX should move lower from here with a near-term top in place so tomorrow we will see if this comes to be, or not.

Note Added 5:35 AM on Friday, 10/31/14: The positive news event occurs; a double whammy from Japan. The government is boosting its stock purchases by 25%  and the BOJ also announces more stimulus. It's obscene. The central bankers are the market. The SIP data feed outage yesterday was likely caused by the purchase of 15000 E-mini S&P's so the insiders are always told ahead of time. The markets are obviously rigged. Wall Street is an insider's game. The technical's and fundamentals take a back seat to the central banker easy money policies. S&P futures catapult higher +22. Dow is up nearly +200 points. Nasdaq +65. Banzai!!! The chart above will have to reset since a positive news event, an epic news event, occurs a few hours ago. The SPX is headed straight to the all-time high at 2019.

Wednesday, October 29, 2014

Keystone's Midday Market Action 10/29/14; Fed Ends QE Infinity

The Fed decision is fifteen minutes away at 2 PM EST (6 PM London time). The S&P 500 is down 7, -0.4% to 1978. The Dow is down 44 points, -0.3%, to 16962. The Nasdaq is down 32 points, -0.7%, to 4532 receiving a stronger beating due to weakness in FB and TWTR. The RUT is down 9 points, -0.8%, to 1141. Tech and small caps lead the broad indexes lower. Equities are at the lows of the day. Dollar/yen 108.08 so the BOJ continues to weaken the yen to prop up the markets

The VIX is 15.98 well above the 200-day MA at 14.06 where the market bulls would celebrate (under the 200-day MA). TRIN is 1.03 dead neutral refusing to pick a side. The 10-year yield is 2.33% running higher all day long. Gold 1224. Silver 17.27. Copper 3.10. The higher copper today helps the bull case. 


Whoa. Look at that. NYA 10645. The critical 40-week MA is 10647; one of Keystone's important market cyclical indicators (see previous chart). The stock market falls back into a cyclical bear market pattern albeit by two bucks. See if it can hold today, or not. The bears are fighting back as the Fed statement release is imminent.



Note Added 2:22 PM: At 2 PM, the Federal Reserve ends QE. The Fed statement appears more hawkish. The Fed says there is a substantial improvement in the labor market since the QE program began. The Fed sees underlying strength in the economy. There is no change to interest rate policy. The ZIRP (zero interest rate policy) remains for a “considerable period of time” so this key statement is left unchanged. The Fed says that economic activity is expanding. The under utilization of the labor resources is gradually diminishing. These statements paint the picture of a stronger economy than the Fed has previously described. The Fed says inflation is held down by energy prices but the chance of ongoing low inflation is diminishing.

The vote is 9-1 with Kocherlakota dissenting. Kocherlakota is a dove. So the couple of hawks on the Fed are in agreement with the end to QE but a dove disagrees confirming a more hawkish statement. The Fed statement hints that a June 2015 target for the first rate hike is firmly in place if not sooner which shocks the market since yesterday traders expected a statement about keeping QE available on the back burner if needed. It  is surprising how the Fed downplays deflationary concerns.

Stocks collapse. The dollar spikes higher to 85.75 so the euro collapses to 1.265. The spike in the dollar spikes the dollar/yen to 108.70 due to the stronger dollar. The 10-year yield is 2.35%. Gold 1220. Silver 17.23. Copper 3.10. The broad indexes drop to the lows of the day. At 2:05 PM, SPX 1975, Dow 16945, Nasdaq 4528. RUT 1140.


Traders view the statement as hawkish so the Fed may be on target to announce the first rate hike before June 2015 which sends stocks lower and yields higher. At 2:18 PM, the SPX is 1970. Dow 16910. Nasdaq 4518. RUT 1138. The 10-year yield runs to 2.36% at a three-week high. 30-year yield 3.09%. VIX is unchanged at 15.89. TRIN 1.07 remaining neutral.

Note Added 2:25 PM: Equities are bouncing. SPX 1975. Dow 16975. Nasdaq 4532. RUT 1141. 10-year yield 2.35%.



Note Added 2:36 PM: SPX is 1980 recovering the entire drop from 2 PM. Dow 16974. Nasdaq is 4540 at its 2 PM number. The RUT is 1146 catapulting higher now a couple point above the 2 PM number. The 10-year yield relaxes to 2.33%. So after all the excitement, the stock market recovers from the knee-jerk reaction lower to exactly where it was when the statement was released at 2 PM; the RUT is marginally higher.


Note Added 2:49 PM: The SPX is down 11 points, -0.6%, to 1974 leaking lower again. The Dow is down 71 points, -0.4%, to 16935. The Nasdaq is down 34 points, -0.8%, to 4530. The RUT is down 8 points, -0.7%, to 1141. Tech and small caps lead lower. The NYA is 10621 remaining under the 40-week MA signaling a cyclical bear market for the weeks and months ahead. VIX 15.60. The TRIN inches up to 1.17 favoring the bear camp.

Note Added 8:55 PM: The end to the wild day of trading is chronicled on the Keystone the Scribe website. Use the link here or in the right margin.

VIX Volatility Daily Chart 200-Day MA Cross

Markets are idling sideways until the Fed statement. A key market signal is the VIX 200-day MA where market bears win above and market bulls win below. The September-October sell off was verified in the third week of September when VIX launched above the 200-day MA. Bears had smooth sailing until the last couple weeks and today the VIX drops to test the 200-day MA; and bounces.

Market bears remain in the game as long as the VIX stays above the 200-day MA at 14.06. All hope is lost for market bears and bulls will rule if VIX falls under 14.06. Check the VIX after Fed Chair Yellen brings the tablets down from on high and releases the Fed statement at 2 PM today (6 PM London time). 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 9:05 PM: VIX ends at 15.15 after printing a LOD at 14.19 and HOD at 16.28. Keep monitoring this chart for the days ahead. Bears win moving forward as long as they keep the VIX above the 200-day MA at 14.06. Bulls will rule the markets going forward if the VIX drops under 14.06.

Note Added 2:45 PM on Thursday, 10/30/14: VIX drops intraday down to 14.07 for a LOD exactly at the 200-day MA at 14.07. VIX  bounces now at 14.35. This is uber important. A VIX under 14.07 will give the bulls the firm go signal for upside markets ahead. If VIX remains above 14.07 the bears remain in the game.

FB Facebook Weekly Chart Overbot Rising Wedge Negative Divergence

FB is down about -8% pre-market to 74.84 after reporting earnings last evening. This chart was posted two weeks ago  (bring that chart up by typing 'FB' into the search box at the right for further study). The chart was cooked then and had no reason to print additional highs but the bulls managed to eek out more upside perhaps after Zuck was shown talking Mandarin. Maybe he should spend more time running the company instead of studying languages. The MACD negative cross was reversed so watch for that downside confirmation again.

Anyway, the same analysis holds. Stochastics are overbot again. The red rising wedge pattern is ominous and the collapses from rising wedges can be quite dramatic. Price should receive a strong spankdown. The 20-week MA at 73.80 will provide initial support. Strong horizontal support exists at 72.5-72.9. If this fails it is lights out. Expectation is that FB has placed a significant market top that may hold for months, or even years. If you rode it higher, take the money and explore other opportunities. FB can be played from the short side here on out. Keystone does not hold a short position currently. 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 9:01 PM: FB ends the day down -6.1% to 75.86. There's a juicy gap fill needed at 73-74 on the daily chart. CNBC television traders Guy Adami and Pete Najarian tell viewers to buy FB. The chart above says sell. What would you do?

Tuesday, October 28, 2014

NYA NYSE Composite Index Weekly Chart Price Crosses Above 40-Week MA Signaling Cyclical Bull Market

The bulls hand the bears a fatal blow today with the NYA moving above the 40-week MA at 10646-10648; a key Keystone market signal that predicts a cyclical bull market for the weeks and months ahead. Up to today, bears were fine for the intermediate and long term despite the two-week rally. A cyclical bear market was in place after the failure of the 40-week MA three weeks ago. Today that changed; the bulls have recovered. If the NYA stays above the 40-week MA, the bulls will rule the markets for the weeks and months ahead.

The market bears must come to play tomorrow and the following days to reverse the cross back to the negative side sending NYA under the 40-week MA or they got nothing. This signal is very important, one of the most important market signals available since it tells you the market direction for the weeks and months ahead. Bears better eat their Wheaties for tomorrow or they are in big trouble. The NYA has not traded under the 40-week MA since mid 2012 the last time the market was in trouble.

The stage is set. Bears must send NYA under 10646-10648 tomorrow or in the coming days or they will fold like a cheap suit and bulls will take stocks higher for the weeks ahead. Price begins at 10678 so bulls are happy at 30 points above while the bears need 30 points lower to reclaim the cyclical bear market pattern. 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 9 PM on Wednesday, 10/29/14: You cannot make this stuff. The NYA ends the day at 10646.66. The NYA 40-week MA is 10647.42. So the bears retake the cyclical bear market signal moving forward for the weeks and months ahead albeit by 76 cents. This battle will probably continue for several days.

SPX 2-Hour Chart Overbot Rising Wedge Negative Divergence Inverted H&S

We have been watching the 2-hour chart waiting for the MACD to develop negative divergence. Finally, the indicators are lined up for a near-term top. With the strong upside thrust at the opening bell the bulls have momo and will try to boost the RSI higher but the current set up (overbot conditions, rising wedge pattern, negative divergence across all indicators) forecasts a price top and spank down on tap. Watch for the MACD lines to cross to confirm a down move ahead, or not. At the same time watch the RSI to see if the bulls can scratch out any additional strength.

The SPX takes out the 50-day MA at 1967.04 but price may want to back test this critical moving average today or tomorrow. The inverted H&S is played out satisfying the pattern (brown bars). The expectation is for a roll over to the downside unless the RSI squeezes out any additional juice. The Fed decision is tomorrow so markets may favor a sideways move. The bulls have a lot going for them with copper and semi's boosting equities higher this week. Seasonality-wise, the week before the mid-term elections is typically up and so far this pattern is fulfilled. The starting month number is 1972.29 so price has less than four days to decide if a negative or positive month will print.

Key S/R is 1951, 1958, 1960-1961, 1962 (100-day MA), 1966 (20-week MA), 1967 (50-day MA), 1968, 1972.29 (October starting number), 1973, 1978 and the strong 1985-1986 ceiling. Note the strong moving average cluster at 1962-1967 identifying this area as very important S/R. Bulls win above 1967. Bears win below 1962

Keybot the Quant remains long and the bulls are in full control receiving a boost from semiconductors above SOX 613. In addition, JJC (copper) moves above 37.16 (all bull-bear levels are identified by the Keybot the Quant algo) today creating the upside thrust to begin the day. The bulls start the day strong but bears should be able to top price out at these levels in the hours ahead. Watch the MACD line cross to verify the roll over to make for happy bears. Watch RSI to see if it prints higher to make for happy bullsThis 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 9:59 AM: The HOD 1972.66 is teasing the starting month number and above the 50-day MA. The 1973 resistance holds back price, so far.

Note Added 10:01 AM: Consumer Confidence data is a blowout 94.5 not seen since the October 2007 market top. Richmond Fed manufacturing data is also strong. It's all going the bull's way. The SPX idles sideways. TRIN is 1.15 on the bear side not reflecting the strongly bullish day in stocks. Watch to see if the bulls can take out the HOD.

Note Added 10:05 AM: Price prints a new HOD above the 1973 resistance so the 1978 R is placed on the table.

Note Added 10:07 AM: The drama continues for the 2-hour chart above with the RSI dead flat sideways as price moves higher so the bulls do not receive the firm go signal. At the same time, the MACD lines do not yet cross negatively so the bears do not have the downside confirmation as yet. Thus, the battle continues through the 1968-1973 S/R zone. The 1973 R is key which would lead to 1978 if it gives way. Bears need to hold the line at 1973 and can only accomplish this goal with weaker semiconductors and copper. Price may try to remain sticky at the October starting number at 1972 until Fed Chair Yellen brings the tablets down from on high tomorrow and dictates how the markets trade.

Note Added 11:20 AM: The bulls inch the RSI higher taking out the prior highs so the bulls should receive 1 to 3 more candlesticks of upside juice; 2 to 6 hours of trading time. It is looking more like equities want to stay elevated into the Fed tomorrow. Price moves above 1974 taking out the 1973 R so 1978 R is firmly on the table. The expectation remains for a near-term top but the RSI has to reset with neggie d, so price should top out between 1974 and 1978 over the coming hours. The bulls have momo and note how semi's and copper remain strong providing bull fuel. Bears will need copper to roll over and JJC to drop under 37.16 if they want to stop the upside run in equities. TRIN 1.06 call it neutral (1.00). For a strong up day like today, the TRIN would be expected to be under 0.80.

Note Added 11:32 AM: The TICK machine prints +1000 at 10 AM-ish and about fifteen minutes ago corresponding to the tops in the SPX. HOD thus far is 1974.59 so watch this number. The bulls are trying to maintain buoyancy into the Fed decision tomorrow. If Yellen flaps her dovish wings with more stimulus, the SPX will receive the typical 20-30 handle pop and charts will have to reset. Price should back kiss the strong 1973 support that was resistance when the session began.

Note Added 11:36 AM: Here's the SPX back down to back test the 1973 S/R. It is time for price to bounce or die. What say you bulls and bears? A move above 1973 or collapse below? ..... 1973.08 .... 1973.00 .... 1973.06 ... 1973.16 ......1973.30 .... 1973.41 .... 1973.25 .... the battle for 1973 continues.....

Note Added 11:41 AM:  Boom. A bounce. SPX 1973.88. If the bulls can hold the line at 1973 then 1978 R is next.

Note Added 12:07 PM: Bulls cannot hold 1973. SPX fails through the 1973 and dies. Looks like a lot of this sideways slop may continue. Price is coming back up for a back kiss of the 1973 from the underside for another bounce or die decision. This starting month number and strong S/R at 1972-1973 is a line in the sand for price today. So bulls win above 1973. Bears win below 1972.

Note Added 12:11 PM: SPX is at 1973 for another bounce or die decision. What say you bulls and bears..... 1973.02.... 1972.86 .... check out the RSI on the 2-hour chart it is dead flat sideways at the prior highs but not over so this places the bears in good shape for the spank down ahead (negative divergence since the RSI is flat to lower while price moves higher). Bears still need the negative cross of the MACD lines to know the downside move is locked in.

Note Added 4:20 PM: Right when the bears appear ready to go they are stuffed. The MACD cross will not yet confirm the downside on the 2-hour chart above so the bulls keep pushing and send the RSI higher for a higher high. This creates more short term juice of 1 to 3 candlesticks so equities are going to idle into the Fed decision tomorrow afternoon. That was touch and go and bulls win. The 1973 is taken out so 1978 was on tap and look at the melt-up that occurs when price approaches 1978; it shoots straight up through so you knew 1985-1986 is next and that is where the final print is. Traders are frontrunning Yellen's dovishness. The clear majority of traders expect more easy money dovish talk tomorrow. It was a given that the Fed will likely extend the ZIRP Forever scheme from June 2015 for the first rate hike until probably late in 2015 or even 2016 but more importantly, traders believe Yellen will leave the possibility of further QE on the table. As obscene as it is and destructive to the US over the long term, as well as screwing the middle class and poor more, so be it, 'let them eat cake'. Long traders are raping the upside with Yellen's blessing so take a slice of the pie before its too late. Copper gains +1% providing bull fuel. Ditto semi's. The NYA overtakes the 40-week MA at 10646 (now at 10678) which is a huge win for bulls. This is one of Keystone's cyclical indicators that now removes the prospect of the ongoing cyclical bear and sends equities back into a cyclical bull market pattern. The bears are bludgeoned today and the NYA above the 40-week MA is a fatal blow. The bears must reverse this tomorrow or the SPX will run far above 2K. The 2-hour chart remains negatively diverged except for the RSI so as soon as the RSI goes neggie d the top is in. Usually the tops are far more straight forward but the Fed meeting adds the new twist. Afterall, the bottom two weeks ago was not created by positive divergence but instead Fed's Bullard that promised more QE so the top may as well continue to be delayed due to the Fed intervention as well. For a Fed dovish decision, the SPX typically rallies 25 to 30 handles. Today is a repeat of the last Fed meeting pattern where stocks rallied ahead of that decision as well. With a 23 handle gain in the SPX another 7 is on the table after Yellen flaps her dovish wings tomorrow. The S/R is 1985-1986, 1988, 1991, 1993 and 1997-1998. So the 1998 and psychological 2K level is on the table. This 1985-1986 is very strong resistance so price should take time to chomp through. Since the Fed decision is tomorrow, the bears will probably be thrown a token bone tomorrow morning ahead of the Fed with a minor pullback. Note the TRIN drops to 0.79 to confirm the bullishness as the day plays out. AAPL prints a record all-time high. The Dow is above 17K. The major indexes take out their 50-day MA's another bullish indication. The TICK machine shows three late-day +1200 prints at 3 PM, 3:30 PM and the final TICK of the day at +1139 at 4 PM. These are the exact intraday highs at 1981-ish that occurred after the spike up through the 1978 resistance, then the 1984-ish print at 3:30 PM then the final print of the day clsoing at the high at 1985.05. The +1200 prints show the uber bullish euphoria in the markets and indiscriminate buying. Traders do not care about what to buy; any stock with a heartbeat will do since Yellen is going to pump the stock market tomorrow. That was quite a day. Once the word got out on trading floors that QE would be on the table for the future the stock market never looked back. The central bankers are the market. The VIX drops to 14.52 the 31 high two weeks ago long forgotten. The bulls appear unstoppable. The expectation remains for a pull back as soon as the RSI turns neggie d on the 2-hour chart. The 1985-1986 may hold until the Fed decision and then afterwards SPX 2K would be possible. The table is set. If Yellen stops the QE as planned but then does not make a mention of future QE on the table, the stock market would likely collapse tomorrow afternoon. Yellen is Queen of the Doves so she likely already plans to leave QE on the table and the insider traders sniffed it out and were told ahead of time and are buying indiscriminately sending stocks wildly higher. The upside orgy today takes some of the wind out of the market upside tomorrow; 23 of the 25-30 expected SPX points for a happy dovish Fed meeting already occurs.

Sunday, October 26, 2014

SPX Weekly Chart

Do you think the 20-week MA at 1964 and 50-week MA at 1892 are important? Clearly the price action thinks so since last week price touched both of these levels and now sits at the 20-week ready to make an important bounce or die decision. The bulls will receive upside legs for perhaps a few weeks if they can take out the 1964 resistance and hold above. Bears need to hold the 1964 level and spank price lower this week.

The top was an easy call with the three rising wedge patterns, overbot conditions and universal negative divergence across all indicators, and the spank down occurs as was forecasted. The 20-week MA fails, then the 50-week MA, that has not been touched since late 2012, fails. The Fed panicked as usual and since they will not permit the stock market to correct, St Louis Fed's Jim Bullard was sent out to pump the stock market by promising more QE. He did, and the markets place a V bottom and rocket higher with the current upside relief rally. The intraweek spike low to 1820 is when Bullard stepped in to promise the world to the bulls and save the stock market.

The indicators were weak and bleak wanting additional price lows after any bounce but the Fed's easy money is a powerful force. Clearly the recovery rally was not created by positive divergence but instead by Fed lip service. Note the robust volume candlestick during the selloff week two weeks ago. This  price range will need retested.

Traders, analysts and pundits have all become complacent feeding at the Fed's trough for the last six years. Note how far price remains above the 200-week MA at 1533. The SPX has not dropped under the 200-week MA since 2011 during the August 2011 waterfall crash. A move lower is long overdue and price typically overshoots to the downside. Over the next year or two it will not at all be surprising to see the SPX down at 1300-1700.

For the shorter term, watch the 20-week MA to see which way price pivots. The bulls are in control and Fed Chair Yellen, Queen of the Doves, will be promising lots of free money on Wednesday so the bulls have an excuse to continue the happiness. A move above the 20-week MA at 1964-1965 will create bullish upside aheadIf the market bears can hold the line here at 1964-1965, they will begin growling strongly again. 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 10/27/14

SPX (S&P 500) support, resistance (S/R), moving averages and other important levels are provided for trading the week of 10/27/14. 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 2019.26 on 9/19/14 and the SPX all-time closing high is 2011.17 on 9/18/14.

For Monday with the SPX starting at 1965, the bulls only need a smidge of green in the overnight futures and an upside acceleration will occur after the opening bell. Price will tease the 1968 resistance and if that gives way, 1972-1973 comes quick. The market bears need to push under 1964 to accelerate the downside quickly testing 1960-1962 then lower. A move through 1947-1964 is sideways action to begin the week.

Keystone’s important 12-month MA at 1901 represents a cliff for the markets where a crash and free-fall lower is on the table. The SPX collapsed from the cliff last week but was quickly saved by the Fed’s Bullard promising a QE4 stimulus. The Fed will not permit markets to correct; it's all they got. So the bulls, just like the cartoons, grabbed the proverbial branch sticking out from the cliff and managed to climb back above the cliff again. The Fed is always there to pat the market's behind. The 50-week MA at 1892 serves as a last line of defense for bulls and price held this important support and recovered higher with the relief rally currently in play. Note how price closed directly at the 20-week MA at 1964.25. The pivot from this level is key. Marrying this moving average with the 50-day MA at 1967 and strong horizontal price S/R at 1965 and 1968 creates a formidable resistance gauntlet at 1964-1968. Price is in the neighborhood of the 50-day MA so a touch would be anticipated. If 1968 gives way, price will immediately jump to the starting month number at 1972 with only five days remaining in the month of October. The monthly charts receive a new print on Friday afternoon and the 1972 level determines if the month finishes positively or negatively.

The lower standard deviation band was violated on the SPX daily chart so a move back to the 20-day MA at 1928 was on the table and price has already tagged this level and poked up through. The upper band at 2003 and dropping is on the table if price moves up through the 50-day MA at 1967. A back kiss of the important 200 EMA from the 60-minute chart at 1940 is needed. Overall for the hours and days ahead, bulls remain in control if the SPX remains above the 200 EMA at 1940. Serious market carnage begins again under 1940.

If the bulls come to play and poke up through the 1964-1968 resistance gauntlet, 1972-1973 resistance comes quick. If that gives way, price will target 1978 R next, then above that is the strong 1985-1986 resistance. The bears need to hold the line at the 1964-1968 resistance gauntlet and stop the bulls, otherwise, the bulls are going to gather fuel and continue the upside relief rally far higher. If the bears can push under 1964 support, a quick test will occur at the 100-day MA at 1961 where a bounce or die decision will be made. The 1960-1962 range is a strong support gauntlet. If bears can push under this level, the strong 1958 will fail in quick order and price will seek 1951 support.

Bulls win big above 1972-1973 and a trip back to the all-time highs would be on the table again, especially after markets finish the month of October positively. Bears win big if the upside relief rally can be stopped and price fails at the 100-day MA at 1962. The 1962 failure opens the door to market mayhem again. Thus, the 1962-1973 zone is a battle zone for bulls and bears; a steel-cage death match where the two sides have entered but only one will exit. Bulls win above 1973. Bears win under 1962.

Typically the week before mid-term elections the markets are up. The US elections are Tuesday, 11/4/14. The earnings releases continue with many key companies reporting. Consumer Confidence hits at Tuesday morning at 10 AM EST and markets will pivot. Equities may stagger sideways through the 1962-1973 battle zone described above early in the week since Fed Chair Yellen delivers an important decision concerning the end to QE Infinity and guidance for the ZIRP Forever policy on Wednesday afternoon. Consumer Sentiment is Friday morning which is also Halloween. Will the markets be a trick or treat for the bulls this week? One side will receive a large bag of candy this week but the other side will receive a bag of rocks.

2019 (9/19/14 All-Time Intraday High: 2019.26) (9/19/14 Intraday High for 2014: 2019.26)
2013
2012
2011 (9/18/14 All-Time Closing High: 2011.36) (9/18/14 Closing High for 2014: 2011.36) (9/4/14 Intraday High: 2011.17)
2010
2009
2007 (9/5/14 Closing High: 2007.71)
2006
2005 (8/26/14 Intraday High: 2005.04)
2004
2003 (8/29/14 Closing High: 2003.37)
2002
2000
1999
1998
1997
1995
1993
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
1980
1978
1976
1973
1972.29 October Begins Here
1970
1968 (6/24/14 Intraday Top: 1968.17)
1966.94 (50-day MA)
1965.27 Previous Week’s High
1965.27 Friday HOD
1965
1964.58 Friday Close – Monday Starts Here
1964.25 (20-week MA)
1964
1963 (6/20/14 Closing High: 1962.87)
1962
1961.85 (100-day MA)
1961
1960
1958
1956 (6/9/14 Intraday Top: 1955.55)
1951 (6/9/14 Closing High: 1951.27)
1949
1947
1946.27 Friday LOD
1942
1940.13 (200 EMA on 60-Minute Chart a Keystone Market Turn Signal)
1940
1937
1936
1933.96(150-day MA; the Slope is a Keystone Cyclical Signal)
1931
1928.29 (20-day MA)
1928
1925
1924 (5/30/14 Intraday Top: 1924.03) (5/13/14 Closing High: 1923.57)
1920
1917
1915.30 (10-month MA; a major market warning signal)
1912
1910
1908.60 (200-day MA; not tested for 22 months extremely odd behavior)
1906
1902 (5/13/14 Intraday Top: 1902.17)
1901
1900.60 (12-month MA; a Keystone Cyclical Signal) (the cliff)
1897 (5/13/14 Closing High: 1897.45) (4/4/14 Intraday Top: 1897.28)
1894
1892.28 (50-week MA)
1891 (4/2/14 Closing High: 1890.90)
1889
1886
1885
1884 (3/21/14 Intraday Top: 1883.97) (3/7/14 Intraday Top: 1883.57)
1882.30 Previous Week’s Low
1882
1880
1879
1878 (3/7/14 Closing High: 1878.04)
1877
1874
1873
1872
1871
1868
1867
1865
1862
1859
1855
1853
1852
1851 (1/15/14 Intraday Top: 1850.84)
1849 (12/31/13 Intraday High Top for 2013: 1849.44)
1848.36 Trading for 2014 Begins Here
1848 (1/15/14 Closing High: 1848.38) (12/31/13 Closing High for 2013: 1848.36)
1846
1845
1843
1842
1841
1840
1839
1838
1837
1835
1832
1831
1828
1827
1824
1820
1816

America Mired in Deflation; A Graphical Representation; The Keystone Speculator Inflation-Deflation Indicator Remains in DEFLATION

One topic creates far more controversy at the dinner table than religion or politics; the inflation versus deflation debate. Each side will highlight anecdotal evidence to prove their case. Inflationists tout high food, energy, oil, insurance and college tuition costs, as well as increasing home prices, while deflationists highlight long-term weakness in commodities (oil is weaker in recent weeks), lack of wage growth, falling Treasury yields 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. Wages remain flat so inflation remains on a milk carton (missing). 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.

In the States, the US economy slipped back into Deflation in August according to The Keystone Speculator Inflation-Deflation Indicator. During the spring time this year into summer, 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 indicator was above 3.00 in the middle zone where inflationists and deflationists fight it out but the indicator never moved anywhere near inflation at 3.70 and higher.

This summer during July and August, 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 which always creates a huge gasp of shock and surprise from the 95% or more of investors and traders that universally agree that deflation will never exist and inflation should be arriving any minute (due to the obscene Fed money printing).

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 direction wrong and stubbornly remains on the soap box for higher rates since, well, more time has passed and rates have to go up. 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 inflationLower 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. All price discovery is currently lost across all asset classes due to the near 6 years of central banker intervention. No one truly knows what any asset is actually worth anymore. As long as QE is in place, and it continues at $15 billion per month pending a Fed decision on Wednesday, 10/29/14, flooding the markets with cash, the stock market floats higherThe big upward move in commodities earlier this year is what created the inflation buzz. The CRB went from 275 at the start of the year to nearly 315 at the June peak so this move pushed Keystone's indicator above 3.00. Now the CRB collapses from near 315 down to 270 over the last four months; an epic -14% failure that quiets the inflationists.

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 M&A and tax inversion strategies. The free 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. President Obama is in full agreement with this direction since he appointed Fed Chair Yellen, Queen of the Doves, to the FOMC because she is a Keynesian that prints money to send the stock market higher.

The 10-year Treasury note price is used for the denominator of The Keystone Speculator Inflation-Deflation Indicator. The 10-year Treasury price is 100.9297 with a yield at 2.27%. The 10-year yield was over 3.00% to begin 2013, over 70 basis points higher. The CRB Commodity Index is 270.22. Taking a look at the numbers;

CRB/10-Year Price = 270.22/100.9297 = 2.68

Over 4.40 = Hyperinflation
Between 3.70 and 4.40 = Inflation
Between 3.00 and 3.70 = Neutral; Inflationists and Deflationists Battle
Between 2.9 and 3.00 = Disinflation
Under 2.90 = Deflation

The last time that rampant inflation existed 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 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 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. 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 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 play despite the obscene Keynesian spending.

Since the 2011 peak, the indicator has moved steadily lower from above 3.60 down to under 2.70 (from neutral down through disinflation into deflation). The indicator signals deflation from August 2013 until January 2014. 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 ongoing 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 and into the September 2014 stock market top.  In addition, China, the BOE and ECB are all pumping the markets with easy money as well.

The current 2.68 reading is the lowest since 2009 sending a shiver down the spine that a Great Depression redux definitely remains on the table. 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). 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, vintage cars and collectibles (all are asset bubbles). The central bankers threw the kitchen sink at markets over the last two years but the US continues to slip-slide into deflation anyway. Deflation is a powerful force and perhaps it needs to extract its pound of flesh. 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 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. So 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).


The pundits and analysts that say Inflation and even hyperinflation are at the doorstep are likely premature. Inflation and even hyperinfation is definitely expected in the years ahead but it may be years away still yet. 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. 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.

The expectation remains that Treasury yields should move sideways and even leak lower for the next year or three. The 18-year bear stock market cycle 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.

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. 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. Long-time readers of Keystone's missives fully anticipated and expected the current European deflation to occur despite the consensus saying that deflation would not occur.

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 only one accident has occurred--and that was comically a human driver that hit the driverless vehicle. 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.

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). 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 in the room.

Watch Keystone's formula above, you can crunch the numbers to check on the indicator every few days. 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 that now is low on ammunition and as the chart shows losing the battle against deflation.

Inflation is not in sight despite the inflation-deflation indicator moving a touch above 3.00 and the food, especially beef, prices running higher a few months ago. Corn and wheat prices have plummeted back to earth. Crops are set for record high yields this 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 one 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 as is occurring now with corn and wheat prices falling. Fewer folks are complaining about high food prices anymore.

What does all the above wind-bag mumbo-jumbo say in a nutshell? The current answer to the ongoing inflation-deflation debate, is, Deflationas much as everyone tries to fight it. So the deflationists have a solid argument ready for the Thanksgiving table. After nearly 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 and implemented by Fed Chair's Greenspan and Yellen, as well as dovish Fed members such as Evans, may be 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. History may repeat. The bums standing on a street corner holding a tin cup in the 1930's would ask a passerby, "hey buddy, can you spare a dime?"