Wednesday, August 20, 2014

TNX 10-Year Treasury Note Yield Weekly Chart Downward-Sloping Channel H&S Pattern

The 10-year yield is a major focus of traders nowadays. The Wall Street consensus, over 95% and more, except for Keystone, predicted yields far above 3% by now if not 4%. Inflation remains on a milk carton as the bond market says the economy may not be as rosy as thought. The Cup and Handle (C&H) pattern from 2012-2013 targets 2.7%-2.8% which was achieved. As yields climbed in 2013, nearly everyone was convinced that inflation was here and it was time to strap yourself in for a wild ride. The ADX moved above 25 showing that the trend upwards in yields was strong. It did truly look like break-out time until Keystone poured cold water on the move at the first top in 2013 due to neggie d on the RSI, stocastics and histogram, and then the top at 3% to begin the year when the warning was for a big down in yields due to the universal neggie d (red lines), which occurred.

Price staggers sideways this year with a downward bias. The 2.45% level was key support for over one year but it ruptured three weeks ago. The purple lines show an Head and Shoulders (H&S) pattern in play now with neck line at 2.45% and head at the 3% top. This is a 55 basis point difference that now targets 1.90% since the 2.45% neck line failed. A back kiss of the neck line is expected and may be in progress now with yield moving up to 2.42% a short time ago. The 200-week MA is 2.39% so pay attention to this level.

The daily chart for TNX is very agreeable to the current upward buoyancy in yields, however, note the weak and bleak RSI and MACD line in the weekly chart above. The histogram, stochastics and ADX are positively diverged with the drop in yield and help create this current bounce action for yield but the RSI and MACD are going to want lower yields going forward. The horizontal support and lower rail of the channel coincide at 2.20%-2.30% which serves as a downside target over the next month or so. Meanwhile, watch for the back test at 2.45% where yield will either bounce, or die. Failure will truly lock in the lower 1.90% target going forward. The RSI is not at oversold levels so there would be plenty of room available for lower yields in the months ahead.

The pink ADX box shows how the up in yields was the real deal in 2013 and the trend was strong (above 25), however, that fell apart to begin this year. Watch the ADX mid-20's level since that would indicate that the trend lower in yields is very strong and the lower 1.90% target becomes even more doable. If the ADX does not want to move higher the down in yields is not a strong trend and yields will once again begin the trek higher to 3%.

For now, yield should back kiss the 2.45% for a bounce or die decision. If a bounce occurs yield would be expected to stall before 2.50%, and move lower towards the 2.20%-ish support level, placing a lower low in yield than the 2.30% bottom prints as the weeks move forward. The two 2.30% long lower candlestick shadows from 2 and 3 weeks ago create a Tweezer bottom and hinted that a recovery move higher in yields was needed. 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.

Tuesday, August 19, 2014

SPX 2-Hour Chart Upper Band Violation Negative Divergence Developing

The 2-hour chart marches along with long and strong RSI and MACD line wanting higher highs. Money flow, stochastics and the histogram are all negatively diverged wanting price to drop from here. The strong 1976 resistance did not hold for bears. The 1976 held for the first one-half hour of trading then a tape bomb occurs that says Russian President Putin and Ukraine President Poroshenko will meet on 8/26/14 to discuss a resolution to the Ukraine civil war. The SPX pops to 1979. Perhaps the Ruskies have large blocks of index call options and the positive news, firmly in their control, places dough in their wallets.

Listing the key SPX S/R from the weekend missive; 1991, 1989, 1988, 1987, 1986, 1985, 1982, 1980, 1978, 1977 and 1976. The breach of 1976, since it is a very strong S/R level opens the door to the 1985 resistance since it is the next very strong resistance. In the middle the 1976-1978 zone is a resistance zone, and price has overtaken this resistance. The 1980-1982 area is next with price now printing a 1979 handle. There is a gap that needs filling at some point forward at 1985-1987 and in some respects bears may be best served to simply fill the gap and drop from there. A back test move to the important 1976 support would be prudent.

The SPX is at the upper standard deviation band (pink line) so a move back to the middle band at 1955, and rising, at a minimum, is required. Note that price has retreated back to the middle band twice over the last week and a trip back to the lower band at 1927, and rising, is on the table and overdue. The SPX cannot roll over until the neggie d is in place across all indicators so watch the RSI and MACD line. 1 to 3 candlesticks are needed to produce the neggie d so that is 2 to 6 hours of trading time which will take up the bulk of today's trade and into the opening bell tomorrow morning.

Since the SPX blew threw 1976-1979, the 1980-1982 and 1985-1987 levels are in play for the top price print as the 2-hour chart tops out. Marrying the chart above with the CPCE put/call ratio chart highlighted last evening verifying market complacency, equities are likely topping today or first thing tomorrow morning.

Keystone's proprietary trading algo, Keybot the Quant, is long the market and watching copper and volatility; JJC 38.61 (price is under creating market negativity) and VIX 12.84 (price is under creating market bullishness). At the opening bell, copper was moving higher and volatility lower which provides bull fuel. Copper has since rolled over to the negative side but cannot help the market bears much since volatility is collapsing with the VIX now sub 12. The Fed steps on the neck of volatility when they want the stock market to rise. The dollar/yen is runing higher in recent days today up to 102.75 so the weaker yen (created by BOJ money printing) also fuels the stock market upside.

The bulls need JJC above 38.61 if they want to create new all-time market highs so watch copper. The bears need the VIX above 12.84 or they got nothing. The VIX collapsing under 12 is a bear killer today. TRIN is 0.63 uber low so say no more; the bulls are in full control today. The low TRIN will jive with a low CPCE and the neggie d developing in the 2-hour chart above all pointing to a near-term market top coming likely today or tomorrow. Watch the RSI and MACD on the chart above to know when the fix is in. 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 11:55 AM: SPX 1979. JJC is 37.81 under the 38.61 bull-bear level dropping today which makes for happy bears. VIX is 11.97 well under the 12.84 bull-bear line making for very happy bulls. The low volatility is rocket fuel for the indexes. Ditto the low TRIN at 0.63. Dollar/yen 102.84. Banzai! The VIX and the dollar/yen are key today.

Note Added 7:26 PM: The bulls kept running today and the RSI and MACD line remain long and strong like the chart above shows so another 1 to 3 candlesticks would be needed to form neggie d (about 2 to 6 hours of trading time). The SPX stalled at the 1982 resistance mentioned but since higher highs in price are desired by the RSI and MACD, price likely wants to fill the gap and touch the early July highs at 1984-1987. Bears may as well allow the SPX to fill the gap to get it over with since it is only a couple points away; this would button-up any need to go higher. The daily chart indicators remain long and strong so on a daily basis the SPX will want to revisit these price levels after any near-term sell off (a down move of a few days). VIX recovers to 12.21 so when the SPX cmae up to test 1982 R you knew it would not go through. If VIX was under 12, the SPX would have sliced up through 1982 like a hot knife through butter. Dollar/yen 102.92 running towards 103. Banzai! The weak yen helps create the stock market orgy. TRIN finishes at 0.80 after the 0.57 low firmly bullish all day reinforcing the light volume rally. Watch volatility, copper, dollar/yen, and the RSI and MACD line on the 2-hour chart above; they will tell you which way the market ship is going. Copper dropped -0.8% today.

COMPQ Nasdaq Weekly Chart Price Prints Above 4500 at 14-1/2 Year Record Highs Price Extended Overbot Rising Wedge Negative Divergence

The Nasdaq moves above 4500 as traders toast the Fed for the never-ending upside market orgy that would make Caligula blush. The Nazzy is at 14-1/2 year highs now at levels not seen since March 2000 when the dotcom bubble burst. The wine is flowing like water as traders high five each other each day and rape the market upside with the Fed's easy money. Too bad the other half of America suffers through unemployment and underemployment. There are winners and losers every day in the big city.

All the euphoria aside, the red lines show a rising wedge pattern (bearish). Stochastics are overbot (indicating a reversal is nearing) and the RSI is coming off overbot levels. The red lines for the indicators show negative divergence across the board (wanting to see a price spank down). The red dots show what happens when price is way extended above the moving averages and the green dots show what happens when price is way extended below the moving averages. What do you think is going to happen moving forward? 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.

Monday, August 18, 2014

CPCE Put/Call Ratio Daily Chart Signals Near-Term Market Top At Hand

The bulls are running again and complacency remains in the markets. Traders drink the Fed wine each day toasting Chair Yellen as they buy stocks blindly with easy money. Too bad the other half of the country that does not own stocks cannot enjoy the obscene fun. The relief rally since Friday, 8/8/14, at the 1905 bottom has provided a great opportunity to rape more upside courtesy of the Fed. The move above 0.80 shows that fear and panic was entering markets to create the market bottom. Russian President Putin said he wanted a peaceful resolution to the ongoing Ukraine civil war which was the catalyst off the bottom.

The red circles show important market tops and the green circles show important market bottoms. Complacency is represented by the red circles where traders are not only sipping the Fed wine but they are all out drunkards, staggering around the trading floor buying any stock with a heart beat. This of course indicates a market top from a contrarian perspective which occurs. The green circles represent traders that are beginning to worry about how far the market will fall. Some traders panic and begin opening windows preparing to jump (hopefully it is only a first-floor window) throwing overboard any long position in the portfolio they can click. Of course from a contrarian perspective, fear and panic creates a bottom which occurs.

The CPCE chart shows that above 0.72 marks a significant bottom where longs can be nibbled on and the bullish side played. A move under 0.50 indicates a significant market top is in place or forming within days where bringing on shorts is prudent. The red circles result in the following drops in the SPX; 30 handles in 3 days, 20 handles in 2 to 4 days, 40 handles in 4 days, 30 handles in one day, and 85 handles in 10 days. The average is about a 40 handle drop in 4 or 5 days. However, the nature of the markets may lead to more of a repeat of the latest downdraft of 85 handles in 10 days, or more.

Equities should top out either tomorrow or probably by Wednesday where about 20 to 50 handles of give-back would be anticipated. If the CPCE drops further, that shows traders becoming even more complacent and worry-free which will result in a firmer top and a stronger fall from grace. The bullishness is rampant today on television and in print. Watch your wallet. 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 2-Hour Chart Fibonacci Retracements Upward-Sloping Channel Negative Divergence Developing

At last look at the 2-hour, we saw long and strong indicators signaling higher highs for price ahead, which are occurring. Price fills the juicy gap shown on the daily chart at 1966-1970. A gap remains open at 1986-1987. The negative divergence continues to set up (maroon lines) but the MACD line remains long and strong wanting higher highs in price after any near-term pull back. Remember, these are two-hour candlesticks; two-hour trading blocks of time. The money flow is negatively diverged across the one-month time frame but the bulls are sqeezing out more near-term juice. Thus two to four candlesticks are likely needed to place universal neggie d in place to create a spank down in price; 4 to 8 hours of trading which is today into tomorrow.

The key SPX S/R (reference the SPX S/R missive on the weekend) is the 1991 palindrome top, 1988, 1985-1986, 1976, 1973, 1968, 1963, 1960-1961 and 1951. The bulls push up through the 50-day MA at 1957.50 and then up through the strong 1968 R so 1973 R is next and that is where the focus is now. HOD is 1971.51. The Fibonacci retracements at 38%, 50% and 62% are all taken out to the upside. Sometimes a 74.6% Fib ratio is a handy number to reference when the 62% gives way. The 74.6% Fib retracement for the drop from 1991 to 1905 is 1970-1971 exactly where price now sits. If price overtakes 1973 R then the 1976 is next and if that gives way, a test of the all-time highs is next and price will fill the 1986-1987 gap.

Price is tapping on the top rail of the upward-sloping red channel. Since neggie d is in place but not fully, some relaxation in price to the 1968 support is a reasonable expectation for a candlestick or two. Then the long and strong MACD and money flow will want higher highs so 1973 should print today. Since the chart is continuing to set up neggie d and it should be in place this afternoon or tomorrow, the expectation would be that price may meet strong resistance and a near-term top at the 1976 R; call it the 1973-1976 zone. So we will see how it goes. Watch for the MACD line and money flow to curl over.

Markets remain very news-driven and subject to tape bombs at any time. Volatility dropped today under the critical VIX 12.85 level identified by Keybot the Quant, Keystone's proprietary trading algorithm, providing bull rocket fuel. Shorts are running for their lives creating a short-covering rally thrust higher. Volume, however, is light showing a lack of conviction. Market bears need VIX above 12.85 or they got nothing. VIX is currently printing at 12.45. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Sunday, August 17, 2014

Keystone's Inflation Deflation Indicator Signals DEFLATION

Very few topics create heated discussions more than the inflation versus deflation debate. At the holiday dinner table, avoid the subjects of religion, politics and most of all inflation. Each side will cite anecdotal evidence such as inflationists touting high food, energy, oil, insurance and college tuition costs, while deflationists highlight long-term weakness in commodities, 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 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 ongoing.

In the States, the US economy just slipped into Deflation according to Keystone's Inflation-Deflation Indicator. Three months ago the inflationists were on a roll. Oil prices were rocketing higher as well as energy costs and everyone took notice of the rising food prices 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 indicated conditions any where near inflation. Wages provide the inflation-deflation answer.

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 yield down to 2.34% and dropping CRB Commodity Index now down to 289With the further drop in yields last week, Keystone's Inflation-Deflation Indicator is 2.89, now under 2.90, signaling DeflationThis is a big surprise to 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).

The Treasury yields 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 lost across all asset classes due to the 5-1/2 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 is at $25 billion per month flooding into the markets, the stock market floats higher. The big upward move in commodities 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 to under 290 over the last two months.

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 10-year Treasury note price is used for the denominator of Keystone's equation. The 10-year Treasury price is 100.3125 with a yield at 2.34%. The 10-year yield was over 3% to begin 2013, almost 70 basis points higher. The CRB Commodity Index is 289.93. Taking a look at the numbers;

CRB/10-Year Price = 289.93/100.3125 = 2.89

Over 3.6 = Inflation
Between 3 and 3.6 = Neutral; Inflationists and Deflationists Battle
Between 2.9 and 3.0 = Disinflation
Under 2.9 = 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. 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 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, creates the bullish equity markets all through 2013.  In addition, China, the BOE and ECB are all pumping the markets with easy money as well.

The lackluster action in the Baltic Dry Index (BDI) and shippers indicate a global slowdown is ongoing.  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; traders and investors now only want to experience the good side of capitalism, the wealthy are becoming more wealthy with higher stock prices, and if the bad side of capitalism starts to rear its head the Fed and other central bankers will save the day; free markets be d*mned ).

The pundits and analysts that say Inflation and even hyperinflation are at the doorstep are likely premature. Inflation 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 a few years away. Even if the 18-year stock cycle left translates a couple years, that would be 2016. 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 the cycle (now through 2018). Judging from history, it would not be surprising to see the stock market down 3 of the next 4 years.

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. 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 this 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. More tech and less human's will continue the structural unemployment problem for years forward. Companies are meeting EPS by laying off workers and squeezing more production out of existing workers (as evidenced by flat to lower top line revenue). 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 make recent new highs with a disinflationary back drop. This behavior can only be chalked up to the amazing power of the central banker money-printing.

Inflation is not in sight despite the indicator moving a touch above 3.00 and the food, especially beef, prices running higher. 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 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. 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.

The last time the indicator was above 3.6 signaling the existence of inflation was very briefly in May 2011. The indicator was above 3.6-ish back then but peaked out and retreated--inflation was very noticeable but it did not have legs. Over the last three years, the indicator has moved steadily lower from above 3.60 down to under 2.80 (from neutral down through disinflation into deflation) and has only recently recovered to above 3.00 in June (coming back up from deflation through disinflation into neutral territory) only to now fall back into deflation (under 3.00 and now under 2.90). The last time that inflation was strong and prevalent was in the summer of 2008 with Keystone's indicator well above 4.00.

The current answer to the ongoing inflation-deflation debate, is, Deflation; as much as everyone tries to fight it. After nearly six years of obscene Fed and other central banker money-printing, the economy is mired in deflation proving that the grand Keynesian Fed experiment, implemented by Fed Chair's Greenspan, Bernanke and Yellen, is a failure.

SPX Support, Resistance (S/R), Moving Averages and Other Key Levels for Trading the Week of 8/18/14

SPX support, resistance (S/R), moving averages and other important levels are provided for trading the week of 8/18/14. Levels shown in bold are strong resistance and support. Bold and underlined levels are very strong and important S/R. The SPX closing and intraday all-time highs occurred on 7/24/14 three weeks ago. The 1991 palindrome top remains in place. The 676 palindrome printed on 3/9/09 identified the multi-year bottom.

The markets are in a recovery rally since the Friday, 8/8/14, intraday low at 1904.78; so remember the 1905 level moving forward. The rally occurs with Russian President Putin's soothing words requesting a peaceful resolution to the Ukraine civil war. More goosing occurs last week with additional Putin happy talk. Then on Friday last week, 8/15/14, news that Ukraine troops have attacked a Russian military convoy inside Ukraine territory sent equities into a tailspin with the major indexes losing over -1% in 90 minutes time. What the Ruskies give, the Ruskies take away.

A key win for bulls is the SPX moving above the 200 EMA on the 60-minute chart at 1948.77 signaling bullish markets for the hours and days ahead. This is a bear killer. Bears need the SPX under 1949 pronto or they will continue to crumble. Price begins on Monday tucked under the 50-day MA resistance at 1957.06 and above the 20-day MA support at 1951.67. Bulls win above 1957. Bears win under 1952. The sideways fight continues at 1952-1957. The SPX closes at 1955 two days in a row and will pivot from this perch. Note how price is playing around at June highs so use these levels as a key gauge of market strength, or lack thereof.

For Monday, the bulls need to touch the 1964 handle and an upside acceleration occurs taking price into the 1970's where a breach of 1976 resistance will send the SPX up to attack the all-time highs again. The bears need to push under 1941.50 to accelerate the downside which will quickly test 1936-1937 support. A move through 1942-1963 is sideways action for Monday and may be the order of the day considering that it is such a wide range.

Note the air pocket between 1951 and 1924. Thus, if the bears push below the 1947-1952 support zone, and especially under Friday's 1942 low, 1924 is likely. 10 trading days remain in August so pay attention to the starting number at 1930-1931 here forward to see if a negative or positive month is on tap. Watch the 20 and 50-day MA's and the 200 EMA on the 60-minute since these critical moving averages identity the winner going forward.

1991 (7/24/14 All-Time Intraday High: 1991.39) (7/24/14 Intraday High for 2014: 1991.39)
1988 (7/24/14 All-Time Closing High: 1987.98) (7/24/14 Closing High for 2014: 1987.98)
1986 (7/3/14 Intraday Top: 1985.59)
1985 (7/3/14 Closing High: 1985.44)
1968 (6/24/14 Intraday Top: 1968.17)
1964.04 Previous Week’s High
1964.04 Friday HOD
1963 (6/20/14 Closing High: 1962.87)
1957.06 (50-day MA)
1956 (6/9/14 Intraday Top: 1955.55)
1955.06 Friday Close – Monday Starts Here
1951.67 (20-day MA)
1951 (6/9/14 Closing High: 1951.27)
1948.77 (200 EMA on 60-Minute Chart a Keystone Market Turn Signal)
1941.50 Friday LOD
1930.67 August Begins Here
1928.89 Previous Week’s Low
1924 (5/30/14 Intraday Top: 1924.03) (5/13/14 Closing High: 1923.57)
1920.07 (20-week MA)
1918.37 (100-day MA)
1902 (5/13/14 Intraday Top: 1902.17)
1897 (5/13/14 Closing High: 1897.45) (4/4/14 Intraday Top: 1897.28)
1891 (4/2/14 Closing High: 1890.90)
1889.91 (150-day MA; the Slope is a Keystone Cyclical Signal)
1884 (3/21/14 Intraday Top: 1883.97) (3/7/14 Intraday Top: 1883.57)
1882.20 (10-month MA; a major market warning signal)
1878 (3/7/14 Closing High: 1878.04)
1867.43 (200-day MA; not tested for 19 months extremely odd behavior)
1855.01 (12-month MA; a Keystone Cyclical Signal) (the cliff)
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)
1841.71 (50-week MA)

Saturday, August 16, 2014

SPX 5-Minute Chart Market Sell Off and Recovery on Ukraine Troops Attacking Russia Military Inside Ukraine

Everything was going the bull’s way on Friday with traders looking forward to the weekend wanting to sneak out the back door early; however, a tape bomb spoils the party.

At 10:30 AM, the news wires say Ukraine troops have attacked Russian troops inside Ukraine. This represents a dramatic escalation of the turmoil and creates a multi-nation war. A Russian military convoy entered Ukraine at a different location while everyone was watching the humanitarian convoy. Eyewitnesses report Russian military vehicles crossing into Ukraine. Ukraine forces say the Russian military convoy sustains serious damage and now efforts increase to block the humanitarian convoy due to the escalation of tensions. The stock market plummets and the bullish day turns sour.

The SPX collapses 22 points from 1964 to 1942, -1.1%, in 90 minutes time bottoming at 12 noon. The Dow drops from 16775 to 16575, 200 points, -1.2%. The COMPQ drops from 4482 to 4427, 55 points, -1.2%, in the 90-minute timeframe. The RUT collapses from 1151 to 1132, 19 points, -1.7%. The small caps are hit harder which would be expected but note how the broader market and tech move down uniformly on the news. This indicates that the headline-reading algorithms were in full control of the downdraft. The VIX catapults from 12 to 15. European markets collapse with the DAX dropping from above 9300 to below 9100, losing -1.4% on the day.

Fed’s Kocherlakota speaks at 10:45 AM in the middle of the stock market selloff (a scheduled talk) and says “inflation will remain subdued.” Gold is at 1309 not receiving any upside on the Ukraine news since many traders use gold as an inflation hedge and Kocherlakota says inflation is on a milk carton (missing).

The stock market recovers all afternoon with the indexes travelling back to the flat line after a wild roller coaster session of up, big down and up. The business channels are focused strongly on the Ukraine-Russia military battle news but the regular cable news outlets do not report the story and instead focus on the St Louis race riots. The laissez-faire reaction to the bombshell news that Ukraine and Russia may be at war causes the stock market to lift. If the regular news channels are not running the story is it even true? Doubts emerge that perhaps the Ukraine troops may have fired on a pro-Russian military convoy and not actual Russian military vehicles and troops. The story loses a hair of credibility so markets recover into the closing bell. Traders repeat “Mad Magazine’s” Alfred E. Neuman’s famous tag line; “What? Me Worry?”

The red rising wedge pattern forecasts the spank down. The green falling wedge helps create the bottom at noon time. The blue inverted H&S is in play that would send price back up to the 1961-1964 area. The thin red lines show a rising wedge targeting the 1958-1964 area as a potential near-term top. Markets are obviously reacting to the Ukraine-Russia news so the weekend will have to play out. 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.

Friday, August 15, 2014

Keystone's Morning Wake-Up and Midday Market Action 8/15/14; Consumer Sentiment; OpEx

The bears were punched in the face yesterday. When the SPX moved up through the 200 EMA on the 60-minute at 1948.55 the fix was in for the bulls. Volatility drops with VIX sporting a 12 handle. Semi's pop. Utilities outperform the indexes yesterday. The bulls are cruising. A showdown should occur at the strong SPX 1960-1961 horizontal support.

Note that price closed exactly between the 50-day MA at 1956.77 and 20-day MA at 1952.83The move from this bracket identifies the winner moving forward and S&P futures are +5. The 38% and 50% Fib retracements for the move down from 1991 to below 1910 are taken out to the upside. The 62% Fib is 1958.35 so a strong gauntlet of resistance is in place at 1957-1961. If 1961+ occurs, the bulls are likely headed to all-time highs in the stock market. The bears remain in the game if they maintain price under the current 1955-1957 level. The battle continues at 1957-1961. A move above 1961 will send price to the strong 1963 and 1968 resistance levels next.

The bull flag pattern on the hour charts is in play and targets the SPX 1960-1968 area. Low volatility and higher semi's and utes drove the rally higher yesterday, however, and very interestingly, the bulls will need copper and commodities to provide future strength and these sectors are moving down not up. Keybot the Quant is long. The bears need either UTIL under 543.81, SOX under 617.76 and/or VIX above 12.87 to stop the market upside. Use these three parameters to gauge market strength. If all three remain bullish, the SPX floats higher to tease the important 1957-1961 resistance zone. If any 1 of the 3 turn bearish the stock market rally will fail.

US futures are higher. S&P +5. However, Treasury yields continue to tick lower with the 10-year at 2.40% a few hours ago, then 2.39% at 5 AM EST, now at 2.38%. Traders are buying both stocks and bonds in a whacky simultaneous risk-on and risk-off market. Since Treasuries remain well bid, the stock market move higher is likely due to traders simply raping some more upside with the Fed's and other central banker easy money. Putin's conciliatory comments one week ago on Friday morning, and yesterday, drive the stock market rally so listen for any additional words of wisdom from the Ruskie leader.

Note Added 8:40 AM: PPI and Empire State Mfg Index just hit. Inflation remains tame but food and energy remain elevated. The Empire is well short of estimates and last month's joy but futures are unaffected. Traders are already sipping the Fed's wine ahead of the weekend so everything appears rosy. TIC data that shows foreign investment interest in Treasuries and Industrial Production data hit shortly. Consumer Sentiment is released at 9:55 AM and will pivot markets so the way the stock market moves the first one-half hour may not be indicative of the path ahead today. Today is OpEx so volume should be elevated at the open and at the close.

Note Added 9:47 AM:  The SPX is chomping at the 1960-1961 resistance. Bounce or die. The pivot is in 8 minutes with Consumer Sentiment. Utes and semi's catapult higher and volatility collapses with VIX briefly under 12 printing an 11 handle. This initially indicates that a long day is in store for the bears. The bulls are on cruise control, so far, but bulls need to prove they mean business by taking out 1961.

Note Added 10:01 AM:  Consumer Sentiment is 79.2 under 80 and the lowest since last Fall. Sentiment, schmentiment. Bad news is good news since the Fed will continue the easy money policies and send the stock market higher. The SPX breaks up through the 1960-1961 resistance. Will it hold? Looks like yes since price is already attacking the 1963 R. HOD is .....boom, price is up through the 1963 R like a hot knife through butter. Bulls are setting sights on the strong 1968 resistance next. The bull flag pattern target is being satisfied now at this level. SPX S/R is 1960-1961, 1963 and 1968. Price is printing at the highs above 1963.

Note Added 10:53 AM on Saturday, 8/16/14: News that Ukraine troops attacked a Russian military convoy sent stocks lower. The VIX popped from 12 to 15. SPX HOD was 1964.04 likely on its way to the 1968 R. Intraday, the SPX fell under the 200 EMA on the 60-minute at 1948.77 but price closed above. If the bears mean business they would have kept price under 1949. A small feather is provided for the bear's cap since the SPX closed under the 50-day MA at 1957.06. The SPX likely wants to visit the 1960's again. It will depend on the geopolitical news over the weekend.

SPX 2-Hour Chart Bull Flag Pattern Negative Divergence Developing

The 2-hour chart is slowly setting up with negative divergence but yesterday's thrust may delay the development for a couple days. The red lines show that the histogram, stochastics and money flow are cooked and fully agreeable to price dropping. Stochastics are overbot. However, the RSI is not yet overbot and both the RSI and MACD line are long and strong wanting higher highs in price. Thus, it may take from 1 to 4 more candlesticks for price to top out which is 2 to 8 hours which may encompass today and Monday trading.

The rising wedge is in play with an apex at 1964-ish. Taking another look at the bull flag pattern highlighted yesterday, using closing prices, leg one is 1910 to 1943, 33 handles, so the second leg starting at 1932 targets 1964. Using the intra-2-hour prices, leg one is 1905 to 1945, 40 handles, so the second leg starting at 1928 targets 1968. As highlighted in the previous daily chart, the 1957-1961 zone is a serious resistance gauntlet. The 1963 and 1968 levels are also strong resistance levels.

Thus, marrying all this mumbo jumbo together, the daily chart may need a couple days to top out. The 2-hour chart above jives with the daily and shows higher prices are desired after any price softness would occur. The 1957-1961 R is key; then 1963; then 1968. Thus, if 1961 is taken out, a move to 1968 is likely. This would achieve both the rising wedge and bull flag pattern target at 1960-1968. So, making a projection, the stock market will likely stagger sideways with upside lift perhaps topping out at 1961, or 1968, either very late today or early next week. Watch for the neggie d to form for the RSI and MACD line in the chart above to know that price has topped out. 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.