Friday, October 17, 2014


Keybot the Quant remains short moving into the last trading day of the week. S&P futures are up a large +26 as global traders sniff out unlimited central banker stimulus. Utilities are the most important sector to watch today. As previously mentioned, the UTIL 554.27 bull-bear line in the sand is important until the closing bell where it will be replaced with 559.43 for all of next week. If UTIL drops under 554.27 today, that should weaken equities but with the robust futures this is likely not on tap. Instead focus on the UTIL 559.43 bull-bear line in the sand applicable for each day next week and UTIL begins at 558.94 this morning. Thus, if UTIL closes the day where it is now (under UTIL 559.43) it will cause market weakness next week. If UTIL moves above and closes above 559.43 today, that will create broad market bullishness come Monday morning.

Watch the SPX 1893 line in the sand. If the SPX feels the same love as the overnight futures, the SPX should jump to the 1888 resistance and then plot a move to 1893 to lock-in extended market bullishness and a solid relief rally ahead. For the SPX stating at 1863, the bulls need to push up through 1876 and that will accelerate the upside, which appears to be on tap. The bears need to push under 1835 to regain their downside mojo, a formidable task, so instead bears will focus on smashing utility stocks lower. A move through 1836-1875 is sideways action today, but again, an upside orgy appears on tap. The bears are in full control so the strength after the opening bell will be interesting to see how much it can boost the bull case. Keybot prints two pre-scheduled numbers this morning one before the bell and one after the bell. Watch UTIL 559.43 especially this afternoon.

10/19/14; 7:00 PM EST =
10/17/14; 10:00 AM EST =
10/17/14; 9:00 AM EST =
10/16/14; 10:35 AM EST = -37; signal line is -15

Note: A reader asked about why lower utilities would be bad for stocks since typically a flight to safety occurs into divvy and defensive stocks during an economic downturn or general economic malaise. This is true but you must compartmentalize the major market techniques such as fundamental trading, technical trading and algorithmic trading. Keybot is an algo so all it sees is 1's and 0's. In general, weakness in any sector typically leads to broad market weakness. In the short term the effect in the first sentence may hold, but over the longer term it will not. The defensive plays such as utes and consumer staples will hold up better in a market downturn but they still go down; they simply go down a little bit less than other sectors. Getting back to the algo, after years of operation a very interesting facet surfaced with the algo; the ability to identify key sectors and other parameters that most greatly effect market direction in the very near term. This simply turned out to be something that came to be as the data was assessed and has turned into an excellent tool to aid trading. The only reason that utilities are important now is because the algo says they are important; no other reason. In a couple weeks, the algo may consider utes to not be important at all and they may sit in the background for weeks or months. Currently, however, the utes are key and the UTIL 559.43 number for all of next week is very important. As an aside, and has been mentioned in the past many times, the utility parameter can be followed by you independently. Go to YHOO and bring up the historical data for the Dow Jones Utilities (^dju). Go to weekly data and count back 15 weeks. The utilities are in a weekly uptrend if price closes each week above the closing price 15 weeks prior. This is an old-time indicator that young and novice traders are not aware of. The ole-timer's watch it closely and it has its roots at the very core of technical analysis and Norman G Fosback's work decades ago. As long as the weekly trend for utes is up the broad market is happy. If utes fall into a weekly down trend then there is big trouble ahead for equities. The 15-week look back number is currently at UTIL 554.27 ending today and 559.43 for next week. Keystone discusses the techniques for utilities in more detail on his site The Keystone Speculator so reference that site and type 'UTIL' in the search box in the right margin. Bring up those prior charts and articles to better understand the above.

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