Keystone's Nightcap 4-7-11

Everyone's singing the low volatility blues.  Markets inching to and fro now that the VIX moved lower, no triple digit Dow moves anywhere in sight.  Light volume also so the indexes float along sideways.  SPX has moved between 1327 and 1340, only 1% range, for the last five days.  Traders watching paint dry but this is remarkable considering the endless bad news flow.

Tiny SPX 1340 gap fill still lingers.  Interestingly, the SPY covered its gap from the February move off the top, but, the SPX has not.  The SPX closed this evening at 1333.51.  If SPX sees 1339 tomorrow then the bulls will push the indexes higher, filling that 1340 gap and perhaps settling in the low 1340’s.  Conversely, if the SPX loses the 1327 handle, then the move lower will accelerate.

All sectors are in the bulls favor now.  Copper and semi's joined the parade this week. There is no fear from traders, complacency rules, so these are markets requiring vigilance.

Trichet promised a pony and Trichet delivered a pony with the ECB rate hike.  Got to give him an 'A' in consistency; now sit back to see if it is Groundhog Day and Trichet set in motion the July 2008 timeframe--all over again.  He raised at the exact wrong time that time; the commodities bubble popped and subprime hit the fan back then.  If Trichet has made a repeat blunder, at least he can jump on his pony and gallop away from the criticism. 

The euro index, $XEU, is now filling a gap from early 2010, at 142.5-143.5, and considering the negative divergence on the weekly and daily charts, and the positive divergence on the dollar index, $USD, the euro is all set for some downhill sledding.

The government shutdown stuff continues to be class B entertainment, a clown circus where the show never ends.  Both sides see the polls where folks will blame each equally, thus, since neither side has an advantage in the spin department, dollars to donuts they all kiss and make up and settle this drama immediately.

Traders will have lots of interest in the Masters tomorrow so perhaps it will be a quiet afternoon to end the week. As a sidebar to watch if trading is boring, keep an eye on the utilities, UTIL, which must close above 406 tomorrow.  UTIL will start tomorrow at 415 and has ample breathing room, but, if UTIL closes under 406, view that as very bearish for the indexes, which would provide opportuinity for the market bears.