Keystone's Evening Nightcap 6-27-11

The market bears could not push the SPX lower by that one measly point to reinitiate the selling, so the bulls took over today.  The positive divergence on the daily index charts bounced price.  The rally is not impressive, however.  Low volume stuff, volatility remains elevated, so the indexes can be pushed around like jello on a plate, and that goes for down as well as up.  Recent behavior has shown large down days following large up days, and visa versa, so the jury's out on what tomorrow brings.

The market bulls need to pump retail tomorrow if they want to run the indexes higher.  RTH, now at 106.44, would need to move above 107.10, if so, the broad markets will run strongly higher.  If not, the bulls got nothing, and today is verified as nothing special.

The energy and ISM trade theme Keystone talked about on the weekend played out today. ERX, XLE, XOM, COP all went up. Natty stocks took a little bit of a hit due to bad press on shale gas.  Keystone simply daytraded ERX instead of holding it until this Friday or the following Tuesday.  On weakness, the trade will probably be reentered for another ride. When the volatility comes up like it has, a traders dream, you cannot wear out your welcome with trades, if the money is there, take it, because in these fast moving markets, bloop, the profits will be gone if you hesitate.

MT popped over a percent today, and in the steel sector, NUE did not feel any love, but considering the postive divergence on the daily chart, price will bounce any time.

A feather in the bears cap was the news that copper and other metals demand will not be robust moving forward.  The bulls need to push copper higher if they want to get something going, and it looks like this rug was pulled out from underneath their hooves. Another feather in the bears cap is the 2-10 spread, remaining under Keystone's magic number of 255. Ignore any talk of bank book value, if this spread remains sub 255, the banks are garbage, and the broad markets will not make any substantial move higher without the banks.  Conversely, if you see the spread jump back above 255, that is a clue for you to start looking for that more sustained broad market rally.

For the SPX tomorrow, starting at 1280, the bulls need to touch 1285 and the rout will be on, buyers will be coming into the indexes in force, driving the markets much higher. The bears have a harder task ahead, they need to push about 11 points lower simply to touch a 1268 handle, this critical support level, if they touch it, they will be going down thru it.  1262 will follow in quick order, and then potentially a test of the starting year numbers at 1258. If the SPX oscillates between 1270 and 1284 tomorrow with no breakouts from either side, this will be a sideways slop day with everyone going home unhappy, then having to wait on pins and needles for the Europe/Greece austerity vote for Wednesday's trading.

Today's action did not mean much.  Markets remain unstable.  Stay on guard. Case-Shiller will depress the markets at 9 AM tomorrow morning. Consumer Confidence is a key monthly indicator so expect the market to pivot at 10 AM.