Keystone's Morning Wake Up 7-13-11

A late day swoon occurred in front of the closing bell yesterday due to more bad euro news. Overnight, however, the future and futures are bright again, with broad markets looking for a buoyant day. Yesterday's threat of further downside was muted by the time the opening bell rang.  Today we will see if the green futures hold up in front of the opening bell.

Potential pivot areas for today include Chairman Bernanke at 10 AM, Oil Inventories at 10:30 AM and the 10-Year Note Auction at 1 PM.

Gold continues its run higher but caution is required due to negative divergence across all indicators including both the weekly and daily charts.  News out of Europe can occur at anytime which immediately pops gold, oil and other commodities, but the gold charts now are saying that a pull back is on the door step. Remember Keystone's 80-20 rule where a ticker that closes above the 80 level is typically desitned to attain the 20+ level.  For gold, if a couple closes occur over 1580, then 1620+ is on the way.  The charts, however, do not show this, they show that this area should hold as resistance. As an intial indication, watch for a gold close of 1578+ since that would lead to 1582+. Keystone takes a negative stance on gold now but this is highly speculative and obviously on the opposite side of the vast majority of traders.  I cannot remember the last time anyone said anything bad about gold, universally, the talking heads say buy, buy, buy. That should make you scratch your head.

The 2-10 spread sits directly on the 255 level, thus, the financials continue to decide if they want to officially give up the ghost, or, if they want to try to make a run higher from here. The 10-year note acution is critical, so watch the spread at 1 PM today.

SPX:VIX ratio dropped under 68 yesterday indicating a large sell off on tap, but, the ratio was indecisive all day long, moving above and below 68 eight times yesterday before it collapsed thru 68 to close at 66.11, confirming the bearish move late day. With futures green, watch to see if this ratio moves back above 68 at the bell, if so, then the bulls are back in biz and will keep markets buoyant, at least sideways, but if the ratio cannot regain 68 after trading begins, the indexes will fall big again today.

Major sectors such as financials, semi's and commodities, as well as higher volatility, are all perceived to be bearish as measured by Keystone's algorithm.  The bulls are fighting back with higher copper, retail buoyancy and utilities that remain elevated.

Today has a sideways look to it at this juncture.  Watch the pivot points above.  For the SPX for today, the market bulls need to touch 1327 if they truly expect to regain control and accelerate the indexes higher.  The bears are in the dirvers seat since the indexes closed near their lows yesterday; they would only need to see red futures and the indexes will sell off large, but, the futures are healthily green right now.  Perhaps a sideways move thru 1314-1326 as Europe, Chairman Bernanke and the 10-year auction is sorted out today.