Keystone's Morning Wake Up 10-12-11

Double A laid an egg last night but this was not a big surprise. Aluminum is one of the few strong resources China has and Alcoa has drifted lower for years as China grows in stature. The AA weakness is not hurting futures as the broad markets are set for a strong opening. Yesterday shows mixed trading; a rest was needed as evidenced by the extremely high +2600 NYAD on Monday.

As we have watched over the last couple weeks, semiconductors and retail have done all the heavy lifting for the markets. Utilities, UTIL, needs to maintain 439 or higher this week to help keep the market bulls happy, but yesterday the utes could not get the job done, so this is viewed as at least a small feather in the bears cap.

The market bulls have things going their way lately.  The next leg up for the markets will occur if utes, financials or volatilty cooperate.  For financials, XLF, 12.55 is the number to watch, Keystone's algo is fixated on this. XLF is now at 12.43 so close, but no cigar. Volatility, the VIX, is at 33 and it needs to go sub 29 to add further fuel for the market rally. The SPX and Dow printed doji candles yesterday so stay on guard for a reversal to the downside for the markets, but, with the indicators showing healthy profiles, price will likely come back up to these current highs again after any pull back occurs.

For the SPX today, starting at 1195.54, if the market bulls push it up and over 1199, that should attract the large block buyers to enter in force to pump the indexes higher. The market bears need to push lower towards 1187, if so, they can attract the large block sellers and move markets several handles lower.  A move thru 1188-1198 is sideways slop.

In a nutshell, to determine broad market direction today, watch UTIL 439, XLF 12.55 and VIX 29.  If UTIL regains 439, or XLF achieves 12.55, or VIX falls under 29, the market bulls will be in clover and the SPX will be up over 1200 and rockin' higher.  Any of these three occurring will create market buoyancy, two of three even more, and if all three occur, the bulls will be enjoying a huge upside party.  The task at hand for market bears is to prevent any of these three from occurring, while, at the same time, try to create weakness in retail and semi's; a formidable task considering the recent market momo.