Keystone's Morning Wake Up 11-3-11

The ECB rate decision occurs in about a half hour.  This is Draghi's virgin appearance, taking over the top spot from Trichet. Rate cuts are needed for a European economy on the skids but the politics may prevent Draghi from acting. A rate cut by the 12/8/11 meeting is a given. The ECB decision and Jobless Claims data will affect futures, and the trading day today and tomorrow will be dictated by the ongoing Greek tragedy, the "Kick the Cannes" G20 summit and the Jobs Report.

The markets recovered to the upside as projected from the NYAD, CPC, TRIN and other short term indicators highlighted in yesterday's morning missive. Today the broad market direction can be gauged by the behavior of six key sectors, four that provided the recent bull rally with its thrust and remain in the bull camp, and two in the bear camp.  The bull-friendly sectors are utilities, semiconductors, retail and financials while the bear-friendly sectors are copper and volatility.

Keystone's algorithm is currently scanning the following levels, representing the above sectors, which will determine today's broad market direction; UTIL 439.23, SOX 371.70, RTH 107.50, XLF 12.95, JJC 46.75 and VIX 30.00.  If price remains above the levels shown for the first four listed, then the market bulls are fine and market buoyancy will continue.  Watch the XLF since it appears the most vulnerable to failing.  If JJC remains below 46.75 and VIX remains above 30, then the market bears are fine.  Thus, the market bulls need to push copper price higher or push volatilty lower to get the upside to roll along strongly again.  The market bears need to push one of the first four sectors lower to get the bear ball rolling south.

For the SPX, starting at 1237.90 today, the market bulls need to touch 1242.50 and that will open the doors to a big push higher in the indexes, the bulls will be running upwards. The futures are currently in favor of this move but a lot can change before the open.  The market bears need to push lower down to the critical 1220 support today if they want to bring strong negativity back into the markets and increase the selling pressure. If 1220 is lost the indexes will fall several more handles in quick order. A move thru SPX 1221-1241 is sideways indecision.

At this writing, the Nasdaq is up 0.5% currently while the S&P is up 0.8%, thus, with the futures wanting to see a bouyant start, since the Nas is not leading, the market upside should be limited.