Keystone's Morning Wake Up 12-1-11

Hello December.  The markets receive the global intervention that Keystone has been talking about the last few months in the weekly Key Events and Market Movers missive, under the sub heading Quantitative Easing. The move yesterday by the central bankers was surprising nonetheless since it was not carried out as a result of U.S. deflation.  The move was carried out to support Europe which shows that Europe was in a lot worse shape than many realize and that a bank was likely to fail at any time, requiring the coordinated effort.

The dust is clearing form the bazooka fired yesterday.  The side of the bazooka is stamped with the acronyms FED, ECB, BOC, BOE, BOJ and SNB representing the central bankers from the U.S., Europe, Canada, England, Japan and Switzerland. A bullish trifecta occurred yesterday.  Step one was China easing, step two the coordinated central banker move and step three the economic data.

The huge bull move started with China beginning an easing program by lowering bank reserve requirements.  Clearly China is moving form battling inflation to spurring growth.  China Vice Finance Minister Zhu Guangyao says this morning that ‘the world economy is facing a worse crisis now than during the Lehman crisis in 2008’.  Perhaps China’s comments help pre-empt the European paupers from knocking on the door asking for money?  China’s PMI hit overnight with both the PMI and the HSBC China PMI under the 50 level now indicating an economy in contraction.

China easing placed U.S. futures firmly in the green yesterday and once the coordinated intervention was announced, the equities markets launched and never looked back. The icing on the cake for the bullish trifecta yesterday was the economic data. Each data release yesterday, from the ADP employment report to the Chicago PMI to the housing numbers and even Beige Book added more bull fuel. The Dow Industrials had the largest up day in two and one-half years. BAC was saved from falling under five bucks.  The Dow also regained the 12K level.

Skepticism is warranted, however, but many traders are holding their noses and buying. A money manager can ill afford standing on the sidelines while the markets move like yesterday.  ‘Don’t fight the Fed’ is the mantra. The market buoyancy may continue into next week, with traders content to hold on until the all-important EU Summit meeting next Friday, 12/9/11. Traders will be expecting and need good news in six trading days to make this rally sustainable.  

For today, Thursday, Draghi (ECB) and King (BOE) are downplaying expectations.  Draghi says ‘do not look to the ECB to bail out Europe’ and King says ‘Europe is in systemic crisis’ and he stresses that liquidity cannot help a solvency issue with banks.  Cover your bowl of Cheerio’s this morning since these two are dropping unpleasant comments.

As always, let’s stick to technical’s, something more black and white instead of political gray. Jobless Claims are important this morning ahead of the Jobs Report tomorrow morning.  The ISM manufacturing Index is at 10 AM so expect a market pivot point then.  Also watch the energy markets since they will move wildly on the ISM release, a sell-the-news event typically occurs for energy upon the ISM release. Construction Spending, also at 10 AM, is a great indicator for employment.

Checking NYAD, the +2311 print and intraday +2500 print wants to see a market pull back now.  NYMO finally received relief from that very low -100 area. Remember when we talked about that a few days ago looking for a large market recovery? CPC is now at 0.91 well off the 1.3+ numbers that were signaling that a rally was needed. TRIN printed uber low numbers around 0.25 yesterday so this is of the same mind as the NYAD wanting to see some market give back today.

The BPSPX is at 54.80 trying to reverse the bearish move down.  The BPSPX needs at least a six percentage point move up from 50% to signal an all-clear bull flag. Watch this closely since the BPSPX has not yet confirmed that the bull party should continue.

For today, to gauge broad market direction, watch financials, semi’s and copper using XLF, SOX and JJC, respectively. XLF is now at 12.81, watch 12.73.  SOX is now at 373.32, watch 370.50.  JJC is now at 46.00, watch 45.25. All three are bullish now which supports market bullishness.  If one or two slip into the bear camp, that would represent some minor giveback for the indexes which is not surprising after such a huge up move. If all three drop into the bear camp that would signal that yesterday was a flash in the pan.

For the SPX today, 1257-1258 is the start-of-year number, price sits ten points under at 1247. The Dow Industrials moved positive for the year yesterday. 1242 is firm support below.  1281 is an extremely important level since it represents the 12-month MA cross which identifies the line between secular bear and secular bull markets.

For the futures at this writing, still a couple hours in front of the open, the Nas is up and the S&P is down which says that any down move for the indexes will be minor and of no consequence with the market bulls currently in control.