Keystone's Morning Wake Up 12/14/11

Chairman Bernanke shows up yesterday with coal for the traders' Christmas stockings. No one expected any announcement of QE3, if you did, you need to seek a new profession, but what was on the table was the language and whether or not the Fed would make mention of future QE3. Any tidbit, word or phrase that had so much as a 'q' in it would have launched markets. But, alas, there was no mention of QE whatsoever so the equites and gold markets sold off strongly.

Financials collapsed after the Fed announcement. The retail sector was weak on negative Best Buy news and lackluster retail sales data causing the market drop into the close.  Watch XLF 12.82 today. More importantly, since financials will probably remain weak, is watching RTH 109.40. RTH starts at 109.89. If 109.40 is lost, the broad markets will sell off significantly. The NYSE volume was about 50% of the 10-day average on Monday but spiked to 81% yesterday. Thus, although volume is low relatively, the market selling yesterday saw a substantial pick up in volume.

Interestingly, the volatility, VIX, has not spiked upwards as would be expected when markets sell off. Thus, lots of traders are firm believers in the Santa Claus Rally and are holding on to those beliefs. Watch the VIX today to see if a spike up occurs, or not.

The Shanghai, SSEC, at 2229 continues to collapse under the vital 2300 support area, now resistance.  The silver and gold sideways triangle chart patterns resolved with prices collapsing out the bottom.  Gold is heading towards a test of the 1620 area. The 200-day MA is 1614, so keep an eye on the 1614-1620 support area. Failure here opens the door to 1580. The 50-week MA is 1575. Platinum has lost the critical 1500 area. Copper continues to weaken since China is slowing. Euro loses the 1.30 level as this is typed.

The U.S. 10-year note yield dropped under 2% so stay on guard for Keystone's Disinflation signal.  The CRB is at 305.75.  A move towards Disinflation will occur if the CRB loses the 300 level.  The 200-week MA is 304.10 and is holding as support--for now.

For the SPX today, starting at 1226, the market bears need to push lower to lose the 1220 handle. If this occurs, large block sellers will enter the markets in force and the bears will accelerate the downside.   The market bulls are simply trying to stop the bleeding.  This would be accomplished in three ways; preventing failure of the RTH as described above, boosting the banks and holding the critical 1220 support level.  A move thru 1221-1248 is sideways action.

Import/Export Prices are released at 8:30 AM, in less than an hour. Oil price will be front and center today, WTIC now dropping back under 100. The rumor about the closing of the Strait of Hormuz for Iranian war games was refuted by Iran itself, so that premium into price should bleed back out. OPEC is meeting today, the prior meeting resulted in chaos. Latest news a minute ago results in WTIC oil now falling under 99. The 30-Year Bond Auction at 1 PM is very important today. Bernanke's Operation Twist is ongoing. 

Futures are currently on the red side. The Nasdaq is leading the downside so that sets the day up as bear-friendly.  If retail does not break down (RTH 109.40), and financials float upwards, the markets may set up for a bounce move for the typical buoyancy from Tuesday to Wednesday for OpEx week. A large flush down at the open, should it occur, may be a nice place to enter for a market long into the Wednesday session (from a day trading or VST trading perspective). A flush down should result in a low NYAD number, high TRIN, and CPC above 1.2 which will signal time for a rally. Markets remain at the mercy of Europe. RTH 109.40, XLF 12.82 and SPX 1220 will tell you everything you need to know today to determine broad market direction.