Keystone's Morning Wake Up 1/19/12

The bulls wanted to see green futures to catapult the indexes higher again, and the BAC and MS earnings appear to be helping the cause. The markets are in an interesting place now.  The charts are negatively diverged showing that a spankdown is required at any time, but the news flow, be it quantitative easing talk out of China or Europe, or the bank earnings the last couple days, or the sudden boost to semiconductors, overtakes any market negativity.

At the same time, the bullish sentiment is off the charts, the boat is loaded to the bull side right now, so this contrarian indication favors the bears. The volume has not yet returned to even the light volume days in the Fall as yet. Therefore, choose your poison, Keystone can make the case for both sides but if one side had to be chosen, the chart side and technical analysis typically wins out and the markets should pull back for a rest.

The utilities sector topped in December. This is somewhat worrisome for bulls since the more substantial and long lasting broad market down moves begin with the utes weakening. But, traders quickly dismiss the concern while pouring more booze into the punchbowl.

Portugal should be in the news due to the huge jump in 10-year yield this week, but, all that Keystone hears is crickets. Portugal should heat up now, they more than likely need additonal support. A few of the builders were downgraded this morning so the real estate sector will be important. Perhaps the downgrades and/or Housing Starts will intiate a pop in SRS, the real estate inverse ETF.

The China easing talk is building the bounce into the markets before it is even official so this sets up a muted reaction once the triple R's are lowered. Keystone targets 1/25/12 as a target date for the China announcement although it can occur anytime from now thru 2/8/12.  The Chinese New Year begins 1/23/12.  Last year, China raised rates two days after the start of the New Year, hence the target of next Wednesday for the policy move.

The European LTRO has provided a quantitative easing bounce as well without truly receiving the label as quantitative easing. Again, the buoyancy in equities is more than likely taking away from the projected bounces that would occur in the future when these and further quantitative easing measures are officially announced. This year, Keystone expects QE3 from the Fed, and an ECB QE probably initiated by a deflationary scare.  BOE QE3 is on the table as well.  All these actions will more than likely occur in concert, a coordinated Full Monty, no pun intended towards Italy's Monti, one final world-wide quantitative easing money-printing orgy, to try to save a global financial system most probably already lost.

The commodities index, CRB, plays an important role today. Watch CRB 311.50, if price stays below, the bears are in the game.  If CRB moves above 311.50, this will give further bull validation to the markets. For the SPX today, since price closed at the highs at 1308, green futures will add on several handles to the indexes after the opening bell. This start is currently projected by the futures.  Reference the previous post with the SPX support/resistance. 1312 is the next strong overhead resistance above.

The S&P futures are up 0.42% while the Nasdaq is up 0.43%.  This is a shift in market underlying strength since the Nasdaq has led the bullish move this week the whole way.  Seeing the percentages equal now shows that the Nasdaq does not have the oomph to continue leading and this current posture promotes sideways movement. Watch today to see if the Nasdaq starts to lag the SPX which would favor market weakness.

The charts point to a market pull back at hand now, but the markets continue to float upwards.  Housing Starts is a key monthly indicator and that news hits in 20 minutes. Look for the number to impact futures and perhaps change the current complexion of the open.

Note Added 1/19/12 at 9:02 AM:  Housing Starts are 657K far short of the 680K estimate. FCX (copper) beats estimates but guides lower.  The markets are shrugging off any negative news.  Caution is warranted.