Keystone's Market Action 4-1-11

The April Fool’s joke is on the market bears, at least so far today.  Markets have a key reversal feel to them but only time will tell.

Semi’s did a face plant after the open and, along with copper, are the only two Gloomy Gus’s right now.  Other key sectors, and volatility, are happily bullish, and complacent, and mixing up additional batches of Koolaid.

Bernanke, Yellen and Dudley are the three Fed doves and they lead the parade.  The hawkish talk from Bullard, Lacker and others is simply the Fed’s version of good cop-bad cop.  The plan since the Fall 2008 crash is to kick the can down the road and hope time heals all wounds.  Hawkish talk in concert with a dovish policy provides a means to this end.  QE2 will continue thru June as planned, and do not be surprised to see QE3, the doves are steering the ship, make no mistake about that.

Low volume continues to show that only professionals are trading now.  Up moves in the indexes occur on vapor volume.  Short term drops in the indexes are accompanied by strong volume.

Copper remains sick, printing lows and wanting to move lower, the doctor is sick in the back room as the party continues in the living room.

CPC put/call at 0.8-ish continues to show no fear at all, lower VIX confirms this complacency.  Who cares about the lack of volume, price is moving up so take another drink and jump on board or you will miss the fun (said cynically).

SPX:VIX ratio at 80 now, well above any fear of serious selling which will occur once the 68 level gives way at some point in the days, or weeks, ahead.

Trichet’s promise of a rate hike is coming fast, 4/7/11, so the five day countdown begins.  This will have a major impact on currencies, the euro, the dollar index, and commodities and equities.  Trichet made the mistake in July 2008 when he raised so he has to be second-guessing himself now.  To make the same mistake again will place him in the history books as an economic jinx, surely he cannot take that chance, or can he? Watch for any hints at back pedaling from the hike.  If so, euro should fall immediately and dollar index will bounce, US equities should sell off.

China rate hike remains the other elephant in the room, and this is the one no one talks about anymore. A sudden rate hike, especially if it is a surprise 50 hike instead of 25 bips, should see commodities, gold, silver, and equities all sell off, with dollar index stronger.

SPX is now trading at 1336, HOD today is 1337, resistance overhead is 1338, 1341, and the prior top at 1344.  Support below at 1331-1333, 1329, then 1325-1326.

The semi’s are falling out of bed today in a big way.  How do you have a global recovery when you do not need any chips? 434 handle on the SOX right now. Check that, 433 handle now, do I hear 432? The lesson now is to simply enjoy the buoyancy in the indexes, but, keep one foot out the door, keep one foot and one hand holding the door open, and keep one hand on the mouse.