Keystone's Wake-Up 4-4-11

Copper and semi’s were weak to end the week.  Copper catching a small bid this morning which helps market bulls.  Financials must cooperate and the weakness in semi’s must be reversed if the markets intend to move higher.

Weaknesses in semi’s and copper are large feathers in the bear’s cap.  Retail and utilities are bull friendly right now so the main arbiter in today’s trade will be the financials, so watch the XLF behavior.

VIX is lower and along with the CPC put/call show no fear at all in the markets. Complacency is alive and well and would favor the bears considering its contrarian view point.

SPX:VIX ratio is 72 now, well above the 68 level, so well above any fear of bearishness in the indexes, but, the ratio can drop very quickly.  SPXA150R prints a 90% now which is a lofty perch for the indexes, more consistent with the top end of a rally.

The government shutdown should be averted since voters will blame both sides, thus, the politicians will always preserve their own selfish interests, and settle the matter this week.

A potential China rate hike and the Trichet rate hike are key.  No one talks about a China rate hike these days so this would increase the surprise factor, especially a 50 bip hike rather than 25.  If China does not raise within the next couple days, they will probably wait until the week of 4/18/11.

Trichet promised a rate hike Thursday so he boxed himself in.  The euro has maintained strength due to his hawkish talk.  A rate hike may not have a large impact on the euro since it is priced into the euro now, but, if Trichet balks, that would be a significant event, the euro would tumble.  In general, the above two events would lead to equity selling.  If they turn out to be non-events, then status quo reins, and the markets should maintain buoyancy.

Charts are agreeable to a turn back down in the indexes now.  Watch to see if utilities lead the move lower, if so, the selling will be extended, if not, SPX will come up again.  Key elements that will push markets the next couple days are China, Trichet, financials, copper, semi’s, retail and volatility.