Keystone's Market Action 5-3-11

Copper remains weak even though it has trended up today. Financials are trying with all their might to stay on the bull side but their grip is slipping.  The big news today is the weakness in semiconductors.  Thus, watch these three areas closely.  Volatility is buoyant today but way off the mornings highs.

The bulls are hard to keep down, the majority of the traders believe in the Fed, and Chairman Bernanke's fast easy money policy to keep equities strong, so the markets remain buoyant. 

2-10 spread continues to trickle south ever so slowly, from the 270's recently to now in the high 260's.  Bankers will not worry, however, until the spread loses 255, so time will tell.  The spread now favors bankers so it is odd to see financial stocks performing weakly.

Utilities receiving lots of POMO pumping since the robots use the utes in their programming.  Keeping utilities lofty keeps markets lofty.  UTIL now has a 434 handle, well above any worries that would occur should it drop below 413.

Put/call continues to reflect complacency in the markets, the crack cocaine served up by the Fed that keeps the dollar beaten down is too powerful of a drug to make any trader negative.  SPX:VIX well above the 68 level, now at 84; this reflects the bullish markets.

Apple tested the critical 352-355 range over the last few days, and failed so far.  352 is when Steve Jobs appeared on stage and released the iPad2.  Two months have passed now and AAPL cannot maintain this level let alone go higher. 

Watch the copper-gold-silver relationship.  A week ago, gold and silver popped big but copper was red, later that day is when gold and silver dropped and followed copper.  At the end of last week, same situation again, but the week ran out before the relationship played out.  Yesterday, copper moved down again, although it did close pennies higher at the end of the day, but copper did succeed once again in pulling gold and silver south, now twice in a weeks time.  Monitor this relationship since copper appears to be negatively influencing gold and silver.

India raised rates more than expected, they saw China raise by the same paltry 25 basis points in early April and no doubt wanted to one up their Asian neighbors.  China probably would like a do over to raise by 50 instead of 25 but China promised one more hike by June, so they will raise again anyways within the next 7 weeks.

The big deal this week is Trichet and the ECB on Thursday morning. No change in rates is expected despite Trichet's recent hawkish talk, in truth, he actually tried to tone things down a bit last week reinforcing the stance that another rate hike is not on the table this week.  Trichet's words make all the difference this week as they relate to 'strong vigilance', his words will immediately affect the euro direction, thus the dollar index, thus commodities and equties.  The existing rally relationship is euro up=dollar down=commodities up=equities up, but, any dovishness from Trichet will result in euro down=dollar up=commodities down=equities down, which, by the way, is the current preference of the charts moving forward. 

Watch XLF16.34, now at 16.37, and semi's, watch SOX 440.06, now at 439.74.  These two sectors will move the broad markets today and as seen currently, financials are on the bullish side, but semi's are on the bear side.  Both should settle out on one side and take the markets with them.