Keystone's Morning Wake Up 5-31-11

Futures are green and strong to start the new week after the Memorial Day holiday. A look at housing occurs with Case-Shiller at 9 AM EST, then the recent weakness in manufacturing will be either confirmed or rejected with the Chicago PMI at 9:45 AM, and sentiment after that with the market-moving Consumer Confidence number at 10 AM.  3 and 6-month bill auctions at 11:30 AM will affect the dollar and treasuries.

Market bulls want to run but they need copper above 419.41 to make it sustainable.  Copper now trading at 419.05 last print so watch this closely.

To close out last week’s action, Thursday and Friday showed market buoyancy as expected in front of a three day holiday weekend.  Keep this in mind for June 30^th and July 1^st in four weeks. Bears could not push markets lower early last week despite having ample opportunity, so the market bulls took over.

Overnight tonight into tomorrow is the new moon so watch for odd market behavior, typically bearish. The eclipse sell-off window a couple weeks before and after 5/15/11 is closing. This resulted in over a 3% sell-off for the indexes.  Next window is a couple weeks on each side of 7/15/11, although you must stay on guard the entire period, 5/15/11 thru 7/15/11 for potential market negativity.

The markets want to make a happy start today but caution is warranted since the ConCon can whipsaw markets at 10 AM.  The bullish utilities, retail and lower volatility continue to be locked against the bearish financials, semi’s, copper and commodities.  This can potentially change at the bell since the bulls want to push everything long.

Levels to watch that will indicate broad market direction include copper at 419.41, RTH at 109.76, SOX at 438.18, VIX 17.58 and CRB at 349.59.  Any changes in these sectors, flipping from bearish to bullish or visa versa, will result in the broad markets moving in that same direction.

For the SPX, if the bulls push up thru 1334.62, the index will jump several more handles, and by the look of the futures, this appears on tap for the opening.  Interestingly, if you scroll back a couple blog posts to the SPX S/R chart, this morning’s futures would fill the open gap at 1342-ish, which only leaves the 1360 gap remaining above.

The SPX downward channel of lower lows and lower highs since the early May top will continue as long as the SPX does not print above 1345. Getting above 1345 and reversing this recent trend would be a big feather in the bulls cap.

Market bears need to push down thru 1326 if they expect to wrestle back control today.  It appears the only way the bears can reverse today’s strong jump is to see bad housing and manufacturing data, as well as sentiment.  If the economic data matches consensus, or at least is not a big negative surprise, looks like the bulls will start the week running. Watch those key sector levels above, they will light the way for the indexes.