Keystone's Weekend Commentary 5-1-11

...if it's Sunday, it's time for Keystone's Commentary.....

The Fed sure knows how to throw a party. The dollar tumbled as stocks and PM’s launched higher after the Chairman Bernanke Desk Conference.  Several tools indicate and verify the bullish posture in the markets; SPX:VIX well above the 68 danger level, lofty utilities and the SPXA150R above 90, to name a few.

The leader copper, however, remains disagreeable to all the bullish joy.  After all, copper led the entire recovery as it came off the bottom in June 2010. It’s predictive value was touted back then.  Main street media rarely mentions copper now but the move down from the February top shows lower lows and lower highs. Charts want to move lower and last week, copper drifted straight down all week.

Last Monday, when gold and silver jumped, copper remained red and dropped, and copper dragged the PM’s down as the day moved along.  Later in the week the same set up occurred, copper continues to pull downward, but the week ran out with gold and silver higher.  Tomorrow morning this relationship is worth watching.  For markets, and PM’s to go higher, copper will have to change its stripes and start up again. The charts, however, look weak. Copper is one of those things where you look back at this period as the mid summer sun shines two months ahead, and you say, ‘copper was telling us that’.  Thus, either, copper gets a new attitude and joins the bull rally to prove the rally is real, or, copper will stay stubbornly negative, which will pull the markets down.

Bullish sentiment remains high, complacency reigns as shown by the volatility and put/call.  VIX closed with a 14 handle.  But, as is always the case with this type behavior, volatility is going to launch, reversing with powerful force, in short order.  Charts want to see a strong move up in volatility.

Financials jumped over to the bull side last week but unconvincingly, now only a few pennies from slipping back to the bear side.  Watch XLF 16.34 as the bull-bear line, above, price is now at 16.38, and broad markets remain buoyant, below, under 16.34, and broad markets will sell off. Very odd behavior is worth noting during the last half hour of trading Friday.  XLF was losing its grasp and rolling back over to the bear side but during the last half hour, big money came in and pushed XLF straight up thru the bell, from 16.33 to 16.39, almost a half percent move, in 20 minutes, to close at 16.38.  Thus, keep your eyes open, there’s something fishy going on around here.

The 2-10 spread requires watching this week as well.  Keystone watches the 255 spread value, above is happy bankers, below is sad bankers.  Spread was moving along in the 270’s for a while, now slipping backwards.

The utilities must remain buoyant to keep the index rally alive, and curiously, the same shenanigans with financials were at play with utes on Friday afternoon during the last half hour of trading. The utes were drifting lower when an invisible hand swept UTIL from 427.50 to 429.30 in a half hour, a near half percent move.   For this week, the utes, watch UTIL, must stay above 413.34, otherwise, the broad markets will be in trouble. At 429 now, comfortably 14 points above, this posture appears easy to maintain.

More earnings on tap this week, GM releases on Thursday.  ECB rate decision comes on Thursday, no change expected, Trichet will talk at the press conference, many waiting to see if he utters ‘strong vigilance’ again, or not.  The euro, dollar, PM’s and equities will move on Trichet’s words.  Jobs report on Friday.  The Chinese Facebook, RenRen offering, is exploding to the upside on hype , many who buy it will wish they had Run! Run!

ISM is released at 10 AM tomorrow morning, the XLE jumped 1.5% on Friday, watch to see if that continues, this is a steady eddy trade each month by the professionals, every month experiences energy buoyancy as it closes out and moves into the new month.   For now, that trend looks to remain in place which would favor the overall bull case. A move down in energy from the open into mid week would favor market bears.

Congress is back in session so just as the last two weeks, where the political hacks were vacationing like royalty, and the markets are buoyant since they are not around to do any damage, now the clown show returns, so markets view Congress in session as a negative for the broads.

The move up in the indexes is impressive; all major sectors are bullish except copper.  Financials are tenuous, tools and indicators favor bulls although the charts show trouble ahead; many sector charts now negatively diverged across both daily and weekly time frames indicating a spank down coming.  Markets are currently enjoying the last of the punch.  Early and into and through mid May is an expected market selloff zone, perhaps the New Moon will shed light on things come Tuesday. Expected direction ahead is dollar up=euro down=commodities down=PM’s down=equities down.

For tomorrow, the SPX may favor the 1358-1361 support/resistance zone.  If the SPX gets above 1365, a test of 1368 should come next, then 1371.  If the SPX can move lower to a 1358 handle, then a move down to test 1354 is in order, then 1350.

Despite the bullish euphoria, caution is warranted, utilities, copper and financials are most important. Stay on guard.