Keystone's Evening Nightcap 6-28-11

Traders stepped in today to front run the Europe/Greece austerity vote, currently scheduled for 5 AM EST.  The modern-day Greek tragedy was so much the focus today that the big reason for the stock jump went unnoticed.  Looks like the powers called Trichet and told him to to do the strong vigilance strut today, so he releases a communique invoking his hawkish stance and patented strong vigilance wording. Trichet will have to walk that walk on 7/7/11.  The euro immediately jumped higher, and commmodities and equities quickly followed.  Treasury yields took off vertically, the biggest move higher in recent memory.  The ten year had a 2.8 handle yesterday and now sits at 3.03%. In play today, the asset relationship; euro up=dollar down=commodities up=equities up=treasury prices down (yields up). 

President Obama announces after the close that he will conduct a press conference tomorrow at 11:30 AM, just what markets need, more drama.  So look at that timing as a possible pivot point for the indexes.  Other market movers for tomorrow include housing with KBH earnings and the Pending Home Sales numbers at 10 AM.  SRS (inverse housing) is shaping up for an entry. Keystone's algorithm placed housing back into a double dip two or three weeks ago so there will be sad news moving forward no matter what tomorrow says. Oil inventories at 10:30 AM.  Commodities and ag will be affected by MON earnings. FDO earnings will help gauge low end retail and consumer spending, along with GIS.

The energy trade discussed here on the weekend for the lead up into the ISM number Friday worked like a charm; there is no reason to risk that type of two-day return, those positions should have been cashed out at the close today.  Steel is jumping as expected as well, that should have a little more legs to it but SHAW projected low earnings moving forward tonight, receiving a 13% haircut after hours, thus, poor infrastructure guidance means a lack of need for steel so those stocks are simply a quickie trade like most things nowadays.

The markets finally put together a close that did not pare back gains; this is a feather in the bulls cap. The NYA is back above the 40 week MA preventing a slide back into a secular bear market, albeit perhaps a temporary reprieve.  SPX:VIX ratio remains under 68 (67.64) which means we are in a short the rally mode for the indexes so traders with long exposure would have been wise to hedge with VIX calls or buying some VXX in case things go haywire overnight tonight. Note how close the SPX:VIX ratio is to Keystone's 68 level, only pennies away, watch that tomorrow, if the ratio goes over 68 the bulls will be running long and strong, if the ratio remains under 68, short the rallies.

The sectors were all over the map today, financials in the gutter, staples flat but discretionary up like a rocket, basic materials and industrials strong but utes much less so.  The financials are a victim of Keystone's 2-10 Spread Indicator.  At this writing, the ten-year is 3.03% and the two-year is 0.47%, thus, 303-47=256, exactly on top of the 255 line in the sand between happy and sad financials.  Broad markets will not go substantially higher without financials and financials will not go higher unless they overcome a 255 spread; they are now one basis point in the bulls favor.

Some traders are touting long plays on oil but it is probably best to stay away until oil explores the upper 80's which should come in the next few days.  There are already rumors on the street that another release of the SOR is planned.

Obviously, the Europe/Greece vote overnight carries a lot of weight for tomorrow. In addition, since retail enabled the markets to move higher today, FDO numbers are critical.  Watch the RTH, now at 107.51.  If it stays above 107.29, the market bulls are in clover, drinking champagne as the SPX will regain the 1300 level on its way to 1307.  Market bears need to see the RTH fall under 107.29 after the open and that will place a smile on their faces.

For the SPX tomorrow, the bulls are holding the cards.  Any green in the futures is going to launch the indexes higher over 1300.  The market bears simply need to have red futures to stop the upside run.  Doesn't matter what they are as long as they are red.  As the day moves along, the bears would need to touch 1280 below to restart all the negativity.  The 1282 thru 1296 range tomorrow, without a move out either side, is sideways slop.

Seasonality says Thursday and Friday should be buoyant and bull-friendly in front of the holdiday weekend so keep this in mind as tomorrow plays out into Thursday morning.  Well, good ole Keystone needs his rest, set the alarm clock for 5 AM tomorrow, that's when the fireworks begin, six days early.