Keystone's Morning Wake Up 6-24-11

The broad markets bounced yesterday afternoon.  The technical’s showed copper not falling under 400, the utes, UTIL, not falling under 418, the positive divergence on the indexes over the one week time frame, the NYA is back above the 40 week MA and the TRIN not spiking higher during the session. Thus, the indexes moderated by the close, regaining much of the lost ground.

The SPX:VIX ratio is under 68, only by a point or so, forecasting continued weak markets moving forward; a short-the-rally mode is prudent.  If the ratio moves back above 68, then the indexes will reset again for the next big drop which would occur when the 68 level is lost the next time.

Markets continue to remain at the mercy of the European/Greece situation.  More twists and turns to come.  The countdown clock on Congress raising the debt ceiling heats up, only five weeks remaining, talks are breaking down, and Moody’s set a md-July date to consider the U.S. for review of a downgrade unless signs of progress are shown.

IEA (International Energy Association) to release oil from the SOR (Strategic Oil Reserve).  Or, SPR (Strategic Petroleum Reserve). This is one way of attempting a QE3, boosting the economy in front of a presidential election coming in future months.  Perhaps the reason for the odd timing is a matter of getting the most bang for the buck as well.  You want to push something when it is already moving along rather than starting it from a dead stop.  Oil price has been falling in recent days, therefore, the oil release news may have more of an impact. The talk is, however, that this move to release the oil is actually showing that the supply’s may not be as ample as thought, hence, a move back up with oil price may be coming in short order.

For today for the SPX, the market bulls need to push three points higher, and once the 1287 handle is touched, the bulls will be off and running the indexes much higher, with the 1300 in sight.  If the 1287 level is hit, Keystone’s proprietary algorithm will probably flip to the long side.

The market bears have a formidable task today; bears have to push the SPX down to 1263 if they expect to reignite the selling pressure, about 20 points lower. Thus, the bulls have the wind at their back to start the last session of the week, but, if the bulls cannot touch a 1287 handle, they got nothing overall, and the markets will languish along sideways with a downward bias into the summer weekend.

Retail and the NYA will be critical to forecast market movement today.  RTH, now at 107.51, favoring bears, only needs to climb four pennies to get above 107.55 to make the market bulls drive the broad markets higher.  NYA price got back above the 40 week MA so watch to see if that remains, or fails.  Also, SPX:VIX ratio, now at 66.54, favors bears moving forward.  If this moves above 68, the markets will float upwards the next few days.

Seasonality-wise, this week is down 18 of the last 20 times, and, with the last session today about to begin, the SPX is actually up one percent. Thus, the indexes would need to sell off about 12 points to finish the week lower; down to the 1271-ish level. Regardless how today’s session goes, yesterday the indexes were posting lower lows for the week in line with seasonality, but this reversed on the positive Europe/Greece news.

Durable Goods and GDP data is relatively in line of consensus.  Futures popped but are now giving it back.  Flattish open on tap.  Typically, Friday’s see buoyancy in the afternoon’s due to short covering ahead of the weekend and if it does not occur, that is to be considered bearish moving forward.

Futures have been jumpy the last 24 hours, very skittish.  If the market bulls cannot touch 1287, then the bears will push things lower today.