Keystone's Morning Wake Up 6-6-11

Many long term trend lines from the March 2009 bottom are being or have broken to the downside. This failure of the lower trend line is seen with individual stocks such as AAPL and GE, bellwether stocks, and sectors such as the financials and copper, and now the  indexes such as RUT, COMPQ, INDU and SPX are about to fail. So take a look at any weekly chart and draw a line from the March 2009 bottom thru the summer 2010 bottoms and watch price now to see if these lower trend lines continue to fail.  This signals that the long 27 month rally is over. A typical rally is 24 months so this is a reasonable time frame.

Keystone’s 2-10 Spread Indicator gave way last week with the spread dropping under 255.  This indicates that the yield curve no longer provides a great advantage for banks so the financials should experience further weakness ahead. This morning, the ten year is at 2.99% right now, 2-year at 0.42%, thus, 299-42=257.  So 257 is above Keystone’s 255 line in the sand so watch this spread to see if it dips under 255 and continues lower again.  The 10-year auction is 1 PM EST Wednesday so mark your calendars.

Keystone’s SPX:VIX Ratio Indicator continues to hold on for the bulls.  When the 68 level is lost, the broad market heads will roll.  The indicator teased on Friday morning at the open, falling under the critical 68 level, but rebounding above a few minutes later and this set the tone for the remainder of the trading day. When 68 fails, the Dow Industrials will  be off triple digits.

Start to monitor the SPX 150 day MA slope more closely as the markets continue to slide.  The slope of the 150 day MA continues to be up, indicating a secular bull market for the indexes remains in place.  Watch to see if the slope flattens and turns negative which would be the first firm indication that the markets are slipping back into a secular bear. Currently, the 150 day MA is in the 1287 area, watch to see if it continues to be bullish by moving up each day, 1288, 1289, etc…, or if the trend has now changed and the MA flattens and moves lower with 1287, 1286, etc…

For the week ahead, Apple will be front and center to start the week and set the overall tone for the markets.  Steve Jobs will make an appearance to announce iCloud.  His last appearance was three months ago for the iPad2 release where the stock closed around 352--and has not been able to maintain that level ever since.  AAPL is a key bellwether for the stock market so traders will take a look at Jobs to assess his health and trade accordingly.

Watch the BPSPX to see if it loses the 70% level, if so, trouble continues for the broad markets.

For the SPX on Monday, 6-6-11, watch the key 1313 and 1298 levels.  If the bulls can push above 1313, the indexes will accelerate to the upside.  If, however, the bears can push only two points lower after the opening bell and lose the 1298 handle, the selling will accelerate.  1292 support will try to hold things but once this is broken, it’s air underneath.

Lower targets would be the 10-month MA at 1271, the March intraday low at 1249 and closing low at 1259 and the upward sloping 200 MA at 1248. Further, 1258 was the beginning SPX number for the year and 1252 is the pre-Lehman bankruptcy number from Fall 2008.  Therefore, a confluence is formed at 1238-1259 which acts as a magnet for price moving forward.