Keystone's Morning Wake Up 6-7-11

SPX 1298 was lost shortly after the open yesterday which opened the pathway lower.  1294 tried to hold, then 1292, the SPX slowly drifted south moving thru support levels.  1286 support finally held the SPX at bay.  The TRIN closed over 3.38.  This is in pure favor of sellers and is a high number that typically tells you to expect a reversal the following day.  Also, the volume was close to average but slightly less than the previous days selling.  Yesterday also saw 89% decliners.  This is another high number and typically when you are close to 90% or higher, the following day will swing back to the bulls side.

Thus, the play into yesterday’s close was to either place long trades, for quickie trades based on the ideas above, to hedge short positions, or, to simply take off some shorts and collect the profits.

If you were watching the SPX:VIX ratio you see a 70 close.  The 68 level will signal a large sell-off in the indexes but the ratio held its bullish posture yesterday.  This also told you that the selling was going to come to a close.  A failure of the 68 level and market bears would still be pushing lower.  Continue to watch the 68 level since it will tell you the story for the broad indexes.

BPSPX is under 69 now, bingo for market bears.  BPSPX had reversed six percentage points as of mid-May and now has taken out the previous March support level at 72. Now that price has collapsed thru the 70% level, the market bears plan on doing more damage in the days ahead. That said, and considering the importance of the 70% level, a back kiss would be in order which would correspond to a small dead cat bounce for the indexes today.

NYAD closed at -1800.  When you get down towards the -2000 area a reversal should occur, thus, this was another signal to cover some shorts and put on a couple longs.

Steve Jobs made his second appearance this year, looking even thinner if that is possible.  Overall, the iCloud talk was a yawner.  Nowhere near the infectious environment that his previous talks would create.  In early March, Jobs announced iPad2, and the stock closed at 352-ish.  Price has never been able to sustain itself above there ever since.  Now, with his appearance yesterday, AAPL sold off 2% closing at 338, four points under the 50 day MA. The Apple chart has closed all gaps above so there is really no reason for price to go higher.  AAPL is a bellwether so the weakness in this stock forecasts troubled times ahead.

Chairman Bernanke speaks at 3:45 PM EST, 15 minutes before the close so his notes should be released with minutes to go in trading today, so the finish may be dramatic.

Earnings on tap today include HOV for a gauge on housing.  Keystone’s proprietary algorithm signals a double dip recession a couple weeks ago.  Case-Shiller followed up with the same conclusion days ago.  LDK will highlight the solar companies today and TLB and ULTA will provide further retail insight.

China appears ready to go forward with that final projected rate hike this month.  Good ole Keystone projected now thru 6/24/11 as the window for the hike.  Commodities and PM’s, gold and silver should all move lower on the rate hike.

The euro needed to fill a gap at 145.5, mission accomplished.  There are no more gaps above that need filled on this short term basis.  Despite all the troubles in Euroland, traders are relaxed about things, the euro is moving up on the tape at this writing and up euro means down dollar, up commodities, up equities.  This should be a short-lived pop. The 20 day MA is under the 50 MA, bearish.  The euro bounced off the 140 level in May, which is the 200 week MA, so look for another test of that level as the days and weeks tick by.

Watch Keystone’s secular market signals.  The NYA is on the verge of losing the 40 week MA.  Today’s potential bounce provides a temporary reprieve from this action, but watch this closely since a failure of the 40 week MA indicates that the markets are falling back into a secular bear market.

Also the SPX 150 day MA slope; on Friday the number was 1287.28.  Yesterday the 150 day MA was 1287.97, only 69 pennies higher to maintain the upward sloping nature.  Thus, check this after the close today to see if the 150 MA drops under the 1287.97.  If so, that means the slope of the 150 day MA has flattened and reversed to a negative slope, which indicates that the indexes and stocks in general are falling back into a secular bear market.  Even if the slope does not reverse today, watch it each day as the days tick along, Keystone suspects the slope of the MA will flatten and go negative any time now.

The SPX begins the day at 1286 with futures on the green side.  The market bulls need to push the SPX back above 1300 to gain any traction, a formidable task.  Today appears so far to be a simple countertrend rally, dead cat bounce, from all the recent selling.  But, should the bulls drive it above 1300, you will see the buying accelerate and the bulls will push things much higher.  Conversely, the SPX only has to lose a point, to move under the 1285 level, and the selling will continue in force today. Support levels to watch for the days and weeks ahead include 1286, 1282, 1279 and 1270. Resistance levels above include 1293, 1295, 1298, 1307, 1312 and 1314.

In conclusion, futures like the idea of a relief bounce today.  In four days, the SPX has dropped from 1345 to 1286, a 5% drop.  That left a mark for any long-only trader unless the trader hedged properly with puts or shorts. The indexes should continue lower after a relief rally for a day or two. Use the above tools to help forecast the direction. Watch that SPX:VIX ratio like a hawk.