Keystone's Morning Wake Up 7-25-11

The overnight drama on the debt ceiling plays out.  Futures remain relatively steady for the last few hours, the SPX should open 8 to 10 points lower.  Politicians continue the debt ceiling theatrics into the new trading week so the equities markets are starting off in a sour mood, while the flight to safety is in play with gold and silver higher and ten year yields flat to slightly lower by a couple bips.

When gold closed above 1580, Keystone's 80-20 rule says 1620 is next and the overnight session tagged that number.  Typically you will see a close in the 20's after the 80's are attained, in this case between 1620 and 1630 would satisfy the projection.  Gold is at a critical juncture now, in the coming days, a few weeks, it will decide if this is a major top, or if the global turmoil helps maintain a bid underneath.  The close in the 1620's would be expected which is an attractive short set up. If gold moves above 1630, then the expected projection of a top for gold will come into question. The retail frenzy continues with gold tv commercials, parties, kiosks, and signs in every jewelry window advertising the buying of gold, so the behavior certainly has the feel of distribution from the smart money that rode this train up to Joe Six that is getting caught up in the current euphoria.  Gold is strong now during a typically weak seasonal period; the Euro and Middle East woes a major contributing factor to the strength.  India consumes one-third of the gold supply so use their markets and economy as a proxy for gold.

The financials will move the broad markets just as they did Friday.  Keystone's algorithm is using the XLF 15.32 level as the line between bulls and bears, and the XLF sits directly on top of this number to start the week.  XLF will move to one side or the other and as it goes, so goes the broad markets today.

For the SPX today, bulls only need one measly point, to get to 1346.10, and a buying orgy will occur, the SPX driving up thru 1347, 1349 and upward to test the 1354 high from 12 days ago. This does not appear to be on tap due to the debt ceiling turmoil.  The market bears need to lose the 1337 handle, if a 1336 handle is touched, selling will accelerate to 1331 then 1331. Currently, looks like the markets favor this direction.  A move thru 1338-1345 is sideways slop.

Simply watch XLF 15.32 and SPX 1346.10 and 1337 for the tell on broad market direction today.