Keystone's Morning Wake Up 7-26-11

The debt ceiling theatre continues, the stage act will close with resolution in the coming days, the politicians are simple actors. There are hints now that an 8/10/11 deadline is more important than the 8/2/11 deadline so perhaps the goal posts will now be moved forward by both sides.  The prime time talks last night pushed the dollar and futures lower. Markets overall are assuming a sideways posture this morning as the three ring circus continues.

Smart traders have been trading smaller, paring back exposure in recent days due to all this whipsaw erratic market action. The important earnings release this week is UPS, reporting a short time ago with an orchestrated earnings exactly in line with estimates.  Pre-market action shows a half percent loss on tap for UPS today so we will see how it goes.  This bellwether tells you if the recovery is real or not, the lackluster enthusiasm in the numbers this morning does not foretell joyousness for the markets ahead.  Further on, the weekly chart has been rolling over since the February top this year, this will continue projecting a malaise ahead for the broader markets as the year plays out.

The financials weakened at the opening bell yesterday casting a dark cloud on the markets.  Keystone's algorithm is currently scanning XLF 15.30 as the separation of bulls and bears so the XLF now at 15.21 reflects bearishness which is bearishness that carries thru the broad markets.  Thus, watch XLF 15.30 today to gauge broad market direction.

For the SPX today, futures are flattish. Starting at 1337, the bulls need to see a move above 1344.32 to see acceleration higher to 1347, 1349 and the prior high of 1254. The market bears need to move lower to lose the 1331 handle.  If you see a 1330 handle appear the sellers will enter in force, driving the SPX lower in short order, down to test the 1329, 1326 and 1323 levels. Considering the current futures, a sideways slop day thru 1332-1343 may be on tap as the political clowns play their games.

The Consumer Confidence number at 10 AM is critical this morning; watch for a market pivot on the news.  Also, watch the 2-year note auction at 1 PM as a market pivot since this will filter into the 2-10 spread and this affects the financials sector which in turn will affect markets. Case-Shiller is out in a few minutes, do not expect the news to be good, that would be a suprise considering that Keystone's proprietary work shows that housing fell into a double dip as of mid May, two months ago.

UPS pre-market now trading down 0.9%.