Keystone's Morning Wake Up 7-27-11

UPS gave up the ghost yesterday, this is a top tier bellwether, if they are not moving packages, then the economy is not producing the packages. Another heavy hitter that traders do not pay enough attention to is ITW, they are in 60 countries or more around the globe and are an excellent proxy for global recovery, or lack thereof.  ITW was taken out to the shed as well. These bellwethers do not bolster enthusiasm for equities moving forward.  Watch DOW today, since chemicals, resins and plastics are the life blood raw materials for a growing economy. 

Volatility, VIX, the so-called fear gauge is back up over 20 indicating that tension is mounting over the debt ceiling circus. Dollar is getting whomped last few days but charts show that it continues to base and exhibit a constructive set up for multi-week upside moving forward.  This 72.5-73.5 will be a bottom for the good ole dollar and then up, up and away from here.

Keystone's SPX:VIX Indicator wrestled with 68 yesterday and ultimately failed, closing at 65.84.  Now under 68, a big down day for the indexes with the Dow Industrials down triple digits is anticipated--as long as the ratio stays under 68.  I fthe SPX:VIX moves back above 68, all bets are off again since the bulls will have wrestled back control. If the ratio stays under 68 during the days ahead this will correspond to the indexes tracking lower each day.

Gold reached the 1620's target. From Keystone's 80-20 rule, once it closed over 1580, 1620's was on tap, we are there now. Weekly and daily gold charts are negatively diverged across the board with all indicators with an excellent short set-up. This is a top in gold. The miners, GDX, came up to tap that gap at 62-ish but it is not filled on the weekly chart as yet. GDX high a day ago was 61.71 so close but no cigar.  Have to allow leeway for a 62 print and that should do it for the miners. The miner strikes and mine headaches the last few days have helped drive metals prices higher. The juniors, GDXJ, have a couple gaps remaining higher, 39.6 and 41. Thus, would not be surprised to see some buoyancy in miners for next few days but as gold tops now and rolls over, the miners will follow.

Watch retail today. RTH, now at 110 even, is only 60 pennies above danger, as measured by Keystone's algorithm; the 109.40 level reflects a move to bearishness for retail.  Conversely, the commodities ex-copper have remained weak but they are now showing signs of life again.  If the CRB moves above 349.50, it is playing near there now, this is a bulish sign for the broad markets.  If CRB stays under 349.50, the equity bears will be happy.

For the SPX today, the market bulls need to touch 1338.50, about seven points higher than now, and buying will accelerate.  Market bears need to push only two points lower to get under 1329.60, and the bears will throw a party today as the indexes tumble lower. The SPX:VIX ratio remaining under 68 and the 1329.60 level failing would ensure that the SPX falls thru 1329, 1326, 1323, 1321, perhaps lower, and the day will be firmly negative.

Markets continue to be at the mercy of the debt ceiling circus and Euro woes.  News bites can change the picture in a heartbeat.  Smart traders have pared back positions to trade smaller due to these erratic markets. That money has to go somewhere so it is helping maintiain a flat move on treasury yields the last few days, also providing gold buoyancy and this money is also flowing into some perceived safe blue chip plays such as Apple. AAPL now closed over 400. Keystone's 80-20 rule projected 420's once the close at 380 was attained, so the ole gal has another 20 bucks in her.

We are in the tight window of the Bradley major turn now thru next Tuesday, so expect a large move in markets any day within the next five days, most likely the trigger will be the debt ceiling outcome. Key data today is Durable Goods at 8:30 AM EST, Oil Inventories at 10:30 AM and Beige Book at 2 PM. Stay buckled.