Keystone's Morning Wake Up 7-29-11

The final act of the debt ceiling stage play is now in progress.  Last night the pre-climax for this movie occurred with the House vote delay, which creates the market tizzy; antagonism and angst, vital ingredients for any theatrical production.  The politico's probably already have the agreement written up for a Sunday afternoon release; all this hand wringing is simple political gamesmanship that will allow them talking points for the next election.

Now, on to things that matter.  Futures are in a sour mood, due to that vote delay last night interjecting more uncertainty rather than calm, thus the bears at this jucture should easily get the point and one-half they need to drive markets much lower today.  The GDP data is out in a half hour so things can change, markets are very jumpy. 1.8% is the target for GDP, a 2% number, as truly weak that it is, would actually place the bulls in a happy mood, hey, its better than sub 2%, which will favor the bears.

For the SPX today, if the 1298 handle is touched, the flood gates open for the indexes to move south.  The SPX will move thru the 1297 gap fill, and test 1295, 1292, then 1289.  The ole timer's, like good ole Keystone, watch a very important number, the SPX 10 month MA.  The 12 month MA cross is used as one of Keystones' secular signals, but the 10 month MA provides an early warning signal of trouble coming for the broad markets, big trouble.  The 10 month MA is now 1289.07.  A bounce from no lower than this level will coincide with the politico's releasing happy news with the debt ceiling. If the 1289 level is lost, the game changes immediately, consider the indexes to be in a major negative move should 1289 fail.

If good news on the debt ceiling talks occurs today, the market bulls need 15 points to touch the 1316 handle.  If so, the bulls will accelerate the indexes higher many more handles.

Data will hit at regular intervals this morning, GDP at 8:30 AM, Chicago PMI 9:45 AM and Consumer Sentiment just before 10 AM.  Consumer Sentiment is the key data point so watch 10 AM as a potential market inflection point.  Key earnings are AEP, AMGN, CVH, HP, MRK and NEM.

Gold is idling the last few days, not taking a wild leap higher as would be expected for this recent turmoil. But, considering the benign view by the bond market that agrees with gold, traders remain unworried for the most part.  Gold charts are all in negative divergence so we continue to watch this projected topping area for gold currently.  Oddly enough, Keystone received an email this morning from Fleabay. They are now bolstering their 'Bullion Center', and the selling of gold and silver on their site. Additionally, last night a news report states that China will be a bigger consumer of gold than India by next year.  Really?  Granted, give them their due since this thinking is probably based on China trying to raise its gold stash a la Fort Knox, but, one-third of the world's gold is consumed by India. It is hard to believe that China, as their bubble is now bursting, will be consuming over one-third of the world's gold supply, let's call it 40%, a year from now.  That guy shoud pass around whatever he's smokin'. And, of course the wild card remains where margin requirements can be increased at any time. Keystone is watching the PM markets with interest now, something should give soon.  Projection is down but the news flow exerts a lot of force on the commodities markets.

We are under the erratic affects of the major Bradley turn window from two days ago thru next Wednesday. A major market turn is expected.  The markets are trailing lower the last few days, this can very well be the trend change now.  But, this can instead be the set up for a rocket launch at some point over the next couple days.  The 1289 level is key, if this is lost it is telling you that the debt ceiling crisis is now spinning out of control and the politico's have lost control in a major way, with big pain coming in equities. If 1289 holds the next couple days, the debt ceiling should resolve fine and the indexes will move back up with a potential rocket launch move. Keep watching and stay nimble. Markets remain at the mercy of the news wires.

Today is EOM, nobody is noticing due to all the drama. After today, we will be in August trading.