Keystone's Morning Wake Up 8-31-11

EOM today. Even though August was a sad one for bulls, September seasonality offers no comfort since it is a negative month seasonality-wise.  The Congress clowns will return all relaxed and tan ready to dial up the budget rhetoric again. The political talk will send a negative vibe to the markets as it did during the debt talks.

Let's stay in August, however, albeit one more day.  Futures are green.  The key SPX level to watch is 1220 today, above and bulls will rock lots higher. The SPX:VIX ratio remains above 35 so this continues to favor market bulls. Watch RTH 104.02, JJC 54.53 and CRB 342; any of these higher will boost the markets higher, if price for these three sectors remain under the levels shown, the market bears remain in the game. If the market bears do start a slide, they need to lose the 1196 handle. If they touch 1195, the selling will increase substantially and the indexes will quickly drop several handles. A move thru 1197-1219 is sideways action.

Watch gold today since the CME announced gold margin raises on Wednesday's, 8/10/11 and 8/24/11. Thus, today is a likely target for a third margin raise for gold, watch for an announcement between 2 PM and 8 PM EST. Like last week, insiders will probably sniff it out ahead of time so weakness in gold price today may hint at the announcement coming.

The Bradely turn was yesterday but its effects remain in full force so if the bears are going to reverse this multi-day rally, today is the likely candidate. At the same time, seasonality says Thursday and Friday will be buoyant, thus, based on the Bradley and seasonality only, a move down would occur for the indexes into Thursday morning, then some market buoyancy would reappear as the weekend draws near.

But, the technicals rule, so for today, to sum it up most easily, watch SPX 1220 and 1196; SPX:VIX 35; RTH 104.02; JJC 54.53; and CRB 342. These indicators will show you the broad market direction.

Keystone's UPS Weekly Chart 20 and 50 MA Cross Failure Secular Bear Market Ahead

Remember last week the first shot across the bow occurred with the 20 MA crossing down thru the 50 MA to indicate that a secular bear market has returned? Then the next day it recovered. Well, now the story is written. The 20 MA is convincingly down thru the 50 MA, 70.15 versus 70.37, respectively.

This is now the fourth of four secular signals that Keystone uses to gauge the markets longer term, and now all four signals agree; the broad markets have returned into a secular bear market. This means equity weakness for weeks and months to come. This chart is a big deal since it represents a change in posture from over two years ago when the secular bull started running in the summer of 2009. Alas, two years later, the bear begins to growl strongly. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

SPX Weekly Chart Upward Channel

The market bulls continue to fight to regain the upward moving channels. Price has now regained the blue channel. The alternate red channel however, continues to provide reistance. Further, note the strong horizontal resistance at 1220-1225. Lastly, 1220 is critical resistance for Wednesday's trading action as well.

Thus, the SPX will make a big decision today. Take note as to whether the 1220-1225 resistance zone holds, or not. For the SPX to move convincingly up thru this resistance area, the RTH needs to move above 104, JJC above 54.5 and CRB above 342. That would verify bullish strength. Of course if resistance holds and spanks price down, and if the three sectors all stay under the levels shown, the market bears will be running with the ball. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Keystone's Morning Wake Up 8-30-11

Interesting to see Bill Gross commenting on how the move out of treasuries in February 2011 was a mistake, finally. Obviously it was, February marked the top in yields.  Keystone says Bill was simply one of the many money managers sucked into the rampant inflation thinking. After all, with the quantitative easing and money printing, it's a no-brainer to know that yields will go up--right? Wrong. Keystone forecasted a lower ten year yield for this year.

Many traders are only now understanding how disinflation and deflation remain a worry, a la the Japan, and Great Depression outcomes, that Chairman Bernanke fear the most. When 95% of the traders are going one way (inflation), even though fundamentally it is defendable, that sure is a loaded boat to one side, and as always happens, when everyone is on one side, it is the wrong side.  In fact, Keystone's Inflation-Deflation Indicator actually slipped into Disinflation a couple weeks back, check the archive's for the exact day, but only held that move for a day or two, now in Neutral territory again drifting between disinflation and inflation. Make no mistake, the inflation will roar in the coming years, but not right away. High unemployment, the shrinking consumer, a sick housing sector, and, as taxes increase, an ever increasing cash society in the U.S. that avoids Uncle Sam's cut all together, is in place now. There is a need to explore disinflation and deflation again before we rip with inflation in the coming years.

Watch the commodities, CRB is useful; when you see that falling towards 300 it will tell you the deflation move is coming on stronger. This move will also serve as a tool to know when Bernanke will step in with QE3.

Large up move for markets yesterday. The upside was verified at the opening bell when Keystone's SPX:VIX Indicator went above 35. Watch the ratio closely today, especially since the futures are red. If the ratio stays above 35, the bulls are fine, if the ratio falls under 35 today, then the bears are wrestling back control of the markets.

The huge upside move yesterday occurred at low volume, not exactly a ringing endorsement for the bulls. At the close, actually the last three minutes before the close, some shenanigans may have entered the retail sector. RTH closed above 104.04, the number that Keystone's algorithm was monitoring, but then the settlement, a couple minutes after the bell, dropped the RTH back down below. Something smells fishy so watch this closely at the opening bell today.  If the RTH moves above 104.04, now at 104.00, then the recovery rally is real and the broad market bulls are going to continue taking the indexes higher. If, however, the RTH remains under 104.04 and languishes lower, this signals that the market bulls have run out of steam.

Today is an actual Bradley turn date, 8/30/11, so this serves as an ideal place for a market trend change, or at the very least market turmoil today into Thursday.  Keystone will post September's Seasonality guidelines over the next couple days but any experienced trader can tell you how September is typically a terrible trading month.  That said, Thursday and Friday should be buoyant this week ahead of the Labor Day weekend.

For the SPX today, all the market bulls need is green futures (remaining above 1210) and the indexes will run several handles higher but alas, the futures are strongly red, spoo's down about eight, so this scenario is not currently on tap. The market bears do not have a walk in the park. They need to lose the 1178 handle. If 1177 is touched you will see the sellers enter in force, with the indexes falling several more handles quickly and the bearishness will be rampant.  At this juncture, the futures are not nearly negative enough to produce this outcome either. Thus, take it as it comes today, a move thru 1179-1209 is considered sideways action without resolution.

RTH 104.04 and SPX:VIX 35 will steer broad market direction today.

SPX S/R 8-29-11

SPX support and resistance is provided below.  SPX price moved above Friday's high after today's open so the move would be expected to accelerate, and it did.  Keystone's SPX:VIX Ratio Indicator moved above 35 at the open today so that points towards a strong up day for the indexes; a triple digit Dow day.

Price blew up thru the 1192-1193 resistance like a hot knife thru butter, and only received its first resistance spank down at the 1197 level. After sideways consolidation, price tested 1199 and convincingly popped up thru at 10:20 AM EST. Thus, the psychological 1200 is now in play and the 1200-1209 zone where the SPX received its slap down 8 or 9 days ago. SPX 1199-1209 is major resistance area so price will have to work hard to move up thru this area, but, if successful, the 1220's are very likely.

First thing is first, however, watch the SPX:VIX 35 level for clues as well as this 1199-1209 resistance zone. The Bradley turn window is in play now as well so an interesting couple days of trading awaits. Local S/R in play the rest of the day is 1188, 1192, 1193, 1195, 1197, 1198, 1199, 1200, 1204 and 1206.

·        1222

·        1220 (HOD 4/26/10)

·        1217 (4/23/10)

·        1209 (HOD 4/29/10)

·        1207 (4/29/10 Top)

·        1206

·        1204

·        1200

·        1199

·        1197

·        1193(9/15/08 post-LEH bk)

·        1192

·        1188

·        1184

·        1183

·        Friday HOD 1181.23

·        1181

·        1179

·        1178

·        1177

·        Friday Close 1176.80

·        1173

·        1168

·        1166

Keystone's SPX:VIX Ratio Indicator Regains 35

One of Keystone's turn signals, the SPX:VIX ratio, popped above 35 at 9:31 AM.  Thus, expect a large market up day including a triple digit up day for the Dow Industrials.  The move above 35 confirms that the bulls are running and the recovery rally is for real.  The only way the market bears can regain control is if they can push the ratio sub 35 again.  For now, the broad market bulls rule, but, in these treacherous markets, subject to any Euro news, with high volatility remaining in place relatively, watch the SPX:VIX ratio  35 level like a hawk, especially early this week. Reference the Turn Signal page on this site for further information.

Keystone's Morning Wake Up 8-29-11

Not to trivialize the poor souls that lost their lives or the few dozen injured, but Hurricane Irene turned out to be a pig in a poke. When the hurricane was lowered from a CAT 2 to CAT 1 on Saturday morning, the media should have dialed back the rhetoric. Then the CAT 1 was downgraded to a tropical storm Sunday morning.  Insurers are bouncing strongly this morning since the early estimates proved far too high. It's always best to plan for the worst and hope for the best but the nervous Nellie's sure sent each other, and the public, into an unwarranted tizzy. Thus, markets should experience some early bouyancy due to relief over the hurricane non-event.

COP and HES shut down refineries ahead of the hurricane but oil supply is fine overall. Gasoline inventories were building ahead of the storm. Since everyone was told to panic and hunker down, that can not help demand to any great extent as well. Thus, some pressure on oil would be expected.

Last week the bulls staged a come back rally with the major indexes and sectors up 4% or more. What will they do for an encore? This week is an interesting set up since tomorrow is a Bradley turn date and later in the week seasonality should kick in. For the Bradley, the turn date opens a turn window between now and Thursday and the expectation would be for a reversal of trend early in the week. Since the last few days, and today's open is up, then a down move would be expected.  In rare instances, the markets can take a straight vertical melt-up move in this window, but the expectation would be for some market softening during the first half of the week.  Seasonality-wise, markets are typically bullish the two days in front of a three day weekend. With Labor Day near, this hints that Thursday and Friday should be expected to be market buoyant days.

As always the specific technicals are the instrument gauges that over rule all.  With the utilities, UTIL, the market bears almost opened the 50 week MA trap door last week but failed, and then the broad markets took off to the upside like a rocket. Thus, if UTIL remains above 414.5, then the market bulls are in biz.  If the 414.5 level is lost, UTIL is now comfortably nine points above at 423.68, so this outcome has become less likely, a trap door opens and the broad markets will go into free fall in short order.

Keystone's proprietary algo, Keybot the Quant, is focusing on the retail sector the last few days, the RTH. If the RTH, now at 102.24 gains the 104 level, the broad market bulls are happy since this will boost the indexes higher. Another key technical is Keystone's SPX:VIX Ratio Indicator that remains sub 35. For a true recovery rally to hit full swing and the bulls to throw confetti, the SPX:VIX must move above 35. The ratio begins the week at 33.07 so watch this very closely in real time. If the ratio moves above 35 the indexes are going to rock substantially higher. If the 35 is not attained, each day that goes by, give the market bears more and more strength, and will enable the market bears to eventually gain back control of the markets. SPX:VIX 35 is key.

For the SPX today, starting at 1176.80, the market bulls need to get up and over 1181, if so, the indexes will rock higher in quick order. The market bears have a formidable task ahead, needing to push back towards Friday's lows, 40 points lower, if they expect to regain any momo. Today, the bears would probably be content with simply prohibiting 1181 from occurring. A move thru 1137-1180 is sideways action with neither bull or bear gaining advantage.

In a few minutes, the Personal Income and Outlays data hits, a Fed fave, so note the reaction in the futures. Pending Home Sales at 10 AM and Dallas Fed Manufacturing Survey at 10:30 AM. Remember how Philly Fed Manufacturing data sent the markets into a tizzy two weeks ago, so the Dallas Fed data is important this morning. LDK provides earnings to gauge the solar sector while WINN is a great cross sectional look at retail.  The markets remain at the mercy of Europe news which trumps all.

In conclusion, for broad market direction today, keep it simple and watch UTIL 414.5, RTH 104, SPX:VIX 35 and SPX 1181.

HD Home Depot Daily Chart

The H&S played out as forecasted, and then some. Interestingly, price collapsed thru that lower channel zone, and then quickly recovered. Note how the money flow and stochastics were positively diverged to provide the bounce but RSI and MACD indicators show lower values and are more agreeable to the down side returning. The plus for HD, LOW and other rebuilding stocks is the hurricane season ongoing into November. Considering that the indcators were not all positively diverged, traders bot HD as a play on hurricanes, which helped price jump off the bottom. The effects of Hurricane Irene are clearly seen as traders ran into HD at the 32 level when the storm formed. Into the weekend shoppers formed lines 100 deep to by generators, batteries, flashlights and other disaster preparedness items. HD should hold up better than most stocks since it is a hurricane play but price should ebb and flow as storms form, or not.

Hurricane Irene was just downgraded to a tropical storm as this snippet is written so some profit-taking and a pull back in price would be anticipated in the short term. Future storms forming off the African coast, however, will continue to support HD price moving forward into the Fall. September 10th is the peak of huricane season.  This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

COPPER Daily Chart H&S

Copper has enjoyed price buoyancy over the last couple weeks, news out of China last week said supplies were short. Go figure since the China countryside contains warehouses of copper stacked floor to ceiling. Note how there was a double right shoulder formed for the H&S. Price action now is simply coming up for another back kiss of the neck line at 4.15. Copper is a leading indicator so the upward price action over the last few days has aided the broad market bounce.

Note the importance of the 3.9 support now, so watch that on the way back down. The 50 and 200 MA's provide a resistance ceiling at 4.2-ish. Although copper has forecasted market happiness over the last couple weeks, the projection remains for further downside towards the H&S targets at 3.7. Price will resolve out of the 3.9-4.2 range moving forward. Keystone forecasted a copper collapse at the start of the year and has not changed that forecast. If 4.2 is achieved that would give the broad market bulls reason to throw confetti. If 3.9 fails, the bears rule. Projection is sideways ahead, the 4.2 R should hold, 3.9 will eventually break, and copper will collapse down thru the 3's, all this in concert with further down side in the equties markets, and a popping of the China bubble, as the year plays out and we move into 2012. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

BDI Baltic Dry Index Weekly Chart

Baltic Dry Index is a useful forecasting tool for markets. If the shipping is rocking and rolling, with grains, iron ore, coal, and other dry goods moving around the globe, it shows that the markets and global economies are strong. Note how the BDI dropped and bottomed in late 2008, during the market crash. Shippers, however, were already coming off the bottom indicating that happy blue skies, or blue waters, were forecasted ahead. The markets bottomed in March 2009 playing catch-up. Interestingly, the BDI topped late 2009 as well as mid-2010 and headed lower ever since, not a ringing endorsement of the global rebound, and alas, we are in the midst of a market crash. Note that lower lows and lower highs are in place for two years. As the good times rolled in 2009 and 2010, the shippers commit to building and buying more ships to milk the good times, but, as always happens, they commit at the wrong time. The BDI has languished over the last year as a glut of new ships are now available and shipping rates have tumbled as the shippers compete against each other for biz.

The chart has a sideways texture to it, the ADX never indicating over the last couple years that the down trend was strong. Note the importance of the 2250-ish level. This year shows a sideways symmetrical triangle behavior and over the last two weeks, an up side break out. Regaining the 20 MA is bullish, next watch the 50 MA. After a breakout, a back kiss would be in order, perhaps to fill the gap up from last week. Sometimes traders will try to front fun the index so the break out may be premature, then again, perhaps the Baltic is repeating its move from late 2008. Considering the sideways movement apparent in the chart, the jury is out. A big positive is the RSI and stochastics regaining the 50% levels so watch that for hints.

Should the China bubble pop and a global recession emerge, the Baltic would surely move back down. In fact, a down move in commodities would be expected before Chairman Bernanke institutes QE3. Watch DRYS earnings this week for a vital clue. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

BPSPX Bullish Percent Daily Chart

The bulls have reversed over six percentage points off the bottom which is constructive for the indexes. A move above 28 is important since it represents a six percentage point increase off the secondary bottom. A move above the 20 MA at 28.55 is even more bullish since that is a critical resistance target. A move above 30% indicates that the recovery rally is in full swing since the 70% and 30% levels are key for the BPSPX chart. A drop under 70% as occurred in late July to kick off the crash was important for bears to see, now, as BPSPX approaches 30% from the underside, a move above 30% will be important for market bulls to see. Of course, any move down will be a feather in the market bears cap. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Keystone's Key Events and Market Movers Week of 8-29-11

Keystone presents the following underlying market currents, sometimes subtle sometimes turbulent, that move global markets in real time.  The key dates and times below typically correspond to market pivot points.

Markets remain at the mercy of the European crisis. The Euro leaders continue their reactionary course instead of a proactive out-in-front approach to the dilemma.  Rumors last week concerning a downgrade of Germany’s debt hit the DAX hard; traders selling despite the rating agencies releasing statements that a downgrade is not planned. Finland requiring collateral from Greece is not helping the Euro situation and in fact is fueling discontent. Germany continues to say ‘nein’ to Euro bonds although they have softened that position for perhaps a deal in the future.  The euro and the dollar continue to duke it out each day, both traveling sideways until a big break occurs; they move inverse to each other and the way the euro goes will match the way equities markets move.

The Bradley turn window last week, where we targeted Monday and Tuesday as a major move area with a recovery rally likely did not disappoint, with equities bouncing out of the gate last week. Interestingly, we moved straight into a new Bradley window now that runs thru 9/6/11, based on the 8/30/11 actual turn date. Thus, focus on Monday thru Thursday this week as a potential market trend change area, either a melt-up acceleration in this up move from last week, or, markets will reverse last week’s gains and move down again. Not to be wishy washy, the move would be expected to be down for the indexes starting sometime between Monday and Thursday based on the Bradley.

Interestingly, indexes are typically buoyant the two days in front of a three day holiday weekend, thus, market bulls would be favored as we approach the Labor Day weekend. Thus, taking only the Bradley and seasonality into consideration, and attempting a prognostication to determine the subtle move of the underlying currents of the markets, would hint at a move down in the indexes early in the week, followed by buoyancy later in the week. Of course the news cycle, especially Europe trumps all.

The new week is jam-packed with key economic data. Monday starts off with the Fed favorite Personal Income and Outlays data. Housing and manufacturing data hit within the first hour of trading also.  On Tuesday, Case-Shiller provides a gauge on the housing market and the news has not been good the last few months. One of Keystone’s most important monthly numbers, Consumer Confidence is released at 10 AM so look to that to be a market pivot point. FOMC meeting minutes are released in the afternoon.  Wednesday kicks off the jobs carnival with Challenger and ADP. Monster and the Jobless Claims hit Thursday morning and the circus comes to town Friday morning with the monthly Jobs Report.

Watch the first hour of trading closely on Wednesday morning since Chicago PMI, Factory Orders and Oil Inventories are all released and will provide a great indication of the status of the recovery, or lack thereof. The 10 AM time frame is important for four days in a row culminating with Thursday’s ISM Manufacturing Index and Construction Spending data. Watch the energy sector, XLE and individual energy names, in reference to the ISM data while Construction Spending is a very good gauge for future employment, or lack thereof.

Earnings are dropping off this week as many companies have already reported for Q2.  Highlights are solar and retail on Monday, books and dollar stores on Tuesday (many large players have moved into the dollar stores over the last two months), and shipping on Wednesday. The Baltic Dry Index jumped last week so DRYS will provide flavor as to whether the bounce is an indication of further economic strength ahead, or simply a dead cat bounce. Manufacturing and tax preparation insight is provided on Thursday. The week ends with some hot soup to soothe your soul. Campbells is a comfort food so those earnings can provide clues as to how folks feel these days. VIP earnings finish the week and anyone investing, or rather wasting, so much as a dime in Russia will deserve everything that is handed to them.

Further CME raises of the gold margins remains highly likely. Following the orchestrated silver slap down play book from April, more margin raises are expected for gold resulting in at least a couple hundred or more dollar move south expected.

Yen intervention by the BOJ remains highly likely.

The search for Gaddafi continues and the last stand is occurring in his home town of Sirte, thus, resolution to the Libyan conflict should provide overall market buoyancy, with further premium coming out of oil, commodities, gold and silver.

Keystone’s ‘Short Term’ Key Dates and Market Movers Week of 8/29/11 and on:

·         Monday, 8/29/11: Markets remain at the mercy of Europe news. Personal Income and Outlays 8:30 AM. Pending Home Sales Index 10 AM. Dallas Fed Mfg Survey 10:30 AM.  3 and 6-Month Bill Auctions 11:30 AM. We are now in the heart of a Bradley turn window so look for one of two opposite outcomes playing out Monday thru Thursday, either a huge melt-up for the recovery rally, or, a trend reversal where markets sell off early in the week. The market selloff scenario would be favored for the first half of the week at this juncture. Earnings: LDK, XING, WINN.

·         Tuesday, 8/30/11: Case-Shiller Housing Index 9 AM. Consumer Confidence 10 AM. 4-Week Bill Auction 11:30 AM. Fed’s Kocherlakota speaks at 12:15 PM. FOMC Minutes 2 PM.  Earnings: FLWS, BKS, DG, SEED, VRA.

·         Wednesday, 8/31/11: Mortgage Applications 7 AM. Challenger Job Report 7:30 AM. ADP Job Report 8:15 AM. Chicago PMI 9:45 AM. Factory Orders 10 AM. Oil Inventories 10:30 AM. Farm Prices 3 PM. EOM today at the close--September begins tomorrow. Earnings: BDSI, CWTR, DRYS, SAI, COO, ZLC.

·         Thursday, 9/1/11: Anecdotal chain store sales and motor vehicle sales data released during the morning. Monster Job Report 6 AM. Jobless Claims and Productivity and Costs 8:30 AM. ISM Mfg Index and Construction Spending 10 AM.  Natty Inventories 10:30 AM.   Fed Balance Sheet and Money Supply 4:30 PM. Be aware that markets are typically buoyant the two days in front of a three-day holiday weekend. Earnings: CIEN, FLOW, HRB.

·         Friday, 9/2/11: Jobs Report 8:30 AM.  Markets are typically buoyant the two days in front of a three-day holiday weekend. Earnings: CPB, TBAC, TEA, VIP.

·         Monday, 9/5/11: Markets closed for Labor Day holiday.

·         Wednesday, 9/7/11: President Obama releases his Jobs Package. The politicians return from summer vacation.  September budget talks heat up creating market negativity.

·         Thursday, 9/8/11: ECB Rate decision, a hold on rate rises is expected and in fact, the ECB may lower rates moving forward.

·         Tuesday, 9/20/11 and 9/21/11: Fed Meeting now expanded to two days. Chairman Bernanke will provide QE3 strategies moving forward.

Keystone’s Short Term to ‘Intermediate Term’ Key Dates and Market Movers for August  and on:

·         Earnings:  Earnings are meeting expectations for the most part; however, many are providing poorer guidance moving forward.  The confessional season, pre-announcements, will affect markets in September, early October. Earnings affects are likely negative on the markets moving forward.

·         QE3:  Quantitative easing (QE2), ended 6/30/11.  Chairman Bernanke took away the punch bowl that elevated equities markets like clockwork with POMO pumps between 10:00 and 11:30 AM each session. Traders already want a new fix with QE3.  Tentative projection for QE3 announcement remains at 9/20/11 or later, and the Fed has now expanded the September meeting to two days to facilitate QE3 strategy discussions. Keystone projects the September-November time frame for QE3; deflation must raise its ugly face first.  Watch as the dollar index, $USD, moves up in the weeks ahead and commodities, $CRB, move lower. This, along with lower treasury yields, will verify a move towards disinflation and deflation, and signal Bernanke to announce QE3.

·         FOMC Meetings and Rate Decisions:  9/20/11-9/21/11; 11/1/11-11/2/11; 12/13/11. Fed announced that the Zero Interest Rate Policy (ZIRP) will remain in place until mid-2013. QE3 strategies will be discussed during the September meeting with a QE3 announcement anticipated for the September-November time frame. Disinflation and deflation needs to appear first.

·         U.S. Downgrades: S&P announces a downgrade of U.S. debt from AAA to AA+. Moody’s and Fitch have not downgraded as yet.  Therefore, 2 of 3 rating agencies have not downgraded so the affects of the S&P downgrade should be muted. A downgrade from either Moody’s or Fitch will seriously impact equity markets to the negative side, which Keystone projects to occur before 10/15/11. Fitch announced that it will retain its AAA on the U.S. S&P is on hold until the end of the year, stating they will reassess the U.S. in a 6 to 24 month time frame.  S&P says there is a one in three chance of a further downgrade.  The U.S. should have been downgraded already, why is everyone wringing their hands? Perhaps the politico’s will downgrade other AAA countries as a way to bring them down to the U.S.’s new level rather than expecting the U.S. to move back up. Downgrade talk is a market negative and if any additional downgrade occurs from any of the three rating agencies, the equities markets will sell off large.

·         Congress In or Out of Session:  Market bullish when not in session, market bearish when in session. House is adjourned until 9/7/11 at 6:30 PM.  Senate went on vacation as well for the remainder of August. Further budgets fights will continue in September.  Market bullish until Congress returns. Thus, Congress squabbles in September will negatively impact markets.

·         Europe Debt Crisis Continues (PIIGS):  Portugal, Ireland, Italy, Greece and Spain. The five little piggies.  Italy in major trouble. Italy is the third largest debtor nation in the World, only trailing the U.S. and Japan.  Greece paper probably worth 30 cents on the dollar, Ireland 50 cents, Portugal 85 cents but no one knows for sure. Spain and U.K. high unemployment for young people is a major concern. The can was kicked down the road for Greece; Greece will default in the future.  Italy and Spain are too big to fail, too big to bail. Solutions are limited. Europe may consolidate all member debt into a single Eurobond issue but Germany says ‘nein’. Perhaps rich Uncle China will step in? Weaker euro=stronger dollar=weaker commodities=weaker U.S. equities. Gold is buoyant on any negative Euro news but the gold margin hikes will have a stronger negative impact on gold price moving forward.

·         ECB Rate Hikes:  Trichet announces next rate decisions 9/8/11, 10/6/11, 11/3/11, 12/8/11, 1/12/12.  Past decisions are no hike on 8/4/11 followed by a confusing press conference where Trichet spoke gibberish-he must realize the rate hikes from April were a mistake.  25 bip hike 7/7/11. No change occurred 6/9/11 or 5/5/11. 25 bip hike on 4/7/11.  Trichet called another top in the commodities market just like July 2008 when he raised rates at the exact wrong time.  Look for him to back pedal as Europe growth prospects falter. Trichet is finishing up his tenure and will be known as a good fade. Euro was propped up by Trichet’s hawk talk this year, but, Trichet wants to start flying with the doves now which means euro weakness ahead.  Euro down=dollar up=commodities down=equities down. As a side note, the Chinese are now supporting the euro helping maintain equity buoyancy, and euro strength, to some extent.

·         Ongoing Wars: Libya, Iraq and Afghanistan. Libya oil production loss not a major issue. Any positive resolution to the Colonel Gaddafi situation will place further pressure on the oil price falling, and it looks like the final chapter is now being written as the rebels attach Sirte.  Rational price of oil is low to mid 80’s. Considering a global recession ahead, oil price is capable of falling much further.  Wars and M.E. problems continue=bullish for commodities, gold, silver and oil, or, visa versa. Resolution to the Middle East conflicts will remove the premium in commodities.

·         Continuing Geopolitical Events other than Ongoing Wars: Egypt, Syria, Saudi Arabia, Bahrain, Yemen, N. Korea:  Dollar bullish and equity bearish.  Gold, silver and oil bullish.  Bahrain is the big worry since unrest will impact oil supply.  Yemen is important since it is a southern Saudi border. Syria news on unrest and riots keeps a fear premium built up for the Middle East.  Ramadan may increase evening demonstrations. News wires impact commodities in real time.  Any bad news=higher gold, silver and oil prices, or, visa versa, although gold moves will be tempered due to the CME now raising margin requirements.

·         State and Muni Crisis; Union Busting:  Muni’s should experience pain first.  Muni’s rely on State funds.  Many State fiscal budgets turn over NOW.  State funding of local municipality projects will be impacted.  Muni and State layoffs increasing. Colleges relied on State funds and tuition increases are already hitting cash-strapped students. Lingering unemployment lessens government tax inflows. U.S. will probably see an increase in the cash society since folks will find ways to avoid higher taxes, hurting government coffers rather than helping.  Multiple U.S. cities now experiencing budget fights and protests.  Governments trying to reduce burden of high union costs.  Watch to see if California financial decisions spook the country. State and Muni problems are an H2-2011 and 2012 story. Prices on MUB chart appear to be topping and ready to roll over now like Fall 2010, thus, Meredith Whitney should be vindicated in the months ahead.

·         College Debt Bubble: Students continue to take on mountains of debt and cannot get a job after education. One poll cited 80% of college graduates moving back home to live with parents.  No effect near term but in the months forward the loan defaults will develop into a big problem. Now that State funding is being lost to colleges, tuition hikes are occurring, students now have to pay more for an education that no longer leads to a well-paying job.

·         China Property Bubble and China Contagion:  When it pops, anytime now, it will be extremely negative on global markets causing contagion in Asia and elsewhere. Europe is China’s major customer so the Euro woes will only accelerate the problems.  China has built uninhabited cities to fuel their explosive growth during this century. Some evidence of Chinese now using hoarded copper supplies as collateral to continue the building.  Additionally, China is now targeting margin regulations to slow down the commodities and PM bubbles. China growth rates are trailing off, there are only so many empty cities that you can build.  This is going to end very badly. Keystone agrees with Jim Chanos’ view on China. Watch the copper price to gauge China moving forward.  China bubble pops=global markets down.

·         PBOC; China Rate Hikes:  First hike 25 bps on 10/19/10; second hike 25 bps Christmas 12/25/10; third hike 25 bps China New Years on 2/8/11; fourth hike 25 bps on 4/5/11; fifth hike 25 bips 7/7/11.  China said in 2010 that it will project about five hikes into June 2011.  Hikes have occurred October, December, February, April and now July, so China should hold steady for the weeks and months ahead; there is a hint that one hike will occur by the end of the year, however. Bank reserve requirements are now ratcheting up continuously to slow down inflation but these appear to have less of an effect now.  Rate hikes cause commodities, gold, silver, PM’s and copper to sell off.   Typically, rising rates reflect a countries currency, economic and market strength, but, China’s growth is slowing now, not increasing, which creates an odd rate raising environment. Gold was unaffected by China’s latest hike and actually increased in price; this is due to the Euro news dominating the China rate hike moves with respect to commodities. The CME hikes in gold margins will trump all moving forward.

·         China New Premier:  Chosen in 2012, will it be a smooth transition?

·         India, Brazil, Taiwan, South Korea and other Emerging Market Rate Hikes:  Same effects as China rate hikes; commodities will sell off.  China, India and Brazil hikes are most important to global markets. Some emerging countries now choosing to stay on hold reinforcing the belief that inflation is transitory in nature. Chairman Bernanke’s hot easy QE2 money pumped up emerging markets and commodities from August 2010 thru May 2011 creating new asset bubbles. India is now experiencing civil unrest as citizens demonstrate against corruption at all levels of government.  India directly supports one-third of the global gold market and we are entering the marriage season now where gold buoyancy typically occurs. This year has been far from normal, however, and the CME margin hikes should trump all. Moving forward, watch India as a proxy for gold price.

·         Japan Disaster; Yen Currency Intervention:  The global markets are treating the quake/tsunami/nuclear disaster as a Japan problem with limited global impact.  The negative affects to the auto industry and technology are subsiding substantially. This disaster had a greater negative impact on markets over the last few months than traders give it credit.  Japan is performing policy manipulation and coordinated currency intervention to target the 85-86 dollar/yen area.  This could not be maintained so far, or 83, or 81, or 80, and now dollar/yen has fallen well into the 70’s. The 76.5 current level will more than likely be defended so expect currency intervention now, even tonight, Sunday night, or any day forward, would not be a surprise. Currency intervention occurred 8/4/11, expect further coordinated intervention in the coming days and weeks.  Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Oil; OPEC; Strategic Petroleum Reserve (SPR); Hurricane Season:  SPR oil release had little effect.  SPR hinted at no additional releases but the picture has again become cloudy so another release cannot be ruled out. This has become a non-issue as oil price has fallen.  OPEC meeting 6/8/11 ended in mass confusion with lack of unified agreement on production, the producers will do whatever they want as they always have.  Hurricane season now so that may keep oil price buoyant.  Higher oil supply=lower oil price. Hurricane Irene coming=lower oil supply=higher oil price=good for construction material companies like HD and LOW. Rational oil price is 80-85 but markets are never rational, and considering a global slowdown coming, much lower oil prices are anticipated.

·         GSE (Government-Secured Enterprises): A decision will need to be made on extending the GSE limit of 730K; is it time to end this or will the limit be extended over and over again?  This should hurt the market since the GSE’s back 9 of every 10 mortgages. Now folks will have to go elsewhere to seek financing where the down payments are 25 to 30% down.  In essence, the demand will be reduced, thus, the market will tighten and house prices will continue lower moving forward. Keystone’s proprietary algorithm shows that housing has already fallen back into a double dip as of mid-May 2011. This is deflationary behavior giving Chairman Bernanke many sleepless nights.

·         Eclipse Selloff Target Areas: Allow a week or so plus or minus on each side of the following dates as potential areas of major market selloffs. Note how the May and July targets were spot on.  This technique next targets the late October early November area as a potential large market selloff area.  Targets this year; 5/15/11 (large sell off occurred May-June); 7/15/11 (large sell off occurred 7/8 thru 7/18 then the crash the week of 8/1/11); 11/3/11 area is next; then 1/3/12.

·         Bradley Turn Dates: 8/30/11 (turn window 8/23/11 thru 9/6/11, more specifically 8/26/11 thru 9/1/11, NOW); 9/26/11 (turn window 9/19 thru 10/3/11, more specifically 9/22/11 thru 9/28/11); 10/12/11; 10/28/11; 11/22/11-11/23/11; 12/28/11 (major turn area); 1/11/12. Typically allow a +/- 7 day window with actual turns usually occurring in closer to the actual date, say +/- 3 day window. Markets more than likely change their trends, if headed up, they reverse down, or if they have been moving down, they reverse up.  Every now and then, however, the markets will melt up or down in an acceleration move of the current trend. Dates are courtesy of Donald Bradley, Peter Eliades and Arch Crawford; reference their web sites for additional information.

SPX S/R Week of 8-29-11

SPX support and resistance is shown for the week ahead. Top side is bracketed by the 1204 and 1206 resistance while the bottom side continues to be supported by the 8/9/11 LOD of 1101.54.

The bulls will want to see the 1173 support hold and the 1178 and 1181 resistance levels taken out to the upside. If the SPX moves above 1181.23 in the Monday session, the buyers will enter in force and several more upside handles will tick off quickly with the SPX moving up towards a test of the critical 1192-1193 resistance.

If the market bears want to regain control, they have to drive under 1173, 1155, 1145, 1140 and 1136 on Monday, a formidable task. Thus, this would only be expected on serious bad news out of Europe and/or Hurricane Irene hitting New York hard this weekend. Barring those two items, the market bulls should remain in control. If the 1165 pivot point is maintained as support on Monday, then the bulls are fine. If the pivot at 1165 is lost on Monday, that is the first sign that the market bears are starting to make a push lower.

·        1220 (HOD 4/26/10)

·        1217 (4/23/10)

·        1209 (HOD 4/29/10)

·        1207 (4/29/10 Top)

·        1206

·        1204

·        1200

·        1199

·        1197

·        1193(9/15/08 post-LEH bk)

·        1192

·        1188

·        1184

·        1183

·        Friday's HOD 1181.23

·        1181

·        1179

·        1178

·        1177

·        Friday's Close 1176.80

·        1173

·        1168

·        1166

Monday's Pivot Point 1164.65

·        1162

·        1159

·        1158

·        1155

·        1152

·        1150 (Important from 5/6/10 and 5/10/10)

·        1145

·        1144

·        1141

·        1140

·        1138

·        1136

·        Friday's LOD 1135.91

·        1133 (First trading day 1/4/10)

·        1131

·        1127

·        1124

·        1121

·        1119

·        1118

·        1115 (EOY 2009)

·        1111

·        1109

·        1104

·        1101

·        1099