Keystone's Morning Wake Up 8-11-11

Does everyone understand now that Europe is the elephant in the room?  Euro banks getting hit this morning turning healthy green futures to the red side once again.  Rumor is a Singapore bank has cut credit to French lenders; echo's of the U.S. banking crisis. Transparency is absent with the Euro banks and there is a fear that some are using leverage ratio’s of 40 or 50 to 1. Remember the dire outcome of Lehman that was using about 40:1 leverage.

Libor (Eurodollar) option pit is crazy in Chicago this morning. Credit markets are having systemic issues.  Euro woes are increasing fear. The Fed can only buy time and hope the private sector builds the economy but that is not happening.

CME raised gold margin requirements last night so look for gold to sell off, but probably not in force until tomorrow's session into next week. When they slapped down silver in late April, several additional margin hikes followed in the coming days, look for the same with gold next week.

The last couple days sees a SPX low at 1101 and support at 1112. The 1118 level is key, and it is supporting the bulls today. If the bears can push one penny under and touch a 1117 handle, the SPX will lose several handles quickly, testing the 1112 and perhaps moving on to 1101. The charts remain constructive for a recovery rally but obviously the Euro woes are front and center.  Bulls need a move to the SPX 1172 level today if they want to start an extended rally.

Watch the SPX:VIX ratio, now at 26, if it moves above 35, that will signal a strong up move for markets.  Also, the utes collapsed last Thursday which was the final nail in the coffin driving the indexes off the cliff, so watch UTIL for the first sign of life for bulls.  UTIL, now at 397, needs to regain 413, if so, that will be a strong bull signal.  If UTIL cannot get back to 413, then the sideways to sideways down move for the markets will continue along.

Positive CSCO news last night should help the bulls today.  Natty inventories hit at 10:30 AM, this will further gauge an economic recovery, or lack thereof. 30-year bond auction at 1 PM. Earnings continue with gold miners, uranium, food, shipping and retail prominent.