Keystone's Morning Wake Up 8-19-11

The futures are red ahead of the last trading day of the week, but well off earlier lows. Gold exploded higher overnight but it has pulled back as well. There is no sign of an additional CME raise of gold margin requirements, yet. There is no economic data this morning and the earnings releases are few, so the markets will be focused and driven by the Europe news. Fed speak today by Dudley this morning and Pianalto after lunch may tweak markets one way or the other.

There are no shortage of rumors circulating. The Fed may hold an emergency meeting. The SNB, Swiss National Bank, may implement new tax on foreign held deposits over the weekend. The dollar and euro moves are relatively calm this morning, taking on a deer in the headlights look. The European banking situation is a mess, with that mess causing global contagion.

Back in the States, BAC is eliminating 3500 jobs in addition to the 2500 souls that were already given pink slips this year. Those folks made good money, that will leave a mark. BAC has dropped from 11.0 to 6.5, 41%, in only five weeks. The exposure to the weak housing market remains BAC's problem. A short time ago, JPM and C lowers their GDP estimates for this year. The slow steady slip into deflation continues.

Tomorrow is a Bradley turn date so stay on guard for a trend change in the markets between now and Tuesday. Last Thursday, 8/11/11, the markets started a recovery rally that continued thru last Friday into Monday's trading. Then the markets moved down from Tuesday thru this morning, so there is no reliable trend in place, markets are very reactionary now. Thus, simply expect market turmoil to continue thru early next week, especially today, Monday and Tuesday.

Looking at specific indicators to help steer the way technically, the SPX:VIX ratio dropped under 35 yesterday placing the market bears back in charge. The bears will rule as long as the SPX:VIX ratio stays under 35. When the ratio moves above 35, the indexes will rally large.

Keep watching the utilites, they were the last to crack and pushed equities over the falls two weeks ago. A trap door exists at UTIL 414. If UTIL, now at 420, falls under 414, the broad markets will go into free fall in short order. Yesterday, with the negativity running rampant, the utes dropped but did not even come close to testing 414, staying a full point higher to print a LOD of 415.06. This hints that the selling is a wash out and the markets should recover. But, these are fast moving markets now, so use that UTIL 414 level as a vital gauge today. If 414 holds, then the selling will more than likely finish up today. If 414 fails, Katy bar the door.

For the SPX today, starting at 1141 with weak futures in place, the market bears need to push down below 1131 if they want to keep the bear party alive. If an 1130 handle is touched, the sellers will come into the markets in force, the indexes will drop several more handles quickly.  If 1131 holds, then the selling is moderating. The bulls have to push upwards 50 points to pull out of the market nose dive, a formidable task that is not expected to occur today. The market bulls will be happy if they can move sideways thru 1132-1188 into the weekend.