Keystone's Morning Wake Up 8-22-11

Libya crumbling, but the news is not having all that dramatic affect on oil and commodites. Gold jumped in the overnight session again and trails off this morning. Watch for the potential margin raises coming. Last week was a surprise since an additional raise in gold margins was not announced; the only raise occurring for gold was the first one on 8/10/11 that was effective 8/11/11.

Futures are up strongly on the positve Libya news but the market bulls would need to touch 1155 to be able to signal an all clear for the markets. Thus, barring 1155 today, the bulls got nothing. On the bear side, if an 1121 handle is touched the selling will increase substantially and the markets will probably move south to test 1101. Thus, if the bulls and bears fight it out today between 1123 and 1153 neither side will win, this represents sideways action.

Volatility, VIX, remains above 40, now at 43.  This is the reason for the tirple digit up and down moves in the Dow each day, so that action will continue until you see lower VIX numbers such as 30 and down towards 21-22. Markets trade on fear and news headlines with a VIX over 40.

Utilities are very important. Watch UTIL 414 which represents a trap door for equities markets. With the green futures, this disaster appears to be avoided for today but watch this level all week long. If UTIL loses 414, the broad markets will go into free fall. A move thru 415-436 is constructive towards the broad markets developing a recovery rally. If UTIL goes up over 437 this week, the markets will be catapulting upwards, but, this outcome is the long shot for the week and not expected.

Dollar/yen intervention is to be expected, looks like the 76.5 level will be defended. Watch SPX:VIX ratio 35 level, now well under favoring market bears. If the ratio moves above 35, that will coincide with a huge market up day and will signal that the recovery rally is well underway. Today, as the markets pop due to the green futures, watch the SPX:VIX ratio, if it stays under 35 today, the bulls got nothing.

The big news all week will be Chairman Bernanke's Jackson Hole speech on Friday morning. The hype will be over the top--like when the circus comes to town. The speech will never live up to expectations. Many traders keep jumping on a QE3 band wagon for the speech but Keystone still sees this a ways off. Traders are getting too excited and will most likely be disappointed come Friday morning. Keystone is looking for a higher dollar, lower overall commodity prices, and some more downward movement in the ten year before Bernanke announces QE3, as well as no announcement until the 9/20/11 Fed meeting or later. Who knows, however, markets always surprise.  Some of today's market buoyancy has to be in part due to the expectation that Bernanke will dangle a carrot later in the week.