Keystone's Morning Wake Up 8-5-11

A stock market drubbing occurred yesterday, a historic market day. The jobs report release minutes ago results in the futures jumping upwards, thus, as the song goes, 'put on a happy face'. The data should aid a snap back rally for the indexes.

The weaker projected euro causes the following asset relationship; euro down=dollar up=commodities down=equities down=treasuries up (yields down). This is a trend change from the way the first half of 2011 progressed. The dollar moving up and the economy venturing more towards deflation will be the triggers for Chairman Bernanke to announce QE3, but this will probably not occur until 9/20/11 or later.

Thus, in the week and month time frame moving forward, continued weakness in equities markets is expected, serious technical damage has occurred over the last week.  QE3 will not work like the prior stimulus but it would elevate equities. Thus, markets should remain weak in the IT and LT time frames but QE3 will supply a bounce, perhaps in September or October.

Now back to the more important near term.  The semiconductors, financials and even retail and commodties, are all showing positive divergence so they are agreeable to a snap back rally occurring.  The CPC put/call printed a number over 1.2 consistent with a temporary bottom; NYHL and NYAD are showing the same thing, a bounce is needed here so markets can catch their breath. As happens during these events, many traders now professing to sell into any rallies, which is a good strategy, but when everybody and his bro is saying that, the snap back rally may have a little additional upside oomph as folks try to short too quickly on the projected rebound rally.

Watch copper moving forward, you can use JJC as a proxy, copper is the doctor and it will provide vital input into broad market direction moving forward.  The utilities were key yesterday.  When UTIL lost the 50 week MA, that was the trap door that opened up for the broad markets.  For today, watch 418.37 and the 50 week MA, now at 413.21. UTIL begins the final trading day of the week at 410.63.  If UTIL moves above 413.21, this is a huge feather in the bulls cap and will verify a snap back rally. If UTIL stays under this 50 week MA, markets continue on an ugly weak path. Also important, watch the close today for the utilities, since next weeks comparison number to determine the strength of utilities will be 429.06. If UTIL cannot get back above this level, the broad markets remain in a malaise moving forward.

For the SPX today, since the markets closed at the lows, the market bears only need a half point lower to start a continued slide downward. The futures are now on the happy green side after the jobs report so this does not appear to be on tap.  The bulls need to recover yesterday's move of 60 points and that is unlikely to happen today, so the market bulls will simply be content with stopping the continued bleeding and move sideways today. Copper, UTIL 418.37 and 413.21 levels, and the behavior of semi's, SOX and SMH, financials, XLF, retail, RTH, and commodities, CRB, will tell you broad market direction today.