Keystone's Morning Wake Up 8-8-11

Futures down large this morning.  Surprising, since much of that S&P downgrade appeared to be priced in.  Loooking to the Europe woes, no major announcements have calmed that side of the pond and the Euro problems are far more important than the downgrade.  This is evidenced by calm bond markets but gold is running higher and equity makets lower.  At this writing, the dollar is up. Europe is the news not the S&P downgrade.

The economy is accelerating a move towards deflation now, this is what makes the gold move upwards interesting.  Gold is very much linked to Europe and Middle East news; this is the major mover of gold, a perceived safety trade, like treasuries.

Sometimes the best action in these markets is taking no action; let things calm down and the dust to clear. The 1168 LOD on Friday is immensely important this morning.  If its breached, the day will get ugly fast and accelerated selling will occur.  The 1150-1170 is key support, a confluence of horizontal support, the bottom rail of a two-year upward moving channel and the 200 week MA. Think of this support zone as the Alamo for the bulls. The markets will be in extreme trouble if the 1150-1170 zone fails today.

As the charts show this morning, NYMO, CPC, NYHL and the SPX:VIX are all at levels where a bounce in the markets should occur.  The news cycle is dominating as we approach the Monday opening bell, however. 

Watch SPX 1168 and the UTIL 50 week MA, now at 413.29. UTIL is at 414.72, only a point and a half above.  The utes will tell you a lot today.  A sign of a bull rally would be the UTIL price staying over 413.29, if it falls under, bearish for utes and the markets.  If the markets bounce off the down move this morning, watch SPX 1218. Should the day's outlook change into the bulls favor, a touch of 1218 will set off significant buying. But, the key at the start is if 1168 holds, or not.