Keystone's Evening Nightcap 9-26-11

Odd day of trading today. Markets ebb and flow depending on whether Merkel picks her nose or if Sarkozy combs his hair. The rumor mill is getting ridiculous but that is what happens when the news flow out of Europe is disjointed and unclear.  Today, word came that the ECB anticipates a 50 bip raise at the 10/6/11 meeting. No sooner did the refresh button on the Twitter feed display that soundbite when a different official rebukes the statement and says no raise is planned. The 10/6/11 ECB meeting is the swan song for Trichet, the wrong-time rate-raiser, simply reference July 2008 and this year, and on his last day, it is highly doubtful that his tenure will end on such a sour note as to raise rates to prove he is, to borrow a word from Carol Bartz, a doofus.  Draghi, the new ECB guy, however, will raise rates at the following meeting if not sooner, perhaps during October?

Do not read too much into the market bounce today. There remains a lot to be bearish about. The news flow out of Europe will continue to impact the markets. That's why technical tools lead the way, all the shenanigans are constantly priced into the charts in real time.

Keystone's SPX:VIX Ratio Indicator closed at 29.80 well under the critical 35 level that will confirm a recovery rally. Keystone's Inflation Deflation Indicator prints 303.15/102.031=2.97 which says the country is currently in Disinflation. Use the search box on this site to find information on these indicators if you are new here.

Copper was flat today but the collapse of this fearless leader tells you to put away the champagne for a while, if the doctor is sick, everyone is sick. The slightly elevated inflation this past few months, especially the food inflation that everyone notices, was transient in nature, just as Chairman Bernanke said it was, at least he got that correct. But, he was one of the reasons for the inflationary move, due to his easy money pumping that went straight into emerging markets, silver, gold, copper and other commodities creating the latest asset bubbles that popped. The other culprit was Mother Nature that created supply shortages driving up prices and also throw in the Arab spring since a dose of fear had everyone buying a few extra gold bars.  All this is so yesterday.

Last week gold had its worst week since 1983. Perhaps the hedgies, that benefited greatly with their silver and gold holdings this year are now throwing them overboard to cover losses. That, as well as countries now raising cash by selling gold holdings, creates higher supplies. India consumes one-third of the world's gold supply and it is now marriage season, but the enthusiasm appears to be on a milk carton. Perhaps cubic zirconia will satisfy their sweethearts this year?  The current indications are that we are moving into deflation and once that is realized, the shock and awe QE3 will surface, more than likely global intervention this time, just another attempt to stop fate, a few more steps down the Primrose Path.

The retail sector bounced today and took out the 103.80-ish level that Keystone called out on the weekend. This provided the up thrust for the broad markets and Keystone's algo turned bullish in the 11 o'clock hour this morning. Tomorrow we find out if this move has legs, or not. The market bulls must keep retail, RTH, above 104.25 and it is in good shape closing at 106. Semi's may help the bulls further. The SOX, now at 359.50, needs to move above 364, if so, that will accelerate the broad market rally. Similarly, if financials, the XLF, now at 12.20, can move above 12.80, that will add further bull fuel.

For the SPX, the market bulls only need to see a couple green points in the futures overnight to move up and over 1164 after the open and that will ignite large block buying.  The bears need to push down to SPX 1131 to regain the momo but since this is such a formidable goal, the bears will simply try to stall the up move by pushing RTH under 104.25. A move thru SPX 1132-1162 is sideways slop.

One of Keystone's key monthly economic indicators hit tomorrow, Consumer Confidence.  Look for a market pivot point at 10 AM. Before the open, Case-Shiller will deliver gloomy housing news so guard your Cheerio's closely.  The Bradley turn is in full effect now so stay on guard for a market turn. If the markets decide to tumble, you will see it in the RTH first as outlined above. Window dressing thru Friday helps the bull case.