Keystone's Evening Nightcap 9-6-11

High drama this morning as UTIL tested the 50 week MA which represents a trap door for equities markets. UTIL fell thru the 50 week MA indicating a major washout on tap for the indexes but after several minutes, UTIL regained this dangerous level. The indexes remained buoyant ever since, the SPX regaining the important 1155 level mentioned in this morning's missive, back kissing around 3:15 PM, then moving up to finish the day at 1165. The market bears pushed hard, moving lower to test the critical 1140 support, but could not take it the last 13 cents, thus, the buyers came in, the shorts started to cover, and the indexes recovered.

Silver lost 3% and gold pulled back after printing a slightly higher HOD compared to ten days ago. The gold daily chart is in negative divergence and prefers lower prices moving forward. The gold weekly chart, if you look back from a week or so ago in the archives, wanted to see another higher high in price, which it now achieved, and now the weekly chart has set up with negative divergence as well. So the charts are favorable to lower gold prices and the catalyst to start a firm downward slide in gold would be a third CME gold margin hike. So far the first two hikes occurred at a two week interval, 8/10/11 and 8/24/11, and tomorrow represents the two week interval again, 9/7/11, so be especially on guard for a potential CME gold margin hike tomorrow announced between 2 PM and 8 PM. If not, a one day leeway can be given due to the holiday but if the CME does not raise gold margins within the next two days, then this will be a feather in the gold bulls cap. If the CME raises, and considering the chart set-ups, it can start a substantial slide south for the yellow metal.

Study the previously posted charts over the last few days, prescient as they were, even a blind squirrel finds a nut now and then. The euro fell today to now sit on the baseline of the descending triangle. If it fails from here, which is expected, perhaps not tomorrow, but in the days or couple weeks ahead, this then targets the 131-132 area; a juicy gap fill is needed at 132. The euro moves with equities so if equities catch a relief bid in the coming days then the euro will have a few days to think about its pending failure.

The 10-year yield slid lower today but the daily chart is more agreeable to some sideways recovery action in the days ahead rather than further downside. Over the intermediate term, however, much lower yields are expected, consistent with a slide into deflation.

The dollar moved up today towards the inverted H&S neckline at 76, stopping just short. The table is set up for a breakout above 76. A back kiss would occur back to 76 then it would be up up and away for the dollar. Again, if equities catch a relief bid in the coming days, the expected asset relationship would be commodites up=equities up=dollar down, so the breakout of the dollar is close but may take a sideways rest if equities want to experience some short term buoyancy first. The up move in the dollar would be consistent with a slide toward deflation and this in turn signals Chairman Bernanke to step in with QE3 likely in the October-November time frame.

Doctor Copper was sick today, so he is spreading the flu, GT, a rubber indicator was a sad sack, housing remains in the duldrums, ditto steel, the orders for cardboard boxes are flat, FDX and UPS are falling (remember Keystone's UPS 20 and 50 Week MA Cross Indicator that now shows the broad markets have fallen into a Secular Bear Market), and the chemical companies are languishing. These are all vital building blocks for a strong economy, hence, there is no global recovery, thus, expect lower oil and commodities prices as Autumn approaches. A move of the CRB downwards towards 300 is another signal for Chairman Bernanke to announce QE3 so watch the CRB with one eye as you enjoy the football games with the other.

For the SPX for tomorrow, starting at 1165, the market bulls have a slight advantage. If the bulls can push the SPX to simply touch an 1174 handle, the buyers will enter in force, and the indexes will jump several more handles upwards in short order. Keystone will post the S/R after this post so you can play the home support/resistance game tomorrow. For the market bears, a more formidable task is ahead. The bears must take the SPX 25 points lower to take another stab at 1140 if they want to get the negativity rolling along again.  A move thru 1142-1172 is considered sideways action.

Since the economic data and earnings releases remain sparse, the Euro news will continue to dominate the markets. A potential market pivot point will occur at 2 PM tomorrow upon release of the Beige Book. Other than that, traders will anticipate Thursday's set-up with the ECB rate decision and press conference, International Trade and Jobless Claims data, Oil Inventories, Chairman Bernanke and President Obama on tap. Thus, tomorrow will be a good time for good ole Keystone to take a rest.