Keystone's Market Action 9-22-11

Operation Twisted, or more specifically, the “significant” wording from the Fed about the deteriorating economy, continues to send markets lower.  Negative buzz on Italy and the slide in copper is exacerbating the move down.  The futures were in red numbers all night long as global markets sold off. The treasuries hit historic lows; the 30-year bond now falling almost 200 basis points from its top six months ago, to 2.83%.  The 10-year note falls to 1.76%, about 20 basis points below where Chairman Bernanke announced Operation Twist yesterday afternoon at 1.90-1.96%.

The doctor (copper) is sick and the global economy is getting sicker. Copper weakness is scaring traders; the global recovery has stalled. Copper is now in a confirmed bear market falling over 20% off the top. The dollar is moving up strongly, as everyone reading this blog was expecting, with copper and commodities moving lower. Watch the current asset relationship; dollar up=euro down=commodities down=equities down=gold down=treasury price up (yields down).

Chairman Bernanke has all but paved the way to QE3 coming in the future. The Fed can only do so much, and now we are at that ‘not much’ stage. HSBC China PMI data this morning shows China continuing to slow. The data in general is starting to confirm the global economic stall. FedEx cuts fiscal year forecasts on slowing growth. If the packages are not moving, neither is the economy.

At the open, the markets plummet.  The equity floor traders grow tense, the tone has changed, as the bond markets gain the upper hand.  Liquidation of gold is occurring as the hedgies sell to cover other losses; gold breaking the critical 1730 area.  The hedge funds were treading water fine thru the August crash due to buoyancy in the gold price that stabilized their losing equity positions.  Now that gold is tumbling, hedgies are starting to throw the yellow metal overboard, along with silver, now down 9% on the day, as well as copper and other commodities.

Retail turned bearish at the opening bell adding to the broad market tumble.  Keystone’s algo is monitoring RTH 103.77 currently and at 103.05, is firmly on the bearish side. Watch this the rest of the session.  The semi’s, SOX, is printing 352.41 at this writing, well below the algo’s watch number of 363.90, hence, the run in the semi’s, that started the overall bullish recovery rally a week ago, is done. Utilities is the only sector that is bullish as measured by Keystone's algo. Watch UTIL 423.83, now printing 425.27, after a test of this level only minutes ago that printed 423.95, thus support held on the first try. Utes are critical in the minutes ahead. See if UTIL can hold 423.83, if not, the broad markets are going to accelerate south. If so, the selling should moderate and markets will try to steady themselves.

Key SPX S/R includes 1133, 1131, 1128, 1127, 1124, 1121 and 1119.  1119-1124 is a critical support cluster.

Note Added 12:14 PM EST: UTIL came down for a test of 423.83 at 11:17 AM and bounced.  UTIL came down for a second test at 12:05 PM, and bounced again.  Continue to watch UTIL 423.83, above and the selling will moderate, but if this level fails, the broad markets will take the next leg down.

Note Added 2:03 PM EST: UTIL just lost 423.83, hang on folks. See if it holds for a few minutes. If so, the broad markets should head down to test the 8/9/11 lows; SPX 1101. At 2:07 PM, UTIL recovered back above 423.83 saving the day, but, keep watching, see if it fails in the minutes ahead. We are teetering on the edge now. At 2:16 PM, UTIL loses 423.83 again, if this holds its taking everything down. At 2:20 PM, UTIL explodes higher, they will not let the 423.83 fail, indexes will reverese hard and shoot upwards. Yes, indexes already coming back up.  UTIL now at 427-ish in a heart beat. Looks like the day was saved, again.

Note Added 9/23/11 at 6:24 AM EST:  UTIL came down again to test 423.83 at 3 PM in yesterday's session, and failed for four minutes, but then recovered upwards. At 3:22 PM, yet again the 423.83 level fails for UTIL, but at 3:26 PM, it recovers again. This would be the last test of the session and as UTIL continued upwards, this critical level of support holding, the broad markets recovered into the close. Continue to watch UTIL 423.83 for the Friday session.