Keystone's Morning Wake Up 9-26-11

Europe does not feel the urgency of their situation; Geithner continues to apply pressure.  The G-20 promises action before the 11/3/11 meeting in Cannes. European leaders are content with developing a plan over 5 or 6 weeks time but they may not have that much time. The trade-off is delaying a solution to the point that traders lose complete confidence and start selling vesus pushing a Europe plan out asap that is not well thought out that disappoints traders and starts the selling. Quite a pickle.

Trillions are needed, probably at least $3 trillion to put the Italy and Spain fears to rest. Everyone agrees that Greece is going into default, no surprise there.  The problem is the contagion and the effects the Greece default has concerning Italy and Spain. Rich Uncle China's money is needed to help bail out Europe. Perhaps the 5 or 6 week time frame is required to build a global quantitative easing shock and awe program, with all major countries involved, a last ditch effort to save the planet from its profligate spending over the last few decades.

Futures were up strongly last night, then tumbled as Asia sold off strong, now futures have recoverd again in front of today's open to start the new trading week. Gold weakness continues, as well as copper and silver; the CME raised margin requirements after markets closed on Friday.

Keeping it simple for a Monday morning, the SPX is moving thru a two-day range of 1119-1142. The move out of this range is important. Obviously, market bulls will be happy to see 1143 and higher and bears 1118 and lower. The key sector to watch for confirmation of each case is retail for the bulls and utilities for the bears. If RTH moves above 103.85, that signals that the market bulls are running, and if the SPX is not already over 1142, it will be in short order. If you see the SPX over 1142 in early trading but RTH remains under 103.85, that upside price move in the SPX will not hold.

For market bears, they want to see the utilities, UTIL, fail the 426.79 level.  This number is important all week long and will not change. The RTH number above will fluctuate slightly since it is calculated by Keystone's proprietary algo, Keybot the Quant, continuously. If UTIL loses 426.79 at any time this week the indexes will be in trouble. If the SPX loses 1119, but UTIL is above 426.79, the move to the down side for the broad markets will not last.

Thus, market bulls need to see SPX over 1142 with RTH over 103.85 for confirmation of strength. Market bars need to see 1119 with UTIL under 426.79 for confirmation of weakness. A move thru 1122-1140 is sideways mumbo jumbo with no resolution. At this writing, referencing the futures, SPX 1142 appears to be key for the open, watch it closely.