Keystone's Morning Wake Up 9-6-11

Labor Day evening the 10-year yield hit a historic low of 1.92%. Overnight, the Swiss Central Bank imposes a ceiling on the franc. They feel the rise in the franc is a serious danger to their economy as well as creating a deflation risk. The currency moves are drastic these days. Some politico’s, such as Deutsche Bank’s Ackerman, worry that we are repeating a Lehman type event from Fall 2008. World Bank President Zoellick states that we are now entering a ‘dangerous’ time.

Europe sovereign debt woes will not disappear overnight. There is a huge lack of leadership around the world. The U.S. squabbles over setting a date for the President’s address. How can Congress and the President agree on serious budget issues if they cannot agree on something as simple as setting a schedule? Germany’s Merkel is now facing pressure from supporters. Japan moves thru leaders like many folks changing their socks. The intelligent leaders of the world are constantly chased away from politics since they are smart enough to not want to deal with such follies. Thus, we are now left with the bottom of the barrel clowns—that only care about their own reelection, not their respective countries, people or economies.

The problem is the mortgage abuses that led to the housing bubble. The bad paper continues to stink in the summer sun. This started the unemployment band wagon that now ensures an 8 or 9% unemployment rate for years to come.  It is sad to now see the President continuing with rhetoric rather than solutions, blame rather than ideas. The Administration now wants to tout infrastructure. That should have been pursued in the jobs package in the spring of 2009, not all the wasteful spending to support sick businesses which resulted in the U.S. in deeper debt. Any international traveler noticed years ago how you could eat off the floors of the airports and public transportation of emerging countries, absolutely pristine infrastructure. Then as you fly into New York or any other major U.S. city you are greeted with graffiti and filth. The infrastructure idea is 2 ½ years late. Businesses flock to countries with clean and state of the art infrastructure, not to countries with gang symbols on walls and unreliable, congested, hassle-laden logistics.

As the U.S. enjoyed hamburgers and hotdogs on the holiday, the European indexes tumble; the DAX logging in losses of over 5%, the others down over 4%. The Euro money is running out of stocks into bonds, reminiscent of the U.S. crisis in Fall 2008. The U.S. lawsuits against the corrupt banksters during the mortgage crisis accelerated the European losses, especially in their banks feeling the contagion. Credit default swaps hitting highs for Italy.

All this political mumbo jumbo aside, Keystone deals with technical’s and charts since any current knowledge on any index, sector or individual ticker is reflected in the up-to-the-minute stock price and charts. Inside information and other shenanigans are built into the technical’s quickly so you are less likely to be blindsided as you would be in relying on fundamental analysis only.

A lower start is on tap today. The SPX will take out Friday’s lows so that means an accelerated down move will occur of several additional handles.  SPX 1155 is sturdy support so it is important to see if the index can hold that level. Interestingly, the charts are not in all that bad of shape and are agreeable to see some buoyancy short term despite all this negativity to start the week. The SPX, and more generally all major indexes, are agreeable to a recovery bounce higher on a daily basis.  The weekly and monthly outlook, however, longer term, especially considering that markets are now in a secular bear pattern, are weak and bleak, and lower equities prices are projected for the intermediate and longer term time frame.

The key is the utilities. Watch UTIL, now at 426.72. The 50 week MA, now at 415.30, represents a trap door for the equities markets.  If UTIL maintains above 415.30, any selling today will be a short-lived event, and actually a potential buying opportunity for a recovery bounce for the broad markets. If 415.30 is lost, the equities markets will go into free fall.

Keystone’s SPX:VIX ratio dropped under 35 on Friday indicating that the market bears have regained control. The bears will maintain control of the markets as long as the SPX:VIX ratio remains under 35. Once the ratio moves above 35, that will signal a huge up day for the indexes.

Although the 10-year touched 1.92% last evening, now hovering around 1.98%, the $TNX chart (previously posted) shows that the downside is limited in the short term. Over the longer term, however, like the major indexes, further lower yields will be expected under 1.9%.

The NYAD printed -2152 for Friday, the low was nearly -2500, which is a very low number indicating that a bounce in the indexes should be in order. CPC put/call ratio spiked to 1.44 on Friday, again, another indicator showing that the indexes are more agreeable to a reversal to the upside rather than further weakness.

Thus, for today, watch SPX support at 1171, 1168, 1166, 1162, 1159, 1158, 1155, 1152, 1150, 1145, 1144, 1141 and 1140.  It is important for the market bulls to hold the 1155 level, which is expected at this juncture. Watch UTIL 415.30, if it holds, which is expected, then any market selling should be short-lived and a waterfall event will be avoided.

The trading weak is shortened due to the holiday so the note auctions are delayed one day as well as oil inventories moving to Thursday. Economic data in general this week is sparse. Earnings are wrapping up as well so not much there to look at. Therefore, the main driver of markets this week is any Euro news.  Thursday is the action day for the week bookended by the ECB rate decision/press conference and President Obama’s address to Congress. Watch the currency markets closely as well as the CME for potential further gold margin hikes. Since news will be the driver this week, lots of drama is on tap.