Keystone's Evening Nightcap 10-27-11

This time last night traders were searching for any snippet of news available from Europe and many feared a bad outcome.  Today, however, the champagne corks are popping, the booze flows like water and the bulls are donning lamp shades. Huge up day for the markets, major indexes up over 3%.  Interestingly, you had to be long going in, since 3/4th's of today's market move occurred in the first four minutes of trading. At the opening bell the SPX launched from 1242 to 1273, about 30 handles, then the rest of the day price meandered about 10 more handles upwards to close at 1285.

Today shows a mixed bag for individual stocks. The small caps outperformed the broad market today.  Shorts in the smaller and more speculative names had to cover, providing short-covering rocket fuel. At the same time, the risk on trade shunned the staples, such as PG, flatish on the day, in favor of the riskier small caps.  AAPL should have launched as well, but it did not, only managing a paltry 1% move today. YUM, a proxy for China, gains 2.5% but underperforms. IBM up 2.4% also underperforming. At the same time, CAT, GE, BAC, AA, HPQ and MMM saw gains over 5%. Banks and multi-nationals with lots of business in Europe benefited. Also stocks that were beaten down on earnings releases were bot.

Volatility collapsed at the open, so that served as pure bull fuel, copper sky rocketed as well, a phenomenal run in copper, from 3.09 to 3.70 in only five days, 19.7%. If a new bull market is starting, this copper action reflects traders front running the move. Copper always leads a recovery. The charts, however, show that although the daily time frame is happy to continue with copper buoyancy for the days ahead, the weekly copper chart remains weak. The Baltic Dry Index should lead as well, and it has been moving up since August but the daily chart is now receiving a negative divergence spank down.

NYAD prints +2348 today with a HOD up over +2500. This verifies the bull euphoria today and a market pull back typically occurs from these lofty numbers.  The NYHL prints +206 today, the other two numbers higher over the last few months occurred at the early and late July tops in the equities markets, just before the waterfall crash, so caution is warranted.

NYMO is in nose-bleed territory at 93, first discussed in the Tuesday missive with the NYMO chart. The July and August market tops were at this same level, and, the daily chart is negatively diverged. This chart says you do not want to go long if you are not long already. TRIN is in the cellar this evening at 0.39, another tool verifying the wild bull fun today. This is a very low number that needs a snap back to the neutral 1.0 bull-bear level; so that would mean the markets need to take a rest after the euphoric move today.

University of Michigan Consumer Sentiment should act as a market pivot point at 10 AM.

For market direction tomorrow, keep it simple, watch copper, use JJC as the proxy.JJC turned bullish today when it gapped up at the open.  Watch JJC 46.75, bulls need to keep price above, bears will try to move price back below.  For the markets to gain further buoyancy, the CRB must now cooperate.  Watch CRB 327.90, bulls need three points to reach this level and continue the rally.  For the SPX, starting at 1285, if the 1293 handle is touched, the bulls will run strong into the weekend with the broad market orgy in full swing.