Keystone's Evening Nightcap 10-5-11

Utilities, UTIL, perofrmed the shimmy shake early in the session but from 10:30 AM on stayed above the 418 level (417.88) preventing a substantial broad market sell off.  Note that despite the bull rally again today, UTIL did not make it back above 424, thus, the recovery rally is not real yet. Retail rose from the dead as well but Keystone's algo needs to see the RTH back at 103.50 to help the market bulls drive the markets higher.  RTH came up for a look but did not make it up and over, closing 20 cents underneath.

The ECB rate decision is in the morning (New York time), Trichet's final meeting as he hands over the reins to Draghi. Trichet errored this year, from April to now, just like in July 2008, with his rate hikes into commodities tops. The ECB only has one mandate--inflation, and he could not even get that correct.  Rates need to be cut but the ECB will be sensitive to making Trichet look like a doofus on his last day, so no rate cut is anticipated. The key will be what is in the wording of the statments as well as the talk from the press conference. The ECB will directly affect the euro trading tomorrow morning and the current asset relationship in play is euro down=dollar up=equities down=commodities down=treasury prices up yields down. Of course, the relationship works visa versa as well if the euro is pumped higher.

For Thursday, the focus is on two sectors that will dictate broad market direction; retail and utes.  RTH, now at 103.32, needs to move above 103.50 to excite the market bulls and drive the indexes higher. If the bears can keep RTH sub 103.50, the upside in the markets is limited.  For the utilities, the same levels remain in place. Above UTIL 424 and the market bulls will be rockin' out the upside, they will not look back, RTH will be over 103.50 and the markets will be running higher. If UTIL stays between 424 and 417.88, then the markets move sideways to sideways down. If UTIL loses 417.88, the broad markets will go into free fall.

For the SPX on Thursday, the market bulls only need two handles higher to launch the upside. If SPX gets up over 1146, starting at 1144, then the upside will run. Market bears will try to stop this by keeping the futures red overnight, and stopping UTIL and RTH from getting up and over 424 and 103.50, respectively.

ECB rhetoric should be known, and its affect on the euro and the U.S. futures, by the time Jobless Claims hit at 8:30 AM so the key data points for tomorrow will be out before the markets open. As tomrrow's trading progresses, posturing begins ahead of the Friday Jobs Report which is announced before Friday's opening. UTIL and RTH will tell you everything you need to know concerning broad market direction.