Keystone's Morning Wake Up 10-10-11

Each weekend we wait for Greece resolution, and this weekend we again do not receive a plan, but France and Germany do announce they will have a plan by 11/3/11. To paraphrase that famous skid row scholar Wimpy, "I will gladly pay you Tuesday for a hamburger today."  The futures markets are receiving their hamburger today with a large upside start on tap at this juncture.

A pizza party was held over the weekend to resolve the Dexia situation--pizza parties reminiscent of the Fall 2008 crash. A magical word nowadays is "bank recapitalization." If you hear that term the markets are immediately pumped higher. The recovery rally has to prove itself today and this week and there are several metrics we can use to judge the success, or failure, of this current short-covering rally.

Keystone's SPX:VIX Ratio Indicator, now at 32, remains under 35 favoring market bears.  If the ratio moves above 35, perhaps today, that will be a firm upside signal that the rally has legs. If the ratio stays under 35, market weakness will continue.

Something very interesting occurs with the utilties as the opening bell rings. The weekly uptrend or downtrend in the utes helps forecast market direction. For this week, UTIL must remain above 439 for the market bulls to run higher. If UTIL remains under 439, the market bears have the upper hand. The reason it is interesting is that the Friday close is 431 so the utes need eight points to keep the recovery rally alive.  With the futures showing a large up move at the opening bell, see if UTIL moves above 439, or not. If so, the market bulls do have legs and the markets will continue higher. If UTIL does not go above 439 after the open, then the rally should peter out.

If the bulls run higher today, watch semiconductors.  If SOX gains three points, this will help fuel the upside.  SOX begins at 356.73 and needs to overtake 359.80 to make the market bulls happy. Market bears need to prevent the 359.80 from occurring.

For the SPX, sitting on support at 1155, watch the 20 day MA at 1163. SPX above 1163 and bulls are happy, below and bears are happy. Referencing Keystone's algo, the last few turns all occurred around a support/resistance cluster of 1146-1150. Thus, above 1150 and bulls are happy, below 1146 and bears are happy. For today, the market bulls need to push back up to 1171 to regain upside momo.  Market bears need to lose the 1150 handle to see the selling accelerate. A move thru 1152-1170 is sideways action.  Key support and resistance is the 50 day MA at 1178, 1173, 1166, 20 day MA at 1163, 1155, 1150 and 1144.

In a nutshell, as the opening bell rings and the markets run upwards, watch UTIL 439, SOX 359.80 and SPX:VIX 35. These three will confirm, or non-confirm the strength of the early broad market pop.