Keystone's Morning Wake Up 10-17-11

The G-20 meeting ends and the Finance Ministers promise that a plan will be developed over the next week. Promises, promises. Futures markets were elevated overnight but are now red after C (beat) and WFC (miss) earnings reports. Empire State Manufacturing Index is worse than expected. The Nasdaq is down 0.38% and the SPX is down 0.16% at this writing so the projected market down move at the open will exhibit some marginal strength to the downside.

The recent rally was built on the semiconductor and retail sectors.  Traders are playing the seasonal Q4 tech bullishness, and retail sales numbers last week were slightly better than expected which caused the late week market buoyancy. Back-to-school sales were not as bad as expected, at least until next month when the revisions will probably move it back down, and this projects that perhaps holiday sales will not be as lackluster as thought.

A long line was shown on tv on Friday, at first it appeared to be the AAPL iPhone line, but, upon closer inspection, it was the line to the unemployment office. Speaking of Apple, negative divergence is lined up across the board again for both the daily and weekly charts so do not expect additional upside, and AAPL weighs heavy on the Nasdaq. The lines for the iPhone were not as impressive as previous Apple releases, the luster is off the rose, and Steve Jobs is no longer with us to provide the sizzle.

For this week technically, continue to monitor the main bull drivers, semi's and retail, SOX and RTH, respectively. In addition, utilities, financials and volatilty will play a pivotal role this week to determine broad market direction. As measured by Keystone's algo, SOX, RTH, XLF and VIX are in the bull camp while UTIL is in the bear camp.  XLF, VIX and UTIL, however, are dancing on their respective bull-bear lines so each one can change after the opening bell rings.

The levels to watch are XLF 12.58, now at 12.60 (market bullish); VIX 28.65, now at 28.24 (market bullish); and UTIL 436.75, now at 438.76 (market bullish based on Friday's close--wait for the opening number). The behavior of these three compadres will dictate broad market direction today. The XLF and VIX numbers constantly recalculate in real-time so they can change slightly throughout the day, but the UTIL 436.75 number remains in place for the entire trading week.