Keystone's Morning Wake Up 10-7-11

The three day rally occurred due to the utes and retail sectors. Today we find out if the rally stalls, or if it has further juice with the semiconductors participating.  The market upside began with the utes, UTIL, if you remember from a few days ago. UTIL is now at 430 comfortably above the bear level of 424 for today so that should hold to finish the week.  For retail, RTH, is now at 104.59, above the 103.75 level that Keystone's algo is fixated on, so the bulls are all smiles.  If RTH moves below 103.75 today, then weakness will appear in the broad markets.


The jobs report has everyone throwing confetti right now, belly's full of jelly donuts, powdered sugar spots the neckties, traders are happy and in a buying mood to start the day. Let's see if that lasts. In the bulls favor is the typical short covering that occurs before the weekend so that may hint that the bulls can at least maintain a sideways move today. The tell that says the bull rally is real and has further legs occurs if the semiconductors participate. Watch the SOX, now at 355.17, if the 359.60 level is taken out to the upside as this early session euphoria occurs, the market bulls got game. If the markets move up this morning but the SOX cannot get above 359.60, the market up move is suspect and the upside is limited. The rally is occurring on lighter volume each day.


Keystone's Inflation Deflation Indicator is bouncing between Neutral, Disinflation and Deflation, 2.85 to 3.10, for the last two weeks.  The slow drip, drip, drip, into disinflation and deflation should continue as the weeks play out.  The CRB is back above 300. The 10-year is back above 2%. Note that the NYAD is at +2131 which is approaching a toppy number, indicating that a reversal back down for the markets is at hand. With another pump up at the open today, that may give a +2500 and signal that a pull back down for the indexes would be prudent.


Watch SOX 359.60 and also RTH 103.75 today; these two sectors will dictate broad market direction.

Note Added 10/7/11 at 9:50 AM: SOX not even threatening anywhere near the 359.60, in fact its down a point, so the market bulls do not have much steam.  The Nas leads as well and it is weaker than the SPX. Thus, watch RTH 103.75 level for clues.  With a 105 handle, the bulls are happy. Probably a lot of sideways slop today if the RTH holds above 103.75-ish. If this level fails, then the markets will weaken.  An interesting tidbit on the utilities. UTIL 424 was the level watched by Keystone's algo all this week but starting next week this level jumps to 439!! This is why you see the utes being pumped today; UTIL now trying to achieve 432-433 and higher. If UTIL closes today under 439, that will cause the markets to be in a sour mood come Monday morning.