Keystone's Morning Wake Up 12/30/11

The sun rises on the last day of trading for 2011.  The broad indexes are in a sideways move currently.  The SOX remains under 368.60 so this prevents any significant bullish upside for the indexes.  XLF remains over 12.80 so this creates continual bulilsh market buoyancy. One of these two characters, semiconductors or financials, is going to flinch, and that will show you the broad market direction.  Until then, we travel along sideways.

SPX 1257.64 is the starting number from one year ago and today we find out if the year is positive or negative.  The Dow Industrials are positive on the year receiving oomph from the divvy chasers.  This feeds the ongoing dividend stock bubble. Window dressing continues to pump stocks such as MCD to new highs pumping the divvy bubble higher.

Keystone's Inflation-Deflation Indicator is at 304.55/100.891 = 3.02 which is only a hair from indicating that the U.S. is in Disinflation, but its close enough to call it Disinflation now.

The futures are green. The S&P and Nasdaq futures are tracking together at about +0.15% so this promotes sideways movement for the indexes. If the SPX, starting at 1263, gains a half-buck to get over 1263.50, the bulls will control today and the SPX will finish on the bullish side, positive on the year.  Key SPX S/R is 1285, 1281.21 (12-month MA Keystone's Secular Signal), 1277, 1276.11 (10-month MA), 1268, 1267.71 (50-week MA), 1267, 1261, 1258.90 (200-day MA), 1258, 1257.64 (starting year number for 2011), 1257, 1252, 1247, 1242.61 (20-day MA), 1240.

Note Added 12/30/11 at 11:00 AM:  XLF remains above 13 far from the 12.80 danger. SOX punched thru 367 for a couple minutes but pulled back down, still a buck and a half from the 368.60 which would signal an all-clear for market bulls.  So, markets stumble along sideways as the trading year draws to a close. SPX four range today from 1260.22 to 1264.12.  The 1263.50 will trigger a bullish thrust today, this level was pierced a few minutes after 10 AM but it did not hold.  If SPX takes out the 1263.50 it will result in a big run-up into the close.

Note Added 12/30/11 at 6:07 PM:  XLF is at 13 and SOX 364.44 so markets stumbled sideways all day long. The final five minutes of trading provided high drama as the SPX collapsed from 1259.75 to 1257.60 to finish negative on the year.  The 2011 starting year number was 1257.64. The 2011 close for the year is 1257.60.  The SPX lost 4 pennies this year, -0.003%. The circus tent folds on 2011.  But if you listen real close, you can hear a caliope, and here comes the 2012 circus wagon now.  Happy New Year everyone and see you at the 2012 sideshow come Tuesday.

European Bond Yields 12/30/11

Here is a check on the bond yields as 2011 comes to an end. This tally will serve as the start of year basis for 2012.

10-Year Yields:
Greece 34.85%
Portugal 13.43%
Italy 7.07%
Spain 5.15%
Belgium 4.08%
Australia 3.67%
France 3.14%
U.K. 1.94%
U.S. 1.90%
Germany 1.84%
Japan 0.99%

Greece and Portugal have already received bailouts and more money will be needed.  Italy is the elephant in the room with a mountain of debt coming due between now and March. Thus, many traders are sour on the beginning of the year since this trouble hits the fan.  Europe has kicked the can down the road for the last couple years but the road ends now. Tangible decisions are now required by the Euro countries. There is a hope that China and other emerging nations will help Europe but chances are they will turn internally and worry about their own skin. Keystone is looking for deflation as a trigger in Europe to allow the ECB to act forcefully to handle the debt crisis, just as Chairman Bernanke and the Fed will use deflation as their trigger point to announce QE3 in 2012.

The coming S&P downgrade of France debt is the first drama that will occur in 2012 in concert with the ECB rate decision and press conference early January. If the S&P Friday night release method is followed, potential targets for the France downgrade announcement are 1/6/12 or 1/13/12 with the latter the strong choice. A one notch downgrade of France is currently being priced into the equities markets so a two-notch downgrade, or Germany warning or downgrade, or other news, will surprise the markets and cause global equity selling.

Note that the Italy 10-year is above 7%. France is now above 3.1%. Belgium is staying above 4%. Use the 7% level for Italy, 6% level for Spain and 3.3% level for France as signals of trouble. Italy tells you that the debt crisis remains sick. France creeping up is a big worry.  The U.S., U.K. and Germany all finish below 2% since money is flowing into these nations to seek safety.

SPX Daily Chart Showing Bradley Turn Dates 2011

A major Bradley turn date occurred yesterday and a window for a market trend change remains open now into next week. The double circle now identifies a major Bradley turn date and there were only three major turn dates this year, the other two marked significant tops. A look back at the year shows how the Bradley turns were very accurate at identifying market trend changes.

Remember, the Bradley dates do not identify direction, the date only identifies where a trend change will occur. Thus, if the markets are trending up a reversal down would be in order, or visa versa, but once in a while an acceleration move occurs where the Bradley date results in a melt-up or melt-down move, but none of these occurred this year. So watch the coming days closely to see if there is broad market follow-thru to the downside from the double blue circle as the new year begins.

The next Bradley date is 1/11/12 so that will affect markets with another turn window for the first half of January. Keystone's Eclipse Indicator identifies this current area, now thru mid-January as having a high potential for a major market selloff adding further drama. For further information on the Bradley, reference Donald Bradley, Peter Eliades, Arch Crawford and the Amanita Market Forecasting sites for additonal information. The 2012 Bradley turn dates are 1/11, 1/28, 2/16, 2/22, 3/16, 4/11, 4/23, 6/12, 7/28, 8/14, 8/25, 9/30, 10/9, 11/1, 11/14, 12/22 and 1/20/13. The major turn dates are 12/28/11, 3/16/12, 6/12/12, 7/28/12, and 12/22/12. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Keystone's Midday Market Action 12/29/11

XLF is above 12.90, over a dime away from danger helping to buoy the broad markets.  Semiconductors, SOX, are recovering some ground from yesterday's selloff sitting at the 20 day MA at 364.50-ish, well under 368.60.  Thus, the market bears are kept in check by the XLF staying above 12.80 and the bulls are kept in check by the SOX staying under 368.60, so markets languish sideways.

The starting year number at SPX 1258 should continue to provide drama into the closing year print tomorrow afternoon. SPX now favoring a sideways move thru the S/R range of 1252-1258. Use XLF 12.80 and SOX 368.60 as two guiderails, whichever one gives way first (either XLF down thru 12.80-bearish, or, SOX up thru 368.60-bullish) dictates broad market direction.

Note Added 12/29/11 at 9:58 AM:  XLF moving up....now 12.98.  Interestingly, semiconductors are now weaker on the day. The SPX is up 0.42% and the Nasdaq is up only 0.14% so there is no further upside market oomph available.

Note Added 12/29/11 at 10:45 AM:  XLF is now above 13 at 13.06.  The semiconductors are providing market lift as well although still far short of SOX 368.60. Nasdaq continues to lag the SPX to the upside so that limits the move up.  SOX moving above 368.60 is where the bull orgy would begin so for now, markets simply bump along sideways, the SPX positive on the year by one point at 1259. Key S/R is 1261, 1258 and 1252.

SPX 30-Minute Chart Oversold Falling Wedge Positive Divergence

The 30-minute chart shows the critical 8 MA and 34 MA crosses tipping off market direction. The red rising wedge, overbot condtions and negative divergence spanked price down from 1270. The green lines show oversold conditions, a falling wedge and positive divergence in line with the green futures this morning. The chart wants to see some upward buoyancy but the 8 MA under the 34 MA will maintain a bearish back drop--unless the 8 MA moves back above the 34 MA. Key SPX S/R is 1270, 1268, 1267, 1261, 1258, 1252, 1247, 1240, 1235, 1229 and 1227.This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Keystone's Morning Wake Up 12/29/11

The Italy bond auction drama came and went with little fanfare. Futures are green. The semiconductors broke down yesterday, taking the Nasdaq south which helped drag down the broader markets. The euro breaking under 130 served as a catalyst for negativity. This morning the euro has broken down thru 129 to a one year low but, despite the break lower, the euro daily chart is positively diverged and wanting to see a small recovery rally. At a minimum, a move back up to back kiss the 130 level would be expected. The euro moves in the same direction as equities markets, so up euro is up equities.

The financials are key today.  The XLF moved lower yesterday to close at 12.86, only six pennies above the bull-bear line at 12.80. If 12.80 fails, the markets are in major trouble. With futures green currently, this is likely not to occur at the open. Pre-market XLF is printing 12.94.

For the SPX starting at 1250, the bears have the easy road since the closing print was near the lows. If the 1248.50 level fails, the broad indexes will accelerate the downside selling. Bulls need to recover yesterday's losses to regain momo but since that is a formidable task, the bulls will instead focus on preventing the XLF 12.80 failure at all costs.

Gold is falling out of bed this morning.  Once 1580 was violated, 1520 was targeted. If 1520 fails, then 1480 is next.

The last three major economic data releases for 2011 are occurring this morning with Jobless Claims at 8:30 AM, Chicago PMI 9:45 AM and Pending Home Sales 10 AM.  Also of interest today are the Natty Inventories at 10:30 AM and Kansas City Mfg Index 11 AM, if the scheduling is correct.

Plain and simple, watch XLF 12.80 at the open. If it stays above, the broad markets head higher. If XLF fails, the broad markets will accelerate to the downside. If the bulls run today, watch SOX 368.60. If taken out to the upside then Santa is rolling thru town on the rally train again.

European Bond Yields 12/29/11

The Italy bond auctions went off this morning with mixed results. All in all, the auctions did not provide any big surprises. U.S. equities futures are flatish so the downside risk was priced in during yesterday's trading session. The euro falls after the auctions breaking the 129 level.  Yesterday, U.S. equities sold off strongly once the euro broke the 130 level.

10-Year Yields:
Italy 7.09%
Spain 5.24%
Belgium 4.02%
France 3.06%
U.K. 1.99%
U.S. 1.93%
Germany 1.88%

Note that Italy remains above 7% which forecasts continued worries for global markets. Belgium is now above 4%. France is back above 3%. Money prefers the perceived safety of the U.K., U.S. and Germany.

Keystone's Midday Market Action 12/28/11

A check on the SOX shows a 366.98 print now under 367, well below 368.60 and bearish.  XLF is hanging above 13. RTH remains with a 112 handle.  The Nasdaq is down -0.24% while the SPX is down less at -0.14% so the move down for the markets has street cred. NYHL drops big down to 63 currently. So the weak semiconductors are creating market weakness today but RTH and XLF are holding up fine. LOD for SPX is 1262.48 thus far, the market bears need to push lower to break under this print and move towards the low 1262's to initiate stronger selling.

Note Added 12/28/11 at 9:46 AM:  That did not take long, SPX came down to test the LOD and collapsed, now printing a 1259 handle. Price now only a smidge postive on the year. The semi's are creating the market weakness, the Nasdaq leading the downside helped create the push lower minutes ago, the RTH and XLF remain elevated, however, so the downside may be limited.

Note Added 12/28/11 at 10:01 AM:  SPX 200-day MA is 1258.91, the starting year number is 1257.64. The euro dropped under 130 helping accelerate this real-time selling. SPX is printing 1258, nestled in between the starting year number and the 200-day MA.

Note Added 12/28/11 at 10:26 AM:  The SPX is now negative on the year with a 1256 handle.  Nasdaq is leading down so this continues to maintain the market bearishness. RTH and XLF remain elevated, however, so significant downside would not be expected, at least not yet, but keep watching.

Note Added 12/28/11 at 11:35 AM:  The SPX now testing 1252 support and at 1251.41, the SPX stabbed down thru.  Support is 1252, 1249, 1247. Note the XLF now printing 12.89 edging closer to the 12.80 level which will verify big market trouble.  For now, RTH and XLF remain in the bull camp.

Note Added 12/28/11 at 11:49 AM:  The Nasdaq and SPX are both down about 1.2% today, thus, the Nasdaq is no longer leading the downside so the markets do not have the negative oomph anymore. The down move thus far today all occurred with the Nasdaq leading the down side.

Note Added 12/28/11 at 3:50 PM:  SPX at 1250 with a few minutes remaining.  RTH and XLF remain elevated at their bullish levels so that continues to dampen the downside and promote sideways movement for the broad markets.

Note Added 12/28/11 at 4:07 PM:  Traders are in a tizzy over the bond auctions in Italy tomorrow.  XLF and RTH prevented any serious downside today.  Typically, a down day on Wednesday like today leads into weakness on Thursday morning.  Seasonality-wise, markets are buoyant, or bullish, the two days in front of a three-day holiday weekend, which is tomorrow and Friday. Thus, based on seasonality alone, the assumption would be that the bond auctions wll go fine and markets will be buoyant into the Friday EOY close. More importantly, watch RTH and XLF, as long as they are in the bull camp, and they are right now, the indexes are fine.  If one of these crack, the market downside will then become real and Keystone's algo will probably flip to the short side as well. The SPX tested 1249 support successfully at 3:30 PM.  The 1252 support failed so it is now resistance.  1247 is sturdy support. Thus, 1249 and 1247 will try to support the market bulls.

Keystone's Morning Wake Up 12/28/11

Three more trading days remain for Father Time in 2011, replaced by Baby New Year.  Poor baby is thrust into a hard cruel world, having to deal with a France downgrade coming, the ongoing Euro debt crisis, the Congress clown show and the China real estate bubble popping. Perhaps traders will be screaming for the comfort of their blankies as well when the new year begins. The drama picks up today with the SOX 368.60 again. Futures are flat currently and oil and gold are lower.

If the SOX stays under 368.60, no further broad market upside will occur. If the SOX moves above 368.60, the broad indexes will be tracking strongly higher.  If SOX stays under 368.60, and now loses the 368 level and heads lower, the selling in the broad markets will be noticeable. If the markets weaken, watch RTH 110.25 and XLF 12.82. If either level fails, the bears will lock in some extended broad market downside action moving forward. These two numbers should fluctuate slightly as the markets begin trading and Keystone's algo begins recalculating.

For the SPX today, starting at 1265.43, if the market bulls can push up thru 1269 and touch that 1270 resistance number, the upside will accelerate and a happy year end will be all but assured. If the market bears come to play today and push the SPX down three points to the low 1262's that will be enough to trigger a larger downside push, large block sellers will enter and push the SPX down towards the 1258 starting year number to continue this suspense on whether or not the SPX closes positive on the year. A move thru 1263-1268 is sideways action.

Thus, SOX 368.60, RTH 110.25, XLF 12.82 and SPX 1270/1262 require close watching after the bell rings.  Key SPX S/R is 1280, 1278, 1277, 1268, 1267.76 (50-week MA), 1267, 1261, 1259.03 (200-day MA), 1258, 1252. Lots of drama occurred at the 50-week MA yesterday; see if it holds as a ceiling today.

NYHL New Highs-New Lows Daily Chart

The NYHL is now at levels not seen since the top in the markets just before the August waterfall crash. The red circle shows that the extreme increase in new highs led to a pull back in equities. The same situation is occurring now with a lofty NYHL, more than likely fueled by the dividend bubble now occurring as discussed last night. Companies such as MCD have continued to punch out new highs but as shown in yesterday's cahrts and discussion, negtive divergence exists across the board with nearly all of these dividend plays so the traders seeking safety there are in a hiding place that is already over crowded. Dividend stocks will get slapped just as hard as any other stock in a market down turn.

Note the green circle which showed excessive new lows and marked the bottom for equities and the beginning of the big-time October rally. Seeing this chart, how do you want to prepare? The peak in July was a market top that resulted in a sharp pull back, then markets recovered for a couple weeks in July, the NYHL printed that second peak at 195-ish, this was the peak from which the waterfall crash occurred, so perhaps a similar fractal will develop now. This chart shows that a market sell off is coming. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your finanical advisor before making any investment decision.

European Bond Yields 12/28/11

Things are calm ahead of the Italy/Spain auctions.

10-Year Yields:
Italy 6.78%
Spain 5.10%
Belgium 3.99%
France 2.95%
U.K. 2.03%
U.S. 1.99%
Germany 1.93%

The Dexia headaches contininue for Belgium. Italy is back under 7%. France is under 3%.

Divvy Bubble Trouble or Divvy Safety Play for 2012?

Traders are chasing into dividend stocks as a place to hide.   But, when you look around and realize that everyone is hiding in the same place you are, that should tell you that the hiding place is probably no longer a hiding place. The 4 to 6% divvy yields are more attractive than Treasuries. Healthcare, pharma, consumer staples, utilities, energy and telecom divvy stocks are receiving a large boost.

The media pundits and other shills are pumping the dividend plays these days, they say 'hurry up and buy before its too late!'. This action is typical of where the larger funds and hedgies need Joe Sucka to show up with his bag.  With some of these moves over the last few days, on shameful low volume, Joe Six has to have jumped in, probably proudly bragging to everyone at the family Christmas party how smart he is to now be fully invested in dividend stocks.  Joe does not realize he will be holding that divvy bag in 2012.

The divvy stocks are experiencing a wild orgy of upside action. The toga party includes upward moving dividend index funds such as DVY, VIG, SDY or MRDVX, which may contain individual names such as CVX, MCD, WMT, PG, KO, JNJ, MRK, LLY, PFE, T and XOM. The previous charts discuss DVY in detail showing the negative divergence in place now forecasting sideways to sideways down price action for the forseeable future.  The divvy bubble is a sneaky bubble devil. Other bubbles such as the dot-com bubble in 2000, the commodities bubbles in summer of 2008 and again in summer 2011, the housing bubble that popped in 2005, and the financial bubble that popped in early 2007 were much easier to forecast.  Even the gold bubble this year was easy to spot.  The long term slow creep higher shown in the DVY weekly charts now results in prices at nose-bleed heights.

T is the biggest divvy stock available and may gain another buck to test the highs at 31 but negative divergence should seal its fate.  XOM is another heavy divvy hitter, the recent pop higher will be remedied as well in the weeks ahead due to its negative divergence.  CVX is a sick pup, despite this six day explosion higher, the negative divergence on daily and weekly charts pointing the way to a short entry right now.  The others are not attractive either; MCD, WMT, PG, KO and JNJ all stocks that are topping as the new year begins singing their final swan song.  The one group that requires some praise, however, is MRK, LLY and PFE; they do show some extra momo power.  They will eventually set up negatively just as the other divvy stocks, however, but they will lag as the others roll over first.

The underlying strength of any bubble mania is a tough thing to reverse but once it does, the floodgates open as the August sell off shows.  The projection overall is that divvy stocks are in a bubble. If the word bubble bothers you, call it a significant top instead.  The projection for this entire genre of dividend stocks is sideways to sideways down for the foreseeable future. The pharma divvy stocks will spend some additional time topping before they join the others and roll over as well.

Keystone is assembling the 2012 forecast and assessing the 2011 predictions currently. This will be posted on the weekend as the year changes.  Divvy stocks will more than likely take a place in the 2012 predictions list with a pull back likely forecasted for dividend stocks early in 2012. After that, perhaps quantitative easing will save the day again, but for the start of the new year, taking one step at a time, dividend stocks are topping now and should move sideways to sideways down for the foreseeable future, marking the current action as a significant top.

DVY Dividend ETF Daily Chart Overbot Negative Divergence

The weak August prints were never resolved to complete satisfaction so a move lower to these levels would be expected in 2012. Price is now at the top rail of the upward-sloping channel which creates potential for a pull back and the red rising wedges and purple negative divergence verify the need for a spank down now. Projection is a choppy stutter-step M-top-ish move sideways as the dividend stocks top and roll over in general. Sideways to sideways lower for the weeks and months to come with a test of 45 coming in 2012. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

DVY Dividend ETF Daily Chart Five Waves H&S Overbot Negative Divergence

Five waves for DVY points to a potential ending for this near three year rally. The red lines show the negative divergence currently in place desiring a smack down. The neon green lines highlight a potential H&S. Projection is sideways to sideways down for the weeks and months to come. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

DVY Dividend ETF Weekly Chart H&S Overbot Rising Wedge Negative Divergence

The dividend stocks are on fire these days, utiltites, healthcare, pharma, consumer staples, folks tripping over each other running headstrong into these large blue chip companies. The action smells a lot like Joe Sucka rushing in, caught up in the media hype about buying divvy stocks. The chart above shows the blue negative divergence smack down for the August selloff. Note how divvy stocks sell off just as strongly as any other stock during a market downtrend.

The action over the last two weeks needs a pull back but the MACD line should force price to make another matching high and then price will continue to roll over and die as 2012 moves along. A long-term H&S is in play which may form with a 55 head, 45 neck and target at the 35-36 area in 2012. Divvy stocks are in a bubble. Notice the strong volume action since the summer, money is chasing a hiding place but the trouble is there is too many people now hiding in the same space. Projection is sideways to sideways down for the weeks and months to come. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Keystone's Midday Market Action 12/27/11

Lots of drama with SOX today.  SOX collapsed at the open taking the broad markets lower, then at 9:47 AM, the SOX exploded above Keystone's algo number of 368.60, slapping the bearish open and favoring the market bulls.  SOX is now printing well over 369. Whoa, hold the presses.  As this is typed, the SOX is leaking again.  Now the SOX is back down to 368.72.  For the tug-of-war for today's broad market direction, SOX pulled the indexes lower at the open, then higher as we move towards the Consumer Condidence release, and now a smidge above the critical 368.60 level favoring market bulls by only a hair.  Markets will move on the Consumer Confidence data any minute, and whichever way the SOX goes, goes the broad markets.  SPX punched up thru the 1267 resistance which is a feather in the market bulls cap.

Note Added 12/27/11 at 10:07 AM:  Consumer Confidence was better than expected, the broad indexes received some buoyancy.  Note the SOX staying above the 368.60 level and now printing 369.  Thus, things look good for the market bulls. The SPX is up 0.23% and the Nasdaq is up 0.21% so the market upside does not have a lot of oomph behind it.  The SPX is printing 1268.92.  Reference the SPX S/R a few posts back.  The SPX 50-week MA is 1267.82 so price is fighting to overtake this critical resistance. Resistance above is the 1267 (now starting to look like possible support), 1267.82, 1268, 1270, 1272, 1275, and then a sturdy resistance cluster at 1277-1281. Note that volatility is actually higher as the indexes move up further questioning the market upside move today. SPX now printing 1269.15. See if 1270 resistance holds.

Note Added 12/27/11 at 10:34 AM:  SOX now printing 370 well above danger. Market bulls will remain in full control today as long as the SOX stays above 368.60.  If semi's do remain strong all day long then copper will be the next key sector to watch for further bull market strength.  The light volume holiday trading makes the Santa Claus rally suspect but, for now, the eggnog continues to flow and the bulls are in control.

Note Added 12/27/11 at 11:01 AM:  The VIX moving up was a tip-off that today's upside move was suspect.  The SPX dropped back under the 50-week MA at 1267.76 at 10:44 AM, abou ten minutes ago.  The SOX dropped under the critical 368.60 at 10:52 AM a few minutes ago.  Note the broad market weakness.  Markets will head lower as long as the SOX stays under 368.60. Probably lots of sideways ahead during this holiday week. SPX now trying to use Friday's HOD at 1265.42 and Friday's close at 1265.33 as support.

Note Added 12/27/11 at 1:17 PM:  In the 11 o'clock hour, the SOX moved back above 368.60 and is now printing 370.68, two points above danger and providing the broad markets with lift.  The SPX is moving in a one and one-half point range since lunch time between 1266.40 and 1267.90. The 50-week MA is 1267.79 and this is firm resistance today spanking down price at lunch time and also at about 12:45 PM.

Note Added 12/27/11 at 2:06 PM:  The SPX punched up thru the 50-week MA again at 1267.81 at 1:48 PM so price launched from there.  Here comes the back test, SPX drifting back down.  Watch to see if the SPX bounces here or collapses back thru 1267.81.

Note Added 12/27/11 at 2:40 PM:  The 50-week MA at 1267.79 would not hold, price collapsed thru. SPX now jumping again and coming back up for another test of this moving average.  SOX is 369.95 continuing to support the market bulls. Nasdaq is leading the SPX on the upside so this further supports the bull case. SPX now printing 1267.85, the fight for the 50-week MA continues.

Note Added 12/27/11 at 3:44 PM:  SOX failure at 3:37 PM, giving up 368.60 so market weakness is expected. SPX loses the 50-week MA and loses 1267 support. Look for a test of the 1265.42/1265.33 support again. Last print 1266.23.....

Note Added 12/27/11 at 3:47 PM:  SOX now back kissing the 368.60......it will take the markets with it whichever way it breaks now.

Note Added 12/27/11 at 3:50 PM:  SOX printing 368.44....368.51....368.59.....it's deciding.......368.52......

Note Added 12/27/11 at 3:56 PM:  SOX printing 368.48....it's slipping.....368.45.......368.38......368.35......it does not appear to have the energy to overtake 368.60 so the indexes should weaken the last few minutes. The SOX finish in relation to 368.60 is key and separates bullish markets from bearish markets. There it is.....SOX 368.28....failure.....368.16.

Note Added 12/27/11 at 6:24 PM:  SOX closed at 368.01, what a wild ride it had today but ending the day firmly in the bear camp wanting to place a drag on the broad markets moving forward.  The SPX closed at 1265.43.  The 1265.42/1265.33 support held, by a penny, which is a small feather in the bull cap but the SOX position is much more important and will create further broad market weakness, as long as, and you know the mantra by now, as long as the SOX stays under 368.60. Above that and markets will run higher as today's action clearly showed.

Keystone's SPX 150-Day MA Slope Secular Indicator

Keystone's SPX 150-day MA slope indicator must be monitored extremely closely over the coming days.  The markets were in a secular bull pattern into the end of July, then, as the blue circle shows, the slope of the 150-day moving average went negative indicating that the broad markets fell into a secular bear pattern.  The August crash followed. The secular bears have been in undelying control of the secular picture of the markets ever since. But, note the blue circle now, the 150-day MA slope is flattening slightly. Will it turn positive again? If the slope turns positive it is an uber bullish market signal.  This indicator should be monitored along with Keystone's SPX 12-month MA cross, and the NYA 40-week MA cross, both of which are in the same boat, very close to flipping from a secular bear signal to a secular bull, but not yet.

The 150-day MA numbers for the last five days are 1239.24, 1238.58, 1237.92, 1237.39 and 1237.04. If we subtract to find the differences between each move, we see 66 cents difference, then a drop of 66 cents again, then on the next day a drop of 53 cents, then Thursay to Friday, a drop of only 35 pennies. As long as the 150-day MA continues to slope lower and numbers steadily print from 1237.04 lower as they are, the secular bear picture remains in place for the broad markets.  If the 150-day MA slope turns positive, for instance if today's print is 1237.05 or higher, that is a game-change for the equities markets as they shift into a secular bull market. As long as the slope remains negative, broad markets will continue to leak lower in the longer term picture.

Note the upward sloping channel for the SPX from August to present that provides further upside targets but price is finding difficulty in making higher highs. Note the green sideways triangle in play now.  For these patterns, price tends to break out in the area about two-thirds across the triangle (now) which results in a fake-out move, with price returning to the triangle then accelerating out the opposite side. This can occur in either direction.  Currently, price just broke out of the triangle to the upside. Watch for a back kiss to the 1240's where price will decide if it wants to return to the inside of the triangle and collapse out the bottom, or, the back test may be successful with price rebounding strongly and heading upwards. So lots of drama to watch moving forward.

Note Added 12/27/11 at 7:52 PM:  The 150-day MA print today is 1236.71, 33 cents lower than the Friday number. 33 cents is less than 35 cents, the previous interval, so the moving average line slope is flattening.  Check the SPX 150-day MA each evening from here on out.

Note Added 12/30/11 at 6:01 AM:  The 150-day MA prints continue with 1236.71, 1236.23, and 1235.81 for Thursday, 12/29/11.  The 150-day MA slope continues downward, sloping negatively, so the market bears remain in secular control (weeks and months) of the markets.

European Bond Yields 12/27/11

As the U.S. equities markets prepare for trading today, the European bond yields show that Italy's 10-year yield is now back above 7%.  All is not well in the land of too big to bail.

10-Year Yields:
Greece 34.28%
Portugal 13.16%
Italy 7.08%
Spain 5.37%
Belgium 4.09%
France 2.99%
U.K. 2.04%
U.S. 2.01%
Germany 1.95%

France is under the 3% level which is postitive news. Italy, however, is overshadowing and the debt comng to market in early 2012 that will need refinanced is an ominous event. Italy and Spain are too big to fail, and too big to bail out. Note the flight of money to the perceived safety of Germany, reflected by the yield under 2% (prices move up as demand is strong which causes yields to move lower--price and yield move opposite). Futures markets will crank up within the half hour so soon we can get a gauge on U.S. equities markets to kick off the new week. Only four trading days remain in 2011.

SOX Semiconductors Weekly Chart Sideways Symmetrical Triangle

SOX, semiconductors, show a sideways symmetrical triangle that has to make a decision now, there is no more room to move inside the triangle. And no one has to wait long. SOX will decide at the opening bell in the morning. Keystoen's proprietary algo is fixated on SOX 368.60. As Friday's drama played out, the end of day print is none other than 368.60. This is significant since if the markets want to venture higher, they can only do it if the SOX now strengthens by moving above 368.60. If the market bears want to step in and spank the indexes down from this Santa Claus rally, they must push the SOX under 368.60 when the bell rings tomorrow morning. Whichever way the SOX goes, so goes the broad markets.

The vertical side of the sideways triangle is 80 or 90 points so whichever way price breaks it will want to move that amount of points in the direction it chooses. Upwards would target a matching price high at 460-470. Downwards would target 280-300. This is high drama. Even the 200 week MA is stone cold flat not tipping its preference for bull or bear. The 20 week under the 50 week is very bearish. Watch price versus the 20 week MA and also the RSI and stochastics 50% levels to provide clues on SOX direction which, in turn, will signify broad market direction. With this type of chart neither long or short is desired, there are better sector set ups to play (utes, retail, energy, etc..) as described on the site. The SOX 368.60 level is the top market item to watch at 9:30 AM tomorrow since it will dictate broad market direction.

SCC UltraShort Consumer Weekly Chart Oversold Falling Wedge Positive Divergence

Here's a quick look at an ongoing SCC chart which is a double retail inverse ETF. Remember we rode the green falling wedge pop to glory a month ago? Price pulled back again and the positive divergence is ready to bounce price again.  SCC is on the launch pad fueling up.  Sometimes they blow up on the launch pad, but typically, like in November, the launch is beautiful.

Projection is a nice positive divergence launch in SCC to occur now as the retail sector receives its negative divergence spank down. SCC is expected to move sideways to sideways up for the weeks and months to come.  The current levels may serve as a head for an inverted H&S that wil need a right shoulder as time ticks by. This information is for educational and entertainment purposes only.  Do not invest based on anythign you read or view here.  Consult your financial advisor before making any investment decision.

RTH Retail Weekly Chart Rising Wedge Overbot Negative Divergence

RTH retail sector showing another nasty set up. The late October negative divergence set-up was a great short as RTH received its spank down. And now, with firm negative divergence in place (blue lines), overbot conditions that will need to be remedied, and the ominous rising wedge, it is once again time for retail to receive its punishment.

The three busiest shopping days of the year are Black Friday (the day after Thanksgiving), the Saturday before Christmas and today, and the day after Christmas. All three are history until next year. Retail typically tops in December. And with this current chart set up, it is time to play Taps again. One sliver of bull hope is the 20 MA sneaking back above the 50 MA so monitor this closely. Also the RSI 50% level.

Projection is a negative divergence smack down to occur. Retail is topping and rolling over. Expect sideways to sideways lower prices for weeks and months to come. Inverses such as SZK, SCC and dangerous RETS, and shorting XRT, or shorting individual retail names are all possibilties moving forward. Due diligence is required. The smack down will probably be similar to November where RTH fell from 113 to 106 (-6%) within two weeks. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

SDP UltraShort Utilities Weekly Chart Oversold Falling Wedge Positive Divergence

SDP is a thinly-traded inverse ETF for the utilities so it moves up if the utes move down. Note the collapse shown by last weeks' red candle as the utilitites moved higher. The green wedge and positive divergence was highlighted as November began and the rocket launch followed as expected. Price has now returned lower forming the purple falling wedge and postive divergence so it is time for another launch. The MACD histogram has now joined the postive divergence party as well.

Lots of buyers entered in November as the utes received their negative divergence spank down as shown by the large volume candle. Thus, there are many holders of SDP now in the 34-38 zone. After the pop, some traders stuck around too long, forgetting to take their money at the window and gittin' out of Dodge while the gittin' was good. So when price comes back up, those traders, may be inclined to exit their positions between 34-36 so that serves as a handy initial target, then, after that, SDP would come back down again to continue to base, then another move up. Projection is for SDP to move sideways to sdieways up for the weeks and months to come as the utilities (UTIL, XLU) move sideways to sideways down.This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

UTIL Utilities Weekly Chart Overbot Rising Wedges Negative Divergence

The blue negative divergence resulted in a smack down as was forecasted in october; price dropped to the lower rail of the upward-sloping channel. Price then popped back up off the lower rail over the last month to punch out a higher high and touch the top rail of the channel again. This results in another rising wedge and negative divergence (red). This is a significant top forming. The momo was strong last week so that type of move will need to move across in a stutter step, M top type movement, and then roll over as the weeks and months tick by. For this near term red wedge, however, the spank down is needed now.

Note the buying volume for last weeks huge move was the least since late summer making the move unenthusiastic. For this last trading week of the year, the 440 level is critical. Market bulls will enjoy broad index buoyancy as long as price stays above 440. If 440 is lost, the broad markets will sell off. The 50-week MA represents where the broad markets would go into free fall, 428-430, but at 463 now, the utes are comfortably above the two danger levels (neon green lines) and this worry is not currently on the table. Things can change quickly, however.

Projection is for a pull back now due to the red negative divergence, then a continued topping action thru 440-470 with sideways to sideways lower prices moving forward. Would not be surprising to see this 465 area as the long-term high. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before making any investment decision.

Keystone's Key Events and Market Movers Week of 12/27/11

© 2011 The Keystone Speculator™. All Rights Reserved. No part of this document may be copied although links to this site are encouraged.

Keystone presents the following underlying market currents, sometimes subtle, sometimes turbulent, that move global markets in real time.  The key dates and times below typically correspond to market pivot points.

Summary for the New Trading Week Ahead:

Merry Christmas. Happy Hanukkah. Happy Holidays. Enjoy the eggnog today since the new trading week that begins on Tuesday will resume the high drama. The U.S. markets continue to be at the mercy of the European debt crisis.  The January soap opera forming is the coming S&P downgrade of France debt.  When the France downgrade occurs in January, markets will focus on whether it is a one or two notch downgrade.  Two notches would mean big trouble for global equities markets.

Continue watching the Italy, Spain and France 10-year yields to gauge the creeping contagion. Use the 7% level for Italy—which was violated in Friday’s trading, 6% for Spain and 3.3% level for France as signals of trouble. Use the German, U.K., and U.S. 10-year yields to determine where traders are seeking safety.

Continue to watch the asset relationship; euro higher=dollar lower=commodities higher=gold higher=U.S. equities higher=treasuries price lower and yields higher, or, the visa versa, euro down=dollar up=commodities down=gold down=U.S. equities down=treasuries price higher and yields lower.  The 10-year yield moved from the 1.8%’s last week back up and over 2%. This keeps the Disinflation wolf at bay.

For the new trading week, Tuesday starts off with Case-Shiller at 9 AM.  Housing numbers are important moving forward since this sector holds the fate of any recovery hopes.  As shown by the SRS chart on this site, the real estate sector does not look good for 2012, and the next leg down in house prices is likely.  Expect a market pivot point at 10 AM Tuesday when Consumer Confidence is released, one of Keystone’s key monthly numbers.

Oil inventories are important on Wednesday morning.  On Thursday, Jobless Claims will set the tone before the market opens.  Steady increments of data follow with Chicago PMI, Pending Home Sales, Natty Inventories and Kansas City Fed Manufacturing data. The year ends after Farm Prices are released at 3 PM Friday. The Friday closing print seals the 2011 year into the record books. EOM, EOQ4, EOY 2012. The monthly charts receive a new data point. The books can be closed out with some traders exclaiming “Good Year!” while others say “Good Riddance!”

Keystone’s Eclipse indicator targets this period, from now thru mid-January as having a high potential for a large market selloff.  A major Bradley turn date is Wednesday, 12/28/11, so a market trend change can occur any day this week. Sprinkle egg shells on the floor so you can walk softly thru these turbulent erratic markets.

The Q3 earnings season is now drawing to a close replaced with the confessional season where companies pre-announce any disappointments, attempting to lessen the negative blow. TXN and DD already warning.  Earnings season kicks off with AA on 1/10/11.  Keep an ear out for any companies guiding lower which would also indicate broad market weakness.  There are four trading days remaining in the year and the SPX is now slightly positive at 1265, 7 points above the 1258 starting number. A back kiss has not yet occurred for the 200-day MA at 1259. SPX 1281 is a game-changer for the markets and would place the bulls in complete control.

Key Dates and Times for the Week Ahead:

·         Monday, 12/26/11: U.S. equities markets are closed for the Christmas holiday. Markets remain at the mercy of Europe news moving forward.  Watch for a potential S&P downgrade of France debt which will wreak havoc on equities markets.  Watch the 10-year yields for Europe nations, especially the Italy 7% level—which was breached on Friday, Spain 6% level and France 3.3% level to gauge contagion.  Watch Germany, the U.K. and the U.S. 10-year yields in relation to each other to assess where global money is seeking safety.  Keystone’s Eclipse Indicator identifies this period now thru mid-January as having a high potential for a large market selloff. Earnings are now in the confessional season.

·         Tuesday, 12/27/11: Case-Shiller Housing Index 9 AM.  Consumer Confidence 10 AM. Richmond Fed Mfg Index and State Street Confidence Index at 10 AM.  Dallas Fed Mfg Survey 10:30 AM.  Earnings: CALM.

·         Wednesday, 12/28/11:  Mortgage Purchase Applications 7 AM. Oil Inventories 10:30 AM.  Today is a major Bradley turn date so watch for a market trend change at any time this week.

·         Thursday, 12/29/11: Jobless Claims 8:30 AM. Chicago PMI 9:45 AM. Pending Home Sales 10 AM.  Natty Inventories 10:30 AM. Kansas City Mfg Index 11 AM. Fed Balance Sheet and Money Supply 4:30 PM.

·         Friday, 12/30/11: Farm Prices 3 PM. EOM, EOQ4, EOY 2012.

·         Saturday, 12/31/11: New Years Eve.

·         Sunday, 1/1/12:  New Years Day.

·         Monday, 1/2/11:  U.S. equities markets are closed for the New Year’s holiday.

Key Dates and Times for the Month Ahead:

·         In January: S&P will downgrade France debt—will it be one or two notches?

·         Tuesday, 1/10/12: Q4 earnings begin with AA.

·         Thursday, 1/12/12: ECB Rate Decision and Press Conference—another quarter point cut or more aggressive?

·         Friday, 1/20/12:  E.U. Summit

·         Monday, 1/23/12:  Congress returns so negativity will likely creep into markets.

·         Tuesday and Wednesday, 1/24/12 and 1/25/12:  FOMC Rate Decision and Press Conference

Major Market Movers for the Weeks, Months and Years Ahead:

·         Earnings

·         Corporate Bankruptcies

·         Options Expiration (OpEx)

·         Quantitative Easing (QE3)

·         FOMC (Federal Open Market Committee) Rate Decisions and Policy

·         Rating Agency Downgrades

·         U.S. Presidential Election

·         Congress In or Out of Session

·         Europe Debt Crisis

·         ECB (European Central Bank) Rate Decisions and Policy

·         Ongoing Wars

·         Continuing Geopolitical Events and Protests

·         Occupy Wall Street Global Protests

·         State and Muni Crisis; Union Busting

·         College/Student Debt Bubble

·         China Property Bubble and China Contagion

·         PBOC (Peoples Bank of China) Rate Decisions and Policy

·         China New Premier Selection

·         Emerging Market Rate Decisions and Policy/Trade Wars

·         BOJ (Bank of Japan) Rate Decisions and Policy

·         Government Secured Enterprises (GSE’s) Impact

·         Oil Economic Impact

·         Mother Nature/Crop Reports/Energy Wars/Water Wars

·         World Population

·         Keystone’s Eclipse Selloff Areas

·         Bradley Turn Dates

·         Solar Flares, Sunspots, New and Full Moons

Details for the Major Market Movers:

·         Earnings:  Q3 earnings are in line with lowered expectations and were generally more positive than most traders expected but much of the guidance is weak. In addition, last week, ORCL was a disaster.  Also TXN and DD, and others, are now warning as the pre-announcement confessional season gets under way.  Q4 earnings season kicks off 1/10/12 with AA.

·         Corporate Bankruptcies: Keystone looks for a high number of company bankruptcies in 2012 and 2013. The politicians cannot make a difference; they only make the situation worse.  There is weak demand for products and services.  The deleveraging must continue and it will result in many companies going belly-up. This is a market negative over the intermediate and longer term.

·         Options Expiration (OpEx): Third Friday each month. Next is 1/20/12. Typically an up market move occurs from Tuesday thru Wednesday of OpEx week (1/17/12 to 1/18/12). Markets typically move opposite on the following Monday morning from the direction they closed on OpEx Friday.

·         Quantitative Easing (QE3):  Quantitative easing two (QE2) ended 6/30/11.  Tentative projection for QE3 announcement is January-February. Fed said that more quantitative easing is on the table on 10/20/11 and 10/21/11 which spiked the markets skyward. The Fed announced Operation Twist.  M2 money supply is increasing. Deflation must raise its ugly face before Bernanke is forced to announce QE3. Keystone’s Inflation Deflation Indicator is moving in and out of Disinflation.  Use the CRB as a general guide; under 300 is disinflationary; under 290 we are falling deeper into deflation; under 270 will probably prompt Bernanke to announce QE3.  A global quantitative easing program was initiated on 11/30/11 by the six largest central bankers; Fed, ECB, BOJ, BOE, SNB and Bank of Canada, but view the action as only a temporary liquidity bump to buy a short amount of time. Quantitative easing will bounce markets but any rally should peter out like QE1 and QE2; QE1 lasted 13 months and QE2 lasted 8 months.  QE3 future rally projection is 3 to 5 months?

·         FOMC (Federal Open Market Committee) Rate Decisions and Policy:  Next Meeting 1/24/12 and 1/25/12 with press conference.  Fed announced that the Zero Interest Rate Policy (ZIRP) will remain in place until mid-2013. Operation Twist is ongoing. Global intervention from 11/30/11 in progress.  QE3 announcement is anticipated for the January-February time frame. Deflation needs to occur first (watch the CRB as described above).

·         Rating Agency Downgrades: S&P downgraded U.S. debt from AAA to AA+ that accelerated the August 2011 crash.  Downgrade talk is a market negative and if any additional downgrade occurs for the U.S. from any of the three rating agencies, the equities markets will sell off large. The super committee failed at producing $1.2 trillion in cuts, so a U.S. downgrade has potential since the rating agencies actually wanted to see 3 to 4 trillion in cuts. S&P announced early December that they would not downgrade the U.S. again as yet. Continue to watch for European downgrades.  Portugal and Hungary are two recent downgrades. France and Germany were threatened with downgrades 12/5/11.  The consensus is that S&P will downgrade France in January, no one knows exactly what day, or if the downgrade will be one or two notches.  A two notch downgrade would likely initiate a global equities market selloff.  Watch Italy, Spain, France and Germany 10-year yields to gauge the potential contagion and current mood of the ongoing European debt saga.

·         U.S. Presidential Election: Third year of the Presidential Cycle should be strong for markets but this year proved to be an exception.  Four more days will decide if the indexes finish positive.  The huge stimulus programs over the last couple years likely diminished the effect of this seasonal indicator. Keystone will comment on the fourth year of the Presidential cycle with charts as time moves along so stay tuned. Perhaps a perfect storm exists for the rise of the independent candidate in 2012?

·         Congress In or Out of Session:  Market bullish when not in session, market bearish when in session. Congress is on break now until 1/23/12 thus, market bullish until the third week of January when the Congress will create market negativity again. The political bickering hurts the markets. Automatic budget cuts should occur in the future since the super committee could not agree to budget cuts. If Congress tries to walk back any cuts, this should result in a downgrade of debt and hurt equities markets.  Entitlement programs and tax reform must be modified to handle the debt problem but neither political party has the spine.  The American people complain, but none of them wants their existing entitlements decreased in any way, such as the 45 million Americans (1 in 8 citizens) that receive food stamps or the folks receiving lucrative corporate or union pensions while at the same time collecting Social Security benefits—to which they are entitled. Obviously, there is no easy solution—everyone needs to feel pain is the solution.

·         Europe Debt Crisis:  The Europe news flow is the main driver of the markets now.  The five little piggies (PIIGS) are Portugal, Ireland, Italy, Greece and Spain. Germany and France are in a difficult situation since they are the stronger economies and the potential exists for downgrades to their nations as the debt crisis is sorted out. The ECB 639 billion three-year loan program provides 1% loans and is providing short term relief for the crisis, kicking the can down the road, but, traders wonder why over 500 banks had to immediately access the program?  Merkel and Sarkozy, Merkozy, promise solutions but deadlines come and go.  For now, the three-year program is providing encouragement.  On Friday, 12/9/11, 26 of 27 Euro nations, sans U.K.  New governments are now forming in Greece and Italy.  Italy, Spain and France remain the major worries. Watch the 10-year yields closely to gauge contagion. Rating agencies have downgraded Italy, Spain, Portugal and Hungary’s debt.  Italy is the third largest debtor nation in the World, only trailing the U.S. and Japan.  Italy’s debts are now piling up quickly posing a major risk to the global economy. Italy faces more than $300 billion in refinancing in 2012. Italy has to repay 71 billion in debt in Q1 of 2012—within three months. Greece paper is probably worth 30 cents (the Merkozy plan targets a 50% haircut) on the dollar, Ireland 50 cents, Portugal 85 cents but no one knows for sure. The Spain and U.K. high unemployment for young people is a major concern, leading to riots.  Italy and Spain are too big to fail, too big to bail. Rich Uncle China may save the day with a fund for Europe but with the Chinese property bubble popping now, do not hold your breath, and the Chinese will worry about themselves, even though Europe is their biggest customer.   France downgrade is a major worry now and is set up as a January event; this could start a cascading market selloff so caution is warranted.    Watch the asset relationship; weaker euro=stronger dollar=weaker commodities=weaker U.S. equities, and visa versa.

·         ECB European Central Bank) Rate Decisions and Policy:  ECB next rate decision meeting 1/12/12.  Past decisions are 25 bip cut on 12/8/11 and 11/3/11 (Draghi’s first and second meetings are cuts reversing Trichet’s previous actions); no hike 10/6/11; no hike 8/4/11; 25 bip hike 7/7/11; no hike 6/9/11; no hike 5/5/11; 25 bip hike on 4/7/11 that began Trichet’s mistake this year, just like July 2008 when he raised at the peak in the commodities market, exactly the wrong time.  The euro buoyancy in 2011 was caused by Trichet’s hawkish talk, now that is reversing with Draghi as Europe falls into recession.  Euro down=dollar up=equities down.

·         Ongoing Wars: Libya, Iraq and Afghanistan. Wars and M.E. problems will always provide a bid underneath oil, gold and silver.  As tensions ease, the premium in price works itself out, as tensions escalate, premiums increase.

·         Continuing Geopolitical Events and Protests: Iran, Egypt, Syria, Saudi Arabia, Bahrain, Yemen, N. Korea and Russia:  Dollar bullish and equity bearish.  Tensions provide a premium to oil, gold and silver prices with news flow immediately impacting prices, such as the Arab Spring this year. The Iran nuclear issue escalates each day.  Bahrain is a worry since unrest will impact oil supply.  Yemen is important since it is a southern Saudi border. The Arab nations are meeting to address the mayhem in Syria where thousands have been killed. Russia is experiencing the start of a revolt against the Putin regime by citizens over alleged election fraud.  Russia may have blocked Internet freedom to tamp down news of the riots by hijacking Twitter accounts and closing down web sites. Iran, Syria, Yemen and now Russia are the major concerns. Bad news=higher oil, gold and silver prices, or, visa versa.

·         Occupy Wall Street Global Protests: The protests began in New York on 9/17/11.  New York police evicted protestors from Zucotti Park in November.  Protestor numbers are dwindling as the winter winds blow and the warm indoors are far too tempting. Each U.S. city is evicting protestors. The movement has no impact on equities markets.

·         State and Muni Crisis; Union Busting:  Muni’s should experience pain first.  Muni’s rely on State funds.  The new State fiscal budgets are underway.  State funding of local municipality projects will be impacted.  Muni and State layoffs increasing. Colleges relied on State funds and tuition increases are already hitting cash-strapped students. Lingering unemployment lessens government tax inflows. U.S. will probably see an increase in the cash society since folks will find ways to avoid higher taxes, hurting government coffers rather than helping.  Interestingly, Kenneth Langone, cofounder of HD, commented on 11/3/11 that the trucking industry cannot find drivers to fill jobs since, despite the current high unemployment; many are producing more income using government assistance in combination with working ‘under-the-table’ just as Keystone has been writing about the last few months. Multiple U.S. cities now experiencing budget fights and protests.  Harrisburg, Pennsylvania, went bankrupt recently.  Now add Jefferson County, Alabama, home of Birmingham to the bankruptcy list.  Governments are trying to reduce the burden of high union costs. On 11/8/11, Ohio voted in favor of the unions (teachers, firefighters, police, etc…) and against the Republicans trying to reduce costs. This decision places a feather in the union caps all across America. Judge Mary France just ruled that Harrisburg is not allowed to seek bankruptcy protection, more than likely setting the table for taxpayers to pick up the tab once again in communities all across America as government overspending collapses a shaky system. Watch to see if California financial decisions spook the country. California is the same as Greece already. State and Muni problems are a 2012 story. MUB daily and weekly charts were in negative divergence marking September 2011 as a significant price top for muni’s. Muni’s tumbled as expected but have since recovered once again.  View these current highs as another significant high most likely the highs for weeks, months, perhaps years to come (price will move lower). Meredith Whitney was correct with her negative call on muni’s from Fall 2010 into early 2011, and even up to summer 2011. The muni bulls were correct during 2011.  From this current top now moving forward, muni’s appear to have nothing but downside ahead.

·         College/Student Debt Bubble: Students graduate with large debt and no job. Law students accumulate nearly 100K in loans and many remain jobless. Universities build lavish facilities that are unnecessary for education. One poll cited 80% of college graduates moving back home to live with parents.  Student loan defaults have doubled since 2005. Two-thirds of students have $24K or more debt.  No effect near term but in the months forward the loan defaults will develop into a big problem. Young folks have no productive outlet for their youthful energy so riots, even Black Friday holiday shopping mayhem, increase as frustration grows. Now that State funding is being lost to colleges, tuition hikes are occurring, students now have to pay even more for an education that no longer leads to a well-paying job. The high college debt coupled with no jobs is a double whammy for the young folks. On 11/4/11 in Keystone’s home city of Pittsburgh, Pennsylvania, Vice President Biden touted the Obama Administration’s plan to reduce the maximum annual payment on federal student loans from 15% to 10% of discretionary income.

·         China Property Bubble and China Contagion:  China property prices are topping out—the bubble is popping.  On 12/1/11, China PMI is under 50% indicating ongoing economic contraction. House prices continue to fall.  This is extremely negative on global markets causing contagion in Asia and elsewhere. Chinese factories are now going bankrupt. There are signs of growth slowing, bad real estate loans and fraudulent accounting by companies.  Copper was used as collateral for some construction loans and serves as a proxy for China.  65 million homes are unoccupied in China; a glut of capacity of epic proportions. Europe is China’s major customer so the Euro woes will only accelerate China’s problems.  China has built uninhabited cities, such as Ordos, to fuel their explosive growth during this century. China growth rates are trailing off, there are only so many empty cities that you can build.  China’s goal is to urbanize 400 million people to city life by 2030-that is in excess of the entire population of the U.S. China officials admit that 8% growth is needed to simply maintain ‘social cohesion’ so watch this number closely in 2012. Keystone agrees with Jim Chanos’ view on China. Watch the copper price to gauge China moving forward.  China bubble pops=global markets down.

·         PBOC (Peoples Bank of China) Rate Decisions and Policy:  We are now one year along from the first rate hike in China in October 2010. First hike 25 bps 10/19/10; second hike 25 bps Christmas 12/25/10; third hike 25 bps China New Years on 2/8/11; fourth hike 25 bps 4/5/11; fifth hike 25 bips 7/7/11.  China said in 2010 that it will project about five hikes into June 2011.  Hikes have occurred October, December, February, April and now July for the fifth and final raise.  China raised reserve requirements on 11/30/11, in concert with the global liquidity intervention, so this is the first firm acknowledgement of an easing direction now in place for China.  The question is when does the first rate cut occur? Five reserve requirement raises are projected for 2012, China will try to delay lowering rates but they may be backed into a corner quickly in 2012 having to cut rates.

·         China New Premier Selection:  The new 5-year leader is chosen in 2012 (at the same time as the U.S. president) so major currency decisions should be avoided until then.  Will it be a smooth transition?

·         Emerging Market Rate Decisions and Policy/Trade Wars:  India, Brazil, Taiwan, South Korea most important. Same effects as China rate hikes; commodities will sell off.  China, India and Brazil are most important to global markets. Each emerging country lowering rates here forward will escalate trade wars. Brazil is lowering rates. India has downgraded growth forecasts.  India finally stopped raising rates, the last major country to do so. Now Asian countries will slash each other’s throats to the down side. Chairman Bernanke’s hot easy QE2 money pumped up emerging markets and commodities from August 2010 thru May 2011 creating new asset bubbles. India is now experiencing civil unrest as citizens demonstrate against corruption at all levels of government.  India directly supports one-third of the global gold market.  Watch India as a proxy for gold price. China consumes 40% or more of the world’s copper production. Watch China as a proxy for copper price.

·         BOJ (Bank of Japan) Rate Decisions and Policy:  BOJ initiated a new round of currency intervention 10/31/11.  The intervention bounced the dollar/yen (weaker yen) from 76 to 79 with price hanging around 78.0 now.  Effects from the Japan tsunami and nuclear disaster are subsiding.  In December, Japan lowered growth projections moving forward. Japan is defending the 76.5 dollar/yen level.  In March 2011, the BOJ and G7 performed a coordinated intervention to weaken the yen, moving dollar/yen from 76 to over 85 in less than three weeks.  In August 2011, BOJ acted alone which bounced the dollar/yen from 76 to over 80 in three days, but price retreated quickly.  BOJ participated with other central banks on 8/15/11 to support Europe. Dollar/yen up=dollar up=euro down=commodities down=equities down.

·         Government-Secured Enterprises (GSE’s) Impact: 10/1/11 was a deadline to extend the GSE limit of $730K, which came and went, so the limits have reverted back down to $625.5K, with a possible review to raise the limit again in the weeks ahead.  This action hurts folks dancing on the fine line in that price range.  The GSE’s back 9 of every 10 mortgages. In general, for all folks, down payments of 25% to 30% are now required.  In essence, the demand will be reduced, thus, the market will tighten and house prices will continue lower moving forward. Keystone’s proprietary algorithm shows that housing has already fallen back into a double dip as of mid-May 2011. This is deflationary behavior giving Chairman Bernanke many sleepless nights. Keystone considers real estate to be a key investment over the next year or two but prices have much lower to fall first. Low rates do not help the housing recovery since folks do not have jobs. If they do have a job, they may not have a good credit score.  If they do have a good credit score, then they cannot come up with the 25% and higher down payments.  Perhaps the washout in housing will occur in 2012-2014, which should provide the ideal time to buy property, a generational-type low.

·         Oil Economic Impact:   Oil effects gasoline price which in turn affects retail sales. OPEC, the SPR (Strategic Oil reserve) and hurricane season effect oil price. SPR oil release is no longer an issue as oil price has moderated due to lower global demand. Hurricane season is over until June 2012.  Brent Oil and WTIC (West Texas) oil prices are important. With global demand for goods and services slowing, the intermediate and longer term view leans towards lower oil prices, but oil traders will be quick to refute this, the majority are looking for oil to continue drifting higher. Once the China downturn occurs in more force, oil should follow lower.  Middle East is always a concern since 17% of the world’s oil supply goes thru the Strait of Hormuz. Folks are uptight on worries of Iran war games in the Strait but Iran itself downplayed this news. Oil price moves with the equities markets; up oil=up markets and visa versa, oil down=equities down.

·         Mother Nature/Crop Reports/Commodity Wars/Energy Wars/Water Wars: Droughts (in Texas and the Southern States), storms, floods (in the Midwest and Thailand), earthquakes, tsunami’s (Japan), volcanic ash (northern Europe), hurricane’s (Gulf) and the like. Mother Nature had a huge impact on food inflation over the last year. Food and oil are the most affected. As the crop reports improve, the premium to price comes back out. The global need for food, energy and  fresh water supplies will create regional conflicts and affect markets in the long term.

·         World Population:  World population crossed 7 billion on 10/31/11. The obvious affect on the markets is the need for food to feed these 7 billion mouths. Ag commodities show promise in a long term time frame s well as agricultural farmland.

·         Eclipse Selloff Target Areas: Allow plus or minus a week or two on each side of the following dates as potential areas of major market selloffs; 5/15/11 (large sell off occurred May-June); 7/15/11 (large sell off occurred 7/8 thru 7/18 then the crash the week of 8/1/11); 11/3/11 (SPX dropped from 1278 to 1158, 9.4%, from 11/8/11 to 11/25/11); 1/3/12 (watch mid December thru mid January). Note how the May, July and November targets were all spot on.  This technique targets the next potential large market selloff area to occur from mid-December thru mid-January which also coincides with a major Bradley turn area.

·         Bradley Turn Dates: 12/28/11 (major turn area; window is from 12/21/11 thru 1/4/12, especially 12/23/11 thru 12/30/11); 1/11/12. Typically allow a +/- 7 day window with actual turns usually occurring in closer to the actual date, say +/- 3 day window. Markets more than likely change their trends, if headed up, they reverse down, or if they have been moving down in the previous days, they reverse up.  Every now and then, however, the markets will melt up or down in an acceleration move of the current trend. Dates are courtesy of Donald Bradley, Peter Eliades and Arch Crawford; reference their web sites for additional information.

·         Solar Flares, Sunspots, Full and New Moons: Not something to directly and solely trade off of but you must be aware of their influence. An M9.3-class solar flare at sunspot 1261 occurred on 8/4/11—at the same time the stock market waterfall crash commenced. Projections are for the flares to increase in the years ahead. Solar flare activity tends to coincide with market selling events.  There are studies on full moon and new moon effects that will tout both sides of the coin. In Keystone’s non-scientific studies, full moons tend to be in line with buying and new moons tend to be in line with selling, but only about a 60% to 65% correlation; a slight advantage over a coin flip. Full moon on 10/11/11 resulted in a buoyant week for the markets. New moon was 10/26/11 and 10/25/11 was a large down day although two large up days occurred directly after.  Full moon on 11/10/11 resulted in large up move 11/10/11 and 11/11/11 although 11/9/11 was a large down day. The new moon 11/25/11 shows selling before and into 11/25/11. The full moon 12/10/11 shows strong bullish markets occurring on 12/9/11.  The markets moved up into the new moon on 12/24/11 which goes against the expected outcome.  The next full moon is Monday, 1/9/12.