Keystone's Evening Nightcap 1/11/12

The uber bullishness is rampant with giddy traders tripping over each other to buy stocks.  The rose-colored glasses and confetti are obvously flying off the shelves.  Tomorrow, the Retail Sales data will tell us what actually did fly off the shelves.  This is critical data since the RTH charts are in negative divergence looking for a catalyst for price to collapse off the cliff, tomorrow we see if it arrives.  Thursday is setting up to be an insane day. The craziness will begin early with the European bond auctions and ECB rate decision and press conference. The decision to cut another quarter point, or not, will effect the euro, and help gauge how the ECB views the Euro economy, and in turn impact the broad equities markets.  China will release inflation data that will directly effect the copper trade over the last couple days which will impact the broad markets.

Jobless Claims will also hit at 8:30 AM with Retail Sales.  Business Inventories are a market pivot point at 10 AM, then Natty Inventories 10:30 AM.  With the collapse of natty gas pricing today Keystone cannot remember a more important natty inventory number than tomorrow.  Keystone still likes natty moving forward. At least the short energy positions, such as ERY, are hedged against the natty drop today.  The 30-Year Bond Auction occurs at 1 PM then the Treasury Budget at 2 PM. That is a ridiculous amount of drama on tap for tomorrow. Where are those heart pills?

For today's action, the SPX 150-day MA slope indicator went one penny in the secular bears favor again today, watch this closely since it will provide great insight into which side is winning the overall fight, bull or bear.  The SPX closed under the October high number at 1292.66 for two days in a row. This is not positive for the market bulls, it shows that despite the market buoyancy, there is really not a lot of strength underlying this market move higher, it is built on sand.  The high today fell short of 1294 and this did not even come close to the prior days high above 1296. This behavior also shows a lack of conviction or strength.

As if the drama on tap tomorrow is not enough, the impending France downgrade is also hanging over everyone's heads. Friday night would be a logical time for the S&P rating agency to release the news but they typically provide 24 or 48 hours notice to, in this case, the France governement, of the impending downgrade/s. Thus, traders will sniff it out, so the markets will probably react before the news is official.

The BPSPX bullish percent chart is now over 72, above the critical 70% level.  It remains on a bullish buy signal since late November. The TRIN spent much of the day between 0.65 and 0.85, very bullish. This was an early tell that the bears did not have much down side juice. The Nasdaq did not lead the markets to the down side today so that limited the selling. The CPC put/call is 0.79 indicating that the bulls are complacent, with no fear or worries, typically the time a market top occurs or is in progress.

Lots of folks are getting all bulled up about the housing sector. Keystone says most of this is the typical spring time hype.  Love, and house-hunting, blossoms in the spring, enthusiasm abound.  The problem is that we remain in winter adn not in spring, despite the mild weather, and the cold winds will blow across the long trades in this sector.  The housing sector bounce should be short-lived.  Keystone's work shows the housing market fell into a double-dip in May 2011, and remains there.  Traders buying HD, LOW, MAS, builders and so forth will most likely regret it.  Treat any of these positioins as trades only.  Some have momo moves so they will move sideways before rolling over but the housing sector is not attractive.

There is one 'housing-associated' chart, however, with beautiful positive divergence, on weekly and daily charts, and falling wedge patterns, as well as oversold conditions, indicating that price is on the launch pad and ready for the rocket ride skyward, and, that ticker is SRS.  Interestingly, SRS is the inverse real estate ETF, thus, the best chart in the housing sector, is the one voting against it.  SRS is very attractive at the current level, price is on the launchpad.

Seasonality-wise, markets tend to be buoyant the two days in front of a three day holiday weekend so today and tomorrow should favor the bulls.  Take this with a grain of salt since the markets have already enjoyed steady buouyancy this whole year long thus far. Also, the parade of data and events described above place the seasonality factors way down the list.

The retail sector is hugely important tomorrow, watch RTH and XRT.  The MA and V charts are sick bearish charts, further bolstering the case for a tumble in retail.  The China inflation data is key due to its effects on copper, and the JJC, which will impact the markets.  Watch CRB 313.20, it is only pennies above on the bullish side now.  For the SPX, starting at 1292, if the market bulls can push above 1293.80, pull out the party favors, the bulls will experience another upside acceleration in the broad markets. The market bears need to push down to 1285.50, if so, the broad indexes will sell off more strongly, and the SPX should drop to test 1281 in quick order.  The SPX 1281 level is key (SPX 12-month MA) and if lost would usher in much more serious market trouble. A move thru 1286-1292 is sideways action.

Time for rest, Thursday will be a circus and it will begin early, when the rooster crows.