Keystone's Morning Wake Up 1/31/12 EOM

Today is the EOM so the print on the SPX monthly chart will be cast in concrete and with the index remaining above 1283, the secular bulls will wrestle back control of the markets from the secular bears. February will confirm this shift from the half-year secular bear market to a secular bull market, or not. The SPX 1283 number will remain key as February begins.

The market bears cannot gain any traction.  On both the Friday and Monday moves lower, the downside had no strength behind it since tech is not leading lower. Tech remains buoyant thus keeping the indexes buoyant. The short positions in the euro as the year began is helping to maintain the euro buoyancy as short sellers throw in the towel and have to buy back shares as the pain increases (short-covering rallies). The equities markets move with the euro.  The asset relationship, euro up=copper up=commodites up=gold up=dollar down, and visa versa, remains very much in place.

The UPS chart posted last evening shows that another of Keystone's secular signals turns bullish. This is not surprising considering the strong rally the last couple months. With the erratic nature of markets currently, the secular nature of the markets is less of a concern. Of more importance is the upcoming BOE and ECB rate decisions next week.  The ECB has to lower rates and weaken the euro due to the European recession so perhaps this market meandering will come to a decision point.

The markets are moving on vapor for volume.  The short-covering rally thru January is ending, the shorts that had to throw in the towel have already done so, the shorts destined to hold and add to their positions are remaining firm.  Thus, the markets need to see actual growth and positive economic developments moving forward to attract money into the markets to continue the upside, perhaps a formidable task.

The high gasoline prices are shocking lately and this sustained elevated oil price, as economies continue to struggle, will create serious damage moving forward. High gasoline prices cut into consumer spending since the weekly paycheck goes into the gas tank.  I am sure the European readers of this site, however, would be very happy to have the U.S. gasoline prices.

Case-Shiller will provide a gauge on the housing sector at 9 AM EST. Even the cab driver now tells everyone that the bottom is in for housing. (When the cab driver gives you investment advice, run!) In front of the 1929 crash, the shoe shine boy's told everyone you cannot go wrong with investing in the markets.  When the cab drivers, shoe shine boys, and even less experienced retail traders, form a consensus, it is typically the wrong one.

Consumer Conidence hits at 10 AM and this will create a market pivot point today. Thus, even with a joyous start to today's action, watch for a potential trend change at 10 AM.

Another interesting story today will be the commodities sector since Farm Prices hit in the afternoon and will effect the ag trade.  The market bears will create strength if the CRB drops under 310 today so this information, although typically a sleeper, may be pivotal. ADM earnings are released as well creating further ag sector drama today.

Watch UTIL 453, under is bear-friendly and over is bull-friendly.  Same-o with the SPX:VIX ratio 68 level.  The ratio sits just under 68 which is bear-friendly and forecasts a large down day on tap but with futures projecting about a 7 or 8 positive SPX point move at the open currently, the ratio will likely pop back above 68 nullifying the signal for a large down day. But, like putting off going to the dentist, you eventually have to face the music.  Thus, markets will remain bullish and buoyant as the ratio stays above 68 but once it drops under 68 again, and it will, that will signal market trouble.

The SPXA150R dropped under 80 yesterday which is market bearish. Check this after the close today to see if it remains under 80, or if it jumps back above, which would put the market bulls back in the drivers seat.

For the SPX today, starting at 1313, the market bulls only need three points higher, to move up and over 1316, and the upside will accelerate. At this writing, the futures are up enough to achieve this goal but there is a long time before the open and earnings releases will effect their development before the bell. Speicfically watch the 1316.16 number as the opening bell rings.  The market bears need to move under 1300.50 to accelerate the downside. A move thru 1302-1315 is sideways action.

To condense all this hot air into a succinct plan today, UTIL 453, SPX:VIX 68, CRB 310, and SPX 1316 and 1300.50 will determine broad market direction and the Consumer Confidence number at 10 AM is very important. AMZN earnings are after the bell and will provide insight into the retail sales strength during the holidays.  AMZN results will also determine if the tech strength continues to support the broad markets, or not.

The Fed releases the February schedule for Operation Twist purchases and sales today at 2 PM EST. China PMI occurs overnight and will greatly impact equities markets tomorrow morning.

Note Added 1/31/12 at 8:14 AM:  Futures show the S&P's up 0.50% while the Nasdaq is up 0.42%.  That's a change.  Tech, the Nasdaq, has led the broad markets skyward this month. Since the Nasdaq is not leading the upside currently, that hints that the upside move will be limited this morning. Pay attention to the Consumer Confidence data at 10 AM which serves as a potential pivot point.