Keystone's Morning Wake Up 1/3/12 -- First Day of Trading 2012

When the futures opened at 6 AM EST, the indexes went thru the roof.  So the new money is going to try to pump the markets for a joyous start.  The S&P is set to jump about 20 points if the futures remain at current levels.  The new year begins with the utilities, retail, financials and lower volatility supporting the bull case.  The weak commodities, copper especially, and as of last week, semiconductors, are helping the market bears.

On this first day of trading, semi's, financials and retail, SOX, XLF and RTH, respectively, require close watching.  Semi's are bearish now with financials and retail bullish, and their positions push the markets in the same respective direction.  Since the bulls will run the indexes higher initially, watch SOX 368.60. If the SOX moves above, then the bull rally will be real today and the year will start with a big party all day long.  If SOX does not move above 368.60, then any up move at the open will be suspect and the air will leak out of the bull balloon.  This number is calculated by Keystone's algo and will have to be verified after the open. Watch RTH 110.25 and XLF 12.80 levels as well. Both are bullish currently helping keep the broad markets buoyant and will continue to do so unless these levels fail.

The ISM hits at 10 AM.  Typically, the energy markets tend to sell off after the number occurs on the first of each month.  Watch XLE today and tomorrow to see how it shakes out.  Oil and gas companies are worth watching as well.  Keystone likes the short side of enegy for a quickie trade now.

Construction Spending is at 10 AM as well and this provides insight into employment.  Jobs will be a major focus this week especially as the jobs circus cranks up tomorrow with the Challenger report and then parades into Friday morning. 10 AM serves as a potential market pivot point so any positive open may reverse.  Likewise, at 2 PM upon release of the FOMC Minutes so 10 AM and 2 PM are key times today.

To start the year, Keystone likes CUR, ERY, NAT, RIG, RIMM, SDP, SZK, UNG. Quite an eclectic mix. CUR is a little spec stock with positive divergence. ERY is a triple X dangerous ETF that shorts energy, so the action following the ISM data will be interesting.  NAT is a shipper with a nice positive divergence chart set-up.  Same RIG. Same RIMM and now there is rumor talk on a buyout at some point. SDP is an inverse of the utilities sector so it will be interesting to see if the utes are topping currently. Similarly, SZK is an inversze ETF shorting the retail sector.  The RTH chart is prime for a smack down reversal from negative divergence.  A nice pop in the equities markets this morning should provide nice exits for any current longs and nice entries to bring on short plays.  UNG is the ETF that is long natty gas.  UNG has stumbled lower over the last couple months. Natty gas dropped under three bucks. Keystone has natty gas targeted as the largest commodity mover for 2012, so natural gas price, $NATGAS, will be fun to watch all year.  Any ETF, however, are all only short-term quickie trades, nothing that should be held a long time. For the smoothest path thru the trading year, on more of a short to intermediate term basis, days and weeks, Keystone's algorithm, as shown in the left margin, remains long the broad markets and bullish from SPX 1240.

For the SPX, starting the year at 1258, the same starting number as 2011, the bears had the wind at their backs only needing pennies of downside to initiate accelerated selling, but, the futures do not want that to happen.  The market bulls need to move six points higher to touch the 1264 handle, which appears on tap for the open, so the market up move will accelerate several more handles. Reference the previous post for the support and resistance levels to watch.  SPX resistance above is 1270, 1272, 1275, 1275.57 (10-month MA), 1277, 1278, 1280, 1280.76 (12-month MA), 1282, and 1285.

SPX 1281 is a game-changer since the 12-month MA is one of Keystone's Secular signals (see previous post with chart). If the market bulls move the SPX above 1281, the entire complexion of the markets change immediately and the market bulls would have reason to celebrate.  If the SPX remains under 1281, the market bears remain in full control of the markets on a long-term, secular, basis.