Keystone's Morning Wake Up 1/6/12

Strike up the band, crank up the caliope, the monthly jobs circus is back in town.  Markets are flat ahead of the jobs data. The ADP data caused most analysts to raise estimates on the jobs numbers, however, last year the ADP printed a large number only for the jobs market to fall back to earth when the Fed's jobs report was released a couple days later.  Deja vu?

The SPX closing above the 12-month MA is a huge development. Today is critical to see if the SPX holds this 1280.33 level.  Market bulls will puff their chests out if the 12-month MA support is held since it will change the entire secular composure of the markets. The month-end print, however, does not occur until 1/31/12 so the SPX has lots of time to decide if it wants to change the secular outlook (currently the U.S. has been in a secular bear market for five months now) of the markets.

Analysts are talking now about how the euro relationship has broken down.  This is the asset relationship mentioned often here with euro down=dollar up=equities down, and, of course, visa versa, euro up=dollar down=equities up.  Keystone says do not be too quick to abandon this relationship. The relationship appears to be in tact, when the euro moves lower the dollar moves higher and markets move lower. Yesterday was an odd exception where the markets recovered but the euro was lower. This was probably more due to the housing rumor mentioned below. Looking at the charts, the aspect of the euro-dollar-SPX relationship that has adjusted is the magnitude of the moves in the relationship. What is happening is that the up moves in the euro, with the dollar lower, is resultinig in a much stronger up move in the SPX. Also, any large jumps in the dollar are not damaging the SPX as much as expected.  The relationship remains in place, the magnitudes of the moves are different.  Obviously, this has to be monitored closely especially in light of the SPX holding up yesterday despite the weaker euro and stronger dollar.

Keystone's algo remains long the markets as the left margin on this site shows. In the day, position and swing trades, Keystone is holding/adding CUR, ERY, RETS, SDS, SSG, SZK, TZA, UNG, DZZ and VXX.  Generally, short energy, short retail, short the indexes (which hedges the algo), short semi's, short gold, and long volatility. These are fast-moving, highly dangerous and speculative trades only for those willing to lose their money. Many are divergence set-ups that may come or go like the winter wind. By this afternoon, half of these trades may be exited. Short retail should be a more steady theme, however, in the days ahead. On a strong jobs number today most of these tickers will be beaten hard.

Keying in on the technicals for today, the semiconductors and financials led the broad market recovery yesterday. The $1 Trillion dollar housing plan rumor bounced the markets as traders smelled stimulus. The Fed's said that no such $1 Trillion dollar housing plan exists.  Watch SOX 367.85, RTH 110.25, JJC 44.75 and CRB 314.26.  For the SPX, starting at 1281, market bulls only need a couple points, to move up and over 1283 and the large block buyers will enter and an upside bull party will continue into the weekend. The market bears have to push down to 1265 to start the negative momo again, a formidable task, but the jobs report data will tell the tale in a couple hours. A move thru 1266-1280 is sideways action.

This information is for educational and entertainment purposes only. Do not invest based on anything you read here. Consult your financial advisor before making any investment decision.

Note Added 1/6/12 at 9:04 AM: GS and MS receiving downgrades today. BAC lower now that the government said there is no $1 Trillion housing plan.  AA cutting capacity, lower aluminum production also reduces natty usage. The Jobs Report is 200K jobs added with an 8.5% unemployment rate.  Funny how the Fed's hit the 2-0-0 right on the dot, isn't it.  The 2 handle had traders popping the corks on the wine bottles but as we approach the open, futures are indicating a flat to down open, so traders are frantically trying to reinsert the cork and wait for later.