Keystone's Morning Wake Up 1/9/12

Traders are taking direction off the Merkozy meeting but as it draws to a close, the futures markets continue to stumble sideways.  The only economic data is the Consumer Creidt release late afteroon today.  AA kicks off earnings sesaon after the bell.  This sets up a tricky trading day and the flat futures show undecided markets.

Today's trade is important from the standpoint of the SPX 1273 level.  SPX starts at 1277. If 1273 is lost, the markets will likely beging a more sustainable selling period moving forward. Keystone's algorithm, Keybot the Quant (shown in the left margin), already wants to flip to the short side but the program needs to see some confirming price levels before locking in a move to the bear side.  If the SPX fails at 1273, and holds below, Keybot will likely flip short.  Conversely, if the market bulls can touch the 1282 handle, that will ignite a stronger upside market move.  A move thru 1275-1280 is sideways action.  The sideways range is a very tight five points so it is likely that price will make a decision to favor one direction or the other today. Thus, watch 1282 or 1273 to see who wins today.

The retail sector is ripe for a fall as described in this mornings charts; the hanging man candle is ominous. The utilities sector needs to be monitored closely.  This top-performing sector in 2011 has received a slap so far in 2012. When the utes lead the markets lower, the market down move is a much stronger and more sustainable move lower so keep watching UTIL.  Various levels of interest which gauge the bull-bear broad market direction are JJC 44.75 (now bearish), SOX 367.60 (now bullish), XLF 12.80 (now bullish), RTH 110.25 (now bullish), CRB 315.00 (now bearish) and SPX 12-month MA at 1280 (now bearish). Any moves across the levels shown for these sectors will correspondingly result in the broad markets moving in the same direction.

Utilities, consumer staples and telecom, such as VZ, were slapped down last week. The Dividend Stock Bubble must be monitored, MCD printed a hanging man candle like RTH on the weekly chart.  MO, KO, IBM, WMT, lots of blue chips were weak last week. Perhaps traders see the divvy bubble and are already jumping ship. Watch DVY, a dividend index fund ETF, to see if it continues to top and roll over.

The drama with SPX price fighting the 12-month MA may continue this week.  On Thursday, the SPX closed above the 12-month MA but on Friday, dropped back below.  Current print for the 12-month MA is 1280.06, worthy of writing on a crib sheet for continued reference this week. The three main problems are the European debt crisis, the China real estate bubble popping and the incompetence in Washington, D.C., none of which are resolved, to the contrary, they all appear to be worsening.

If you are bullish, you want to see the SPX overtake 1280.06 and then touch the 1282 handle to ignite a bull orgy today. If you are bearish, you want to see the SPX lose the 1273 handle, if so, the markets should tumble substantially lower. Keep your ears out for any further communique from the Merkozy meeting.