Keystone's Evening Nightcap 2/28/12

Tomorrow is the leap day for the leap year.  The next two days of trading should prove quite dramatic. The LTRO2 news is the main event and it is only hours away tentatively on tap for 5 AM EST. Here's the playbill to keep track of the drama;

Wed; 5:00 AM EST; LTRO2 announcement
Wed; 7:00 AM EST; Mortgage Applications
Wed; 8:30 AM EST; GDP
Wed; 9:30 AM EST; Fed's Fisher speaks
Wed; 9:45 AM EST; Chicago PMI
Wed; 10:00 AM EST; Chairman Bernanke Testifies
Wed; 10:30 AM EST; Oil Inventories
Wed; 12:00 PM EST; Fed's Plosser speaks
Wed; 2:00 PM EST; Beige Book
Wed; 3:00 PM EST; Farm Prices
Wed; 4:00 PM EST; Monthly charts receive month-end prints
Thurs; (Overnight): China PMI and HSBC China PMI
Thurs; 4:00 AM EST and on; E.U. Summit begins
Thurs; 7:00 AM EST and on; Motor Vehicle Sales
Thurs; 8:00 AM EST; Fed's Pianalto speaks
Thurs; 8:30 AM EST; Jobless Claims and Personal Income and Spending data
Thurs; 10:00 AM EST; Construction Spending and ISM Manufacturing Index
Thurs; 10:30 AM EST; Natty Inventories
Thurs; 12:30 PM EST; Fed's Lockhart speaks

Oy vey!  Good ole Keystone better start taking some Excedrin to get ready, hopefully the ticker holds out. Perhaps the defibrillator should be placed on stand-by. This is a major market inflection point, melt-up versus collapse for markets. By noon Thursday the smoke will be clearing.  Farm Prices will impact the ag trade.  The ISM Mfg Index will greatly impact the energy markets and tickers such as XLE, ERX, ERY. Note the Fed heads out in force; they probably have contingency speeches ready so they can spin the news any way necessary.

The pundits and analysts have avoided making a market call in reference to the LTRO2 news.   Chickens.  Those brave enough are split with the outcomes. The consensus is about 500 billion (Bloomberg reporting 632 B) but it will not be a surprise to see a larger number. Markets probalby have the 500 bilion already priced in, we will know in a few hours.  Some pundits say a higher number will show that the economy is weaker than thought which would worry traders. Keystone says the markets have rallied on crack cocaine, so the more crack that is supplied, the more bull fuel is available, so a higher number should buoy the euro and the markets.  500 billion or lower and the markets should sell the news.

The Dow Industrials closed above 13K which has no meaning technically.  Of more import is that the SPX clsoed above the 2011 intraday high at 1370.58, thus the major indexes have all placed multi-year highs now, XLK, Nasdaq Composite, Nasdaq 100, Dow and now SPX. A big feather in the bull's cap. Keystone was surprised that the SPX highs were achieved, not that they were taken out, but that they were taken out without a substantial pull back first then a ride back up for markets to place the new highs. The move from mid-December is about 175 spoo points, from SPX 1200 to 1370's, 16 points per week for eleven straight weeks.  The power of money printing is truly impressive.  The RUT (Russell 2000 small caps), however, say not so fast bulls.  The small caps have not joined this party so watch RUT 860+ moving forward.

The left margin shows Keybot enjoying the bull run from mid-December, only pausing a couple weeks ago for the stutter step whipsaw fake out move. Keybot remains long and the bears can only breathe easy when the left margin shows the red short signal.  Keystone's top calling for shorter term trading, playing the short side in the indexes and sectors, continues to languish although the chart set-ups remain constructive for the bears. The next two days tell the story.

AAPL is the markets now. In this day and age, 2012, it is interesting to see that one single stock makes up such a vast majority of the markets, and is held by almost every money manager, fund and hedgie out there. The markets have a way of lulling many into a single position like that when one day everyone wakes up and looks around and realizes, typically all at the same time, that the boat is fully loaded to one side as the ship lists. Who would have thought that sophisticated markets could be so fully exposed to one single stock?  The recoil in Apple and the effect on the markets will be very dramatic. Oil was down today so we will see if the SPX follows since oil and the indexes move together, part of the asset relationship; lower dollar (due to global easing by central bank's) = higher euro = higher commodities, gold, silver, copper, oil, equities.

Gold and silver ran higher today as traders are front running the LTRO2 decision, expecting a weaker dollar and more commodity buoyancy. Silver was up over 4%.  The movement in oil, gold and silver is very interesting in reference to potential CME margin hikes.  Remember in 2011 how we would watch for the CME raises that resulted in spank downs of silver and gold?  The April 2011 silver spank down was brought on by the CME raising margin requirements.  Thus, keep the wax out of your ears and listen carefully for any margin requirement news moving forward.

Watch RTH 39 and XLF 14.40 for any signs of bearish strength.  The bulls remain comfortably above these danger levels.  The GS Wells Notice news may effect the financial sector negatively. Make no mistake that traders are complacent currently.  Despite any traders waxing worry and concern lately, the CPC prints 0.78 tonight, the bullish euphoria and lack of fear continues (this is a contrarian indicator). The low volatility where the VIX could not even close above 18 today also reinforces the complacency. The NYHL, although at high numbers, cannot regain the early February highs as yet, which is bearish. Keystone's SPX:VIX Ratio Indicator is 76 well above the danger level at 68 making bulls gleeful.  

For the SPX today, starting at 1372, the market bulls need only one point. If 1373 is pierced and held higher for several minutes, the bulls will launch another upside run.  Bears need a seven point drop to lose the 1365 handle to ignite bearish acceleration lower.  A move thru 1366-1372 is sideways action.

To keep it simple, watch SPX 1373, if taken out, SPX moves upwards to test 1377 R. Bears need to lose the 1365 level. Watch the dollar and euro reaction after the LTRO2 announcement.  Chairman Bernanke is taking a back seat to the LTRO2 news but listen for information on the end to the Operation Twist program in late summer and any blurbs concerning QE3. Enjoy the evening since the two-day battle begins in a few hours. Watch AAPL since as Apple goes, so goes the markets. The AAPL daily chart continues to highlight the 325-335 zone as a nice short entry due to the negative divergence now in place. The LTRO2 decision will be known about four hours before the open so set your alarm clock early to watch the theatrics unfold but guard your Cheerio's since something may be dumped in them before the open.