Keystone's Evening Nightcap 2/29/12

The move thru this turbulent two-day trading period laid out last evening continues.  The bearish move down after the open today did not perform any market damage. The SPX could not hold the sub 1365 level which would have ushered in stronger selling, so the bears did not have the downside juice.  The catalyst today was when Chairman Bernanke did not mention QE3, while at the same time, the markets discovered that LTRO2 was priced into the markets and the ECB did not make any mention of LTRO3.  Yes, LTRO3, the ECB does not have the funds that is why it was not mentioned.  The LTRO2 can still supply market juice moving forward, a few days time will be needed to note the effects on markets.

Chairman Bernanke's words sent the dollar higher with gold and silver markets selling off strongly.  The Nasdaq actually punched thru the 3000 level before falling on its sword.  The month ends today, on the leap day, and the markets experience their best February since 1998. AAPL is the markets and the markets are AAPL. Apple managed to punch out further highs in the 540's but the charts continue to forecast a spank down at the door step, perhaps for Thursday's trade.

The big news minutes ago is the China PMI, coming in at 51.0, better than last months 50.5, and above 50 indicates an expanding economy, albeit by a hair.  On the surface, this will benefit the commodities trade and weaken the dollar but the question is how much, since the number is not exactly anything that requires a big party. More importantly, the HSBC China PMI, which is considered to be more reliable (in other words the China PMI is likely fudged data--they learned that off the U.S. Fed, but at least the HSBC data is likely a little less fudged than the main China PMI number; is not this a sad commentary? It is what it is.).  More simply, the HSBC number should hit in a couple hours so listen up, and pay attention to that number to determine potential effects on the dollar, commodities, gold, silver, copper, and obviously, the broad markets.

We continue thru this Wednesday-Thursday gauntlet area with the HSBC number imminent, and the E.U. Summit begins tomorrow, Euro leaders will be looking for their jelly donuts and orange juice in a few short hours. Here is the schedule into noon tomorrow when the smoke will start to clear and we can see how the broad markets start to line out, exiting the gauntlet;

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

Use volatility, VIX, as a gauge for broad market direction tomorrow. VIX is on top of the 20-day MA at 18.42, thus, above 18.42 and moving higher will cause the bears to rejoice. The VIX, however, will not cause any significant bear damage unless the 23 and higher level is achieved. If 18.42 is lost, then the bulls will be wrestling back control of the broad markets. If the VIX drops back under 18, the bulls are pouring booze back into the punch bowl because the upside party is ramping up again.

Watch CRB 313, now at 321, about 8 points higher.  Remember when we watched this a week or two ago and then it took off to the upside to signal one of the market bull legs higher? It's time to watch it again to see if it drops down into the bear camp again, or not.  The dollar behavior is very important; dollar up = CRB down. As mentioned above, the HSBC China PMI number is important as well and will directly impact the CRB.

For the SPX for Thursday, starting at 1365, the market bears have an easier road to hoe, only needing less than two points lower, to drop the SPX under the 1364 handle, and the market downside selling will accelerate. The SPX 10-day MA at 1362-ish would likely fail quickly as well and then the bears can show what they are made of.  The bulls will not give up easy and need to retrace the Wednesday intraday drop, to touch the 1378 handle, if so, the bulls will regain control of the broad markets.  A move thru 1366-1377 is sideways action.

In a nutshell, HSBC China PMI is imminent and will set the tone for tomorrow's trade, listen for news from the E.U. Summit as well. Jobless Claims, Personal Income and Spending, Construction Spending and the ISM Manufacturing Index are all important data points tomorrow.  The ISM will greatly impact the energy markets. Watch VIX 18.42, SPX 1364, and CRB 313 to determine broad market direction.

Note Added 3/1/12 at 5:47 AM: The HSBC China PMI comes in under 50, signaling manufacturing weakness for about the last five months. This number carries more weight than the China PMI, note how China is keeping the data above 50 while the more pertinent HSBC data continues to print under 50 indicating economic contraction.  Copper is up only two pennies indicating that traders are taking direction off the HSBC number.  Also, the media outlets are not highlighting the HSBC number which tells you that a happier face is trying to be painted by stressing the China PMI number and pushing the HSBC number onto the back pages. The commodity reaction is very subdued, thus, the market bears are keeping their claws dug into the markets. The data on tap this morning is very important and a market pivot point is likely at 10 AM. In additon, traders have ears raised hoping to hear Chairman Bernanke whisper sweet QE3 words. If Bernanke doubles down, and does not mention, or at least down plays, the use of QE3 moving forward, the broad markets should tumble lower.  An exciting morning is on tap, especially the first hour or two of trading.