Keystone's Morning Wake Up 2/14/12

Lots of drama with the UTIL 451.17 yesterday and that will continue today.  Last evening, Moody's downgraded Italy, Spain and Porutgal and placed France and the U.K. on notice that a future downgrade may occur.  Moody's is spoiling the Valentine's Day mood for bulls. Moody's is simply catching up with S&P and the news is no real surprise. The mentions of France and the U.K. were a surprise, however.  Futures are flat to slightly up.

AAPL achieved 500 yesterday, surprising Keystone since a year ago he thought that would not occur. Now, since the 480 level was achieved, a move to the 520's should occur. Even if a pull back for markets occur now, Apple should come back up again. Keystone would consider a short in AAPL, which is dangerous since shorting any momo stock is typically not a good idea, if price reaches the 525-535 zone.  Volatility, VIX, remained above 19 yesterday so see if that holds.

Commodities and copper are important since Asia was worried overnight that the downgrades and continued Euro woes will reduce growth projections. Thus CRB and JJC require close watching. GT just reported earnings with a miss.  Remember, from the weekend's Key Events missive, rubber is a very important economic indicator.  Higher rubber demand shows a need for more tires, large industrial tires, which means large earth-moving machinery is in demand, which is of course needed for infrastructure work such as roadways and commercial and residential construction.  Also, higher rubber demand means the tractor-trailer trucks hauling goods across the interstate's are rocking and rolling which means more shipping and a healthy robust economy.  Unfortunately, however, looks like Goodyear laid an egg.

Retail Sales is key and hits in about an hour.  Housing Starts are also very important on Thursday morning; these two characters are the most important economic data all week.  Keystone attempts to recall May 2006 accurately, and do not hold him to it, since the mind becomes foggy as the days pass, but the market pullback then developed from weak retail sales as a catalyst.  Perhaps history may rhyme in an hour? Keystone remains negative on the retail sector and is currently holding/adding short positions against the retail sector, enduring some recent pain as the great American consumer continued to spend money they do not have.  Overhyping this retail number is not possible, the data may drastically change the tenor of the markets so grab a cup of coffee and stay tuned.

Watch UTIL 451.17, CRB 311.20, JJC 48 and VIX 25. Utes favor bears now, as seen in yesterday's action, but the commodities, copper and lower volatilty all remain bull-friendly.  Thus, if you are gun-ho market bullish, you need to see UTIL jump up and over 451.17, if so, proceed in throwing confetti. The market bears want UTIL to stay under 451.17 and either the CRB or JJC to drop under the levels shown, or for VIX to move above 25, if so, the bears will throw confetti.

For today, for the SPX starting at 1352, the market bulls need a point and one-half, 1353.50, to ignite another accelerated bull run higher.  The market bears need to lose the 1343 handle and the downside will accelerate.  A move thru 1344-1352 is sideways action.

Several data tidbits occur with NFIB Small Biz Optimism data hitting any minute, Import-Export Prices, the diesel fuel indicator, and the Business Inventories are on tap this morning as well.  Fed's Plosser will also talk before the open.  The markets are waiting for a catalyst and we find out shortly if Retail Sales provides that catalyst, up or down. If selling occurs today, watch Keystone's SPX:VIX ratio,if it loses the 68 level, a large down day will occur today for markets, the Dow Industrials will drop triple digits. If the ratio remains above 68, the bulls remain in control of the markets.

On the light-hearted side before the serious trading begins today, and realizing from this blog that Keystone follows the socioeconomic and more esoteric indicators, Kate Upton, an American, will appear on this year's Sports Illustrated magazine cover.  Typically, the markets have a successful year with returns above average, if an American is on the cover, and markets tend to be weak and negative if a non-Ameican is on the cover.  Last year, Irina Shayk graced the cover, a beautiful long-legged Russian, and alas, the indicator worked. Remember, take a grain of salt with the esoteric indicators.

Note Added 2/14/12 at 8:35 AM: Retail data is weaker than expected and last months revision is down. Futures immediately drop but not significantly. The bears appear to have at least stopped the bulls hopes of upside acceleration after the open today. Monitor the asset relationship; euro down=dollar up=commodites down=copper down=gold down=equities down=Treasury prices up yields down.

Note Added 2/14/12 at 8:54 AM: The S&P futures are down 0.33% while the Nasdaq futures are down 0.20%, thus, tech does not lead the weak futures, hence, the downside move should be muted.  Apple is up pre-market and this one stock is single-handedly supporting the tech sector and Nasdaq indexes, and thus the broad markets. As AAPL goes, so goes the markets. Bears need a red Apple, bulls want a green Apple, perhaps both will end up with a rotten apple.