Keystone's Morning Wake Up 2/23/12

Futures markets are active this morning, bouncing strongly when Germany's IFO was happier than expected a couple hours ago but now trailing lower after the E.U. projects slower growth ahead for the Euro zone.  HPQ laid an egg last evening with weaker guidance. This news comes on the heels of DELL's drag on the tech sector.  Tech led the broad market rally this year until last Friday, and now for three days in a row, tech has led the downside, although the market bears have not been able to take advantage of this shift in trend.

Technology traders typically exit positions in February since they milked the Q4 (best quarter for tech) profits for all their worth as the February winds blow. Thus, tech should not be the leader moving forward that it was to start the year and this should dampen the broad market upside.  The utilities and copper sectors are the two key sectors dictating market direction currently.  Continue watching UTIL 452.91 and JJC 48.  Yesterday, the utes crossed back and forth across the UTIL 452.91 line eight times. How does Keystone know these numbers to watch ahead of time?

The euro moved above 1.33 this morning. This buoyancy in the euro, at least in part due to the large short positions held, prevents the dollar from gaining any significant headway higher, thus, a weak relative dollar boosts commodities and copper and keeps the broad markets elevated. Of interest is that China says that lower growth estimates will be provided in a couple weeks. This should cause copper to drift lower even before China provides the actual projections tentatively scheduled for 3/5/12. China is in danger of serious social upheaval if the growth rate drops under 8%.

The quantitative easing around the globe is out of hand.  For QE to work, there must be only one or two countries following thru with these programs. As in currency trading, it is all about the relativeness of markets, the relationship of each individual market to another individual market.  The interesting question to ponder is that if the entire globe is easing including the ECB, BOE, BOJ, the Fed, China, and even emerging markets such as Brazil and India, will the whole boat rise and fall in sync without QE providing the major push that each individual country desires?  The U.S. eased in early 2009 with QE1 which launched markets out of the duldrums. China instituted easing as well in this period but other countries were happily continuing along with sustained growth.  The no-brainer now, spoken by analyst after analyst, is that the unprecedented QE ensures higher equities markets for as far and long as the eye can see. What do you think?  The fly in the ointment is that if every major nation is providing QE at the same time are the projected positive equity market affects overrated? The other worry is that QE causes asset bubbles, especially in commodities, and these always have sad endings. Lots of drama is ahead as winter flows to spring in the nothern hemisphere.

With unemployment and underemployment remaining high, and the housing market remaining in a funk, and banks not making loans, the economic malaise should continue.  But, sticking to the technicals, the SPX had punched up thru the 1363.61 closing high from 2011 but has yet to close above. For the SPX today starting at 1358, the market bears can develop strong downside acceleration if the SPX loses the 1355.50 level.  This 1355-ish level is also important since it is an H&S neck line as depicted in last evenings SPX 30-minute chart. Market bulls need to touch 1363 and that will surely shoot the index up thru the critical 1363.61 and send the SPX towards 1370-1371. A move thru 1357-1362 is sideways action.

Jobless Claims are a Thursday morning ritual so that will affect futures in a couple hours.  Also, at 10 AM EST, a market inflection point may occur with the FHFA Hoousing Index data.  Natty Inventories are 10:30 AM and Oil Inventories are 11 AM, delayed one-day because of the U.S. holiday on Monday. The odd ball 7-Year Note Auction hits at 1 PM so there is a regular pace of news occurring today.  Retail earnings are a large focus today both pre-market and after the bell, so monitor RTH and XRT closely, as well as the individual retail companies reporting earnings. Does gasoline finally take a bite out of retail speniding? Are the low-end consumers getting crushed by gasoine cost? Are the wealthy folks continuing to spend money without a care?

In a nutshell, to determine broad market direction, watch UTIL 452.91, JJC 48, SPX 1363/1355.50, the euro, the dollar, and technology to see if it leads the markets up or down today.  In addition, as AAPL goes, so goes the markets. If the bears begin to growl, watch SPX:VIX ratio, now at 75, to see if it drops under 68, when it does, a large market down day will result.  Watch volatilty, the VIX, that ended stone-cold flat yesterday, today it will have to commit to a direction; up VIX = down markets and down VIX = up markets.