Keystone's Evening Nightcap 3/14/12

The Ides of March are upon us, poor ole Julius Caesar met his end in 44 B.C. Will the broad indexes meet their end, or is everyone, even the cab driver and shoe shine boy, now reserved to the idea that markets go up forever and trees grow to the sky? If someone would have told good ole Keystone years ago that in the year 2012, especially after navigating thru the tumultuous 2008 and 2009 period, that the U.S. markets would be entirely supported by one single stock (AAPL), Keystone would have told you to get your head examined. But here we are, in 2012, where one single stock controls the destiny of the U.S. equities markets.

Tech is expected to have a robust Q4 each year, that is its strong quarter seasonality-wise.  Thus, the traders remaining in tech as the new year began were rewarded, the expected bullishness rolled over from Q4 into Q1.  The kicker for the tech sector was the robust Apple earnings in mid-January that catapulted markets higher ever since. All parabolic moves end with a downward move as drastic as the upward move. These type of high speculation trades are typically reserved for the commdities markets but now the most important stock, that is holding the markets up, AAPL, is in a parabolic blow off top, the ugly side set to begin at anytime. As AAPL goes, so goes the markets. We have only seen the happy side the last couple months; Apple now up about 22 of the last 28 trading days, that is an up day every five or six days out of seven. How will traders react when AAPL moves down about five out of every seven trading days?

AAPL negative divergence remains on the daily chart, the spike higher has no technical juice to reinforce the move. The projection would be sharp down now, then back up to current highs again, then sharp back down for extended move lower.  At 590, however, Keystone's 80/20 rule says that 620 is on the table at some point in the future now that a close above 580 occurred.  Perhaps a move from here, at 590, down to 550, back up to 620, then down. This momo AAPL stock has to be watched hour to hour and will obviously tell the markets story moving forward.

Utilities were very weak today. Watch UTIL 444 Thursday and Friday, now at 454, if the 444 fails, the broad indexes will be in trouble.  The asset relationship returned to the dollar up = euro down = commodities down = gold down = oil down = copper down = equities down (SPX)  relationship today so perhaps that dollar up equities up stuff for the last few days was a blip afterall. Thus, watch commodities and copper, CRB 313 and JJC 48.75. If either level fails, the bears will be seizing control. If the levels do not fail, the bulls will continue to party, enjoying another slice of apple pie.

For the SPX for Thursday, starting at 1394, the market bulls only need to touch the Holy Grail 1400 and an upside acceleration will occur.  Bulls fell 58 cents short today.  The market bears need to move under the 1390 handle, if so, their day in the sun begins with a downside acceleration in the markets occurring.  A move thru 1391-1399 is sideways behavior. Seasonality factors say that this OpEx week in March is up about 80% of the time, thus, a 23 points buffer is built up by the SPX with two days remaining. So keep in mind, the SPX could drop 22 points and still be up on the week verifying the expected seasonality.

In a nutshell, for the Thursday trade, UTIL 444, CRB 313, JJC 48.75 and SPX 1400/1390 will dictate broad market direction. Of course watch AAPL, which is Atlas, holding up the entire markets. The move lower should prove quite dramatic. Watch the dollar, if the expected asset relationship is back in sync, another move up in the dollar will result with CRB and JJC testing the levels mentioned.

If your name is Caesar, or if you have a friend named Brutus, maintain a low profile on Thursday.