Keystone's Evening Nightcap 4/18/12

Markets stumbled sideways today as the final bets were placed ahead of the key event for the week, the Spain bond auctions tomorrow morning.  The Spain, and France auctions should go off in the 4 AM or 5 AM EST time so the east coast traders will rise with the chickens tomorrow while the west coast traders will stay up late to keep track of the action. The Spain 10-year is the important auction since it gauges the interest that investors have over the longer term, ten years, as compared to shorter duration notes, in essence a vote of confidence, or not, for Spain. The futures markets will react on the news.  A stronger dollar should result in a weaker euro, and weaker commodities, copper, gold and equities.  A weaker dollar should result in a stronger euro, and stronger commodities, copper, gold and equities.

Jobless Claims at 8:30 AM are important in light of recent weakness with jobs data. A higher than expected claims number will negatively impact futures. Philly Fed, Leading Indicators and Existing Home Sales are at 10 AM which create a market pivot point.  Natty Inventories hit at 10:30 AM which will maintain the ongoing natty drama.  Lots of earnings are on tap as well so the plate is full for Thursday and it all starts with Europe. The BAC and MS earnings occur at about 7 AM EST and will affect the financials, XLF.

Technically, watch VIX 19.0, now bullish at 18.64. Watch SOX 422.00, now bearish at 419.51. Watch XLF 15.10, now bullish at 15.34. These three sectors will dictate broad market direction for Thursday. For the SPX, starting at 1385, the bulls need six points, to push upwards and touch 1391, if so, the upside will accelerate.  The bears need only two points, to push downwards under 1383 and the downside will accelerate. The fate of the markets will likely be decided by Europe pre-market. A move thru 1384-1390 is sideways action but considering the hype and build-up to the auctions only hours away, a winner and loser should appear.  SPX sits in between the 20-day MA at 1394.07 and 50-day MA at 1378.33.  If the reaction to the European auctions is strong, watch this bracket formed by the 20 and 50 since any move outside the bracket provides that direction with street cred and forecasts a continued move in that direction.

Note Added 4/19/12 at 7:25 AM:  BAC and MS report blow-out earnings well above estimates and the stocks are running up pre-market (MS up 6.4%). This, should it continue into the open, will boost the XLF keeping it in bull territory and adding broad market buoyancy. U.S. futures remain strong although there is leakage occurring as time slips by.  Jobless Claims are next at 8:30 AM.

Note Added 4/19/12 at 7:32 AM: Something is rotten under the surface with U.S. futures dropping sharply lower; the S&P's dropped down to flat and are now up a couple handles. Very odd considering the bullish bank earnings minutes ago. The trouble may be in Europe.

Note Added 4/19/12 at 8:02 AM:  The trouble was news that hit trading floors concerning an article referencing a potential future downgrade of France by Moody's. Traders became spooked causing the sellloff in futures, as well as European markets dropping. Spain 10-year yield shoots up to 5.91%. Futures moderate as traders realize the France downgrade would not be imminent but rather something that may occur down the road.

Note Added 4/19/12 at 8:41 AM:  Jobless Claims dissapoint. Futures trail lower with the S&P's turning negative. Over the last four hours we watched the spoo's fall 10 handles. The German banks are in conflict with the ECB on the path forward in Europe which is also negatively impacting markets.