Keystone's Morning Wake-up 4/20/12

Futures markets are buoyant this morning as earnings continue to beat for the most part.  Mr. Softy put traders in a good mood last evening and GE and Mickey D's results today keep the bullish party going. The earnings bar was lowered to provide easy targets for companies to beat, the bar is now laying on the floor, even Grandma Edna has no trouble walking over it. Weaker China economic news has the junkies (traders) anticipating more crack cocaine (lower triple R's, quantitative easing) which also helps buoy markets this morning.

Lots of drama yesterday with SOX and VIX, two key sectors of interest identified by Keystone's algorithm.  SOX moved up taking out the level of interest at 422.25 launching higher to almost hit 425, only to collapse about an hour later, printing a LOD with a 412 handle and closing at 415.  This places semiconductors firmly in the bear camp, influencing the broad indexes negatively, unless the SOX retakes 422.25.

There are four other key sectors to monitor today to determine broad market direction; VIX 19, UTIL 451.20, XLF 15.10 and RTH 40.94.  All are bullish now contributing to broad market positivity. The current print for VIX is under 19 while the other three are printing numbers above the levels of interest.  For the novice traders, do not be confused by volatility, simply realize that the VIX moves opposite to the markets.  Thus, lower volatility favors market bulls and higher volatilty favors bears. When VIX spikes to 30, or 40, or higher, that is an excellent indication of when to jump in on the long side, it identifies when the blood is in the streets.  For now, focus on the 19 level only, above and bears are happy, below and bulls are happy.

To place the above five sectors in context, and considering that the futures are green right now pointing towards a higher open, watch the SOX 422.25 level.  If the market bullishness can push SOX above 422.25, the up move does have street cred, and the bulls will make their way towards SPX 1400.  But if the SOX 422.25 level cannot be attained during the market pop this morning, the bulls got nothing.

For VIX, UTIL, XLF and RTH, watch the levels highlighed, if any one turns bearish, that will intiate a leg down in the broad markets, if two fail that will indicate serious market trouble ahead, and likely trigger Keybot the Quant, Keystone's proprietary algo, to the short side.

For the SPX starting at 1377, the bulls need to touch 1390.50 if they want to accelerate the upside and launch the move up to 1400.  This is 13 points higher so even though futures are green, that is a fomidable task for bulls.  If you see SOX 422.25 and SPX touch 1390.50, the bulls will be happy, dancing in the streets, pouring booze into the punch bowl and donning lamp shades on their heads ahead of the weekend.  If the market bounce this morning occurs without either of these two levels printing, the bulls got nothing and the opening pop will likely falter and roll over.  For the bears, they need to push lower to lose the 1370 handle to accelerate the market downside but obviously this will not happen at the open. A move thru 1371-1389 is sideways action with bulls and bears ageeing it was a long week and content with moving the markets sideways into the weekend.

The 8 MA crossed down thru the 34 MA yesterday on the SPX 30-minute chart about two hours into trading which signaled yesteday's weakness on tap.  The 8 MA remains under the 34 MA and does not yet show any upwards curl to hint at a stronger bull move.  The opening hour of trading today will likely set the tone.  Markets tend to be weaker in front of a new moon which occurs this evening.  For OpEx, the direction the markets move in today, mainly in the afternoon, is important since Monday's action tends to move the opposite way, so this is a consideration as the session closes out.  There is no economic data of interest today and most of the major earnings are already released.  Thus, markets will look to news events, perhaps Europe or China news wires, as the day proceeds.

At this writing, with futures higher, the dollar is weaker, euro higher, commodities such as copper, oil and gold higher, this is the ongoing asset relationship.  If the bears sell the opening market pop, that will manifest with the dollar strengthening, euro weaker, and commodities and equities weaker, the opposite movement of what the futures currently indicate.  The S&P's are up 0.47% right now while the Nasdaq futures are up 0.39%, thus, since tech is not leading, that hints that the opening pop will be sold. Keep an eye on AAPL, which is down a buck pre-market, since a red apple influences the Nasdaq negatively and if tech does not lead the broad markets upwards, the markets will head lower. Apple is the markets.  In a nutshell, to determine broad market direction today, watch SOX 422.25, VIX 19, UTIL 451.20, XLF 15.10 and RTH 40.94.  Also SPX 1390.50 and 1370. It's that simple.