Keystone's Midday Market Action 5/4/12

The jobs circus is back in town. The consensus estimate was from 160,000 to 168,000 jobs, the range is from 89K to 210K. The unemployment rate is expected to be 8.2% and the average hourly earnings +0.2%. The numbers are printing now.........115K, 8.1% rate (lowest since January 2009), average hourly earnings are unchanged, +0.0%. Average work week remains at 34.5 hours. Companies do not need new employees if the average work week remains the same, the current employees are handling the work load fine. Also note that wage growth is a primary indicator of inflationary conditions and with wages flat to down, this supports Keystone's disinflation call. The U-6 total unemployment is 14.5% unchanged. The numbers are disappointing showing that the economic recovery is on a milk carton.  The futures, however, only knee-jerked to the downside and are content with moving sideways, perhaps traders are sniffing for QE3 due to the weak report. The numbers appear to have been baked into the markets. An interesting day is now set up; if a bounce occurs, it may be a bounce to sell. The drama continues.

For the SPX today starting at 1392, the bulls need to touch 1403 and bears need to drop below 1389, since these triggers will accelerate the market move in that direction.  A move thru 1390-1402 is sideways action into the weekend.  Watch the sturdy confluence of support at 1385-1388 which wold likely fail if the 1389 level fails. The 50-day MA is at 1386.52 and 20-day MA at 1384.84 and both should receive attention today.

Copper, commodities and semiconductors gave up the ghost yesterday. The market bears need one more piece of the puzzle to fall into place and that would be either the XLF dropping under 15.20 or the VIX moving above 18.10.  If the markets sell off today, even if the SPX 1389 is lost, and either of these two sectors turn bearish, the downside is real and markets will strongly accelerate south. If the markets sell off today but the XLF stays above 15.20 and the VIX stays under 18.10, the bears got nothing. France and Greece elections are this weekend so the Sunday evening futures will be quite interesting. Traders must place their bets or move into cash this afternoon since the Monday open will automatically reflect the election results. In a nutshell, for today, watch SPX 1403, 1389, XLF 15.20 and VIX 18.10 to determine broad market direction.

A quick look at Keystone's Inflation-Deflation gauge; 300.53/100.688 = 2.98.  Keystone smells Disinflation in the air this fine Friday morning.  The futures are drifting lower now; the Nasdaq is leading the S&P's down, so the bears have some street cred to start the day. Lots of trading ahead, however. Note that the XLF is now printing 15.27 pre-market, only a few pennies away from pushing the broad indexes down the steps. Keystone's algorithm, Keybot the Quant, will likely flip short if XLF fails. This may be a busy morning.

Note Added 5/4/12 at 9:38 AM:  XLF hanging on by a hair, now printing 15.21. VIX moving up towards 18. SPX failed 1389, then failed that sturdy support zone 1385-1388 which included the moving averages.  The bears need XLF to cooperate. Keystone took profits on BGZ overnight trade. Keystone took profits in ENOC overnight trade, will look to reenter. There's the XLF failure, see if it holds................

Note Added 5/4/12 at 11:36 AM: XLF failed the 15.18 level (this number is constantly recalculated by Keysone's algo so it changes slightly) and VIX moved up thru 18.14 which is sending markets into the tailspin.  Keybot he Quant, Keystone's algo, flipped to the short side, but, as always, watch for a whipsaw today or Monday. If XLF stays under 15.18 and VIX stays over 18.14 the bears rule. The 10-year yield is 1.88%, deflationary.  Keystone's Inflation-Deflation Indicator is 296.51/101.109 = 2.93. Look at that, the indicator is slicing lower and the economy is moving quickly towards deflation. Oil is dropping thru 100, 99, 98... CRB collapse now with a 296 handle, deflationary. AAPL is down over 2% influencing the Nasdapple and allowing tech to lead lower which is bear-friendly.

Note Added 5/4/12 at 11:54 AM:  SPX S/R is 1388, 1387, 1385, 1386.66 (50-day MA), 1383.46 (20-day MA), 1378, 1375, 1372, 1370.58, 1370, 1366, 1364, 1363.61 and 1363. SPX is now printing 1370.18, see if it holds under the critical 1370.58.  Keystone covered the HD short taking profits, receiving the initial move off the top, will look to reload after price recovers. SPX printing 1370.58, how do you like them apples? 1370.58 was the intraday HOD for 2011 that occurred on 5/2/11 almost exactly one year ago.

Note Added 5/4/12 at 12:12 PM:  Watch XLF 15.18 and VIX 18.14. If the bears hold on to these two characters, the markets will continue lower. VIX is now over 19 and appears to want to stay in the bear camp for a while.  The bulls are hanging all their hopes on XLF 15.18, it is the only way they can slow the market selling. Markets are in serious trouble. XLF is printing 15.08 now. Price appears to want to travel thru the 1370-1375 S/R range and perhaps let the smoke clear. If 1370 breaks note that 1366 will likely occur in short order.

Note Added 5/4/12 at 3:55 PM:  Status quo all afternoon but notice how XLF is inching upwards now but remains under 15.18. VIX remains elevated. The market bears are in control. Lots of action this afternoon around that 1370.58 S/R. The LOD is at 1368-ish so that will be important support on Monday morning. Keystone bot PCX, AMRS and CDXS long.