Keystone's Morning Wake-Up 5-11-12

JPM laid an egg last evening announcing a two billion dollar trading problem. CEO Dimon, who walks on water in the eyes of the analysts, money managers and television commentators, receives a black eye. Perhaps these folks now realize that JPM was always like all the rest of them, no better, no worse.  The juicier side is that Dimon is the strongest force against banking regulations, the very regulations that may have minimized JPM's trading mistake. Egg is dripping off his face. Dimon no longer walks on water, in fact he is now in the dunk tank, all wet.  Interestingly, the problem trades remain on the books so the news is far from over. JPM stock is down about five percent on the news.

Thursday's session was sideways.  The four technical levels to watch are RTH 41.35 and SPX:VIX 68, both bullish, and XLF 15.18 and VIX 18.14, both bearish.  The banking sector is receiving a beating today but XLF was already bearish and dropped under 15 late in the day yesterday. Thus, with futures lower at this writing, watch RTH and SPX:VIX to see if they roll over and join the bears. If so, this will add bear fuel for the market downside.

For the SPX today starting at 1358, the bulls need to touch 1366 to accelerate the upside.  The market bears need to drop under 1355 to accelerate the downside and currently this outcome is on tap. A move thru 1356-1364 is sideways action.  Producer Price Index (PPI) hits at 8:30 AM EST. The Consumer Sentiment number at 9:55 AM and should result in a market pivot point. The news flow from JPM and Dimon will dominate the market action today.

Watch the NYA 40-week MA to see if markets move into a secular bear pattern.  NYA is at 7853 and this critical moving average is 7620 only two hundred points lower. NYA losing 7620 is a game-changer and would confirm that markets are in serious trouble.  Keystone's Inflation-Deflation Indicator is in DISINFLATION; CRB/10-yr price = 294.59/98.969 = 2.98 (from 2.9 to 3.0 is Disinflation; under 2.9 is Deflation). Chairman Bernanke is losing sleep with the CRB in the low 290's, he will begin to have nightmares when the CRB drops under 290. The first half hour of trading should be very active with the pivot at 10 AM-ish then markets will likely settle in for the remainder of the day.

Greece remains front and center and the Euro woes linger.  The euro falls to a three month low, the Greece market is at 20 year lows, the Spain market is near nine year lows, banking stocks around the globe are starting to approach 2009 levels, commodities have given back the 2012 gains, China's growth is slowing, and the global economic growth picture is slowing. Other than that, things look fine, but whatever you do, do not take off those rose-colored glasses.