Keystone's Morning Wake-Up 5/17/12

To paraphrase the infamous line from Apocalypse Now, "I love the smell of 'bank runs' in the morning."  U.S. S&P futures were up about five points three hours ago, now down three. The euro drops under 1.27 and the European banks are under pressure.  Rumors are circulating that depositors are taking money out of Spanish banks.  Perhaps the people are responding to news that Moody's plans on downgrading Spanish banks today.  If bank runs accelerate in Europe, the carnage for global equity markets will be severe.  Focus your Twitter, Facebook and YouTube television lens on the Spanish banks to see if lines are forming.

Minutes ago, Jobless Claims are released, unchanged for the week, and futures are unaffected remaining slightly on the bear side. Sticking to the technicals, yesterday was an important day with the NYA failing the 40-week MA returning markets into a secular bear market pattern. Watch NYA 7628 closely for the next several days to see if it remains under this critical moving average. At the same time, the SPX bull-bear danger line in the sand is 1294; the SPX is only about 30 points above. Utilities will gain in importance as the days move forward. Watch UTIL 451 today and tomorrow but at 467 the bulls are in good shape keeping this sector elevated which helps prevent significant market downside, for now.  The retail sector, RTH, gave up the ghost yesterday but continue watching RTH 41.38.

For the SPX today starting at 1325, the market bulls need to touch 1342 to regain their mojo, a formidable task.  The bears have the easy road ahead and only need a smidge of red futures to accelerate the markets lower and the markets are not tipping their hand at this writing, now flat as a pancake.  If the bears can print under 1325 the broad indexes should accelerate several handles lower.  Now that the important 1326 support gave way, a test of the 1314-1318 area is likely in the coming days, or today. At the same time, the markets have been beaten strongly for several days and a relief rally is sorely needed. Perhaps a flush at the open will provide a short term buying opportunity. If rumor's and footage of bank runs in Europe increase, all bets are off, global markets will start to plummet. A move thru 1325-1340 is sideways action today.

In a nutshell, watch NYA 7628 as a direct gauge of market direction; bulls win above 7628, bears maintain market control under 7628. If the markets recover today, watch RTH 41.38. If the bulls regain 41.38 then more upside and a stronger relief rally is on tap.  If markets recover today but the RTH remains under 41.38, the bulls got nothing, markets will likely reverse again in the coming days and continue lower.  If the markets sell off today, watch UTIL 451 and SPX 1294. As long as they do not give way, the markets will remain in a sideways type funk with a downward bias. If UTIl 451 or SPX 1294 fails, the markets are on a longer term sustainable bear market path. If bank runs increase in Europe, failure of one or both of these levels is likely. Thus, NYA 7628, RTH 41.38, UTIL 451, SPX 1294 and SPX 1325 in today's trade will dictate broad market direction.