Keystone's Morning Wake-Up 5/22/12

Fitch downgrades Japan debt. Keystone has been talking about this coming for almost a half year now. The futures are actually positive which is very surprising. The expectation would be for a market drop on this news but markets turn a blind eye.  The optimism over hints of China increasing infrastructure spending as well as a money pumping scheme coming out of the Euro summit tomorrow is keeping bullish hopes alive. As discussed with the NYAD chart, a market pull back would be projected based on the NYAD. The SPX 30-minute chart posted last evening shows that a higher high in price is desired, perhaps SPX 1318 resistance, then we see if the NYAD projection kicks in.  This chart also shows the 8 MA above the 34 MA which is bullish for markets.  Watch this cross closely today. Existing Home Sales housing data occurs at 10 AM EST so this serves as a market pivot point. Whichever way the market moves in the first half hour may radically change come 10 AM. Also of interest is the 2-Year Note Auction at 1 PM.

BBY reported earnings minutes ago and they suprised to the upside. Best Buy is up 4% pre-market. Keystone is in this one on the long side due to the positive divergence.  It is always better to be lucky than good. The trade will likely be exited on the pop this morning. The broad indexes are giving the Europeans the benefit of the doubt ahead of tomorrow's summit and also must believe the Flash China PMI and Euro PMI's will be in line on Wednesday evening. This is a pre-holiday week so Thursday and Friday would be expected to be buoyant, thus, markets either have a slight hiccup today and/or tomorrow and then rally into the weekend, or, simply rally the whole way thru the week from here. The NYAD says a pull back is needed ahead of the critical Wednesday drama tomorrow.

For the SPX today starting at 1316, the bulls only need a few pennies higher to accelerate the upside and the futures are easily showing that in place currently. Therefore an immediate test of the strong 1318 R should be on tap.  Key SPX resistance for today is 1318, 1319, 1322, 1323, and 1326.  Key support is 1316, 1315, 1314.22 (150-day MA), 1314, 1312, 1308, and 1307. Bears need to push under 1396 to accelerate the downside.  The critical 12-month MA, the bull-bear line in the sand where very bad things will happen to the markets, is now at 1293.46.  If the SPX falls thru 1292-1296, the markets will need many weeks and months, and quantitative easing, to recover from such a failure. Failure of the 1290's will virtually guarantee a move to the starting year number at 1258.  The key levels above for the SPX are 1318, 1326 and the 1340 H&S neckline that ruptured.