Keystone's Morning Wake-Up 5/8/12

Futures point to a lower open today. Financials provided the drama yesterday. Copper strength after lunch time provided help for the market bulls but that strength faded into the close. Four key areas and levels will determine broad market direction today; XLF 15.18, JJC 48.15, VIX 18.14 and RTH 41.35. The bulls have XLF (by only one single penny) and RTH in their camp. The bears have JJC and VIX in their camp. The bull-bear tug-o-war will be resolved depending on which of these sectors change their stripes.  With futures lower, the XLF will likely fail 15.18 at the open which would be a feather in the bears cap. The bears will then focus attention on RTH 41.35 since if it fails the broad indexes will take a substantial leg lower. The market bulls need to keep XLF above 15.18 and at the same time push JJC above 48.15. This outcome will result in a strong recovery bounce for markets.

The euro is lower, dollar is higher, thus the following asset relationship is in place; dollar up = euro down = commodites down = oil down = gold/silver down = copper down = equities down. The BPSPX continued under 70 (reference yesterday's chart) favoring bears. Keystone's SPX:VIX ratio is at 72.31. Watch this at the open to see if the 68 level fails, if so, the markets will be down large today, the Dow Industrials should drop triple digits. If 68 does not fail, this is sign that a bull recovery move remains in play at any time.

For the SPX, starting at the important support and resistance level of 1370, the bulls need to touch 1374 to accelerate the market upside.  The bears need to drop under 1364 to accelerate the downside. The futures currently indicate the latter outcome.  A move thru 1365-1373 is sideways action today.