Keystone's Morning Wake-Up 10/19/12; EU Summit

Happy 25th anniversary.  The Black Monday 1987 crash occurred twenty-five years ago today. The Dow Industrials dropped over 500 points, over 22%, in one day. What a day it was. The Dow closed that day at 1739, far lower values back then than today's Dow.  Correlating the 22% drop to today's Dow at 13550, to put it in perspective, would be an equivalent point drop of almost 3,000 points. That would get everyone's attention. A drop like this would obviously trigger the market circuit breakers and stop trading as well as causing panic and confusion.  Keep in mind, however, the Dow then recovered to move higher off the new low by the time the 1987 year ended, and then within two years later the Dow was higher heading into the go-go 1990's.

Today is OpEx Friday so that will create jumpy markets during the first half hour and last half hour of trading. During OpEx week, Monday's are typically buoyant, which occurred this week with the SPX recovering as the day moved along, and typically the bulls rule from a Tuesday low to a Wednesday high, which also occurred this week.  So keep these Monday and Tuesday to Wednesday tricks in mind for trading the November OpEx, the week of 11/12/12.  Existing Home Sales hit at 10 AM so expect a market pivot point. Important earnings releases include APD, GE, HON, IR, KSU, MAN, MCD and SLB.

Keystone's Eclipse Indicator has now opened a window for the potential for a large market selloff to occur anytime over the next two months, especially today thru early November, and/or, the period between Thanksgiving and Christmas. The EU Summit is ongoing and the group agreed to set a date for the banking union to commence. The original goal of this Summit was to review and approve a detailed outline for the potential banking union, instead, they punted once again with another task, and chose to do something simple that requires no effort. The buffet table and sauna's are much more important to these vacationing leaders.  Rajoy (Spain) says he feels no pressure to request a bailout. Traders may be getting sick of all the games. The futures are negative.

The utilities sector exploded higher this week and is now helping the market bulls. Watch for UTIL 485.67 at 4 PM EST today. This number will be tracked all next week by Keystone's algorithm. Thus, if UTIL remains above 485.67 at the close today, bulls will rejoice since this sets up market positivity next week.  If UTIL clsoes under 485.67, bears will be happy since that hints at weak markets to begin next week.  Watch SOX 386 (now at 376.28 contributing negatively to markets), JJC 46.40 (now above 47 contributing bullishly to markets) and VIX 16.40 (now at 15.03 contributing bullishly to markets). If these three characters do not change today then markets stumble sideways. The bulls need SOX 386 to guarantee the move to SPX 1500. This may be difficult considering all the recent downbeat chip and tech news and the GOOG debacle yesterday. The bears need JJC under 46.40, or VIX above 16.40, to bring strong selling into the markets.  Interesingly, copper is taking the pipe this morning, now down about 1.3%.  Thus, equating this to JJC after the opening bell would place JJC at about 46.70, above the critical 46.40 remaining bullish, but approaching the danger line.  If JJC drops under 46.40 today and the SPX drops below 1452.50, Keybot the Quant, Keystone's algorithm, will likely flip to the short side.

For the SPX today starting at 1457, the bulls need to touch the 1464 handle and it will be off to the races higher. The SPX will punch straight thru the closing high for the year at 1465.77 and test 1468 then 1472. The bears need to push five points lower under 1453 and the market downside will accelerate. A move thru 1454-1463 is sideways action today. GE earnings match the bottom line but miss on the top line, this is negative for markets. GE has a finger in every pie around the world and is a strong bellwether for global markets. HON meets earnings but lowers guidance. This is another down note since HON is another key company, especially in reference to the aviation industry (the bulk of airplane cockpit instrumentation is Honeywell). The earnings of companies are stepping over their lowered bar, but the guidance of many is lower. This is troubling for markets moving forward. Likewise, weakness in both tech and small caps, COMPQ and RUT, respectively, since these two lead the markets higher in good times, and lead the markets lower in bad times. In a nutshell, watch UTIL 485.67, SOX 386, VIX 16.40 and especially JJC 46.40. Also SPX 1464 and SPX 1453. Hang on to your hat, the winds are picking up.

Note Added 10/16/12 at 8:39 AM:  Mickey D's laid an egg, now down 3% pre-market.  Quick, run out and buy some Chicken McNuggets to help them out.