Keystone's Morning Wake-Up 12/19/12; Housing Starts; FDX

The bulls are not taking prisoners the last two days with the SPX jumping 35 handles higher. The fiscal cliff optimism, China growth, Japan easing and Greece upgrade all contributing to the happy holiday picture. The fiscal cliff negotiations are becoming twisted with the Plan B on the table. Many republicans, as they should be, are against any tax hike. Both parties refuse to address the spending problem so there is little hope that in the long run an adequate solution will ever be provided. China plans on 7.5% growth next year. Why doesn't anyone ask them how they achieve such strong growth when Europe, their number one customer, is in a deep recession, perhaps Greece and Spain in a depression, the U.S. is flat, and their empty uninhabited cities sit idle? Perhaps the answer is the data itself. Japan is projected to institute unlimited QE, taking a page out of the Fed's playbook, but with the Fed easing at the same time, and Japan needing U.S. support over the island dispute, perhaps Japan's pumping may not be that powerful after all. Volatility dropped yesterday (VIX is under the 15.85 bull-bear line) and the CPC remains low both showing complacency alive and well in the markets. There is no wall of worry the markets are climbing right now, quite the opposite, the majority of traders fully expect the markets to go up and the bulls are all-in.

The lower volatility yesterday hurt the bears badly.  Watch VIX 15.85 today, if the VIX stays below 15.85 the bulls rule, if the VIX moves back above 15.85, the bears will push the markets lower. Watch JJC 45.50 moving forward. Copper will take on added importance now. The market bulls are fine if the JJC stays above 45.50, markets will significantly weaken if the JJC drops under 45.50. Copper, the market leader, led the mid-November bottom by a few days but has rolled over in recent days to the downside. Will Dr. Copper lead lower?  Watch the utilities that have made a strong comeback. The 50-week MA for UTIL is 466, so if UTIL gains only about four points today, and overtakes 466 and higher, the market bulls are likely on their way to new highs for the year sending the SPX into the 1470's.  Thus, if bullish, you want to see the VIX stay under 15.85, and JJC above 45.50 and push UTIL above 466.  If bearish, you want to see the VIX move back above 15.85 asap, and the JJC fall under 45.50 and UTIL to stay under 466.

The bulls only need one point higher in the S&P futures to launch another upside acceleration. Late day yesterday we watched the SPX 30-minute, one-hour and two-hour charts topping and developing negative divergence; another one to four hours likely needed to set that up, so perhaps markets will top late morning.  During OpEx weeks, a Tuesday low typically leads to a Wednesday high. Thus, if the futures stay green and point to a higher open for the SPX, all this mumbo jumbo may lead to topping action in the SPX, say, before lunch time.  Of course, any fiscal cliff news will immediately impact markets, good or bad.

The euro is running strongly higher now at 1.3277.  The euro, dollar and SPX are all violating their outer Bollinger Bands so the markets are likely at an inflection point currently. The Bradley turn window is open all this week for a strong market move to occur. The bulls have come to play this week, however, volume is light, and traders are very complacent. The 10-year yield is 1.80% jumping up to 1.85% yesterday with money moving from bonds to stocks. The SPX close above 1446 opens the door to test 1460 resistance.  In a nutshell, watch VIX 15.85, JJC 45.50 and UTIL 466 as described above. The carnival cranks up in one hour with FDX earnings at 7:30 AM EST. Shipping is a key indicator of global economic health and Keystone's UPS 20 and 50-Week MA Cross Indicator has signaled a cyclical bear market on tap ahead for the last month. Housing Starts, a key monthly economic indicator, is 8:30 AM. Starts were on the verge of 900K last month so if you see a 9 handle the market bulls will likely celebrate. Expectations are high for the housing sector so any negativity will hurt the broad markets.

Note Added 12/19/12 at 7:36 AM: FDX is two pennies shy of estimates but the top line beat. The initial reaction is down one-half percent. The euro is at 1.3295.

Note Added 12/19/12 at 8:33 AM:  FDX recovered to the plus side. The euro hit 1.33. Housing Starts dropped to 861K, and last month was revised down from 894K to 888K. AAPL is negative pre-market. The futures point to a higher opening, the Starts and FDX did not adversely impact markets. Copper continues to leak lower.

Note Added 12/19/12 at 9:07 AM:  Copper now down 0.9% this morning. Applying this to the JJC at 46 is about 40 cents which targets the JJC to 45.60 after the opening bell, very near the bull-bear danger line at 45.50.