Keystone's Morning Wake-Up 12/7/12; Monthly Jobs Report; Consumer Sentiment

Tora! Tora! Tora! Today is Pearl Harbor Day. As always, thank you to all the veterans for their service especially those that gave their lives for Freedom. On this 71st anniversary of the 1941 attack, Japan experiences a strong earthquake overnight. Best wishes to our friends in Japan, hang in there, since your nation has been dealt a tough hand over the last couple years. Japan and the U.S. remain strong allies, and Japan remains an economic superpower.  Both nation's have progressed a long way since the dark days of WW II.  In bombshell news overnight, Germany lowers growth forecasts now calling for a paltry 0.4% growth in 2013. How convenient this announcement comes a day after the ECB meeting; rates could have been cut yesterday. The Germany news virtually guarantees the ECB to reduce rates in early 2013 so the euro drops to 1.2930.

The only plan for central banker's is the 'kick the can' plan.  The Fed and other CB's pray each night that enough time will pass that the bad paper on bank balance sheets everywhere can heal. The whole idea behind quantitative easing is to keep the stock markets elevated so the 'wealth effect' (where people feel rich causing them to buy houses and goods) can sprout the roots for a recovery that would further help the global economy pull up and out of the morass. It may sound hokey, but that is the plan. With Germany now forecasting weakness ahead, Europe is already in recession, and the global picture in general looking weak, 2013 will be an interesting year. Perhaps the lower oil price yesterday, despite the ongoing Syria and Egypt turmoil, is simply due to the fact that oil demand is dropping like a stone as the global slowdown gathers stream. Gasoline usage was down strongly which weakens the oil price. If cars are parked in the driveway, that means the holiday spending is weaker than expected and also that these folks are not working. Quantitative easing is only effective if one or two countries are performing the money pumping at one time in relation to the rest of the world.  Nowadays, every nation is in the game debasing their currencies and the question remains how effective is QE if everyone is in a race to the bottom?

Moving away from the lofty macro-economic picture to the technical's, the markets languished sideways yesterday but were goosed by the semiconductors into the close. Watch SOX 373.00 and XLF 15.68, both are contributing bullishly to markets. Watch VIX 15.85 which is now contributing bearishly to markets. The 10-year yield is 1.58% showing that trader's prefer safety and money is not flowing from bonds to stocks as would be expected for a regular stock rally. The bulls need to see positive futures since this will set up the SPX to move over 1414 at the opening bell and accelerate an upside market move of several handles, likely to test 1419 R in quick order. At this writing, the S&P futures are down a point so obviously, trader's are waiting for the Jobs Report where the die will be cast.

The Monthly Jobs Report is 8:30 AM EST, a couple hours away. Hurricane Sandy will impact the numbers and it may take two or three months to sort out the mess in the data. In addition, the pre-election improvement in the jobs data the last couple months, which both democrats and republicans will create depending on who is in office, may result in giveback resulting in a double whammy negative effect on the jobs numbers.  The consensus is for 85K jobs and a 7.9% unemployment rate. Last months was 171K so this projection is one-half the previous month. 150K jobs are needed to simply keep pace with new entries into the job force.  The whisper number on the Street is for only 25K jobs and a rate back up to 8%. The hourly wages and hours worked are very important since this tells you whether companies will hire, or not. If wages and hours are stagnant, obviously companies do not need to hire.  Consumer Sentiment is released at 9:55 AM which will create a market pivot point.  Thus, the Jobs Report will dictate today's market tone. If jobs are 25K or lower, markets may sell off. If between 25K and 85K, markets may move flat. If over 85K, a huge market rally is very likely.

Watch the 8 MA and 34 MA cross on the SPX 30-minute chart, now bullish but the moving averages are very close to each other. Likewise, watch the 200 EMA at 1405.67 on the 60-minute chart, now bullish.  Bulls are victorious above 1406 and bears are victorious below 1406.  If the SPX moves above 1414 after the opening bell, Keybot the Quant, Keystone's trading algo, will likely flip to the long side.

Note Added 12/7/12 at 8:57 AM:  The markets were blind-sided with positive news. 146K jobs and 7.7% unemployment rate blows away  the estimates to the upside. Apparently Hurricane Sandy has no affect. The hours worked are flat but wages ticked up a hair which is encouraging as well. The S&P's leaped from -4 to +7 in quick order. Watch the VIX after the open since a drop thru 15.85 would show that the bulls plan on running lots higher. If the VIX stays above 15.85 then the rally should peter out. Keybot the Quant likely wants to flip long but watch 1418.18 now instead of the 1414 mentioned in the previous paragraph.  Looks like the bulls will wrestle back control at SPX 1418 and higher. Consumer Sentiment will add more drama at the 9:55 AM pivot. The 10-year yield jumped to 1.63% verifying market bullishness. The euro remains low at 1.29 on the Germany news overnight. Lots of mixed currents in place now in the markets.