Keystone's Holiday Weekend Reconnaissance for Trading 1/22/13

Happy Dr. Martin Luther King Day. The Retail Sales data that was a wee bit better than the lowered forecasts, the strong Housing Starts and China GDP, that catapulted copper and commodities, and the Jobless Claims at lows, all helped buoy markets last week.  The main rocket fuel, however, was the proposed debt limit solution that will be voted on this week. That created the rocket launch melt-up move on Thursday. It also signals that traders do not fear any market downside in relation to the political deadlines coming. All the deadlines will be met with can-kicking. If something does go off the rails, however, the markets are not pricing in the downside.  SPX 1476 was key and that no doubt kicked in the algo’s for the thrust to 1485. Volume on Thursday and Friday increased as compared to recent days, on par with the other political rally on the first day of the year with the debt ceiling solution. However, the breach of these key levels, 1476 and 1485, should actually lead to far greater upside and volume.

A break thru SPX 1485 resistance should lead to 1496, not only a strong resistance but also the last upper gap fill required for price. There are no further gaps above 1496. The Dow Industrials closed at a new high but not above the intraday high from 10/5/12 at 14661.87. This number will provide a vital clue as soon as trading resumes tomorrow morning. Another interesting aspect of last week’s action was the bank earnings that are supposed to lead the markets in 2013.  However, the earnings were roughly in line with lowered estimates, GS and MS beat handily, while WFC, C and BAC were disappointing. This is interesting since Q4 2011 is a very easy comparison. Banks had a bad quarter back then so the earnings should have been blow-out across the entire financial sector. Traders quickly abandoned any concern over banks and instead looked at the glass as half-full due to the positive influences listed above. Bad news is being ignored by markets, the Philly Fed plunge in data and the weak Consumer Sentiment are examples from Friday's action but traders stepped on these releases as they ran to the window to buy.

The collapse in the VIX is epic, volatility is held down like a beach ball underwater until the maximum amount of stock can be distributed to Joe Sixpack. The CPC put/call ratio is at 0.75 signaling rampant complacency in markets so a market pull back is needed. There are many  mixed signals in the markets these days. Markets are up but not on a wall of worry, instead, on fearlessness and complacency. Markets move up but consumer sentiment falls. The commodities are moving up but the Aussie dollar, a commodity currency drops. AAPL lost 4% of its value last week and GOOG lost 5% of its value but the broad markets were up one percent.  Head scratching is required unfortunately Keystone is not in a position to lose more hair.

Keystone’s SPX:VIX is at very high obscene levels (due to the low VIX).  Also the SPXA150R is over 80 again signaling the bull strength. This week watch to see if SPXA150R moves above 85 (bulls win) or below 80 (bears win).  The utilities are key this week. For the SPX to move up thru 1500+ it must go thru UTIL 466.45 (50-week MA).  The market bears are fine if they prevent UTIL 466.45.  If UTIL 466.45 is taken out, the bulls rule the markets. The bears need to reverse the strong moves higher in oil, copper and commodities. Watch WTIC oil at the 95 level, bears need to push under 94, bulls need to move it higher. Watch Brent oil 110 level, under 110 will usher in market selling and signal that Middle East tensions are receding. Above 110 and higher signals growing unrest and worry for the Middle East and North Africa.  Watch JJC 45.68 and GTX 4935. Both are bullilsh. The bears got nothing unless they move one or both of these sectors under the levels shown.

For the SPX, starting the week at 1486, the critical 1485-1486 resistance discussed above, the bulls only need a smidge of green in the futures and SPX 1496 is on its way.  The bears need to keep futures red and push the SPX under 1476 if they want to develop any mojo.  A move thru 1477-1485 is sideways action. In a nutshell, watch Dow 13661.87, SPX 1485-1486, UTIL 466.45, JJC 45.68 and GTX 4935.  Each evening check the SPXA150R, CPC, NYMO, BPSPX and other useful indicators. During the week, reference the Key Events and Market Movers missive to check the daily itinerary. Either type in ‘Key Events’ into the search box, scroll backwards thru the posts, or use the link in the archives list in the lower right hand margin on this site to find the Key Events. President Obama's Inauguration is today. Typically after these types of events, or State of the Union speeches, the markets tend to be buoyant. The yen will receive a lot of attention this week, especially the dollar/yen and euro/yen pairs.