Keystone's Morning Wake-Up 2/26/13; Consumer Confidence

The smoke and dust continues to clear from yesterday. The Italy elections throw global markets into a tizzy. The drop in the euro brings the equity markets lower. The euro is at 1.3078, under 1.31, after printing above 1.33 yesterday. Italy banks are beaten today down 5 to 8%. The drop in the U.S. Treasury note 10-year yield is remarkable, from over 2.00% to 1.87% right now. This is disinflationary and deflationary behavior far removed from the inflation concerns that over 90% of the analysts say is supposed to happen, already. The 18-year stock cycle runs to 2018, so the up in yields may not occur until 2016-2019. The 10-year Treasury price is 101.172. The CRB is 293.81. Thus, 293.81/101.172 = 2.90. This is Keystone's Inflation-Deflation Indicator. The 2.90 is firmly down through disinflation with the economy on the brink of falling into deflation if the 2.90 level is lost. What perfect timing is Chairman Bernanke showing up today to pump the easy money talk?

The VIX jumped 34% yesterday. Type 'VIX' into the search box and go back to study the charts from a few days ago where the positive divergence on the weekly and daily charts foretold of the rocket launch. This positive divergence technique creates the leap off the bottom for any stock or ticker and is the very nature of speculation. Interestingly, the CPC put/call ratio is 1.15 and did not print above 1.20. There is no fear or panic in the markets, even after yesterday's dramatic drop. The Dow Industrials dumped over 150 points in only the last hour of trading. But, no fear or worry. Bernanke will provide a fresh batch of crack cocaine today, so, why worry? Buy stocks and be happy like the majority of traders are doing (said cynically).

The financials broke down yesterday so the XLF must be studied today.  MS was hit especially hard dropping 7% due to large exposure to European banks. In recent months MS says that they moved away from this exposure but obviously traders believe that MS is knee-deep in Europe. Watch XLF 17.21, now bullish by a nickel. Bulls need to stay above 17.21, bears need to push under 17.21. The retail sector collapsed into the close yesterday as well. Watch RTH 45.54, now bearish by a few pennies. Bears need to stay below 45.54, bulls need to push above 45.54. The XLF 17.21 and RTH 45.54 will dictate market direction at the opening bell.  The key metric is volatility, however. VIX 15.70 carries a lot of clout. As long as the VIX stays above 15.70, the bears have no worries. A bull recovery rally will be in place if the VIX drops under 15.70. Oil is under 93 to 92.48. A drop through 92 would lead the way to 88. Watch Keystone's SPX:VIX ratio now at 78. The 68 level signals trouble. Keystone's SPXA150R Indicator dropped under 80 to show that the market bears are in control. Watch the CRB Rind Index (on the Other Signal page on this site) since it appears ready to signal bearishness ahead.

HD earnings a short time ago are in line with estimates and gains 1.5% pre-market. The HD, M, RSH and SKS earnings today will all affect the retail sector (RTH). Housing data hits at 9 AM EST. New Home Sales and Consumer Confidence hits at 10 AM where a market pivot point will occur. Chairman Bernanke will be speaking starting at 10 AM as well so there is lots of drama ahead today. The Richmond Fed provides manufacturing data at 10 AM and the 5-Year Note Auction is 1 PM.  For the SPX starting at 1478, the bears only need a smidge of red in the futures and the downside will accelerate further. The 50-day MA is 1476.72 providing a lower target. The bulls are simply trying to stop the bleeding today, and they can at least start to stabilize markets with XLF 17.31 and RTH 45.54. A move through SPX 1489-1525 is sideways action today. The 8 MA is under the 34 MA on the 30-minute chart and the SPX is under the 200 EMA on the 60-minute chart, both indicating bearish markets ahead.