Keystone's Nightcap 4-14-11

Ask yourself a simple question, do three days make a trend?  The SPX has now closed three days in a row under the 50 day MA.  With all the bullishness running rampant, no one noticed, except Keystone of course.  Pundits talk of a wall of worry, there is no wall, there is no worry.  Market bulls were in such a rush to buy any dips, the markets could not even make a decent run lower. The VIX peaked up into bear territory for a whole two minutes after the open this morning before turning lower and finishing lower verifying the bullish sentiment.  The CPC put/call remains under one; traders are complacent, there is no fear in the markets.

As mentioned all week long, the downside move was destined to be short-lived since the utilities did not lead the move lower.  This does not mean we cannot move lower tomorrow, quite the contrary, be ready for anything in these unstable markets, especially if China data or the inflation data tomorrow morning presents any surprises.

Another reason for the recovery in the indexes today is the SPX:VIX ratio, constantly mentioned here in recent days.  At 81 now, firmly above the critical 68 level, the bulls are in control.  OPEX max pain wants SPY to move up towards 132 so this helped buoy the indexes as well today (same max pain buoyancy across other indexes).  To keep the market instability theme alive and well, SPXA150R dropped under the 85 level today which actually favors market selling.

BAC reports earnings tomorrow which will help set the tone; expect a repeat of JPM with acceptable earnings and a blase (fancy French word) reaction.  Reference the prior blog post for color on the BAC trade.  GOOG sold off in the after hours so this favors market bears as other technology niches may weaken in addition to already sick semi's.

A dollar index bounce and down euro trade looks very atractive now despite recent action and the fact that mentioning this trade may lead to the white coats showing up with a straight jacket for good ole Keystone.  In addition, shorting silver is now attractive since the target area or 42.2-ish is achieved.  Tight stops are required on these speculative trades.

The indexes are in a stalemate right now with the bullish utilities, retail, commodities and volatility sectors' irrepressable force pushing against the bearish financials, copper and semi sectors' immovable object.

For tomorrow, the SPX begins at 1315; its been at this level the last three days now so perhaps we finally receive resolution.  Watch 1317 since this will confirm that the bulls are taking control again and the markets will run north into the spring time weekend.  If, however, the SPX touches 1302, the selling in the broad markets will accelerate.

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