Keystone's Monring Wake Up 7-19-11

Retail, measured by RTH, did not fail the 109 level yesterday so that helped stop the market selling.  The SPX came down to touch the 1297 gap and this is the same level as the 62% Fibonacci retracement before bouncing.  The candle shows that the close was slightly above the halway point on the candle so these circumstances favored the bulls for today.

Financials and semiconductors have been beaten badly but now show positive divergence on the charts which should help the bulls in the coming days.  This set up also indicates that financial and tech earnings should match or beat estimates. Note that Keystone's 2-10 Spread Indicator lost the 255 level yesterday but currently is back at 258, three points above. The last month or two sees this Kabuki dance to and fro on each side of a 255 spread for the 2-10. Continue to watch this since it will commit one way or the other in the coming days. A spread that moves up thru 260, 270 and higher will be bullish for financials and the broad markets.  A 2-10 spread that moves under 255, down thru 250 and lower favors a deflationary environment and favors market bears.

The NYA, after slipping under the 40 week MA to indicate long term bearishness ahead for markets, recovered late day and now is back above the 40 week MA indicating that the secular bull market remains in place. The relationship is tenuous, however.  NYA price is 8136, the 40 week is 8134, only two measly points are verifying that a secular bull market remains in place. Continue to watch this in the comind days and weeks.

The volatility, VIX, although jumping 10% up for most of yesterday's session, was not a big move considering the strong broad market selling, and in fact, only managed a 7% gain when the closing bell rang.  Volume was light which is uncharacteristic for the down days since they have been stronger volume days as compared to up days.  Thus, these two factors told you that the broad market selling would be short-lived. A VIX at 21, however, does represent elevated levels. This hints that the choppiness and whipsaw behavior in the markets should continue moving forward.

For the SPX today, the futures are green currently.  SPX starts at 1305 and if the market bulls can follow thru with the futures and touch the 1316 handle, the upside will accelerate and several more handles will click off quickly, moving up to test resistance at 1318, 1321 and 1323. The market bears need to push lower today to lose the 1296 handle if they plan on regaining downside momentum. A move thru 1297-1315 is a sideways rest day.

Housing Starts are a key data point each month so watch that closely in a couple hours time since it will move futures. Markets remain unstable and erratic. Keep an eye out for the CME raising margin requirements which will reek havoc on the gold, silver, oil and commodities markets. Apple earnigns will dominate today as well as BAC, BTU, RVBD, AMTD, UNH, VMW, WFC and YHOO, thus, a major focus on banks and tech.