Tuesday, November 15, 2011

Keystone's Morning Wake Up 11-15-11

Retail Day is here.  Retail sales data was just released and HD, WMT and other earnings are hitting today and tomorrow. WMT misses but HD beats. The strength of the American consumer is always a surprise, many folks will take the remaining change under the couch cushions to buy an over-priced cup of coffee to simply feed their spending addiction. Retail sales were buoyant due to electronic sales, mainly AAPL phones.

Italy and Spain 10-year yields are blowing out this morning keeping traders on edge and futures in the red.  The Occupy Wall Street protestors are evicted from Zuccotti Park overnight; the police carrying out the operation between 1 AM and 4 AM as sleepy bones put up little resistance. The movement has no affect on markets.

Yesterday the bears brought volatility and financials back into their campUtilities, retail and semiconductors remain the three legs of the bull stool representing the buoyant side of the broad markets.  Keystone's proprietary algorithm is in a position to join the bear side but programming rules held it back yesterday and the volatility actually dropped at the closing bell to side with the bulls overnight.

But today we wake up to the blow-out in European yields again so the futures are red. For today, watch volatility (VIX), financials (XLF), semiconductors (SOX) and SPX levels. Keystone's SPX:VIX Ratio Indicator remains in the bull camp at 40, so watch this closely to see if the market bears can move the ratio under 35. If so, the bears will rule the day and the indexes will be down large today. If 35 holds, the market bulls remain in control of the short term market movements. Keep in mind, however, the bears remain in control of the secular, longer term picture.

For VIX, focus on the 31.20 level, now at 31.13. A jump above 31.20 favors market bears and the indexes will weaken.  For XLF, watch 13.03, now at 12.97 favoring market bears. Markets will weaken if the XLF remains under 13.03.  If both the VIX and XLF are bearish, which appears to be the case from the futures, then watch the SPX and SOX for further hints on market direction.

If the SPX, starting at 1251, moves down and loses the 1247 handle, strong selling will occur in the markets and the indexes will drop several more handles quickly.  If this occurs, pay attention to the SPX:VIX to gauge the strength of the move south.  The market bulls need to touch a 1264 handle, if you see that print, the bull buyers will accelerate the upside in the markets dramatically.

If the volatility and financials are in the bear camp after the open, watch the semi's, SOX, the 379 level. SOX is now at 387, comfortably above, but if the bears gain momo it will show itself with the SOX losing the 380, 379 and 378 levels. If SOX holds the 380 level then the down side is limited.

In summary, broad market direction today is determined by VIX 31.20, XLF 13.03, SOX 379, SPX:VIX 35 and SPX 1246/1264.  If SPX prints a 1246 handle, that tells you that the bears mean business today. If 1247 holds, or the index only ventures into 1246 territory for a few minutes and recovers, then the down side will be limited today.  If the SPX 1247 fails, there is a high liklihood that Keystone's algorithm, Keybot the Quant, will probably flip back to the short side.

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