Keystone's Midday Market Action 7/25/12

CAT blew out estimates to the upside. BA reports strong earnings and guidance.  CAT is up 3.7 pre-market and BA 2.2. Both are Dow components.  As a rule of thumb, simply multiply the gain for any Dow component by 8 to note the effect on the Dow Industrials.  Thus, 5.9, call it 6, times 8, is about 50 points.  Thus, the Dow will jump 50 points due solely to BA and CAT.  AAPL laid an egg last night so the Nasdaq is lower with the S&P and Dow higher.  Watch RTH 41.90, now at 41.86 contributing market bearishness. If the RTH moves above the 41.90, the bulls got game.  Watch CRB 293 since failure at this level will usher in another bear leg lower for markets.  Traders are sniffing out quantitative easing this morning, remnants from the Fed pump late day yesterday orchestrated by Hilsenrath, and this morning, as news of more monetary firepower for Europe is announced. So the euro is up, dollar is down, commodities are up, gold is up, and equities are up.

Watch Keystone's SPX:VIX ratio. If the ratio stays under 68, the opening market pop is of no consequence, markets will weaken again and resume the downside.  If the SPX:VIX pops above 68, then the bulls got game today.  For the SPX starting at 1338, the bears need to push under 1329 to accelerate the downside.  A move thru 1331-1350 is sideways action today. Watch the 20-day MA at 1352.49, and 50-day MA at 1332.80. Price is bracketed by these two key moving averages so the directional move out of this bracket will be telling. The 20-week MA is 1357.58.  Important SPX S/R levels are 1366, 1358, 1341, 1337, 1331, 1329 and 1326. The bears are in control overall. RTH 41.90 and SPX:VIX 68 will immediately dictate the broad index direction at the opening bell.

Note Added 7/25/12 at 9:36 AM:  The drama begins.  SPX:VIX ratio is sneaking above 68, bull friendly, watch it closely. RTH is 41.88, bear friendly. Keystone took profits on IVN ovenight trade, will look to reenter.

Note Added 7/25/12 at 9:39 AM:  SPX:VIX is above 69 now and RTH is 41.96, both creating market bullishness.  Let the markets float and watch for a potential pivot on the New Home Sales data at 10 AM.

Note Added 7/25/12 at 9:48 AM:  SPX:VIX is 68.61, bullish, but drifting lower towards 68. RTH is 41.83, causing market bearishness.  Keystone bot IVN, reopening a long position.

Note Added 7/25/12 at 9:56 AM:  The bears are on easy street with the RTH under 41.90 and the SPX:VIX ratio under 68. The SPX is nestled between that 20-day MA and 50-day MA bracket. Potential pivot is a couple minutes away.

Note Added 7/25/12 at 10:08 AM:  New Home Sales disappoint but markets only drift a wee bit lower. No pivot, simply a continued leaking in the broad indexes from the top at 9:40 AM. Market bears are in biz with SPX:VIX now at 66.13 and RTH leaking lower now at 41.70. Note the utilities, UTIL, continuing to stumble lower; this is bearish for markets moving forward.

Note Added 7/25/12 at 11:02 AM:  SPX now testing the 50-day MA at 1332.69, bounce or die. Keystone is adding more INVE this morning.

Note Added 7/25/12 at 11:58 AM:  The SPX 50-day support is holding.  SPX:VIX ratio and RTH are creating market negativity.  Watch CRB 293. It's a hazy, lazy day of summer.

Note Added 7/25/12 at 1:24 PM:  SPX:VIX ratio moves above 68 at 1:01 PM influencing the markets positively and the broad indexes float upwards. Utes remain weak. RTH remains weak. Semiconductors catching a bid today so tech is not receiving the expected Apple negativity.  The Nasdaq is positive. Continue using SPX:VIX 68 and RTH 41.90 to determine market direction today. TRIN is 1.06 near neutral slightly favoring bears above one. SPX now playing around at the 1341 S/R.

Note Added 7/25/12 at 1:47 PM:  Keystone took profits on IVN exiting the trade once again.  Will look to reenter.

Note Added 7/25/12 at 2:06 PM:  Egan-Jones rating agency downgrades Italy.  The broad indexes weaken only a smidge on the news.  SPX continues to use 1341 as support. SPX:VIX ratio is 69.94.

Note Added 7/25/12 at 3:09 PM: Markets are in the same place as an hour ago.  Minute charts are favoring negative divergence. SPX:VIX is 69.85.  SPX is now testing the strong 1341 support.

Note Added 7/25/12 at 3:24 PM:  SPX is leaking, losing 1341 S, and now testing 1337 S. Failure of 1337 would lead to 1331. The SPX:VIX ratio is at 68.63.  The bears need 63 more cents.

Note Added 7/25/12 at 3:44 PM:  Here's the test of 1337 S, bounce or die. SPX:VIX is at 68.12.  The bulls are hanging on by one fingernail, the bears need twelve cents.

Note Added 7/25/12 at 3:52 PM:  Big bounce. SPX:VIX ratio leaps to 69.  Whoa, now a drop back down to 68.17... nutty markets. SPX is testing 1337 S again, bounce or die.

Note Added 7/25/12 at 3:56 PM:  SPX:VIX is at 68.17, quite a bull-bear struggle, it is a knock-down drag-out fight. This soap opera is best described aby the name; As the Market Churns.

Note Added 7/25/12 at 4:00 PM:  The soap opera ends with the SPX:VIX at 68.90 in the bull camp.  Nearly all other parameters favor the bears. Interestingly, should the ratio drop under 68 tomorrow, the Dow Industrials will likely log a triple digit down day. INVE feeling some love late day.