Keystone's Midday Market Action 8/2/12

Draghi lays an egg.  As if that was not enough, traders are concerned over the latest trading fiasco; Knight Capital. The markets are weak after Draghi fails to deliver on his big promises last week.

Watch VIX 18.80 as referenced in this morning's chart. Bears win today if the VIX stays above 18.80. Watch Keystone's SPX:VIX Ratio Indicator (reference the Turn Signal page on this site), now at 72.54, if the SPX:VIX drops under 68 the market bears have considerable strength moving forward. If the ratio stays above 68, the bulls will not be concerned about any market downside today.  Watch RTH 42.15, NYA 7760, SOX 377 and XLF 14.45 to gauge market weakness. All four are on the bull side as trading begins.  The SPX is set to drop under 1373 so this will create a downside acceleration.  Watch the uber strong support at 1366. If that holds, the bulls will be fine. If 1366 fails, markets are in serious trouble. The opening bell is ten minutes away.

Note Added 8/2/12 at 9:29 AM:  Futures show the Dow at -72, S&P's at -9.20 and the Nasdaq at -16.  Watch to see if tech leads the downside which will provide the market bears some street cred.

Note Added 8/2/12 at 9:32 AM:  Markets drop. A test is immediately occurring at 1366, there should be some drama at this level.  SPX:VIX is 71 so bulls are hanging on remaining above 68.  There's the rupture of 1366..... see if it holds for a few minutes. VIX over 19.  Utes are red.  Copper is red.

Note Added 8/2/12 at 9:38 AM:  XLF 14.45. Financials have a ruptured spleen. MS is pounded due to its exposure to Europe.  Broad market weakness will continue if the XLF stays under 14.50 (use this number to watch  now instead of 14.45).

Note Added 8/2/12 at 9:41 AM:  Whack-a-mole market action. As financials become weak, the volatility is pushed lower, under 18.80, to compensate, and try and stop the market slide. Lots of drama. The SPX will play around at the strong 1366 S/R, above is bull friendly, below is bear friendly. Watch VIX 18.80 today as the main market gauge.  Wow! Italy 10-year yield is blowing out, now above 6% again to 6.19%.  Spain is blowing out, its 10-year yield now almost back over 7% at 6.97%.  The market action is intense. U.S. ten year yield is now 1.49% slowly dripping lower. The SPX:VIX ratio is near 74, well above 68, so overall, the bulls are not concerned about the market weakness.

Note Added 8/2/12 at 9:49 AM:  XLF 14.52. Back to the bull side. The other parametes listed above remain on the bull side.  VIX is dropping, now at 18.34, bullish.  SPX is back above 1366.  Nothing to see here, move along, move along. The bears do not have the oomph today. SPX:VIX now near 75.  Note how the NYA came down to test Keystone's 7760 level, and bounced.  The downside thus far is muted and of no serious threat.  Watch SPX 1366, VIX 18.80, XLF 14.50 and NYA 7760; these four parameters will tell you everything you need to know today.

Note Added 8/2/12 at 10:30 AM:  XLF is above 14.50.  The VIX is below 18.80. Keystone's SPX:VIX ratio is 77 well above 68.  The market bulls have no worries. Markets may be content in traveling sideways today to await the next drama which is the Jobs Report at 8:30 AM EST tomorrow. Market bears cannot develop any downside oomph unless they take out SPX 1366 support again, and also the LOD at 1361.26.  The bulls are placing their feet up on the desk, lighting cigars, and asking the interns for a cappuccino. Keystone needs to put the hammock under the oak trees into use on this sunny summer day.

Note Added 8/2/12 at 11:28 AM:  Hammock time is interrupted. VIX is at 18.75 a hair under 18.80 and the SPX is down at the lows for the day. XLF is 14.44 under 14.50 creating market bearishness.  Hang on to your hats. Keystone's algo, Keybot the Quant, will likely flip short if VIX moves above 18.80 and SPX below 1361.26. European 10-year yields continue blowing out; Italy at 6.28% and Spain 7.16%.

Note Added 8/2/12 at 12:26 PM:  Keystone's algo, Keybot the Quant, flipped to the short side at SPX 1360 at 11:42 AM EST.  The weakness in financials, XLF is under 14.50, is causing market weakness.  NYA is under 7760 which creates market weakness.  And, most importantly, the VIX is above 18.80. Keep watching these three parameters today. SPX 1358 is uber strong support. Markets should whoosh lower if 1358 fails.  Very busy day is ongoing today. The hammock will have to wait until later.

Note Added 8/2/12 at 3:12 PM:  Note the volatility, VIX, dropping under 18.80 creating market buoyancy.  The NYA, however, remains under 7760 (now printing 7750) and the XLF remains under 14.50 (now printing 14.43) which keeps the bears in biz. The SPX:VIX ratio remains elevated at 75.23 well above the 68 level so that is something for bulls to take comfort in. Bears will not experience significant downside unless the SPX:VIX drops under 68. TRIN is uber bearish at 2.43 which will beg for a market snap back move to the upside but the NYAD is well behaved today showing that the selling is steady-eddy and not a panic-type selling. This is actually bear friendly since it is agreeable to more steady-eddy selling.