Keystone's Midday Market Action 9/10/12; China Weakness; Europe Drama

China's data was lackluster as expected, since they moved forward with new infrastructure stimulus last week.  The domestic Chinese economy is weak which is troubling from the standpoint of a hard versus soft landing since the domestic economy is not growing as expected. Both import and export data is weak. In this perverse market, however, commodities, basic resourses, miners and copper jump higher since traders now expect more substantial quantitative easing from China in the form of interest rate cuts or triple R cuts.  Futures are red in the overnight session into the U.S. open.

Lots of European news yesterday and today, the German citizens are not in favor of Draghi's plan, Greece cannot reach agreement on spending cuts, Soros tells Germany to "lead or leave" concerning the eruo, you know, all the regular drama. The U.S. presidential election is now only 58 days away. Many market signals are in uber bullish territory with very little space remaining for further happiness. At the same time, as the previous CPC, VIX and NYMO charts show, a market top is now in place likely to lead to roll over in the days ahead. In addition, the uber low TRIN, has not yet relieved its uber bullish pressure, so perhaps some negativity in futures finally indicate a snap back move is on tap allowing the TRIN to print above 1.0 today.

For the SPX, that closed at the highs on Friday at 1438, the bulls only need a smidge of green in the futures, or in the SPX after the opening bell, and the upside will accelerate thru the very important 1440.24 (2008 intraday high not yet exceeded) and onward to fill the gap at 1446. The bears need to keep the futures negative, which they are doing, and also to push the SPX under 1431.50 to accelerate a downward move to test 1427 support in short order. A move thru 1432-1437 is sideways action today.

It is time for Keystone's 'soul-searching' speech.  Traders must now search their souls and study all long positions held in the markets. Are these VST, ST, IT or LT positions? Are you willing to hold the long for several years? Or do you not like the long and are looking for an exit? The charts indicate that a significant market top is or has now formed and a substantial down move may occur at any time. Keystone provided his soul-searching awareness for the February, April, and July 2011 market tops; the July top was the start of the waterfall crash. Also, this year many of you will recall the soul-searching sermon during March and April into this year's prior market top.  Now, it is time to search your soul again. If there are certain longs you feel strongly about keeping a long time, then no worries, if the stock falls 10 to 20% you will not care since in a couple or more years down the road, or sooner, it would have recovered. Otherwise, the markets are in an area where it is prudent to take profits, especially in long plays that have ran up strongly. For longs you want to keep, they can be hedged thru puts on the stock or on the market in general, or going long volatility as a hedge, or a multitude of other possiblities to hedge against the current high risk to the downside.  "Don't fight the Fed," is what the market sentiment is, and perhaps the smart traders are the 90 plus percent of traders that now think this way, but, the charts to do not agree with this tried and true adage.

Utilites are important; watch the UTIL 464 level this week, then the level of interest jumps far higher to 478, when the bell rings to close the week on Friday and for all next week.  Thus, for the market rally to continue, UTIL must gain substantial ground this week and close at least in the vicinity of 478 come Friday. If you see the utes moving upward and UTIL printing 470, 472, 474, 476, etc..., the bulls will be happy. If you see the utes flat to weak this week moving under 470 and heading lower (UTIL begins the week at 472), take this as a very bearish market signal. Remember, when the utilities lead the broad markets lower, this is a very ominous signals for markets on an intermediate and longer term basis, and the utes topped in July, rolling over and tumbling lower ever since.  Also watch the UPS 20 and 50-week MA cross, one of Keystone's cyclical signals. You can reference this on the Cyclical Signals page on this site.  If the 20-week MA stabs down thru the 50-week MA for UPS over the next couple weeks, that is a major bearish signal for markets.

Keystone holds 3 longs and 10 shorts in the shorter term trading account while Keystone's algorithm, Keybot the Quant, remains long, and controls two-thirds of the overall portfolio. Keybot would likely flip to the short side if the utilities roll over and UTIL drops under 464 this week or if the SOX drops under 392 or perhaps if the VIX performs its launch higher right away. Remember, the Keybot algo is not designed to catch market tops and market bottoms. Keybot seeks the smoothest path possible thru the trading year, which is lower risk, so the algo will serve to verify the market direction moving forward.  Keystone's shorter term speculative trading presented on this site does attempt to continually call tops and bottoms thru strong use of chart divergences and other tools.  This trading week may be epic for markets. If a market top occurs now or in the following days, these levels may not be reexplored by markets for quite some time. The opening bell is about 45 minutes away.

Note Added 9/10/12 at 11:50 AM:  Uneventful day so far. Bears cannot develop any downside mojo despite the tech sector leading the broad markets lower; this action occurred on Friday as well which is viewed as a market negative going forward. The entire recent rally was led by tech leading the broad markets each day the market ran higher--until last Friday. Utilities are flat. SOX is slightly weak but well above 392. The SPX punched thru 1438 today but cannot hold the level to lock it in; after a few minutes price falls back below, thus, the bulls cannot launch the upside acceleration move. VIX is all over the map today. The market action is similar to last week's sideways move ahead of Draghi, so perhaps the markets meander sideways until Chairman Bernanke visits the mountain and then reads the tablets on Thursday at 12:30 PM EST. The TRIN is at 1.01, exactly on the bull-bear line, still not yet relieving the bullish pressure from the last three days. The TRIN needs to print above 1.0 today or tomorrow which will be in concert with market selling.

Note Added 9/10/12 at 1:01 PM:  A lazy hazy day of summer continues. Watch the SPX 30-minute chart to see if the 8 MA stabs down thru the 34 MA today, or not.  If so, that will indicate bearishness for the hours and days ahead. Reference the chart posted a short time ago.  Tomorrow is Patriot's Day, the Anniversary of 9-11.  Interestingly, do you remember how worried everyone was that a second incident would occur on September 11, 2002, then 2003, also in 2004, but now, eleven years later, on September 11, 2012, no one seems to be worried about any additional terrorism incidents occurring on the anniversary day? The Middle East terrorists view time from a different perspective than Westerners. Terrorists gauge time passing in years while folks in the States, Europe and other developed nations fly along 24/7, with one day more of a blur than the next. Time is measured in hours and days.  Eight years passed between the bombings in the Trade Center parking garage and the 9-11 Attacks. So 2009 was a year that increased potential existed for the evil doer's to perform more harm, but, fortunately, nothing happened three years ago.  Tomorrow is eleven years since that horrible day.  One can only hope that nutcases do not plan any evil deeds considering that '11' chimes with the 9-11, and symbolism is very important to terrorists. Obviously, this mental exercise is performed concerning 9-11 since any terrorism event over the next day or two would seriously impact global equity markets. Always hope for the best, but consider the worst.

Note Added 9/10/12 at 1:16 PM:  Note the paper companies such as RKT, KS and IP, puking today.  The so-called 'cardboard indicator' would suggest that if cardboard, containers and boxes are not needed, obviously, the economy is not doing well. This action also verifies the bad news from FDX last week. Stay alert in these markets.

Note Added 9/10/12 at 3:27 PM:  SPX leaking lower but no great shakes since the bears need sub 1431.50 to accelerate the downside.  Minutes ago, the bears pushed lower to test this area printing a LOD at 1431.69.  See if the bears can push down thru, or not.  The 8 MA is almost down thru the 34 MA as described above.

Note Added 9/10/12 at 3:35 PM:  Here's the SPX coming down for another look at 1431.50, if it fails, the markets should sell off strongly with SPX falling to 1427 in the final minutes. The 8 and 34 MA's on the SPX 30-minute chart are a hair away from crossing.......

Note Added 9/10/12 at 3:46 PM:  SPX failure at 1431.50.  Here's the 8 and 34 MA printing the exact same number...........and failure at 3:45 PM EST, the 8 MA  just pierced the 34 MA to the downside.  Watch to see if it holds into the close, if so, the market bears are in control for the hours and days ahead.

Note Added 9/10/12 at 3:52 PM:  VIX now has a 16 handle. From a 13 handle this morning to a 16 handle this afternoon. Crazy, erratic, unstable markets.

Note Added 9/10/12 at 4:01 PM:  The 8 MA holds below the 34 MA, by only a few pennies but it is under nonetheless, thus, the bears rule moving forward, unless, the bulls can bounce the markets vertically at tomorrow's open to reverse this downside momo moving forward. SPX came down to test 1429, not quite to 1427 support, but a downside acceleration nonetheless occurred once 1431.50 collapsed. TRIN printed 1.44 at the close finally relieving some of that uber bullish pressure in the markets.