Keystone's Nightcap 3-23-11

One day is stranger than the next.  Going into today, the bulls had to bounce either financials or copper to wrestle control of the markets and copper bounced.  Financials continue to languish and the broad markets will not be able to rally far without them.

One of the odd aspects today is a round trip with the SPX.  Price taking out yesterday's LOD at 1293 by almost 9 points down to 1284 then rebounding taking out yesterday's HOD at 1299 by about one point and then closing at 1298.  The markets typically will favor one side or the other, rarely do you see complete moves past each of these limits on the same day.   If the SPX moves up thru 1300.51 tomorrow the bulls will be favored just as the bears will be favored if the SPX drops thru 1284.05.

The SPX:VIX ratio sits on top of the critical 68 line in the sand.  Thus, after the open, if the ratio stays under 68 and heads lower, then the market bears will have the day.  If the ratio moves above 68 and stays there, then this will put off the inevitable market selling until the ratio comes back down below 68 in the days ahead.

The SPXA150R at 82.60 is not strongly bullish, a move above 85 would have been.  The SPX confluence at 1297-1304 encompasses horizontal support, the psychological 1300, 20 MA at 1302 and 50 MA at 1304.  This area is formidable resistance.  On the SPX daily chart, the 20 MA has crossed down thru the 50 MA and also the 13 MA down thru the 34 MA, both signals are bearish.

Utilities, copper and commodities are in the bull camp.  Financials, semi's, retail and volatility are bear friendly.

The news is a constant wild card.  The euro woes are returning in force.  Weaker euro=stronger dollar=weaker commodities=weaker equities.  But Libya, Bahrain and terror incidents are bouncing oil, gold and PM's.  A quick resolution in Libya could bring on a quick correction in the commodity premiums.

Flip a coin for tomorrow, the markets are sitting on the fence, the news flow will probably decide direction tomorrow.  Watch the SPX:VIX 68 level, the financials, and also if copper can maintain its new found bullishness today, or not.  Those three items should tell you which direction the indexes will favor tomorrow.