Keystone's Nightcap 3-28-11

The SPX was breaking down into a selling event late day but was stick-saved by the closing bell.  Sectors such as retail, copper, semi’s and the higher volatility all returned to the bear camp today.  The SPX closed at the low so tomorrow’s open is critical.  Any move down after the open would open up a scenario to at least explore 1300 on the downside moving forward.

A move up in the SPX at the open tomorrow would signal that the bulls are actually cats, considering all the lives they are given, as well as always landing on their feet.

GT dumped 6% today and CTB was down 2%.  Rubber is an important economic indicator since tires are required for automobiles and heavy machinery.  Rubber forecasts strength, or lack of strength, in the housing and construction markets, miners, emerging markets and automobile markets.  Looks like two flat tires today.

Dr. Copper developed sickness directly from the opening bell this morning.  Perhaps he will make the entire broad market sick.

If you were watching the SPX:VIX ratio, you saw it collapse at the final minute mark before the bell, from 69.1 to 67.4.  With the ratio under 68 now, expect a large sell off in the indexes tomorrow, typically the Dow should sell off a couple hundred points or more.  The one caveat to place is that you have to watch the open.  If the ratio jumps back above 68 after the open, all bets are off, you have to make sure the ratio is under 68 and stays under 68.  If the ratio is under 68 after the open then significant broad market selling should be expected.

Another feather in the market bears cap is the SPXA150R dropping from above 85 to below 85 today.  This reinforces the idea of the broad markets selling off tomorrow as well.

The utilities, UTIL, closed at 406 four points above the critical 402 level for this week.  If broad market selling takes place after the open, watch the utilities.  If UTIL drops under 402, that will signal that the selling will be much larger than anyone anticipates, so the short side will be having fun.  If UTIL stays above 402, then the bulls remain in the game trying to wrestle back control.

CPC put/call closed the day at 0.82.  Traders are not worried at all these days, their only worry is missing a dip-buying opportunity, or perhaps missing lunch.  This contrarian indicator says there is too much complacency, even though the VIX jumped today, and that long traders may receive a slap to wake them up.

Housing news has not been good Friday, or today, and tomorrow Case-Shiller is on deck at 9 AM EST.  Those gloomy Gus’s may cast a pall over the open.

A market pivot area is 10 AM EST tomorrow when Consumer Confidence is released.

No one talks about China lately.  A China rate hike is coming, probably any day now, and everyone is sleeping on the job.  PBOC big surprise would be a 50 bip rate hike instead of 25 bips.  Commodities and equities are expected to sell off.  China rate hike is probably imminent.

With Portugal’s lingering woes, as well as the thinking that Trichet may have to back pedal from his rate hike bluster, the euro should pull back now.  Euro down=dollar index up=equities down=commodities down.

The SPX:VIX ratio move below 68 is significant.  Expect a huge broad market selling event tomorrow, on the order of a 1.5% to 2.5% drop in the indexes--unless this ratio moves back above 68.