Keystone's Nightcap 3-29-11

The day started with the market bears firmly in control with many key sectors bearish.  The SPX moved down after the open, and the SPX:VIX ratio stayed under 68.  It was all systems go for the bears but barely did a bear head poke up and out of the den before it was chopped off.

The POMO pumps placed a bid under utilities and semi’s this morning.  The semi strength rippled thru technology as a whole and sent the Nasdaq higher.  Market bulls gained further ground when HD announced a buy-back program.  It makes no difference that when you check HD two years from now you will find that the buy-backs are negligible; the buy-back is a gimmick to simply give stock price a pop.  But the buoyancy in the retail sector was enough to give the market bulls some legs.

The SPX:VIX ratio abandoned its negative 68 posture at 10:14 AM EST, that was the tell that the bulls did not want to give up the ball just yet.  The bears will have their day when the ratio drops back under 68.

Financials and copper remain bearish.  Broad markets have limited upside unless financials participate.  Perhaps targeted use of the POMO pumps tomorrow towards the banks will remedy this problem.

Thus, utes, semi’s and retail are bullish and financials and copper are bearish, and volatility has to make up its mind up at the open tomorrow. 

Volume is anemic with the NYA not even doing 75% of the volume it should, today.  In addition, with all that bullish euphoria today, the SPX could not get above the previous days HOD at 1319.74; stopping 30 cents short at the close.  Strange unstable markets indeed.  SPX sits inside the 1318-1323 resistance zone now so simply watch which side it comes out of for hints on direction.

Many traders jumping on the EOM ISM trade today, where you buy energy the last few days of the month and sell on the ISM release the first day of the month, it has been working over 80% of the time over the last few months.  ERX up 3%, XLE up over a percent.  This shows that the market bulls continue along undaunted.  CPC put/call prints a 0.75 today; there is simply no fear among the bulls.  Even traders waxing poetic about buying protection today are not bothering to do so, strong bullish sentiment continues along.

The utilities, UTIL, are comfortably above the 402 level this week, now over 409, so the bulls remain in control overall.

Market bulls are merrily moving along, this morning only a minor stutter step in the action.  Barring any trouble in the overnight session, or a China rate hike, or other overnight event, the market bulls should continue along tomorrow and sort out this 1318-1323 support/resistance area.

If the market bears do come to play tomorrow, this will manifest as a pop in volatility at the open as well as the retail sector weakening.  If the retail sector remains strong, however, and either financials or copper experience buoyancy, then the bulls rule.

Continue to watch the SPX:VIX ratio 68 level.  Above 68 and the bulls rule; below 68 and bears growl.