Keystone's Nightcap 4-12-11

The bears slashed the indexes today but no real damage occurred.  The SPX:VIX ratio, now near 76, remains above 68 so the bulls remain in control despite the triple digit loss on the Dow Industrials.  When you see the SPX:VIX ratio fall below 68, that will be some serious slashing.  SPXA150R dropped under 85 which hints at further broad market selling tomorrow.

The utilities, UTIL, remain above 405 which also prohibited any significant selling event from occurring today.  If UTIL falls under 405 at any time this week, now at 407.67, the bears will be pushing the indexes over the falls.  If UTIL stays above 405, any broad market selling will simply serve to frustrate the bears.

The Arms Index, TRIN, finished at 0.71, in bull territory, telling you that the buy the dip crowd was out in force today.  The bulls have no fear, they remain complacent, and do not believe that any significant down move will occur in the markets.  Typically, that is exactly when a significant down move does occur.

JPM releases earnings tomorrow morning and that, along with retail sales, will set the early tone for the day.  JPM earnings should be fine, as the previous charts and blog posts explain, so the more important aspect will be the effect that JPM has on the financials sector in general, so keep an eye on the XLF.  The XLF in turn will effect the broad market direction.

Tomorrow kicks off a healthy barrage of economic data that will finish off the last three days this week including business inventories, oil inventories, the 10-year auction at 1 PM EST and the Beige Book at 2 PM.  Fed speakers will be out as well on Thursday and Friday.  Another economic indicator that typically flies under the radar is the JOLT (Job Openings and Labor Turnover Survey) data so keep the google machine handy tomorrow and search for this around 10 AM on the BLS web site.

Lots of pundits talking about the oil pull back today.  There was a 35% premium built into the price due to Middle East tensions so it is hard to get excited about 5 to 7% of the premium coming out.  What about the other 25% premium that remains?

The contrary plays are looking very attractive now including shorting retail, the euro, utilities and housing, as well as longing the dollar index because of its attractive positive divergence.

For the SPX, the bears can continue the party and accelerate the selling if they push the index under 1309.50.  Use SPX 1315.21 as a bull-bear line in the sand for tomorrow, above and bulls are happy, below and bears are happy.  If the bulls start to run again and hit a 1322 handle on the SPX, the buying will accelerate to the upside. Never a dull moment.  The remainder of the week will enable all traders to receive their moneys worth of thrills and spills.  Do not stray too far away from your mouse.