Keystone's Market Action 5-18-11

SPX needs to move above 1330.42 if the market bulls want to run the indexes higher.  Barring that, markets will continue in the sideways funk.  If the SPX loses the 1319 handle today, then the market bears can accelerate the selling.

Volatility fell into the close yesterday helping the bull case so watch the VIX 17.65 level closely today; above and the bears are running, below and the bulls are running.

Semiconductors collapsed yesterday so the chips are worth watching.  Financials, commodities and copper all continue along bearishly.

Yesterday the housing sector fell into a double dip.  Keybot the Quant is a trading algorithm.  One aspect of the program gauges the real estate sector.  The algorithm had the sector bearish up until 10/18/10. At that point, the algorithm turned and viewed the real estate sector as recovering.  Well, now, seven months later, the algorithm has went negative on the housing sector once again. The media did not even mention how the weak starts yesterday comes at the time of year when the excitement should actually be at a peak--the spring building season. If the builders are not enthusiastic or busy at this time of year, that is a bad omen.

Keystone often mentions how financials and technology are kissin’ cousins.  They are partners in the markets; financials are a huge user of technology.  Financials topped in February and have rolled over ever since.  Tech has languished and the two sectors have been disconnected.  One is right and one is wrong.  With the chips rolling over yesterday it appears that the financials may be leading the way.

The 2-10 spread is at 258.  Keystone’s 2-10 Spread Indicator (find prior posts from the search box), uses a 255 level to denote an advantageous or disadvantageous yield curve position for the banks.  The spread is only three points from depressing bankers further.

Utilities carry a lot of clout and the UTIL posted another high yesterday with a 440 handle which helps the bulls.  Daily chart is negatively diverged so a pull back is in order, however. Also helping bulls is that the SPX:VIX ratio remains above the critical 68 level; now at 76.

Market bears are pushing lower with the BPSPX now reversing over six percentage points from 83 to 74. This verifies the bear case.  Once the 70% level is lost the selling will accelerate.

Volatility, VIX, guideline above and the SPX levels will light today’s path. The FOMC meeting minutes at 2 PM is a potential market pivot area.

Keystone takes a quick look at Wednesday’s numbers.  A few minutes after the bell shows volatility still under 17.65, bullish, but TRIN above one, bearish, and SPX did not punch thru the 1330.42, at least not yet.  Even though bulls did not get it above 1330.32, the bears have to get it under 1319 if they expect to do any damage.  The 1319-1330 middle area today represents the continued sideways funk in the markets.