Keystone's Morning Wake Up 5-24-11

Yesterday's bark was worse than its bite.  The bears pushed but did not gain significant ground, thus, today is important.  As a repeat performance to the final couple minutes in Friday's session, yesterday the VIX popped wildly immediately before the closing bell.  This sets up today in the market bears favor but if they do not start to push lower harder, the bulls will simply take the ball back.

The SPX:VIX ratio was critical yesterday.  Keystone watches the 68 level at this point in the market cycle, a failure of 68 signals major selling ahead.  The ratio lost 68 at the open yesterday, but regained it shortly thereafter and closed the day at 72.  This saved the bulls.  Watch this ratio after the opening bell, nothing has changed, if the ratio falls under 68 today, then expect a Dow point drop from 100 to 300 points.  If the market bulls keep it above 68, the bears will further lose their strength.

Retail is important, RTH at 111 is only one point form turnning bearish by Keystone's metrics, at 110, so watch RTH closely.  If 110 fails, the bears will be in business.

BPSPX has reversed from 83 to 73 signalling bearishness and market selling.  If the 70 level is lost, that will verify extended selling for the markets.

SPXA150R is now under 80, dropped over 5 points yesterday to close at 74.20.  This is one of Keystone's Market Turn Signals.  Reference that page on this site for further information.  This 74 level is testing support from March and is bearish.

For the TRIN, price and the 20 MA is above the 50 MA which is above the 200 MA.  In simple terms, the index sellers are favored now.  At 2.24, firmly in the bear camp, a reversal typically occurs, so today is very important, but the short term trend moving forward favors bears.

CPC closed at 1.06, there remains an underlying complacency by traders, no worries, no fears, a relaxed attitude about the current market turmoil.  Markets should continue selling off until a number over 1.2 is printed.

Watch the VIX 17.70 level like a hawk today.  It is a key indicator to show you the path ahead for the broad markets.  Now at 18.27, but very jittery, is bearish for the markets.  Bears can keep pushing the indexes lower if they keep the VIX above 17.70.  If the VIX drops under 17.70 after the opening bell, or at anytime today, the bulls are taking back control of the markets.

Another index to watch closely is the utilities, UTIL.  Extended broad market selling will not occur unless the utilities cooperate to the downside.  Of interest is that the utes did pull back yesterday, unlike previous moves where utes remained buoyant during the broad market pull backs, so perhaps their are kinks in the armour. Market bulls do not have to worry unless the UTIL would lose the 413 level this week. So, at 434, comfortably 20 points above, market bulls have reason to be somewhat relaxed.  If the utes stay lofty, any market selling that does occur will result in a move back up again, until the utes cooperate and move down leading the way or at least moving coincidentally down. A large drop in the utes today would be troublesome for bulls.  If 413 is lost the markets will be selling off in force, if 403 is lost, be mindful that this is 30 points below the current price, the broad markets would go into free fall.

SPX failed that critical 1318.51 level called out in Keystone's SPX S/R numbers from the weekend. This is bearish. The move down yesterday was on light volume which was odd since typically the selling days have shown to be stronger in volume.

What does it all mean?  Yesterday saw a confluence of the bad China manufacturing data, the euro woes and the continued problems in the States with unemployment, high gasoline problems, Mother Nature and a multitude of other problems.  The negative vibe finally pressured the markets lower whereas up to now, the markets have been able to shrug this type of news off.  Overall, the markets continue to roll over, continued sideways to sideways down moving forward is expected.

For today, if the SPX touches the 1333 handle, the bulls are going to be throwing confetti and running the indexes much higher.  If the SPX falls thru 1313 today, starting the day at 1317, then the bears have come to play again and plan on increasing the selling.  Use the VIX 17.70 as a guide with these SPX levels, as well as monitoring the SPX:VIX ratio 68 level closely.

New Home Sales at 10 AM EST could be a market pivot point. Lots of Fed talk all day long so the news wires may also affect trading depending on whether the talk is hawkish or dovish. AMAT earnings are important for the tech sector, also MDT and TTWO.