Keystone's Morning Wake Up 6-10-11

If you were watching the SPX:VIX ratio at the open yesterday, you knew right away that the bulls would push the markets higher.  When the ratio loses the 68 level, the indexes will sell off large and only ten cents separated the markets from collapse as the Thursday opening bell rang.

The SPX:VIX ratio shot up like a rocket to the 70+ level so it was obvious that the next leg down for the market bears would have to wait.  Interestingly, the ratio drifted lower in the last hour of trading to close at 72.5 after peaking at 75 during the session.  The 72.5 is over four points above the danger zone now but stay on guard since this ratio can move wildly in a very short time frame.

Volatility requires continual close watching moving forward. Using the VIX, watch the 17.67 level today as a bull-bear line for the indexes.  VIX closed at 17.77 so the bears are favored, but with price so close to the bull-bear line, the jury is out. Simply watch it as today’s session proceeds.

Commodities, as measured by the CRB, enjoyed some buoyancy yesterday from the grain reports, but this was short-lived, and commodities drifted lower as the day moved along.  Watch CRB 351.21 level as a proxy between market bulls and market bears today. The day begins with market bears favored.

Utilities remain the only major sector that is bullish as measured  by Keystone’s proprietary algorithm.  Market bulls pushed markets higher yesterday by driving volatility lower for most of the session.  If the VIX stays above 17.67 today, then the broad market buying will not continue and the pop yesterday will be short-lived.

For today, the futures are weak, there are no real strong buyers willing to step up, the market action continues with late afternoon weakness, and volume, while overall on the low side, the pattern of lower volume up days and stronger volume down days continues, favoring bears.

For the SPX today, if the 1294.50 level is touched, the bulls will rush in to buy and accelerate the SPX up a few handles higher towards 1298 and the VIX will be below 17.67.  For the bears to gain momo and accelerate the selling, the SPX would need to drop 10 points and move below the 1280 handle.  Thus, without a move above 1294.50 today, or below 1280, which currently appears to be the case, sideways slop will take us into the weekend.

Continue to monitor the SPX:VIX ratio 68 level.  Today at 2 PM EST, the final POMO schedule is released to finish out June and finish QE2; watch this for possible market reaction. Let the VIX 17.67 level guide your bullishness or bearishness; it begins the day favoring bears at 17.77.

Markets remain very unstable. SPX S/R 1314, 1312, 1307, 1298, 1295, 1293, 1286, 1282, 1279, 1270. The day begins at 1289.