Keystone's Evening Nightcap 6-8-11

High drama continues.  Today was a bull-bear standoff verified by the TRIN moving to and fro on each side of 1.0 all day, favoring bulls in the morning and bears in the afternoon.  The SPX:VIX ratio came down to lose the 68 level at 3:35 PM EST, but it only lasted for seconds, and the ratio moved back up.  The drama continued as the ratio came back down and was saved by the bell, the SPX:VIX closing at 68.10, ten measely cents above the point that represents a major broad market sell-off.

Looks like the markets wanted to think things over tonight.  If the SPX:VIX ratio loses that ten cents after the open tomorrow, the Dow Industrials will be down between 100 and 300 points during the Thursday session.  If the market bulls muster all their strength this evening and fend off the 68 level and keep the ratio above 68, then any significant sell-off is stopped, for now.

VIX stayed above 17.7 all day long indicating that the bears were in control. Volatility finished at the high showing that fear is returning.

SPX lost the 150 day MA today, closing at 1279.56; 1279 is support.  The long term trend line from March 2009 is broken indicating an end to the two year rally. SPX daily has one more gap fill it can do at 1275. 1258 is the start of the year number, also the March low, so that level must be respected.

Watch one of Keystone's Secular Signals, the NYA 40 week MA cross.  NYA has been above the 40 week MA for a couple years to verify the secular bull cycle currently but now, the 40 week MA is 8003 and price is 8081, so the secular bulls are only holding on now, by 78 measely bucks.  Watch this closely, a drop under the 40 week MA is serious biz; you have to put your bear suit on if that occurs.

For tomorrow for the SPX, if the market bears can push only a couple points lower after the open, down thru 1277.42, then the selling will accelerate, the 1275 gap will be filled, and 1270 probably tested as well.  At that time, it will sort out if it wants to tag the 1258 or simply head back up right away forming a V bottom just like March.

The indexes are oversold now, and have gotten slapped pretty good in a quick time frame, so a bounce would be in order now.  If the futures are green and the market bulls want to try to run with the ball, they will need SPX 1287 handle.  If the SPX touches 1287 tomorrow, buyers will flock into the market and the SPX will accelerate a few more handles upwards.

In a nutshell, Keystone’s SPX:VIX Ratio Indicator is the easiest thing to track tomorrow to identify broad market direction.  If the ratio can maintain above 68, the selling is over, the buyers will come into the market.  If, however, the ratio loses 68 after the open, only ten cents lower from 68.10, then the indexes will sell off large, very large, and the day will be a significant selling event.