Keystone's Morning Wake Up 7-12-11

The Italy news overnight Sunday rattled the markets, showing how jumpy and unstable the markets are, very reactive to the slightest sound bite. Thus, indexes are adjusting to this deterioration of the Eurozone. The political clowns with the three-ring debt crisis circus are not helping the market bulls either.

Keystone's proprietary algorithm joined the bear side yesterday morning; the financials, commodities and semiconductors sectors are perceived to be bearish.  The higher volatility, although not moving as high as would be expected yesterday, added to the bearishness. The VIX is at 18.39. The 18 level separates market bears from market bulls so watch this closely today.

SPX:VIX ratio remains above 68 so this favors the bulls, but, with the red futures on the boards now, the ratio may drop sub 68 after the open.  If 68 is lost, the indexes will drop large today. If 68 holds, the bulls are still in the game.

Retail has held up recently and will help gauge the indexes moving forward.  The RTH, now at 110.92, needs to stay above the 109 level to help the market bulls.  If 109 is lost, the broad markets will weaken further.

The NYA, now at 8229, has pulled back down to around 100 points from the 40 week MA at 8119. If the 8119 level is lost, the bears will be moving south stronger, if the 8119 holds today, then the bulls are starting to recover and holding their own.

Key SPX support below is 1319, 1316, 1314, 1312, 1307 (gap fill), 1300, 1298, 1295 (gap fill), 1292 (SPX 10-month MA). The 1307 gap fill has potential for today.

For today, the SPX starts at 1319.49. The futures are red. The market bears only need to push three points lower to trigger accelerated selling and it looks at this time that will occur. If 1316.50 is lost, then the indexes will be losing more handles quickly and perhaps set its eyes on the 1307 gap fill. If 1316.50 would hold, then the bulls are starting to limit the damage. The bulls are simply trying to stop the bleeding right now. They would need to push the SPX to 1343 today to develop any upside momo, and that is a formidable task considering the futures now. Thus, the bears will have the ball to start the Tuesday session, the tools above will determine if they are running down field, or fumbling.

NFIB Survey will bring gloomy business sentiment news and the JOLT Report will bring gloomy news on employment. FOMC Minutes at 2 PM is a potential market pivot point. Typically, during Opex weeks, many traders buy Tuesday to sell Wednesday.