Keystone's SPX:VIX Ratio Indicator

The magic level is 68 that separates bulls from bears.  Once the ratio moves above the 68 level, the bulls are in control, when the ratio drops under 68 the indexes drop dramatically and if the ratio moves lower from 68, the indexes will continue to track lower.  Note that the bulls grabbed control last Wednesday, moving back above 68, and have maintained control ever since, even despite today's drop in the markets and negativity surrounding the debt ceiling circus.

After the open today, note how the ratio dropped lower but the indicators were positively diverged so there was no plan by the bulls to relinquish control over the markets.  The ratio moved up during the Monday session, which corresponded to the midday strength you witnessed, then into the closing the bell the markets trailed off again. Note the purple lines show positive divergence so the bulls once again stopped any threat of the ratio losing 68. The bulls sit one point above the critical 68 level now.

So that's the set-up going into Tuesday morning. Bear in mind that the purple positive divergence will want to keep the ratio buoyant but at the same time this is a 15-minute chart. Thus, after one-half hour or an hour the picture can change quickly.  Consumer Confidence hits at 10 AM and this is one of Keystone's key economic data bellwethers each month so look for a market pivot once this is released. The 2-year auction at 1 PM is another potential pivot since this is critical to the 2-10 spread.

As long as the ratio stays above 68, the bulls are kicking back and have no worries, markets will remain buoyant.  Should the ratio fail 68 tomorrow, the Dow Industrials should fall triple digits. Simply one more tool in the toolbox to watch tomorrow and moving forward. The ratio will drop under 68 at some point, tomorrow, maybe the next day, maybe next week, when it does, and stays under 68, that signals a longer term selling event for the broad markets is at hand.