Keystone's Evening Nightcap 8-19-11

Everyone needs a rest from this three weeks of mayhem but pro traders know that the fun never ends; trading is a 24/7 job. Today began with futures blood red. Gold catapulted higher in the overnight session towards 1880 reflecting the search for safety. Further CME margin raises for gold not yet announced. The banks continue to receive a beating out behind the wood shed. European woes continue to foster global contagion.

BAC announces 3500 job cuts, adding to the 2500 pink skips distributed already this year. After the open, BAC announces a plan for potentially cutting as many as 10000 jobs. BAC has lost over 40% of its value in the last five weeks. The bad paper from the housing debacle is the major cause of their trouble--2008 never went away. JPM and C lower their GDP forecasts which only helps fuel the market negativity. A rumor circulates that the SNB, Swiss National Bank, plans on implementing a new tax on foreign held deposits over this weekend.

The session starts with a sharp drop as the futures foretold, but the markets recover in short order indicating a temporary bottom may be in place. That thinking went up in a puff of smoke as the indexes trailed lower from 11 AM into the close, the indexes losing about a percent and a half across the board.

HPQ, a Dow component, dragged the Dow Industrials lower as the day progressed. Use a factor of 8 to gauge a Dow component's behavior on any given day.  Thus, HPQ lost 6 points, so it contributed to almost 50 negative points on the Dow. While everyone was concerned about HPQ, they forgot to watch IBM, another Dow component, that gave up the ghost as the session played out. IBM lost over 6 points contributing to a 50 point loss. Thus, HPQ and IBM alone accounted for 100 points of the Dow's 173 point loss Friday.

Talking technicals, since it is the only way to gauge this madness, shows Keystone's SPX:VIX Indicator closing at 26.10, well below the critical 35 level.  Thus, the market bears are in full control of these markets as long as the ratio stays under 35. Once the ratio moves back above 35, that will indicate a huge market up day, so keep an eye on the SPX:VIX all next week.

The collapse in the utilites two weeks ago ignited the broad market waterfall. There is a trap door waiting for the indexes if UTIL 414 fails. If this level is lost, the markets will go into free fall. Yesterday, this level held. Today, even as the indexes languished all afternoon, and the utes trailed lower with the broad markets, UTIL placed a low of 414.78, holding the level once again. This is an encouraging sign for bulls, since a loss of 78 more cents and the broad market selling would have been epic today. Thus, watch two levels for the utilities, UTIL, next week; 436.91 and 414.00. UTIL will begin at 416.67. If 414 fails, the trap door opens and the broad markets will collapse.  If the 414-437 zone is maintained, the bull-bear fight continues with market buoyancy favored. If 437 is achieved any day next week, the all clear signal is given for a sustained recovery rally.

More information to follow as the weekend progresses.