Keystone's Morning Wake Up 8-2-11

The takeaway from yesterday is that the SPX held the 12 month MA at 1276. This level represents where the broad markets fall into a secular bear market for the weeks and months ahead and substantial selling will occur. For today, the futures are red, and want to move down to fill the 1280-1281 gap. The 200 day MA is 1285. For the market bears to crack the egg wide open and usher in big market trouble, they must accomplish two things this morning; first, push the SPX under the 12 month MA number, now at 1276, and, second, push the SPX under 1274.73. Thus, think of 1275-1276 as the line in the sand for the broad markets.  Selling will accelerate and become extremely ugly if the 1275-1276 level is lost today.

All that said, the charts and technicals actually lead towards a bounce occurring in the broad markets.  The utilities were positive yesterday, copper remains buoyant, and the semi's and tech charts are set up for a bounce due to positive divergence. The VIX, volatilty, chart is long and strong, it wants to make a higher high which will correspond to weak markets, but a pull back would be expected before more upside with the VIX.

The TRIN spiked towards 3 several times yesterday, fully consistent with a selling event.  Typically, after a 3 or higher day (bearish markets), the following day yields some give back for the bulls. NYMO and NYHL are agreeable to the indexes recovering. NYAD verifies the erratic markets with two low readings at -2500 and one high reading up over +2000, in only the last four days!

The market bulls would need to drive up and over 1307.38 if they expect to accelerate the upside buying. SPX range of 1277-1306 is sideways slop. Thus, the 1275-1276 support holds the key today, lose that and all Hades breaks loose. If this support holds, markets should recover, and perhaps that Bradley turn would kick in for an upside rally to surface. Should the markets put on a happy face, especially after the debt ceiling vote is finalized today, the bulls need to get up and over 1307, and if they do, they will finish the day with a stronger SPX towards 1314 and 1316.