Keystone's Evening Nightcap 9-21-11

Today's fate was sealed at 10:50 AM EST when Keystone's SPX:VIX Ratio Indicator dropped under 35, indicating that the bears have regained control of the markets and a large down day is on tap.  Chairman Bernanke delivered the Operation Twist pony, just as promised, but also served this up with a healthy portion of negative economic forecasting, sending traders to the exits as they realize that the Fed is a lot more bearish now.  When 1201 was lost, the move south accelerated as expected.  The semiconductors turned bearish today, as measured by Keystone's proprietary algo, Keybot the Quant, but retail and utilities maintain a bullish posture. Copper, commodities and financials remain bearish.

The 10-year note yield dropped to 1.88% at 12:30 PM, recovering to 1.96% into Chairman Bernanke's announcement, then promptly falling on its sword once again printing 1.86% before stumbling along now under 1.90%. The CRB printed 321.43 at the close, thus, Keystone's Inflation Deflation indicator drops to 3.10, the 3.00 level signifies disinflation.

As the support/resistance shows, SPX 1166 provided support as the late day selling finished. 1155 is also key support below.  Since the indexes closed near their lows, the SPX only needs to lose this 1166 support and the downside will accelerate tomorrow. Thus, if the futures are red into the open tomorrow, the bears will be happy campers since a test of 1155 will be on tap.

The market bulls must keep futures green to stop the bleeding. Bulls must defend 1166 since things can get out of hand if the 1166 level fails. If the initial schedules are holding, HSBC China PMI hits in the morning so growth can be gauged, the Citi Industrials Conference should provide sound bites on why the industrial sector appears to be in the tank now and the BRIC countries will meet in Washington, D.C. to discuss how to help Europe.  Jobless Claims will effect futures before the open tomorrow and Leading Indicators will provide a market pivot point at 10 AM.  

Watch semiconductors and retail since they will tell the tale for the broad markets. Semi's are bearish now while retail is bullish.  Thus, if the SOX moves back above 366.30, now at 365.37, the market bulls will recover and the broad markets will be buoyant. If the SOX remain bearish, RTH will tell the tale. If RTH, now at 105.03, loses the 104.10 level, then this failure will usher in accelerated selling in the broad markets. If RTH maintains the 104 level or higher, then the market bulls are hanging in there and not giving up the ghost just yet.

Interestingly, we are in a Bradley turn window now for the indexes, especially between now and next Thursday, so we kicked off this jumpy-market period with a bang today.