Keystone's Evening Nightcap 10-3-11

That was an exciting finish today with the markets breaking key technicals with only one minute remaining in the session.  The SPX lost the 1101.54 low from 8/9/11, thus, anyone that said the August lows would hold, was wrong.  UTIL losing the 424 level today is very important as described graphically in the previous blog post. The old-timers follow the utility 15-week look-back technique and most of the algo's have it programmed as well, Keystone's algo, Keybot the Quant, does.

Thus, for tomorrow (Tuesday), watch UTIL 424 and 418. If UTIL moves above 424, the market bulls are back in the game and the indexes will move up. If UTIL stays between 424 and 418, the markets will sell off but the selling will be orderly and steady. If UTIL 418 fails, a trap door opens for the indexes and they will go over the falls.

The banks led the downside today and GS broke 90 but finished a few pennies above. This takes it back to levels near the March 2009 bottom.  The weekly and daily charts for GS, however, are setting up with positive divergence so the worst appears over, and it is actually more prudent to think about upside.  Looking at the banksters more generally, via XLF, the same set up is in place with positive divegence on the weekly and daily charts. Despite all the naysayers, the financials appear much friendlier for the upside now than the down side. As usual the pundits fought the charts the whole way down and now that things are setting up to bounce, the same pundits are preaching doom and gloom.

Even BAC, that shafted their loyal customers with a gouging fee, is set up with positive divergence on the weekly and daily charts so a bounce is in order. Looking across many sectors, the two months of selling is getting overdone now with the charts setting up for bounces. Commodities maintain a sick look but oil is setting up for a short term pop. Semi's and tech are close to setting up with positive divergences but they are not in as good a shape as financials. The daily chart on the VIX is setting up with negative divergence which is also market positive.

Put/Call CPC is 1.25 consistent with where the indexes should bounce.  NYAD prints a -2500 today which is fully consistent with a reversal for the markets back to the upside.  NYHL prints a big -889 number matching two other drastic low numbers, again, consistent with a need for markets to reverse and bounce upwards. TRIN closed at 3.32 which also signals a need for the market bulls to receive a bounce. A TRIN above 3 denotes strong selling and is an indication that things should reverse back tothe upside. Do you notice a theme here?

The failure of the utes, UTIL 424, at the final minute today was a surprise. Since it was tucked into the last minute there is no way of knowing if the move under 424 has staying power. We find that out when the bell rings tomorrow.  The financials are ready to rebound now, and the index internals are all agreeable to a bounce as well.  In an ideal world it would be nice to see the indexes drop at the open tomorrow since this may provide a nice buying opportunity. If you see UTIL creep back above 424 you will know the bulls are ready to recover.

For the SPX tomorrow (Tuesday), any hint of red in the futures will cause the indexes to tumble at the open. As shown above, this actually may set up for a buying opportunity. Use the UTIL 424 and 418 levels to guide the action. The market bulls want to simply stop or stall the fall in the indexes and the way they can do that is to push UTIL back above 424, that will be the tell. If the indexes start to motor south, then watch UTIL 418, that will be the last chance for the market bulls to hold the broad market selling. If UTIL 418 fails, it is over for the markets.

Even if the markets bounce tomorrow, now that the SPX 1101 failed, 1044 is in play. The failure of 1101 today occurred on lighter volume than the 8/8/11 closing low and 8/9/11 intraday low indicating that this intial move lower today may not have too much steam. SPX support and resistance of interest tomorrow is 1124, 1119, 1115, 1112, 1104, 1101, 1099, 1095, 1094, 1092, 1088, 1087, 1083, 1079, 1078, 1076.

Factory Orders and Chairman Bernanke's speech hits at 10 AM, one-half hour after the open. AAPL's iPhone release may help add a positive vibe to things.  Ending this missive on a humorous note, Jim Beam plans on chasing the woman demographic with Skinnygirl Cocktails. That is not the first time that some Jim Beam chases women; it is not called 'liquid courage' for nothing.