Keystone's Midday Market Action 10-25-11

Volatilty, VIX, popped back above 29.85 as mentioned in the nightcap last evening. Thus, the market bears pushed the markets lower at the open today with the higher volatility. The SPX dropped at the open to touch 1238 so the index collapsed several more handles to 1233 before bouncing, as was expected. Bears keep the volatility to their advantage as long as the VIX stays above 30.

The four sectors supporting the market are utes, semi's, retial and financials, thus, if the markets sell off, you can gauge the strength of the decline in relation to these sectors. The levels that Keystone's quant is currently watching are UTIL 432, SOX 368, RTH 107 and XLF 12.75. If you check their current prints, you see that all prices are comfortably above, that is why the downside had no juice to it this morning. One of these sectors will have to give way if the market bears expect to do any damage. The financials are more likely to stumble first. The current print for XLF is 13.20, comfortably 45 cents above danger, and helping to keep the broad markets buoyant.  

In a nutshell, since the four sectors above are remaining resilient, watch VIX and XLF for market direction. If VIX falls under 30, the market bulls will run the indexes higher. If XLF falls under 12.75, the market bears will run the indexes lower. VIX above 30 and XLF above 12.75 keeps the status quo sideways market action in place. The Nasdaq percentage and S&P percentage are down about the same today, at 1%, showing that the market bears have no oomph to the downside; the bears need the Nasdaq percentage to drop greater than the S&P percentage, otherwise, the market bulls are fine.