Keystone's Midday Market Action 10-26-11

Futures were up but as pointed out earlier the Nasdaq percentage was below the S&P percentage so the open should be sold.  The TRIN started in the 1.60's, firmly favoring sellers, and has stayed above one today favoring sellers, so this also hinted that the move up in the indexes at the bell would retrace.

Another tell, if you were watching volatility, VIX, it remained above 30, so that hints that the bulls have no real steam behind the up move, they needed the VIX to drop under 30 to receive rocket fuel, and it did not. As markets then trailed lower this morning, it was the market bears turn to flex their muscles. They have the VIX on their side, above 30, but to get some bear momo, they need one of the four bullish support sectors, UTIL, SOX, RTH or XLF to fail. Specific levels to watch are UTIL 432 the rest of this week, SOX 367.30, RTH 106.70 and XLF 12.75.  All prices remain above these levels so the market bears got nothing. The market selling will accelerate only if one of these four fail.

The surprising aspect today was the weakness in retail. Keystone mentioned the negative divergence in retail and dollar store stocks so the spankdown is here, so that was no surprise, the surprise was that SOX or XLF would be thought to fail first for the road lower for the broad markets, but, RTH collapsed instead today, printing a low of 107.84, only a buck above danger that will accelerate broad market selling. Last print for RTH is 108.50, so continue to watch this closely. The market bears got something if you see RTH drop under 106.70. So there's the road map.

In a nutshell, watch VIX, UTIL, SOX, and especially RTH and XLF to determine broad market direction. VIX below 30 and the market bulls win; XLF 12.75 or RTH 106.70 failure and the market bears win. Otherwise, markets continue sideways.