Keystone's Morning Wake Up 10-19-11

The wild market moves continue. Keystone's algorithm almost turned short yesterday during the morning sell off but held tight and was rewarded as the day played out.  The algo remains long from SPX 1146 on 10/6/11. When the utes, UTIL, fell under 436.75 yesterday that was the tell, but, UTIL only maintained that posture for about one-half hour. Once the utilities recoverd, then the banks took off upwards, the bull party was in full swing. The $2 trillion euro Guardian announcement was the catalyst for the upward market thrust.

Volatility, VIX, is important today.  With the VIX in the low 30's now, that equates to about a 2.0 to 2.5% move either way in the indexes daily, thus, for the SPX, this is a move of about 20 or 25 handles, and yesterday's move was 25 handles. So keep yourself strapped in as long as volatility remains elevated.  For today, for the VIX, watch 29.30, above and market bears are happy, below market bulls are happy.

AAPL earnings surprised everyone.  The analysts were all expecting blow-out numbers for Apple.  Now they quickly retreated saying everyone should have expected the results since purchases of the iPhone were put off due to the new release coming.  How come not one of the analysits stated this before the earnings release? The analysts could also work as weather forecastors since they are correct about as often. AAPL should receive its spank down just as Keystone forecasted with the negtive divergence in the charts yesterday.

NYAD closed at 2075, let's call it +2100, which would be fully consistent with markets that want to kick back down. Over the last seven trading days, the NYA has printed new highs but NYAD is negatively diverged with lower readings. This is bear-friendly and hints that further index upside may be limited. TRIN closes at an uber low of 0.41, this is an extremely bullish number and it well reflects the party late afternoon yesterday when the booze was flowing and the bulls were wearing lamp shades. This is consistent with a snap back move now needed, to dampen the euphoria, and take at least a small rest.

NYMO at 66, was at 80 a couple days ago; these are elevated readings on par with the early July and early August market tops, again, reinforcing the thought of a pull back down from here. BPSPX confirmed the market rally days ago when it reversed six percentage points off the bottom and got up over 30, now at 57, and bullish, but, the chart is negatively diverged reinforcing thoughts of at least a quick pull back for the indexes.  Keystone's SPX:VIX Ratio Indicator provided early excitement yesterday, falling under 35 indicating that a large market sell off was on tap, but, a short time later the ratio regained 35 and never looked back, verifying the broad market rally. If bearish, you want to see the SPX:VIX ratio lose the 35 level.

Futures, Nasdaq is down 0.58% now, S&P is down 0.10%, that signals that the move down after the open has increased potential for bears. For today, watch VIX 29.30, under this is the all clear signal for market bulls to run the indexes much higher; SPX 1142 and more. The market bears will try to prevent the VIX from falling under 30 or the 29.30. XLF now at 12.79 is above the critical 12.60 level, market bullish, and created the upthrust for the indexes yesterday afternoon. Bears need to move the XLF under 12.60 if they want to usher in strong selling.

SPX begins at 1225. Market bulls need to touch 1233, if so, the indexes will rock higher, SPX 1242 will be targeted. A move thru SPX 1192-1232, even though it is a large 30 point range,  is considered sideways action for today. Key SPX S/R is 1247, 1242, 1235, 1233, 1227, 1226, 1225, 1224, 1222, 1220, 1219, 1217, 1215, 1213, 1210, 1209, 1207, 1206, 1204, 1202, 1200, 1199, 1198, 1196, 1193, 1192, 1189, 1188. That 1225-1227 S/R cluster is a very strong level and it is critical as to which side, and how long, the SPX trades around this level.

Here's the economic data releases for 8:30 AM............... CPI and Housing Starts. Starts are a key number each month.  Starts are surprisingly healthy at 658,000, that is a big increase from last month, may be due to a seasonal correction. Markets should want to be buoyant off this news.

In a nutshell, keep it simple, watch XLF 12.60 and VIX 29.30 which will dictate market direction today.

Note Aded 10/19/11 at 12:21 PM:  Slow morning action. XLF is at 12.80, watch the 12.62 level, so the market bulls are hanging on by 18 pennies.  The VIX is staying comfortably above 29.40, now at 33.20, so the bears are running here and the bulls will have no strength to run markets higher unless they drive the VIX under 29.40. XLF 12.62 will tell you the story the rest of the day, watch it closely when the Beige Book is released at 2 PM.