Keystone's Morning Wake Up 10-21-11

Markets are at the complete mercy of Europe currently, reaching ridiculous proportions now since the indexes are reacting in real-time to news that is actually already old news released days earlier. The European dithering erodes investor confidence.  Today the markets will be in a knock-down drag out fight with the SPX 1220 level, futures now indicating 1220-1221.

Keystone's proprietary algo flipped short yesterday at SPX 1206.  If the SPX touches 1220 today, Keybot will probably flip back to the long side. The sectors supporting the indexes currently are utes, semi's, retail and financials.  The sector to watch, which will indicate any chinks in the armour, is the semiconductors.  Semi's were the big story yesterday, the SOX dropping like a stone to print a 356 handle, then sky rocketing to 367, then back down to close at 364.  As the opening bell rings, watch SOX 363.65 level, only pennies below the starting number. If the SOX loses 363.65, the markets will sell off, if this level holds, the markets will remain buoyant.

Keystone's SPX:VIX Ratio Indicator keeps bouncing above and below 35, closing at 34.95 yesterday. If the ratio stays under 35 today the market selling will rule the day. If the ratio moves above 35 and stays above, the bulls will be running the markets higher. The put/call CPC spiked up to 1.38 indicating traders are fearful. This is typically a contrarian indicator so at 1.4-ish, this number is consistent with where a market rally occurs.

To keep it all simple, watch SPX 1220, SOX 363.65, XLF 12.62 and SPX:VIX 35. Market bulls want to see SPX 1220 and higher asap today, the SOX to stay above 363.65, XLF to stay above 12.62 and for the SPX:VIX to move above 35.  Market bears want to see the SPX stay below 1220, the SOX to collapse thru 363.65, the XLF to drop under 12.62 and for the SPX:VIX to stay under 35.