Keystone's Evening Nightcap 11-17-11

The downhill sledding was fun today.  The semiconductors gave up the ghost sending indexes south.  We watched the early weakness in the chips and technology.  Before lunch the Nasdaq accelerated lower ahead of the S&P indicating that the down side had street cred.  The semi's collapsed thru Keystone's algorithm value of SOX 377.50 a few minutes after 12 noon; this sealed the markets fate today and signaled that another leg down for the broad markets was on the door step.  Keystone's SPX:VIX ratio fell under 35 as well verifying a large down day on tap but then in the final minute, at 3:59 PM, it popped back above 35.  Thus, watch SPX:VIX tomorrow morning. If it stays above 35, the market bulls are mounting a come back.  If the ratio drops back under 35, another large down day should be on tap.

The semiconductors will be in the spotlight tomorrow.  Yesterday, the higher volatility and the lower financials joined the bear camp.  Today, semi's join the bear camp. The only two legs remaining for the bulls are the utilities and retail. Thus, if the semi's stay weak, watch retail and the utilities to see if one of them crack next, if so, the markets will take another leg south.  If the semi's recover above SOX 377.50, then watch VIX and XLF next. RTH 109 level would be a next target for the market bears. Bulls will try to hold RTH 109 with all their might.

The TRIN spiked to almost 5 today and closed at 2.94 which indicates heavy selling and it would be agreeable to see some market buoyancy so it can return down towards 1.0.  The CPC Put/Call Ratio dropped from 1.39 to close at 1.30 today. This is odd. It indicates that despite the strong selling today, traders actually became less fearful of the markets, in other words, buyers came in towards the close today. A move higher for the CPC towards 1.5 would have been expected which then indicates a recovery bounce is on tap for markets. Since the fear subsided, even though markets were selling off strongly, then that would suggest the very short term down side move is not finished.

BPSPX collapsed to 65.80.  Reference this morning's chart. This is a big feather in the bears cap. From the top at 78 to 66 is a 12 point reversal well beyond the six percentage points required that now signals an all clear for the bears.  Also, the important 70% level collapsed, stabbing more daggers in the bull's back.  Despite the strong selling, NYAD did not spike down to print a negative 2400. Tonight's print is -1900.  Thus, selling the last couple days has been orderly, slow and steady eddy type selling. A spike down would lead to a market bounce but at -1900, there is still room to move lower before the market turns up, so NYAD is open to seeing lower prints for the indexes. NYMO is at -52 so this is an area consistent with where a market bounce will occur but it would also be agreeable to lower numbers, -60, -80, are definite possibilites.

The signals just described tally in favor of the bear case, and are not providing the typical signals expected to indicate a market bounce, so stay on guard for some additional market downside.  SPX 1210 held today and this is sturdy support. Buyers were entering at this level today. If the analysis in the last couple paragraphs holds, these buyers may regret that decision tomorrow. Watch SPX 1209.43, if lost, the sellers will enter in force and SPX will be headed towards the psychological 1200 level. 1210, 1204 and 1199 are strong support.

Gold sold off strong today, over 50 bucks but settled about 40 down.  As pointed out recently, gold and silver has synced up with the other commodities and now move with equities. Equities down=gold down and equities up=gold up. OpEx tomorrow, just another item to add to the mix tomorrow. Leading Indicators are at 10 AM with no other economic data on tap.  For earnings, Pittsburgh's ketchup king, HNZ, reports. ANN will provide some more retail information.

Although the down move may still have a little juice, the markets should recover one more time since the utes remain bullish.  Typically, the utes should lead, or at least be coincidental, as markets roll over, and this is not the case currently.  Thus, Keystone says that the markets should head back up once again after this near term selling finishes up, and then once the indexes move up, the utes should be in a position to potentially roll over leading to a more sustained and stronger market down side move.  More on this as the days tick by. For now, the bears are having fun. Markets are at the mercy of Europe and the U.S. debt deadline.

In a nutshell, it's always best to keep the picture simple, for Friday, SOX 377.50, SPX:VIX 35, RTH 109 and SPX 1209.43 will tell you everything you need to know.