Keystone's Morning Wake Up 11-1-11

November kicks off on a sour note. China PMI overnight tanked the global markets. The growth picture from South Korea is not good either.  Banks are under severe pressure.  Italy bond yields are moving up indicating that faith is lost in the Europe debt solution. The dollar index is moving up. Futures show a large sell off on tap at the open, the S&P is down 38 handles, or 3%, the Dow Industrials down over 200 ticks, or 2%, and the Nasdaq is down 56 points, or 2.4%.

Note that the Nasdaq is not down more than the S&P in percentage terms so even though the selling appears to be severe, the move down should be muted. Keystone's algo is long going into today but a flip to the short side is definitely on the table.  The quant is watching voaltilty and copper price closely, and considering that the volatility should spike at the open, and copper is already trading weak, a flip to the short side appears on tap.  The market behavior, however, has whipsaw written all over it, considering that the Nasdaq percentage move is not leading the down move. Watch after the open to see how the Nasdaq/S&P relationship progresses.

The CPC put/call is up over 1.2 which is more agreeable to a rally, thus, after a strong down day today the CPC would be even more elevated for a reversal back up for the markets. NYAD printed -1908 at the close yesterday, a strongly negative number but not down towards -2500 where a market reversal to the upside is expected, but the selling today should deliver that -2500-ish number. NYUD printed near -1000, again, moving towards, or already at a point, where a market would be agreeable to see a relief bounce. And today should take the NYUD lower.

This week was set up to be an epic week of trading and so far, it has not disappointed.  Keystone's algo will probably flip short today but the move down will be suspect for the reasons described above. Strap yourself in for some choppy wild trading.

Since copper is already in a sell off, and volatility will spike, watch RTH in the early going. RTH begins at 109.58 and if the 107.50 level is lost, the market selling will be very real and expected to accelerate moving forward.