Keystone's Morning Wake Up 11-17-11

Housing Starts and Jobless Claims bounced the futures back towards a flatish open.  The European bond yields, especially France and Spain 10-year yields, continue to rise sharply indicating that contagion is spreading. Fitch, a rating agency, announced concern over U.S. banks, especially JPM, BAC and C, and labeled them as a serious risk.  The U.S. debt talks continue as well with a deadline only days away.

Let's stick with something concrete like technicals. This morning's charts highlight some areas worth watching. CPC is at 1.39 so watch that closely since this level and higher is a level that indicates a market reversal to the upside is on tap.  When markets are down large on a Wednesday, such as yesterday, they tend to not bottom at least until the Thursday session is underway, thus, watch yesterday's SPX LOD of 1235.67 very closely.  If that is ruptured to the down side, the broad markets in general will fall several more handles.

The NYAD represents steady eddy selling yesterday, no large spike downwards, so watch today to see if NYAD prints a negative 2500 , or anything in that viciniity, since that will indicate that markets will want to bounce.  The NYMO is at -19, once it moves under -40, that requires close watching for a potential broad market reversal as well.

For now, the market bears are making a run.  The volatilty jumped yesterday, and financials sold off, providing the bear fuel to the down side.  The BPSPX, however, has not yet reversed six percentage points to signal that the bears are in full control. So watch to see if BPSPX 72 fails, then if the 70% level fails, since both of these will then indicate sustained bearishness ahead.

Keystone's SPX:VIX Ratio Indicator is in the vicinity of 35. If 35 fails, and stays under, this will signal a large down day on tap today for the indexes.  If 35 holds and the ratio stays above, then the market bulls are still doing okay. The three sectors remaining that support the bull case are utes, semiconductors and retail. Thus, if bears want to take markets lower, one or more of these three have to cooperate.  Watch retail, RTH, now at 111.26. If the 109 level is lost, about two points lower, then the broad markets will take another step lower.

Also watch XLF 13.00 and VIX 31.25 again today. The XLF must remain under 13 and the VIX over 31.25 to keep the bears happy. At this writing, S&P futures are unchanged while Nasdaq is up 0.04%, a smidge, so any down side would not have much legs since the Nasdaq is not leading.

In a nutshell, to keep it simple, watch XLF 13, VIX 31.25, RTH 109, SPX:VIX 35 and SPX 1235.67 to determine market direction.