Keystone's Morning Wake Up 11-2-11

Futures are happy, traders thinking that the latest Greece olympic-sized games will resolve without futher trouble while at the same time expecting happy details on the Fed's upcoming quantitative easing program. That is called looking at the glass half-full. In this environment, the Euro mess can blow up at any second, and instead of quantitative easing talk this afternoon, traders may hear crickets.

Sticking to the technicals to gauge today's action, watch XLF at the bell, now at 12.86. Keystone's algo is now watching 12.92, so if XLF moves above 12.92 at the bell, the market bulls will drive the indexes higher, if the 12.92 ceiling holds price down, the bulls got nothing.

If the XLF moves back above 12.92 favoring bulls, then look to copper and volatility to dictate broad market direction today. Use JJC as a copper indicator, watch 46.50, now at 45.35, over a point below, favoring market bears. For volatilty, VIX, watch the 30 level, now at 34.77, comfortably above in the bear camp.

Thus, if XLF jumps upwards, and it looks like it will since the futures are bright currently, JJC and VIX will lead the way.  If JJC stays under 46.50 and VIX stays above 30, the market bulls got nothing, the relief rally will simply serve as a countertrend pop. If either JJC moves above 46.50, and/or, if the VIX drops under 30, the market bulls will be returning the indexes to rally mode. Current thinking is that the JJC and VIX should remain bearish but with the European news flow, markets can, and do, change on a dime.

The CPC put/call at 1.35 is favorable to a market rally occurring now since it is over 1.2; bearishness increased quickly and this is a contrarian indicator.  NYAD printed an intraday low of -2400, closed at -2158, and Monday it was -1900, all are very low numbers consistent with wanting to now see a market bounce although there is a little wiggle room to go lower before a bounce would occur.  NYUD is at -1168, the early October market bounce occurred from -1400, so this area favors a market bounce. TRIN printed two closes the last two days at 2.9-ish, which represents strong selling, so this is agreeable to a snap back rally as well.

Keystone's SPX:VIX Ratio Indicator fell under 35 yesterday to verify the large down side move that occurred.  At the final print, in the final minute, however, the ratio popped from 34 to up over 35 by four pennies, final print is 35.04. Thus, if the ratio stays above 35, the market bulls are happy, below 35 and the bears rule.

Recently, countertrend moves have occurred in a shortened time frame. Instead of the countertrend move occurring for a day or three, in this wild market environment, subject to any news any minute, the countertrend moves have only been half day events. Thus, the short term indicators mentioned are agreeable to see a snap back rally but we will see if it lasts the day, or if the pop collapses as Chairman Bernanke takes his seat at the Desk Conference this afternoon.

Futures show the Nasdaq percentage up less than the S&P percentage at this writing hinting that the up move will not have legs today.  As described above, watch XLF 12.92 to get your bearings. Then watch JJC 46.50 and VIX 30 to gauge the strength of any up move.  Watch the SPX:VIX ratio to see what side of 35 it favors. These tools are all you need to know to determine broad market direction today.