Keystone's Morning Wake Up 11-21-11

The U.S. 'not-so' super committee's lack of results are slapping the futures markets hard.  The looming failure of the committee is casting a negative vibe as the week begins.  The Budget office needs a plan by midnight tonight to score the porposal by the Wednesday deadline.  Thus, despite the high negativity, the day is long so we will see how the day plays out. The news does not look good, however.

The rating agencies wanted to see 3 to 4 trillion in U.S. cuts and the super committee could not even agree on the structure of the 1.2 trillion cuts. This calls the bluff on the rating agencies, they will have to react in some way, so the markets are selling off to price in any potential coming downgrades.  Treasuries should not receive punishment, however, since buying interest remains strong as money searches for a perceived safe haven with global markets weakening.

The strength of the broad market down move at the open can be measured with the RTH and SPX:VIX today.  The SPX looks to lose the 1210 level, that opens the door to test 1204, then 1198, then 1193 and 1191. Reference the SPX charts and SPX S/R a few posts back for a detailed discussion on support and resistance levels.

As the markets sell off, if retail, RTH, now at 109.78, stays above 108.75, the selling will moderate and not have any significant downside oomph. If RTH loses 108.75, however, the broad indexes will sell off large today. Similarly, watch Keystone's SPX:VIX Ratio Indicator, now at 38. As the markets sell off, watch to see if the SPX:VIX loses 35, if so, a large triple digit down day is on tap for the Dow Industrials and the markets will be beat hard. If the ratio stays above 35, the market bulls are fine and will stop the market down move. A loss of the 35 level for SPX:VIX ushers in big trouble that has staying power.

Note Added 11/21/11 at 8:48 AM:  The S&P futures are down -1.22% and the Nasdaq futures are off -0.86%, thus, the broad market down side move does not have a lot of oomph since the Nas is not leading.