Keystone's Evening Nightcap 12/20/11

Santa Claus made a grand entrance today, first bouncing the retail sector at the bell and then slowly pumping the financials all day long.  Then, in the 2 o'clock hour, the financials developed enough oomph to bless the bullish market move today.  The XLF closed at 12.72. Keystone's algo is watching the 12.71 level as a bull-bear line that will push broad markets one way or the other, hence, the financials are only one measley penny on the bull side, and whichever way XLF moves tomorrow, so will the broad markets.

A wet blanket for today's action is the NYAD and TRIN. Today was not a steady eddy up move, far from it, instead it was shock and awe.  The TRIN closed at 0.17! That is obscenely low, reflecting the uber bullish market orgy today. Therefore, typically, markets need to sell off to rest from such a move and remedy this low number and move it back up towards the bull-bear line at 1.0. NYAD printed +2312 tonight, an uber high number that verifies the wildly bullish day. Like the TRIN, extreme numbers for the NYAD lead towards markets snapping back to take a rest from such a move. Let's keep this theme going. The NYHL prints a +134. The only number larger than this over the last five months was the late October number that signaled the snap back sell off after the October rally. So now we have a paragraph of wet blankets.

On the bullish side, Keystone's SPX:VIX Indicator is at 53, singing a bullish tune, no where near the 35 level that wouls signal market danger. The BPSPX did not reverse six percentage points so the market bulls remain in control since late November (reference the BPSPX chart and discussion a couple pages back, or simply type BPSPX into the search box above). The utilities, financials, lower volatility and retail sector are all bullish so the three-legged bull stool graduates to a sturdy four-leg bull chair now. So this is a paragraph of happy bull signals.

Today the joy started with better than expected German Sentiment.  Then traders are getting excited about the European three-year loan program.  Housing Starts, one of Keybot's key monthly numbers, came in much higher than estimates so the markets rocked higher and never looked back. Dow Industrials moved back above 12K. The 10-Year Note yield moved back above 1.90%. The major indexes were up 3%. Keystone's Inflation-Deflation Indicator shows the U.S. currently in DISINFLATION although on the verge of working its way back into the Neutral range; 301.67/100.67 = 3.00.

For the SPX for Wednesday, starting at 1241, if the market bulls can continue the fun and touch the 1243 handle, the large block buyers will enter, shorts will cover, the booze will flow, and another upside orgy will occur in the broad markets.  The market bears need take the SPX all the way back down to the 1205 level to get the negativity to return in the markets so this appears unlikely.  Instead, bears will focus on that XLF 12.71 level and try to push the financials lower which will stop the market upside.

Wednesday will continue the market instability. The very short term indicators above such as TRIN, NYAD and NYHL want to see a quickie market pull back. Oracle earnings disappointed tonight so that will weigh on the tech sector.  Regular intervals of drama wil occur with Existing Home Sales at 10 AM and Oil Inventories at 10:30 AM.  A 7-Year Note Auction occurs at 1 PM and requires attention even if it is an oddball. A Bradley turn window opens tomorrow where from now thru the first couple days of the new year a major market turn is projected to occur. The Bradley does not predict direction, only that an intense market move will occur.  Interestingly, Keystone's Eclipse Indicator points to the current period, now thru mid-January as having a high potential for a large market sell off.

In a nutshell, for Wednesday, XLF 12.71 will determine market direction at the bell. SPX touching 1243 will set off another strong upside market move.  Key SPX S/R is 1258, 1252, 1247, 1240, 1235, 1227, 1225 and 1220.