Keystone's Midday Market Action 12/21/11

Futures were up large this morning if you get up with the chickens to watch the European makrets.  But, by the open, the Christmas green had turned a devilish red.  The three-year European loan program had everyone in a happy mood, since it is a round-about quantitative easing step, but, upon closer inspection all was not well.  Italy yields started to creep back up, and traders were wondering why so many, many, many, companies showed up at the lending window. The broad markets have been down since the open. The financials, XLF, lost 12.70 a few minutes after the open so this is causing much of the broad market weakness.

Note the lower volatility, VIX, printing a 21 handle earlier. The utiltities remain elevated which hints that markets will sustain buoyancy moving forward.  The retail sector, RTH, is well above the 109.40 danger level so this will limit any market downside. Moving forward, watch the utes like a hawk since they will potentially lead the next broad market downward slide.

For now, market bulls are fine unless RTH 109.40 is lost.  Market bears are fine as long as XLF stays under 12.70.

Note Added 12/21/11 at 5:17 PM:  Utilities, UTIL, explode to the upside. Wicked negative divergence on the utility charts, however, they are topping. RTH stayed well above 109.40, in fact moving higher today and sits just shy of 112. This kept the bulls in business all day long.  The XLF, financials, stumbled at the open which ushered in the market negativity. If you were watching the 12.71 level, XLF jumped above at 2:36 PM. This signaled that another wild bullish orgy was in full force again. The SPX then jumped from 1236 to 1245. Note that it took all day but the SPX ended up touching that 1243 handle. There was no more upside today since the bell rang. Today relieved the NYAD, TRIN and NYHL conditions discussed in the previous missive.  Typically, markets are bullish the two days in front of a three-day holiday weekend, and that would be tomorrow and Friday. Keep watching XLF 12.71 this week as the main indicator of broad market direction.