Keystone's Evening Nightcap 1/9/12

The SPX moved thru the tight 1275-1281 range today without committing to the market bulls (since 1282 was not achieved), or to the market bears (since 1273 was not violated).  The Merkozy duet provided a boring performance this morning that did not push the markets either way. The feather in the bulls cap today is that the SPX closed above the 12-month MA, albeit by pennies.  The feather in the bears cap today is that the bulls pushed up towards 1282, but at only a penny away, at 1281.99, failed, running out of upside gas and unable to ignite further bullishness.

Tuesday's session will pick up where today left off.  If the SPX, starting at 1280.70, touches the 1282 handle, the bull orgy will be in full swing, the wine will flow like water, and the broad markets will accelerate higher.  If the market bears can push the SPX six points lower to lose the 1275 handle and drop under 1274.50, the bears will accelerate the downside substantially and the move lower will be sustainable. A move thru 1276-1281 is sideways but it is hard to see the SPX maintaining such a tight range for two days in a row.  Therefore, something should give, either the bulls win when the SPX touches 1282 and explodes higher, or, the bears win if the 1274.50 level is lost.

As a rule of thumb for Tuesday, if the SPX drops under 1275, Keystone's proprietary algorithm, Keybot the Quant, will likely flip to the short side. Keybot's market call appears continuously in the left hand margin on this site and has remained bullish since 12/20/11.  Extreme caution is required since a market turn may be imminent.

Simply watch to see if the SPX moves above 1282 to reward the bulls and slap the bears, or, if the SPX drops under 1275 to reward the bears ushering in a more sustainable broad market down move. If 1275 fails, strong bearish negativity will linger in the air. Watch the futures overnight to see if the bulls can muster up two or three green S&P points, or, if the bears can create some negativity and show about six or seven red spoo's.