Keystone's Midday Market Action 5/7/12

Financials, XLF, is 15.11.  Now 15.13, inching up towards the critical 15.18 but remaining bearish for now. VIX remains elevated over 19 remaining in the bear camp.  RTH is 41.73 remaining in the bull camp.  With VIX remaining elevated, use XLF 15.14 and RTH 41.35 as the gauge of the bull-bear battle today. Bulls will win today if they can move the XLF higher, bears win if they move the RTH lower. Keep in mind that even if the XLF turns bullish, Keystone's algo will likely not flip long unless both the XLF and VIX cooperate by moving back into the bull camp.

AAPL is green by a few bucks but note that the Nasdapple continues to lead the broad market to the downside which is bear friendly. The SPX bounced off the 1364 support. Watch the LOD of 1364.29 the remainder of the day. Watch resistance at 1370 and 1370.58. Whoa, XLF banging at the bull door now printing at the 15.17 and 15.18 level. See if it can punch up thru or if it collapses. RTH is printing 41.75 staying firmly in the bull camp. Thus, markets receive a slight edge due to XLF buoyancy and right now the broad indexes are flat. This is the major fight today; XLF at 15.17 and 15.18 is deciding the broad market direction for today.

Note Added 5/7/12 at 9:47 AM: XLF is weakening, now printing 15.13. SPX has established a range thru 1364-1370 thus far today so any move out of this range will be important. It's another nice day in Pennsylvania so perhaps the timing is good to plant the seeds in the vegetable garden today and of course enjoy the day sitting on a lawn chair. The bulls and bears will be in a sideways fight until either the bulls win with XLF 15.18, or bears win with RTH 41.35. Keystone's SPX:VIX Ratio Indicator did not drop under 68. It is now printing 70.85 so the bulls are remaining in the game.  If the 68 level fails today the markets will be down large with the Dow Industrials down triple digits, therefore, the bulls are fighting with all their might to prevent the ratio from failing under 68. Keep an eye on it.

Note Added 5/7/12 at 12:16 PM: Checking the markets as a sam-mich is enjoyed. XLF is inching upwards now printing 15.15 approaching the critical 15.18 level, but still bearish for now. RTH is printing 41.83 well above the 41.35 danger point remaining bullish for now. Thus, with the VIX over 19 all day long firmly bearish, markets continue sideways. Note that the utilities are red which is a feather in the bears cap.  AAPL is on the red side, and this helps the Nasdapple lead the downside, albet it by a smidge, but this is a feather in the bear's cap nonetheless. Keystone's SPX:VIX ratio, however, is 71.38 remaining in the bull camp. Copper is a shade green helping bulls. Not much going on today. XLF is coming up for a test of 15.18 so that would be the most important thing to watch. Markets will move higher if the bulls push above 15.18, but, if this test fails, like this morning, the XLF, and markets should stagger lower during the afternoon. Market weakness would then place the RTH 41.35 and SPX:VIX ratio in play.

Note Added 5/7/12 at 12:25 PM: Here's the test for XLF...... now printing 15.17..... up and bulls win, down and bears win.....what will it be? ...15.16....... Natty having a nice day. Coals are catching a bid now.

Note Added 5/7/12 at 12:32 PM: Bulls tagging XLF 15.18 now, see if it holds from seven to ten minutes, if so, the broad indexes will begin running higher. A spank down will result in markets tumbling lower.  Now printing 15.19....... Nasdaq is green, S&P is green printing highs of day, AAPL is green......  VIX drops under 19 but remains well above the critical 18.14 level (this will become very important if XLF holds above 15.14). XLF is holding above 15.18 so far, four minutes now.......give it a few more minutes.......

Note Added 5/7/12 at 1:18 PM: Bulls are keeping XLF above 15.18 so the SPX continues along at the highs today. VIX is 18.57 remaining above the critical 18.14 level. Thus, continue watching XLF 15.18, if XLF moves higher so do markets, if XLF moves lower, so do markets.

Note Added 5/7/12 at 3:21 PM:  Status quo since noon time. XLF is leaking downward, however, to perhaps test 15.18 before the close. Note how VIX is climbing strongly from 2 PM today, now at 18.74, bearish. SPX 1372 S/R is a magnet today; watch which side price closes on. XLF is 15.20.  VIX is heading back up becoming more bearish, and retail remains bullish, and the XLF has been above 15.18 all afternoon but the bulls have no mojo.  This hints that the markets may sell off strongly if XLF 15.18 gives up the ghost into this last half hour of trading. If XLF stays above 15.18, the markets skid out sideways into the close.

Note Added 5/7/12 at 3:53 PM:  The XLF makes the close exciting, minutes remaining and the bulls barely holding on at XLF 15.18............

Note Added 5/7/12 at 3:54 PM:  Whoopsies daisies. XLF 15.17..... 15.16......

Note Added 5/7/12 at 4:00 PM:  Sideways finish for markets with XLF closing directly on top of 15.18.  How does Keystone know these numbers to watch in advance?  Financials, volatility and retail will remain important for tomorrow's trading.