XLF failed at 15.18 at the bell. Pehaps the MS downgrade news is finally sinking in. Copper is collapsing, JJC now has a 46 handle. VIX inches upwards printing 19.44. Keystone's SPX:VIX Ratio Indicator, however, has not fallen under 68. Current print is 69.41. This provides hope for market bulls. Weak utilities and semiconductors help the bears. AAPL is red, so the Nasdapple is red and tech leads the broad markets lower, bearish. Watch XLF 15.18, RTH 41.35 and SPX:VIX ratio 68 to gauge market direction for the remainder of the day. If SPX:VIX fails at 68, the market carnage will become serious. Bulls will try to mount a come back by pushing XLF over 15.18.
The SPX failed the 1364 level so the downwards acceleration took this broad index down to a LOD of 1358.48, so watch this number as support. SPX:VIX is now printing a 68 handle. XLF remains weak at 15.10.
Note Added 5/8/12 at 10:07 AM: SPX:VIX in the low 68's, keep watching it. RTH is 41.45 now only one thin dime away from failure. XLF drifting lower. SPX is now printing lower lows on the day. The bears are pushing hard and the markets are on the verge of losing it. SPX:VIX now printing 68.26, only 26 cents from failure which will send markets far lower.
Note Added 5/8/12 at 10:12 AM: Kerplunk. That is the sound of the wheels falling off. Keystone's SPX:VIX ratio just lost 68. If the ratio stays under 68, the markets will experience a large day down today, Dow Industrials will be down triple digits, and currently are down 107 points. SPX:VIX now printing 67.72. RTH is printing 41.40, a nickel away from failure, the low of the day is 41.34 piercing thru the 41.35 support. If RTH fails 41.35 the bulls will have no hope remaining.
Note Added 5/8/12 at 10:18 AM: RTH failure at 41.35. The bulls have no hope remaining. See if this holds for a few minutes. The bears are growling strongly today and this action will lead to sustainable downside ahead, as long as the levels highlighted hold. Here comes the SPX:VIX ratio back up for a back kiss of 68, now printing 67.97..... 67.95 ..... High drama.
Note Added 5/8/12 at 10:35 AM: Wheeee, ride this market down, the bears are in full control now. SPX:VIX ratio now printing 66.21. XLF is close to losing the 15 level. RTH 41.11; it is about time the retail sector cracked. The trading is great--if you were short the indexes. Downhill sledding, sit back and enjoy the ride. SPX fell thru a key support level at 1354.64, the 20-week MA. SPX S/R is 1361, 1359, 1358, 1356, 1354. 64, 1351, 1347, 1345.37 (100-day MA), 1345, 1344, 1343 and 1341. SPX now printing 1352.48.
Note Added 5/8/12 at 11:17 AM: Here's the test of 1347 support and 100-day MA at 1345.32. The 10-year yield is at 1.82%. VIX is approaching 21. Keystone's Inflation-Deflation Indicator is 293.71/101.625 = 2.89 which signals that the economy has now fallen into Deflation. Remember, QE3 will occur as the CRB falls under 280, the CRB is now printing 293. COMPQ is down 1.58% while the SPX is down 1.28% so tech is leading the broad market lower, another feather in the bear's cap.
Note Added 5/8/12 at 12:06 PM: Note that SPX:VIX is inching up towards 68 now printing 67.49. RTH is inching up towards the critical 41.35 level now printing 41.27. Keep watching these two characters. Copper is down 2.5% and if the doctor is sick, so are the markets.
Note Added 5/8/12 at 1:41 PM: SPX:VIX continuing to inch higher towards 68 now printing 67.58. RTH regained the 41.35 level 20 minutes ago and note the recovery in the markets. SPX:VIX ratio is key, see if it holds under 68 to signal more selling, or not. Bulls are clawing back and the first step was to move the RTH back above 41.35. The drama continues. The SPX 100-day and 20-wek MA's are playing a key role today so keep watching these levels to gauge the bull-bear struggle.
Note Added 5/8/12 at 3:12 PM: SPX:VIX ratio punches back up thru 68 which nullifies the market bearish signal. The day is not finished, however, so keep watching. Since bulls have now wrestled back RTH and SPX:VIX, next watch XLF 15.18. XLF is sitting at 15 well below. The markets are experiencing buoyancy due to the claw back with RTH and SPX:VIX but overall the bears remain in control. Natty is feeling some more love today.
Note Added 5/8/12 at 3:50 PM: XLF is at 15.06 staying under 15.18 so markets are floating sideways into the close. Keystone sold BOIL taking profits, that was a longer than expected trade but the positive divergence worked out. Keystone still holds UNG that is under water. Also bot more AMRS. Also bot more CDXS. Also bot RIMM, opening up a new long position. Keystone also bot MNKD reestablishing a new long position in this one again.
KS,
ReplyDeleteWhat is the significance of spx:vix = 68?
Thanks,
Uma
Hello Uma, after years of technical analysis, Keystone developed two price levels of interest for the SPX:VIX thru previous history, based on market price action, 68 and 35. We are at the top end where we saw bullish markets this year so it becomes important when markets then weaken and the 68 is lost. On the lower side, after a large market selloff, perhaps in the days and weeks ahead, the ratio will drop under 35 so it will be important when it comes back above 35 to signal a strong recovery rally beginning.
DeleteBut to answer your question, the levels are simply based on Keystone's analysis over the years, like many other tools you see here. You will not find these tools anywhere else, or in any books, unless Keystone can finish his mini-books on the markets some day forward.
KS,
Deletespx:vix dropped below 68, bounced and rallied hard the last 3 or 4 times. spx rallied several points. do you think it will happen again?
What are the other indicators you watch other than jjc, xlf, vix and rth?
Thanks,
Uma
KS,
ReplyDeleteyou mentioned in your note that "Remember, QE3 will occur as the CRB falls under 280, the CRB is now printing 293" -what is the reason?
thanks,
Uma
Uma, the CRB is the commodities index, so it is a great gauge of global economic activity. You need lots and lots of oil, copper, grains, coal, iron ore, cement, etc.... when the global economy is rockin', like in China and Asia the last decade.
DeleteBut, all good things come to an end. When demand for commodities falls off, this indicates that disinflationary and deflationary conditions are coming. Chairman Bernank is a scholar on the Great Depression as well as Japan's lost decade, now lost two decades, both of which are deflationary funks. Bernake is extremely worried about deflation, it will lead to a decade or more of misery in the U.S. like Japan. Bernanke felt that the Fed did not do enough QE in the 1930's to save the markets, that is why he said he would drop money from helicopters (QE), and has the nickname Helicopter Ben.
Therefore, the CRB is a great indicator for when QE3 should be triggered. In early 2009 we were at deflation at 2.5-ish for Keystone's indicator, and in summer 2010, when markets were abou tto go over hte falls, Bernanke saved the day with QE2 and we were at 2.5-2.7-ish for Keystone's ndicator.
This corresponds to a CRB of from 250 to 270 so based on the past this is the area where Bernake should step in with QE3. Tha twill be the time to look at shorting the dollar, buying gold, buying small caps, for the money pumping bounce.
KS,
Deleteyou mentioned, "Inflation-Deflation Indicator is 293.71/101.625"
what is 101.625? Where do you get this data from?
Thank you very much for answering my questions in detail.
Thanks,
Uma
Hello Uma, you will have to study the site more for other indicators, review the Turn Signal and Secular Signal pages and follow the daily commentary Keystone provides.
ReplyDeleteYou must study harder and pay attention, the message clearly says what the denominator is. You could have answered your own question. Think deeply on the subjects here rather than on the surface, that way you can understand the concepts deeper and learn to do them yourself.
CRB is the numerator and the U.S. Treasury 10-year price is the denominator. When the 10-year yield falls, as it has been, down into the low 1.8%'s, note and bond prices move opposite, so price moves up. Lower yields indicate a move towards disinflation and deflation. If the denominator is moving higher (10-year price) this will make Keystone's indicator number lower. Now don't you wish you paid more attention during math class when fractions were covered?