Keystone's Midday Market Action 7/12/12

The Fed laid an egg yesterday. Futures are weak ahead of the Thursday session and were not impacted by the Claims data minutes ago. Natty Inventories are at 10:30 AM, the 30-year bond auction at 1 PM and the Treasury Budget at 2 PM. None are expected to be market moving. China GDP is released tonight, likely around 10 PM EST.  The China schedules are moving targets, originally the GDP was scheduled for next week, then Friday, now tonight, so the U.S. markets will now be able to trade off the number tomorrow.  China's self-imposed danger number is 7.5% so anything under there will likely result in an equity sell off.  Perhaps traders are now front-running the bad news expected? The euro broke thru 1.22 this morning.

On a side note, it is remarkable to see individual stocks tumble this year. Keystone played PCX this year, it is now belly-up bankrupt. The coals continue to languish, JRCC, ANR and others, again, all gainers in this years trades but now in trouble.  SVU had its head handed to it last evening, another stock traded successfully this year. They are dropping like flies. SVU will probably set up as a buy-out candidate so it is worth a look after the smoke clears.  This earnings season will probably repeat last year, where if a company beats the consensus it will be rewarded by not selling off whereas any miss or in-line earnings will result in a 2% to 20% beating. A high bar indeed. Therefore, more and more companies are trying to frantically lower the bar and decrease expectations moving forward.

Staying focused on the technicals, several parameters require close watching, the game plan remains the same as the last few days.  Watch XLF 14.41, now above contributing market bullishness. Watch VIX 18.75, now below contributing market bullishness.  Watch Keystone's SPX:VIX ratio, now above 68 contributing market bullishness. Watch the 200 EMA (1339) on the 60-minute chart, now above contributing market bullishness. Any change in these parameters will create market selling. If the parameters remain as is the markets will experience upwards buoyancy.  For the SPX starting at 1341, the bulls need to touch the 1345 handle to trigger an upside acceleration, but, alas, the futures are showing a ten point drop on tap for the S&P's. The bears need to break down thru 1333 to ignite an accelerated sell off.  A move thru 1335-1344 is sideways action.

SPX support to watch is 1339.69 (200 EMA on 60-minute chat), 1337, 1335.97 (50-day MA), 1333 (today), 1331, 1329, 1326 and 1325.63 (10-month MA). A market recovery may be on tap from 1325-1329. The SPX:VIX ratio will provide the answer. If markets sell off strongly but the ratio stays above 68, the bears got nothing.  If the markets sell off and the SPX:VIX ratio loses 68, markets are headed for an extended sell off. The opening bell occurs shortly.

Note Added 7/12/12 at 9:36 AM:  Markets are off and stumbling.  XLF is under 14.41, VIX is over 18.75. SPX 200 EMA for the 60-minute chart fails. Support gave way down to 1329 which now serves as the floor. The SPX:VIX ratio, however, is 69.48 remaining a point and one-half above 68, thus, if bearish, do not become too gun-ho.  Bears need the ratio to lose 68, otherwise, bulls will recover.  The TICK hit -931 so far.  Perhaps a -1000 or lower TICK may provide an entry for a day trade long.

Note Added 7/12/12 at 9:43 AM:  TICK eeked out a lower low at -950. SPX minute charts are positively diverged.  Keystone bot SPXL as an intraday long play (if the SPX:VIX ratio loses 68 this trade will prove regrettable).

Note Added 7/12/12 at 9:51 AM:  TICK is printing at -800, the bears are pushing hard, but, the SPX:VIX is 68.17, remaining above 68, albeit by pennies now.  The bears need those 17 pennies othewise the markets should recover.

Note Added 7/12/12 at 10:10 AM:  SPX printing the LOD at 1326.18.  It occurs without lower TICK's and with the minute charts positively diverged and that pesky SPX:VIX ratio remaining above 68. This may serve as a market bounce point where the bears can regroup at a higher level and perhaps make another run lower later in the day. Market failure will occur with SPX:VIX 68 but she does not want to let go, yet.

Note Added 7/12/12 at 10:28 AM:  Here's the test of the lows again, SPX 1326-ish and SPX:VIX 68.18. The importance of the SPX:VIX ratio 68 level cannot be understated; it provides today's answer. XLF is under 14.41 and VIX is over 18.75 so the bears are smiling.  The bulls are pesky, however, and have fortified their castle wall at SPX:VIX 68 which prevents a market collapse.

Note Added 7/12/12 at 11:05 AM: SPX:VIX poked down thru 68 for an instant at 10:45 AM but then quickly recovered now all the way back up to near 70. Perhaps some market churn now as the bears gather up strength for another potential run lower some time today. The 50-day MA is 1334.45; this is an important level to watch. Likewise the 10-month MA at 1324.45. A +800 TICK occurs minutes ago. Perhaps a +1000 TICK will help identify an intraday market top. NYAD prints an uber low of -2150 so a relief rally either today or tomorrow is needed to relieve some of the extreme negativity. TRIN is 1.24 with a spike of 1.57 which would be expected and favors the sellers and interestingly, a spike to 2, 3 or 4 has not occurred, so this TRIN is more relfective of steady-eddy type selling which is bear favorable moving forward.

Note Added 7/12/12 at 12:02 PM:  Keystone sold the SPXL (long SPX) day trade taking profits, flipped it into SPXS (short SPX) opening up a new position. A couple +900 TICK's printed. The SPX just back kissed the 1334.0-1334.5 area which is the 50-day MA. The XLF is under 14.41, bearish, but the VIX has recovered back below 18.75, bullish. SPX:VIX is 72, bullish. Minute charts are developing a negative divergence look.

Note Added 7/12/12 at 12:13 PM:  VIX is at 18.51; if it moves back above the 18.75 the bears got game, if the VIX stays below 18.75, the bears got nothing.

Note Added 7/12/12 at 2:15 PM: SPX 50-day MA is 1334.58; price now printing 1336.48. VIX 18.75 continues to tell the story. The uber strong 1337 is resistance above.

Note Added 7/12/12 at 3:06 PM:  Status quo. XLF under 14.41, bearish.  VIX under 18.75, bullish. SPX attacking the strong S/R at 1337. XLF over 14.41 takes the broad markets higher while VIX over 18.75 takes the markets lower.

Note Added 7/12/12 at 3:25 PM:  Next resistance above 1337 is the 200 EMA from the 60-minute chart at 1339.30.  Price now printing 1338.98.  The bulls are pushing up thru.  XLF is 14.38, not yet over 14.41. VIX dropped under 18 creating market buoyancy. Bulls got nothing unless they take out XLF 14.41 to the upside. Remember, JPM and WFC earnigns are in the morning and will greatly effect markets.

Note Added 7/12/12 at 4:00 PM:  The bulls did not have the oomph to push the XLF above 14.41; trader's likely want to wait until tomorrow morning for the JPM and WFC earnings. The SPX is under the 200 EMA on the 60-minute chart, very bearish.  The 50-day MA is 1334.55 with the closing print a few pennies above at 1334.76.   The XLF 14.41, VIX 18.75, SPX:VIX 68 saga will continue tomorrow but we should know China's GDP and the bank earnings before the opening bell rings.