Keystone's Midday Market Action 10/15/12

C beat on the top and bottom lines.  Retail Sales numbers are better than expected so it appears that the RTH will receive a reprieve as the new trading week begins.  Retail Sales are up in August and September after the May-July lull. The markets tumbled lower in May and the Europe debt crisis was hot and heavy so folks were not in the spending mood.  The pent-up demand led into the back-to-school sales season and the recent buoyancy.  The major factor in the retail sales increase, however, is energy costs with oil and gasoline prices elevated, so take it all with a grain of salt from a macro perspective. AAPL iPhone5 sales also help pump the data. Empire State Manufacturing data is weak.

If UTIL stays under 478.43, the bears will continue driving the bus. The bulls are mounting a sustainable rally if UTIL moves above 478.43.  Watch RTH 44.40, VIX 16.90 and JJC 46.25. Copper was down overnight, then recovered to the positive side, but has now slipped negative again. GS is lowering longer term forecasts on copper and Deutshe Bank is lowering forward estimates on copper and gold.  If there is any change into the bear camp for RTH, VIX or JJC, it will cause a strong leg down in the markets. The markets may favor a sideways move thru SPX 1424-1441 until the big-time ECB/Euro Summit on Thursday.  For the SPX today, starting at 1429, the bears only need three points lower, to move under 1425.50 and that will accelerate the downside. The bulls need to move up thru 1438.50 to accelerate the upside and begin a sustainable recovery rally. The futures are up about eight so this would place the SPX in the vicinity of about two points short of 1438.50 after the opening bell rings. So watch to see if the bulls got game today, or not, and which way tech (COMPQ) leads the broad markets (SPX).

Note Added 10/15/12 at 9:14 AM:  Spain may request a bailout in November but this news actually drops the futures two or three points since traders want the Spain bailout crack cocaine right away, not a month from now. The news reinforces the idea that Europe may actually be working on a package deal to addresss Greece, Spain and Cyprus bailouts all together.  Interestingly, on the weekend, the Barron's magazine cover says "14,165 Almost There," referencing the Dow Industrials all-time highs, also highlighting a thick green arrow pointing upwards.  Magaine covers are known to be contrary socioeconomic indicators.  Thus, when a magazine cover is very bullish, like now, typically the opposite happens.

Note Added 10/15/12 at 10:15 AM:  The utilities sector is flat so the market bears are happy. RTH is 44.68.  VIX is keeping its head above 16 and looks very encouraging for jumping higher in the days and weeks ahead. JJC is 46.51 approaching the danger level at 46.25-46.35 that will cause another market down leg.  Gold is down 23 to 1737.  Note that tech is now leading a hair to the downside, the Nasdaq is negative, which is bear friendly.  AAPL is now down on the day by a couple bucks. JJC now 46.46. The dropping copper will lead to negative markets. The SPX came up to test the strong 1433 resistance, and collapsed, and is now dipping into the negative side fighting the flat line. The euro is losing steam at 1.2943. JJC is 46.44.

Note Added 10/15/12 at 10:23 AM:  Keystone's algorithm is tracking JJC 46.25-46.30. JJC just dipped into the 46.30's and is now printing 46.43.  If JJC 46.25-46.30 fails, that is all systems go for bears and the broad indexes will take a strong leg lower in very quick order. Bulls must double their efforts and stop this copper failure from occurring at all costs. The drama queen markets are already performing theatrics as the new trading week begins.

Note Added 10/15/12 at 1:52 PM:  JJC tested the danger level but bounced and headed higher to actually turn positive;  price now sits at 46.82 well above the danger zone. This helps the markets recover today.  AAPL weakened after the opening bell falling five bucks which took the markets lower then Apple recovered, so did markets, then Apple back down, ditto, you get the idea.  COMPQ is up 0.36% while the SPX is up 0.61% so tech is not leading higher and places the up move in question. Likewise, the utilities sector is moving higher today with UTIL printing a HOD at 477.50, still a dollar short of the 478.43 the bulls need to seal the deal on an upside rally, so this places the recovery move today into question as well. UTIL 478.43 would be a game changer, however.  The SPX took out the strong 1433 resistance discussed on the weekend, then 1435 resistance, then attacked the 1438.50 level that is needed in today's action to launch an upside acceleration. Price failed this level after two minutes. If the bulls can push thru 1438.50, 1441 would be guaranteed and more likely 1444. The 200 EMA on the 60-minute chart is 1439.28, the HOD thus far is 1438.98. The VIX lost the 16 level but at 15.47 right now, it is maintaining the 50-day MA support at 15.41, watch this closely. High drama.  The 8 MA moved up thru the 34 MA on the 30-minute chart at 1 PM EST indicating bullishness for the hours and days ahead. The bears will need to reverse this cross asap, and that can only be done with a sharp drop by the close today, otherwise, markets should float upwards early this week. The negative divergence smack down in T is beautiful.

Note Added 10/15/12 at 2:28 PM:  UTIL is printing the highs for the day at 477.52.

Note Added 10/15/12 at 4:15 PM:  Quite a dramatic start to the week.  This morning the markets were stumbling lower ready to roll down the steps with copper collapsing, then, JJC bounced off the 46.25-46.30 to lead the recovery today.  In the final minutes, UTIL punches thru 478.43 only to pull back and close at 478.36.  How does Keystone know these numbers to watch ahead of time?  A very interesting finish since the bulls fell 7 cents shy of the 478.43 they need to seal the deal for the extended rally. The SPX closed at the top rail of the sideways 1424-1441 channel we discussed this weekend.  So what does all this mean?  It means you have to wait until tomorrow to see who shows up to play in the morning, the bulls or the bears. The SPX was parked where it could easily collapse from the 1440-1441 resistance, or, easily punch up thru and run higher. Ditto UTIL 478.43. The utilities will immediately tell you the story after tomorrow's opening bell.  The VIX closed at 15.26 well under the 16.90 the bears need to see.  The 50-day MA is 15.40 and 20-day MA is 15.21 so price is sandwiched between these two critical moving averages. The market bears will be happy if the VIX moves above 15.40 and bulls will be happy if VIX drops under 15.21 and heads lower so check this after tomorrow's bell. The bears are favored with UTIL under 478.43.  The bulls are favored with RTH, VIX and JJC remaining bullish as judged by the numbers listed above. Also the 8 MA is above the 34 MA on the 60-minute chart which is bullish for the hours and days ahead.  And another bull win today is the SPX moving above the 200 EMA on the 60-minute chart which is 1439.25 which signals bullishness ahead. The markets shifted towards the bull side today but fell short of sealing the deal.  If the SPX stays above 1439.25, and, most importantly, UTIL moves above 478.43, the bulls will run the SPX to 1444, then 1446, perhaps higher.  If UTIL makes a stand and the utilities drop after the opening bell, and UTIL remains under 478.43, the bears will continue to run the show. If the bulls come to play tomorrow, watch the SPX 20-day MA at 1447.77 which is also a strong resistance area, price may want to back test this resistance before releasing itself to head lower.