Keystone's Midday Market Action 12/3/12

The markets jumped higher on the open but fell on their sword only a couple minutes later.  The ISM data was likely leaked early so the markets started lower, then at 10 AM pivoted much lower. ISM is under 50 showing contraction in manufacturing and is the lowest print this year. Where's the recovery that pundit after pundit professes? F sales are interesting since they show an increase in truck sales, now at the same levels as November 2005. Interestingly, the housing bubble popped July 2005 so the high truck sales were reflective of the peak in the housing sector and it was all a downhill disaster after that, into, and remaining in, the seven-year housing slump.  With F truck sales up, is it anticipatory sales by optimistic contractors buying into the housing recovery talk?  Probably at least in part. At the same time, Chevy's truck sales tumbled so obviously the folks buying trucks bot Ford's and GM lost share to F.  Keystone continues to believe that  the housing recovery is overrated.

DELL is up strongly on a GS note that DELL may be an attractive takeover target and the beaten down desktop computer sector is overdone to the downside.  It is nice to see GS coming into Keystone's way of thinking. This action may help place a floor in names such as DELL, HPQ, AMD, INTC, etc... All four of the stocks listed are potential long plays that should have legs higher. Looking at the broad indexes, gauging the bull versus bear struggle today, the Dow Industrials and SPX have turned negative but the Nasdaq is green so the bears will not receive downside oomph.  The VIX is over 16 which is very important since the VIX staying above 15.84 will place a ceiling on the markets.  The bulls must push the VIX back below 15.84 otherwise the broad indexes will continue to leak lower.  The bears can gain more downside steam if they push the XLF under 15.65 or SOX under 372.42.  The SPX tested the 50-day MA at 1420.68 after the opening bell and failed.

The 10-year yield is 1.64% helping the bull case but only marginally. The euro remains above 1.30 so this is a large feather in the bull cap. If euro drops under 1.30, the broad indexes will start to sell off substantially. Brent oil is over 111 so this helps create market buoyancy. The 8 MA remains above the 34 MA on the SPX 30-minute chart but these two moving averages are converging and a hair away from each other. If the 8 MA drops under the 34 MA, this will start to lock in a more substantive market move lower.

Note Added 12/3/12 at 11:50 AM:  Tech remains buoyant due to the DELL upgrade and AAPL is positive today.  This prevents the bears from making any headway south. The TRIN is unde 1.0 today and tracking lower, now at 0.72 which is very bull freindly as well. The bulls are kept in check by the VIX above 15.84.  The 50-day MA is 16.28 for the VIX so watch that closely. The 10-year yield is 1.63%. Markets appear content with sideways action today as traders await tape bombs from the politicians concerning the fiscal cliff negotiations.

Note Added 12/3/12 at 1:13 PM:  The SPX is coming down for a test of the uber strong 1413 support, the first attempt results in a bounce and a LOD at 1413.27 so pay attention to this number. The 1412-1413 is very important support, if it fails, low 1400's are next. The TRIN has recovered to the 0.9's moving back to the neutral 1.00.  VIX is 16.30 above the 50-day MA so this hints at further market bearishness. SOX is leaking lower. Euro remains elevated above 1.30 helping the bulls all day long. The 8 MA remains above the 34 MA on the 30-minute chart allowing bulls to smile although the two lines are converging to the tightest point over the last few days. The SPX should come down for another look at 1413 support. President Obama is conducting a Twitter event at 2 PM EST to discuss the Fiscal Cliff.  This market circus operates across many different media outlets so listen for any market-moving sound bites. The 50-day MA is 1420.66 and the 20-week MA is 1417.55. The 100-day MA is 1409.97.

Note Added 12/3/12 at 1:32 PM:  There's the SPX 1403 failure.  Price is in this strong 1412-1413 support zone that will lead to 1403 if it fails. Tech continues to not lead lower but small caps are keeping pace lower which is bear favorable.  TRIN is neutral at 0.98; if it moves above 1.00 the market bears will be favored. XLF and SOX remain bullish.

Note Added 12/3/12 at 1:37 PM:  The SPX lost 1412, that was fast. A downside acceleration should occur of a few handles setting up further bearishness. The 100-day is 1410. The 8 MA is a hair away from crossing down thru the 34 MA.

Note Added 12/3/12 at 2:01 PM:  Bingo.  The 8 MA stabbed down thru the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours and days ahead. See if it holds thru the close. VIX is printing the HOD at 16.61.  AAPL remains positive, tech does not lead lower, and XLF and SOX remains bullish so this is stalling the bearish downside. The 10-year yield is now back to 1.62% where it was before the open.

Note Added 12/3/12 at 2:52 PM:  Brent oil dipped under 111.  The Dow Industrials dropped under 13K. Euro remains elevated at 1.3054. AAPL is two bucks to the plus side.  On the Twitter side show, Speaker Boehner tweeted a questoin to President Obama but the president did not answer. You cannot make this stuff up anymore. These juvenile antics are expected for the characters in an Archie comic book but not for leaders of the Free World.

Note Added 12/3/12 at 3:02 PM:  Speaker Boehner releases a counter offer in the ongoing fiscal cliff negotiations. In a nutshell, the republicans are where they always were, ditto the democrats, nothing has changed in a year and one-half.  The market bounces slightly on the news but like a sleepy dog, places its head back in the pillow and the markets sink again. The politicians could have waited until after the bell but chose not to so this tells you that the market drama is being played.  Both the democrats and republicans probably want to drive the caravan over the cliff. SOX is printing the lows of the day, see if it loses the 373 level.

Note Added 12/3/12 at 3:10 PM:  The SOX lost 373.  Keystone's algo is now tracking SOX 372.75 (higher than this morning's 372.42), the SOX is printing 372.81, if six cents are lost, the markets will take a much stronger leg lower. If the SOX loses these few pennies and stays under 372.75, Keystone's algorithm, Keybot the Quant, will likely flip short. High drama. Keystone bot ZSL opening a new long position in this double leveraged inverse silver ETF.

Note Added 12/3/12 at 3:55 PM:  Keybot is very close to flipping short since SOX dropped under 372.75 but needed to see the SPX under 1409. Meanwhile, the SOX popped back above 372.75 so it looks like the bulls will maintain control into the close.  Keystone took profits on EXPE covering the shorts and exiting the position. There is plenty of downside ahead for EXPE, will look to reenter short. Also added more long ZSL.

Note Added 12/3/12 at 5:31 PM:  The semiconductors gave it up in the final few minutes with the SOX finishing under 372.75 and now contributing bearishly to markets. Watch SPX 1408.46 tomorrow morning, if the bears can push down thru and hold it for five or more minutes, the downside should lock on course and Keybot the Quant will likely flip short. A gentle move lower would be beneficial for bears, a gap down tomorrow at the open will keep markets in toss-up mode until the first hour or 90 minutes plays out. SOX 372.75 and XLF 15.65 are key. Bulls need SOX back above 372.75 and bears need XLF under 15.65 to fuel their respective market directions.