Keystone's Midday Market Action 12/28/12; Fiscal Cliff Meeting 3 PM

Chicago PMI causes no great shakes in the markets. The broad indexes are negative to begin the day, the SPX well under the 200 EMA on the 60-minute chart at 1418.34 indicating bearish markets ahead.  The SPX:VIX is 69.44 remaining above the critical 68 level that would open the gates to Hades. SOX fell under 377.10 to create market weakness but recovered back above.  JJC is 45.38 a tiny hair above 45.36, bullish. A drop under JJC 45.36 would usher in market negativity.  The market bulls are happy with SOX above 377.10 and JJC above 45.36.  Bears need to push under both these levels, otherwise, they got nothing. The bears also need to push under 1402 to get a party going and this target remains several handles lower.

The euro is 1.3228, above 1.32, providing a feather for the bull's caps.  The 10-year yield is 1.70%, use this as a pivot, so equity bears win with the 1.6x% handle and lower while bulls win if 1.71% and higher occurs.

Note Added 12/28/12 at 10:21 AM:  Copper turns negative, the JJC falls thru 45.36.  SOX, however, stays above 377.10. JJC under 45.36 will pull markets lower. SPX:VIX ratio is 69.25.  The euro is 1.3228.  The 10-year is 1.70%. Tech is not leading the downside, however, so the bears cannot gain traction. SOX 377.10 is key.

Note Added 12/28/12 at 11:14 AM:  JJC remains under 45.36.  SOX moves above 380 providing market lift. The SPX:VIX ratio is over 70. The bulls are relaxing and not too worried. The euro remains flat at 1.3225. The 10-year is 1.71% so one tick in favor of equity bulls. The bears are happy as well as long as the SPX stays under 1418.34 as described at the top of this missive.  The 50-day MA is 1412.25 so there is lots of drama around this level as traders await the next fiscal cliff soundbite.  JJC is 45.29 leaking lower.

Note Added 12/28/12 at 1:33 PM:  JJC is 45.23, bearish. SOX is 378.99, bullish. SPX:VIX ratio is 70.00, bullish. The euro is flat at 1.3219.  Dollar is higher. The 10-year yield 1.72%. The SPX continues to play around at the 50-day MA at 1412.  The 3 PM circus show is on tap ahead.  At the completion of the meeting, watch to see if there is a clown parade to a microphone in the Whitehouse driveway. If the parties are willing to appear together to provide comments, then this increases the chance for a fiscal cliff deal by Monday. If there is no press conference after the meeting, and all parties are peelin' rubber out of the Whitehouse gate, waving to each other with one finger salute's, then that would hint the negotiations are not going well. The key for the fiscal cliff deal moving forward in the days ahead is whether or not the debt ceiling is addressed. Markets should bounce if the debt ceiling is handled, even if it is only pushed forward for a few months. If the debt ceiling is not part of the fiscal cliff solution, the markets will sell off since all the current market theatrics and drama will continue along thru January.

Note Added 12/28/12 at 3:11 PM:  Copper gave up the ghost today but the semiconductors will not, the SOX remains above 377.10 which creates market buoyancy.  The politicians are all at the Whitehouse for the big meeting. The children's magician is said to be arriving shortly to entertain them all. Secretary Geithner is there which means the debt ceiling is part of the discussion as per the comments in the previous paragraph. The broad indexes should travel flat into the close unless SOX 377.10 fails that would create a sharp drop lower. The SPX moves sideways over the last hour thru 1408-1410. Keystone's SPX:VIX ratio just lost 68 over the last few minutes but here comes a potential stick save again.  S&P says they will not lower the U.S. deb rating due to the fiscal cliff impasse. The SOX leaps to 379 and SPX leaps up thru 1410 in a heartbeat.

Note Added 12/28/12 at 3:21 PM:  The SPX:VIX ratio is 68.08.  Despite the stick-save, the ratio is only a hair above 68.  A drop below 68 would signal a triple digit down day for the Dow Industrials, set up far more negative markets moving forward, and signal a potential market crash ahead. SPX:VIX is 67.93 .... quick, tell the Fed to throw another sound bite on the tape machine since the S&P rating news did not go far. SOX is 379.19 two points above danger.

Note Added 12/28/12 at 3:34 PM:  SPX:VIX is 68.16. Nothing but pure drama. The pizza delivery boy is driving up to the Whitehouse so the party must be in full swing. SOX remains elevated at 379. The VIX HOD is 20.82 almost tagging 21. The fate of the markets will pivot off of Keystone's SPX:VIX ratio 68 level. Thumbs up for bulls if the ratio remains above 68. If the ratio drops thru 68, a bearish wrath will hit the markets hard. Whoa,.... as this is typed, now the ratio is 67.55....

Note Added 12/28/12 at 3:40 PM:  President Obama says there will not be a new offer. The markets plummet. The SPX is down to 1405..... SPX:VIX ratio is 67.06......  SOX is 377.90..... The cat's out of the bag, the meeting was simply a dog and pony show as expected, the markets are developing a bad mood from these circus shenanigans.

Note Added 12/28/12 at 3:45 PM:  Here is the biggie, for all the marbles, SOX 377.26 .... 377.17 ... only a few more pennies .... bears have to keep pushing ... 377.23 ... if the semiconductors fail, the SPX will drop directly into the 1390's.... SOX 377.12.... hang on Nellie, the tension mounts, only two more pennies ........ there it is, failure.  SOX now under 377.10.  SPX now at 1402 the lower target the bears needed from this morning's missive. Markets should drop strongly here.

Note Added 12/28/12 at 4:03 PM:  The close is significant. SOX is under 377.10.  JJC is under 45.36. Keystone's SPX:VIX ratio closes at 64.75. This signals a triple digit down day for the Dow Industrials which occurs today. This signals serious market negativity moving forward, markets will begin moving far lower. This also signals an increased likelihood that the markets may crash in the days ahead. The bulls will have to come to play on Monday. There are no more second chances. The importance of the SPX:VIX ratio 68 failure cannot be understated. The only market save that appears possible will be for the politicians to vote for a strong fiscal cliff package on Sunday evening, or Monday, otherwise, the markets are a lost cause and the selling will become very ugly. The 12-month MA is 1385, this is the waterfall edge, Keystone's official point of no return. The meeting continues at the Whitehouse.