Keystone's Midday Market Action 12/4/12

Australia cut rates but the Aussie dollar did not drop and commodities are on the weak side, the opposite of what would be expected.  European leaders are discussing the banking union.  Merkel says 'nobody knows when the debt crisis will end'. Well, quick, ask that nobody fellow when it will end so we all will know.  TOL is up pre-market so the housing recovery will be said to be in full gear even though the housing sector will not have the strength to carry the economy forward. Today we find out if the market bears got game, or not.

The action ended yesterday with the semiconductors falling into the bear camp (SOX 372.75), which created market weakness into the closing bell.  Keystone's SPX 30-Minute Chart with 8 MA and 34 MA Cross Indicator turned bearish as well.  Watch the 200 EMA on the 60-minute chart today at 1404.77 since this is a very big deal if it fails, and very bearish. The 100-day MA is 1409.92 and serves as S/R today.

Keybot the Quant, Keystone's proprietary algorithm, wants to flip short right now but is held back since internal programming rules are not yet completely lined up to trigger the move to the bear side.  A key element for the algo is the SPX 1408.46 level. Watch this closely at the open. If the SOX stays under 372.75 and the SPX falls under and stays under 1408.46 for five minutes or more, Keybot will likely flip short.  So there is lots of theatrics and drama ahead for early trading.  VIX 15.84 remains important but volatility is well elevated right now and helping the bears.  XLF 15.65 is also important. The bears must push the XLF under 15.65 which would guarantee far lower numbers in the broad indexes.  The bulls will try to keep XLF above 15.65 and at the same time pull the SOX back up and over 372.75. The bears have it in their grasp right now, all they need is a point lower for the SPX to lock in the downside ahead.  The futures are flatter than a newlywed's souffle as this is typed so the bulls and bears have to fight it out. SPX 1408.46, SOX 372.75 and XLF 15.65 dictate broad market direction today. If the SOX moves above 372.75, the bulls win. If the SPX moves under 1408.46, the bears win and if the XLF drops under 15.65 the bears win big.

Note Added 12/4/12 at 10:04 AM:  Lots of theatrics are underway. The SPX dropped at the opening bell but recovered quickly. The SOX moved above 372.75 so the bulls are in the game today trying to prevent a market failure. The bears need to see SOX back under 372.75 and the SPX under 1407.57 which will likely cause Keybot the Quant to flip short. Keystone took profits on ZSL exiting the trade, will look to reenter; ZSL should have lots of upside ahead.  Also bot FAZ, the dangerous triple X inverse ETF for the financials, opening a new long position. Also added more TWM.

Note Added 12/4/12 at 10:10 AM:  Big push higher by the bulls, SOX is at 373.67. XLF at 15.71. This keeps the bulls happy. Euro is a deer in the headlights, frozen at 1.3092 not knowing which way to move. Looks like the bulls will keep markets elevated into President Obama's talk at lunch time. AAPL is negative; tech is leading to the downside.

Note Added 12/4/12 at 11:31 AM:  Keybot the Quant flipped short at SPX 1407 at 11:05 AM.  SOX 372.75 and XLF 15.67 failed (Keybot adjusted this number).  Keep watching; the bulls and bears are fighting it out. Semi's and financials will tell you who is winning.

Note Added 12/4/12 at 12:18 PM:  SOX and XLF remain bearish creating market negativity. The 10-year yield is 1.61%.  Euro 1.3086.  Tech leads the downside. The bulls are doing a good job of propping up the markets, perhaps trying to hold on into the president's words, hoping for some optimism.  The SPX should be down about ten additional handles right now since the financials failed, but, the bulls are hanging in there.  Watch the 200 EMA on the SPX 60-minute chart now at 1404.89. The SPX is now printing 1405.08, pennies above.  If 1404.89 fails, the markets should flush strongly lower.

Note Added 12/4/12 at 12:31 PM:  The bulls refuse to give up.  The SPX failed thru the 200 EMA as described but only for four minutes resulting in a strong bounce higher. This 200 EMA opens the door to Hades so it is not unusual for a bounce on the first try. See if the SPX tries to pierce down thru 1404.89 again.

Note Added 12/4/12 at 12:48 PM:  President Obama is speaking in an interview on Bloomberg television right now.  The SPX was near 1408 when he started, now 1406. The bull-bear fight continues today. The SPX has not retested the 200 EMA, yet.

Note Added 12/4/12 at 2:18 PM:  The bears threatened to break down thru the 200 EMA but ran out of gas.  The semiconductors explode to the upside, the SOX leaping to 375. The bulls are not going down without a fight. XLF remains bearish under 15.67 but only by a hair. SOX 372.75 and XLF 15.67 rule the day today.  If the XLF turns bullish, and the SPX moves above 1413, Keybot the Quant may whipsaw back to the bull side.  The bull-bear fight continues.

Note Added 12/4/12 at 2:55 PM:  The euro hit 1.31.

Note Added 12/4/12 at 3:48 PM:  The XLF is fighting at 15.67. It looks like the bears will hang in there overnight and tomorrow is another day. The 10-year yield is 1.60%. Money prefers notes and bonds rather than the stock market despite the buoyancy in the broad indexes this afternoon. VIX is over 17. Copper is now unchanged after spending the day on the positive side. The euro is 1.3095, off of the 1.31 perch. Semi's carried the bull banner this afternoon. Watch XLF 15.67 in the closing minutes since it will show which side wants it more today.

Note Added 12/4/12 at 4:03 PM:  The bears held on keeping the XLF under 15.65. The SPX closes at 1407. This is an intense fight, both sides are bludgeoned, bloody and beaten in need of a rest. The bears are driving the bus again but the bulls continue to grab the steering wheel. Perhaps a slice or two of pumpkin pie may help both sides prepare for a rematch tomorrow.