Keystone's Midday Market Action 7/10/14; Portugal Bank Contagion

The stock market drops at the opening bell as the futures indicated placing an initial bottom about one-half hour ago. The VIX popped above 13 and the critical 13.15 previously mentioned but the bears could not hold the higher volatility levels. The VIX drops under 13 aiding the bounce back in stocks. TRIN drops to 0.84 giving the bulls the nod today. Keybot the Quant remains long and the bears need either RTH 59.34, VIX 13.15 and/or XLF 22.46 to prove that the equity downside has legs. The VIX is at 12.59 almost 50 cents under the 13.15 danger line creating market bullishness.RTH is at 59.65 over 30 cents above the 59.34 bull-bear danger line continuing to create market lift. The XLF is at 22.61 fifteen cents above the 22.46 danger line creating market positivity. Thus, the bears got nothing and stocks recover.

Since the VIX is the only one of the three parameters (RTH, VIX, XLF) that pierced its danger level at 13.15 this morning, focus on this number moving forward. A VIX above 13.15 clearly signals more downside selling on tap. A VIX below 13.15, like now, and the bulls will float markets along sideways maintaining elevated price levels. The Portugal 10-year yield is 3.93% so pay attention to that level as a a gauge of European fear. The US 10-year yield keeps teasing 2.50%. The dollar/yen is 101.17 testing the 101.00-101.50 support area (reference the previous dollar/yen chart and technical analysis studying the descending triangle pattern). A drop under 101 and sub 100 numbers for dollar/yen are coming. The dollar/yen must make a bounce or die decision.

The SPX 20-day MA is 1959.11 a very important demarcation line today. The 8 MA is under the 34 MA on the SPX 30-minute chart signaling bearish markets for the hours ahead. The SPX is above the 200 EMA on the 60-minute chart at 1947.49 signaling bullish markets for the hours and days ahead. The bulls need to create a positive 8/34 cross on the 30-minute to prove they got game, or, the bears will push the SPX under 1947.49 proving they got game.

Note Added 10:51 AM: Despite the intraday recover in the stock market, the Portugal 10-year yield is catapulting higher now at 3.99% on the verge of breaking above the psychological 4% level. As the astronauts said decades ago, "Houston, we have a problem." The SPX is 1961 above the 20-day MA at 1959 so the bulls are feeling pretty good. Dollar/yen 101.24. TRIN 0.90 favoring the bulls but not by as much a short time ago. Bears need the TRIN above one.

Note Added 11:02 AM: About one-half of the equity losses are recovered as the trading day moves along. VIX is 12.30 well off the earlier highs and the TRIN is 0.84. The bulls are not worried, in fact, traders are already sipping Fed wine deciding to skip breakfast. For an extra kick, traders are injecting the easy money QE heroin directly into their veins which causes them to joyously buy stocks with giddy laughs. The party continues and traders say it will last forever. Watch the Portugal and Greek 10-year yields.