Tuesday, January 31, 2012


Keybot the Quant remains long as the pre-scheduled EOM number prints this evening. Keybot wants to go short but other algorithm rules are holding it back. The SPX:VIX ratio stays under 68 today but a large down day did not occur in the markets. Therefore, a large market down day is tomorrow's projection, unless the ratio moves back above 68.

UTIL remains below the critical 453 number for this week so this favors bears.  CRB is over 309.50 so this favors bulls. One of these two will likely capitulate tomorrow. If UTIL moves above 453, the bulls win. If CRB drops under 309.50, the bears win.

For the SPX in the Wednesday session, starting at 1312, the market bears start off with the advantage since the SPX:VIX is under 68. If the ratio stays under 68 and the SPX drops under 1307, five points lower, this will likely seal the deal for the market bears moving forward.  A drop of SPX thru 1307 will probably be accompanied by the CRB failing at 309.50 and Keybot flipping short.

Obviously the market bulls are not ready to shut the party down. If the bulls push the SPX upwards and over 1321, the fix is in, UTIL will likely be above 453, and the bulls will accelerate upwards causing more bear pain.  A move thru 1308-1320 is sideways action.

In a nutshell, broad market direction for Wednesday trading is determined by SPX:VIX 68, UTIL 453, CRB 309.50, and SPX 1307 or 1321. The futures will tell the tale before the opening bell rings tomorrow since China PMI hits overnight and will immediately set the tone for Wednesday's trade.  If China PMI is weak, the commodities will take a hit, CRB will likely move lower, and Keybot will probably move to the short side.  If the PMI is stronger than expected, the commodities, copper, oil, gold, silver and equities will fly high and the bulls will pop the champagne corks.

The low volatility and low volume environment are driving the robots and high frequency algo's crazy these days, reminiscent of the first half of 2011. Set the alarm clock early since the China and Europe action between 3 AM and 7 AM EST will probably dictate tomorrow's trade. Guard your Cheerio's.

2/5/12; 7:00 PM EST =
2/3/12; 9:00 AM EST =
1/31/12; 7:00 PM EST EOM = +48; signal line is +48 but algorithm says stay long
1/31/12; 10:00 AM EST = +48; signal line is +48 but algorithm says stay long
1/30/12; 9:30 AM EST = +48; signal line is +48

Note Added 1/31/12 at 9 PM EST:  China PMI is reported as 50.5, above the consensus estimates of 49.6 and last months 50.3, so a positive result albeit slightly. Whisper numbers, however, were higher. Thus, another number that has something for everyone. Above 50 shows an economy growing and below 50 is an economy in contraction. The HSBC number should follow in a few hours and will provide better insight. Keep an ear out for any word on the China triple R ease as well.

Note Added 2/1/12 at 4:48 AM EST:  China HSBC PMI, which is thought to be a slightly more independent and reliable number carrying more weight, prints 48.8 a 0.1 tick up from 48.7 last month.  Thus, the HSBC number shows China in contraction not expansion and that difficulties remain.  The results overall could not be more of a mixed bag. U.S. futures are strongly green with about a nine pont S&P pop slated for the open, however, the open remains a long way off.  Oil and copper are jumping strongly, no doubt following off of the China PMI number, thus the CRB would be expected to climb and it looks like the bulls will conintue the party at this juncture.

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