STOCK MARKET BEARISH -- SHORT

Keybot the Quant remains short. The bulls need lower volatility and the bears need lower retail or financial stocks. Watch VIX 12.69, RTH 59.62 and XLF 21.63. Bulls will take the stock market to new all-time highs if they push VIX under 12.69. If VIX loses 12.69, and the SPX moves above 1985, Keybot will likely flip long. If either RTH fails under 59.62 (only a nickel away at 59.67) and/or XLF drops under 21.63 (only 15 cents away), market carnage will result with the stock market falling in earnest. If VIX remains bearish, and RTH and XLF remain bullish, equities will float along sideways with a slight upward bias.

For the SPX on Wednesday starting at 1970, closing on the lows, the bears only need a smidge of negativity in the futures and a few-handle flush downward will occur at the opening bell, so watch the overnight S&P futures (S&P's are +2 Tuesday evening). The bulls need to recover to 1985 to regain the upside market mojo. Since this is a formidable task, instead the bulls will focus on moving volatility lower while sending retail and financial stocks higher.

Any negative news concerning retail or financial stocks overnight and tomorrow morning will tell you that the bears will win and likely start growling strongly while positive news will hint at a bullish recovery for stocks. The caution flag is removed for now but consider it and the imminent turn status to be in play if VIX drops under 12.69. Wednesday's price action is very important with volatility and the retail and financial sectors deciding the fate of the stock market.

7/31/14; 7:00 PM EST EOM =

7/29/14; 1:51 PM EST = +39; signal line is +52