The market came under pressure today and at one point looked like it might suffer its worst day of 2012. Luckily, after yesterday’s price action we sensed that something like this might happen so we weren’t caught off guard. The market now appears to have some cracks in the floor from a short term perspective, but it still good for standing on… for now.
The cracks we speak of are coming in the form of oil, copper, Spain’s 10 year yield, financials (XLF), the VIX, and the dollar to name a few. This morning we outlined near term key support and resistance levels for each of these. We noted that if the VIX, Spain’s 10 year yield, and the dollar broke above resistance it could have bearish implications. The other side of that was talking about how if the others broke support, that would have bearish implications as well. Well today brought on exactly what the bears were hoping for, key breakdowns and key breakouts.
Starting first with Spain’s 10 year yield, it rose above the psychologically important 5.5% level and settled at its highest level since 1/06 to close at 5.69%. This definitely seemed to spook European markets and it spilled over to ours. Then there’s the VIX, which for the first time since 3/09 finished a trading day above 16, closing at 16.44 (we should note though that after being up as much as 12% earlier in the day, it was higher by only 5% at days end. As for the dollar as tracked by UUP, the ETF broke past key near term resistance and closed above its highs of the last 8 trading days.
Now focusing on the key indicators that broke support: USO, copper, & XLF. USO got absolutely crushed, giving up all of its gains and then some from Monday’s bounce. USO closed at its lowest price since 2/14. Copper was not spared from the carnage today, slipping 3% and remaining every so slightly above its recent 1 month lows. Potentially most disconcerting to bulls though was the action in XLF. XLF fell below its recent support channel and closed ($15.56) at its lowest level since mid March.
Technically speaking the immediate trend now appears to be in the bears favor. However, we reiterate our belief that the overall trend is still not in danger. Unfortunately, we won’t be able to tell if the overall trend is danger until it is, that’s the way things are from a technical perspective. For the time being though, we are forced to honor what has proven to be a successful strategy since October, and that’s remaining bullish on a net basis. I guess you could say we would rather be buying now and selling later (once the overall trend clearly changes), then selling now and buying later (you don’t want to guess that the trend is changing and dump stocks now, only to be forced to chase later).
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- SH @ the close 2/22/12: Markets stall but so does VIX
- SH @ the close 9/26/2011: Markets surge higher on oversold rally
