The markets suffered their worst week of the year during the holiday abbreviated week. The three culprits we outlined as having bearish implications for the market (the dollar, VIX, and Spain’s 10 year yield) all broke out to the upside and continued their moves higher on Friday. Making matters worse was that the support levels the bulls needed to see hold in sectors like financials & industrials failed to do so. As a result the S&P500 settled below 1,400 2 days in a row for just the second time since conquering the level.
Quick, tell us that last time the VIX closed higher 3 weeks in a row? Did you say August? If so, then you’re correct. That’s exactly what today’s 7.5% gain from last week accomplishes though, the 3rd straight week of gains for the VIX. There is a big difference though, in August the VIX was at 45, this time its not even above 17, so there isn’t a need to sound the alarm yet. If the VIX continues this subtle move higher though, it could clear the way for a much steeper drop in the markets.
Spain’s 10 year yields continues their ascent today, finishing at 5.76%, it’s highest yields of 2012. This action in Spain’s yield is clearly catching the markets attention and likely has some wondering if Greece pt. 2 is upon us. However, we would note that while the yield has risen, it hasn’t resulted in a violent 200-300 point down day like we were seeing when Greece was making headlines. Much of this probably has to do with the fact that the market believes the ECB will do whatever is necessary to bring the yield back down.
This is good and bad. Good in the sense that the market isn’t panicking so we aren’t being whipped around mercurially. Bad in the sense that if the ECB isn’t able or willing to bring Spain’s yields down the market will be caught off guard and we could see a much bigger sell-off than anyone is anticipating right now.
At the end of the day though the market is still up huge from its October bottom and we continue to see the bulls show support. Yesterday we were down nearly 180 in the Dow and finished down 100 or so, today it was 50 and finished down 15. So the effort is certainly there, unfortunately though the price action remains lackluster.
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- SH @ the close 1/30/12: Understanding price congestion
- Stockhaven @ the bell 8/19/2011: The role of price psychology at current levels
- SH @ the close 1/5/2012: Things are never what they seem
- SH @ the close 11/7/2011: Markets shrug off early weakness, close higher
- SH @ the close 2/8/12: Greece not causing alarm it did a few months ago