Anyone who expected the market to rally on the heels of a bailout news for Spain got trapped today as the indexes finished lower by 1% following an initial gap higher. Of note is where the S&P500 topped out today; 1,335, just a point above the key 1,334 high. This failure is good enough to say that 1,334 acted as resistance today. Oil was again the big loser on the day, giving up all of its gains from the last few sessions and settling at a fresh year-to-date closing low.
The big winner on the day was the VIX, which had its best performance of June and second highest % gain in 2 months. The action in the VIX is actually a good sign from a bullish perspective in our opinion. The reason we say so is because it means an element of fear is back in the market which is leading to these 100 point up days and 100 point down days. The last 2 weeks in the markets indicate to us a lot of indecision as to the overall direction of the market. Yes, the trend has been lower the last month or two, but the strong bounce from 1,266 seen last week is likely to lead to some better support in the 1,290-1,300 area for fear of missing another bounce.
A final point we want to make in regards to the bailout Spain received is the market doesn’t seem to think it will do much good. If the market was optimistic that the bailout would help tackle the country’s problems, we wouldn’t have seen the 10 year bond yield on Spain’s debt increase 4.7%. What’s worse is that the bond vigilantes appear to be moving over to Italy more and more as the yield there broke above 6% for the first time since January.
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