Stocks broke out today as the market shrugged off bearish housing data, and instead chose to focus on bullish earnings reports from Ford (F), 3M Co. (MMM), and United Parcel Service (UPS). A report that showed consumer confidence improved also added to the bullish flames. With the fundamental data seen as “good enough,” the markets made a technical move higher, breaking out of an inverse head and shoulder pattern. By the end of the session, all three major index’s had tagged new recovery highs.
Something traders should note is the action in the VIX today. The VIX, widely considered the best gauge of “fear” in the market place, did not sell off as much as one might have expected with the indexes breaking out. Instead the VIX actually moved off its lows for the day nicely, finishing down under 1%, after being down more than 2% earlier. Why is this so important? Because it shows that even as the market is breaking out to new highs, traders and investors are still purchasing protection for their portfolio’s. That makes the market less susceptible to panic selling because market participants are properly hedged in the event of a pullback. Had the VIX sank 5%-10% it would’ve been a sign buyers are becoming exuberant about the market, which is contrarian bearish. Instead the action in the VIX tells us that the market is pretty ho-hum in regards to today’s breakout, which leaves room for further upside.
Turning to our stocks in focus, MGIC and NEI provided great swing trades today. Both were mentioned in our @ the close update yesterday and moved 8% and 5% respectively. Remember that the two companies are both reporting earnings on Thursday and we’re expecting strong numbers from both, so look for further upside. TLON, a stock we highlighted in our weekly watchlist broke out of its base at .85 today and moved 15%, closing at .97 (also it’s high for the day). Lastly, DTRO was called live in our day trading chat room and on our twitter @ .0014, it hit a high of .0022 for gains of 56% in just a few short hours.
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