STTG Market Recap May 6, 2014

Indexes continue to churn in a range they have been in for a week, with random movements day to day.  Until we see the NASDAQ break out of this pattern and make a new higher high it is difficult to get very rah rah about this market.  The S&P 500 fell 0.90% and the NASDAQ 1.38%.

In economic news:  The U.S. trade deficit shrank in March as exports increased, with the gap narrowing to $40.4 billion from $41.9 billion in February, the Commerce Department reported. After the trade data, JPMorgan took its tracking estimate of real GDP growth in the first quarter down to negative 0.8 percent from negative 0.4 percent.

spx

nasdaq

Aside from the main indexes please review the small cap dominated Russell 2000 which continues to be a major laggard.  Without NASDAQ and Russell 2000 this market remains focused on stodgy safety stocks in the Dow and the S&P 500.

rut

The NYSE McClellan Oscillator has not been at any extreme of late – sort of whipsawing around an unchanged level.

nymo

We mentioned Apple as a breakout candidate yesterday but that reversed today so it’s still on hold; difficult for such a major stock to do well when the NASDAQ in general is being sold hard.

aapl

Twitter (TWTR) was demolished today as nearly 500 million shares of the social media stock from company insiders were poised to hit the market as a lock-up period expires.

twtr

AIG (AIG) took a hit after the insurer posted a 27 percent drop in quarterly profit.  It had quite a nice chart coming into the day albeit overbought short term.

aig

SentimenTrader believes we are seeing signs in the option market that volatility is about to increase in the months ahead:

Over the past few days, the put/call open interest ratio has slipped under 0.33, meaning that for every 100 put options that traders have opened on the VIX, they have opened more than 300 call options. On the surface, this would suggest that they are expecting an uptick in volatility in the months ahead.

Based on what has happened before, they’re likely to get it. When the open interest ratio was below 0.33, then over the next six months the VIX saw a spike of at least 50% after 75% of the days. At the other end of the spectrum, when the open interest ratio was above 0.75, then there was only an 18% chance of seeing the VIX jump by more than 50%.  The summer months tend to be relatively muted as volume ebbs, but the odds of a volatility spike between now and the end of summer have increased markedly.
SentimenTrader

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