Today was an interesting day via technical analysis so let’s see if it leads to something negative in the days ahead. We were coasting along to our normal tune – some early selling, dip buyers came rushing in immediately, a slow and steady grind up and then some selling of a moderate nature came in late in the day. The S&P 500 fell 0.64% and the NASDAQ 0.42%. Those are not big losses but we had what is called a bearish “outside day” on the indexes – we’ll speak more on this in a moment. The reason appears to be conflict in the Middle East:
Syrian warplanes struck targets in western Iraq on Tuesday, killing at least 50 people, as Syria joined Iran in coming to the aid of the embattled Baghdad government.
There was good news on the economic front:
New-home sales for May jumped to a six-year high in May, up 18.6 percent to a seasonally adjusted annual rate of 504,000 units. The number, better than the 440,000 forecast by economists, comes a day after a report that had existing-home sales rising more than expected last month.
Speaking of the bearish outside day – this is a day when a stock/ETF/index rallies over the previous day’s high, then falls below the previous day’s low and closes there. This is often – not always – short term bearish. The NASDAQ also did this as it broke out over yearly highs … so it is definitely something to watch. Maybe it was only due to the news today but we shall see.
The volatility index had hit a 7 year low recently and spiked today on the selling.
The homebuilders reacted to the positive housing data but truth be told they have not really participated much in this rally.
Some of these internet Chinese stocks continue to act well – see Baidu.com (BIDU) today in the face of a nasty reversal -held up well.
Here is another interesting data point via SentimenTrader.com – good timing considering today’s spike in volatility:
Options traders are ostensibly betting on a rise in volatility as the put/call ratio on the VIX “fear gauge” fell to 0.1 on Monday, meaning there were 1000 call options traded for every 100 put options. The 10-day average of that put/call ratio is at its lowest point in five years. The last time that happened was in early January, and a month later the VIX was 50% higher. Extremely low put/call values on the VIX have tended to lead to a higher VIX more often than a lower one, and the overall positioning of VIX options suggest a high likelihood of higher volatility in the coming month(s).