Markets Close in Lower half of the Day’s Range as Volume Jumps

Failure of the Bank of Japan to signal even more stimulus sent the world markets into a selling frenzy. Initially, buyers were able to push the market well off its low and at one point pushing the Dow into positive territory twice! A weak 3 year Treasury note auction sent sellers back into the market pushing the market near the lows of the session by the close. Volume rose across the board suggesting Institutions were in the market selling stocks a negative sign for the market direction in normal markets. At the very least the action we are seeing may simply be foreshadowing further volatility. This market is certainly under pressure and given the rise from November until May a little correction is certainly not a surprise to us. Obey your sell/exit signals as the stock market is certainly on shaky ground. Following up yesterday’s move lower homebuilders continue to tack onto their losses. LEN continues to be one of the weakest among the group. XHB has seen its fair share of heavy selling since February and is now just finally catching up to the ETF. An even bigger decline has come from the utilities as the 10 year yield has jumped higher. XLU topped out the first of May has slide 9% from its high and has had trouble finding buyers. Higher rates have certainly stung a few industries and it is quite obvious traders aren’t keen on higher rates. Daily volatility has certainly kicked up with the VIX nearing multi-month highs. The VIX closed at 17.07 up nearly 10% on the day. However, VIX tracking ETFs continue to lag the performance of the VIX overall. For example, the VXX was only up 6.6% today well behind the VIX performance. It certainly doesn’t appear investors are rushing towards volatility to hedge against a market decline. Or it simply could be the inability for these ETF managers to keep pace with the VIX. Something to keep an eye on as this market proceeds. The positive here is certainly the major market averages remaining above their respective 50 day moving averages. A negative here was the rejection at the 20 day moving average. While the 50 day is certainly a bit more important the rejection at the 20 day is something to take notice. Since the beginning of the year we have been able to jump back up thru the 20 day with ease. Now, we have rejection. Stick with the process and do not try to be a hero.