Charts of the Day: Big Market Rally

The market staged another big rally Tuesday. The S&P 500 rose +4.1%, and the bank index rallied +5.2%, the semis +4.5%, and the oil index +6.8%.

I have been saying I wanted to see the volatility index [VIX] move lower, and that is what we've seen over the last few days (see chart below). The VIX fell another -11.1% Tuesday, to 47.7. Interestingly, it touched its 50-day moving average midday, and then bounced higher off of it.

click to enlarge

My guess is that we will see a short-term bounce higher in the VIX before it breaks below that 50-day average and works its way back below the 40 level.

Another supportive datapoint for the market is the Japanese Yen, which also continues to move lower. This is supportive of the fact that the Yen carry-trade unwind may be over, and the coincident selling pressure on equities and commodities may have subsided for now.

The chart above shows the Yen ETF (FXY). You can see how it spiked higher in early October, and then peaked a few weeks later. It is now moving lower, and still shows room on the downside before it will find support. When it looks like it has bottomed and is poised to move higher again, it might be time to reinstate some hedges.

The last chart I want to show is the outsized move in oil Tuesday. Crude oil prices spiked nearly +10%, an enormous one-day move. This helped all energy related issue rise today, everything from oil & gas, drilling, steel, copper, agriculture, and infrastructure.

Looking at the chart above of the oil ETF (USO), you can see how oversold it was on the Relative Strength Index indicator (top) as well as the stochastics (bottom). Both of those indicators are now curling higher, which should enable oil to continue to work higher, at least until it works off that oversold condition.

Disclosure: long VIX puts.