Is the Market Turning Around?

Yesterday was an incredibly strong day in the market. After the market began to rally in the morning, I noticed that the put/call ratios were still at very high levels, indicating much skepticism that the rally could last.

Not only did it last, but it rallied into the close to finish at session highs. The Nazz led the way, with the NDX surging +3.27%. The banks and brokers also closed at their highs, leading all other sectors. Goldman Sachs (GS) closed above its overhead 200-day and nearly hit $200.

The ag and energy stocks closed off of their intra-day lows, and look like they are due for a bounce. But it appears that the rotation out of energy and into tech and financials still has room to go.

The surprising strength was the rally in the dollar. The chart below shows the Euro ETF (FXE). You can see that on Wednesday, the FXE touched its uptrending 50-day average and looked like it was successfully bouncing higher from it (see chart below).

But on Thursday it gapped lower, and closed well below that support level. Additionally, volume spiked materially higher, indicating conviction behind the selling. The Euro has had quite a run, and yesterday's action looks like it is the beginning of a well deserved breather for that currency.

click to enlarge

The next chart I wanted to highlight is the volatility index (VIX). I have been saying that a move below the 20 level by the VIX would be a welcome sign for the equity markets.

On Wednesday, the VIX bounced off that 20 level, and looked like it was bottoming and turning higher. Most often, this move would have been accompanied by a move lower in the equity markets, but on Thursday, the VIX fell out of bed and plummeted -9.2% to close at 18.88.

This is a good sign that anxiety in the markets is easing. Of course, you also don't want complacency to set in. Last October, the VIX fell down to 16, but that market a top in the market. Regardless, if the VIX can meander around in this range below 20, it should provide a supportive backdrop for the markets.

click to enlarge

Disclosure: The author is long GS.

Comments

[RajshreeLaturia]

It might look like the market is changing but my view is that it is just short term. The market is dried up of liquidity and unless we have enough liquidity there is very little chance of market revival.!

[stephenrosenman]

Market turned in mid January.

[John Egan]

"Rajshree Laturia" ... not sure what you mean by liquidity .. I suspect you are referring to "available funds to lend." If you are referring to ready cash waiting to buy equities, then I suspect you are wrong. There is not only a lot of money on the sidelines (in money market funds, ender that mattress and the like) waiting to get in "at the bottom", and all the funds that I had been invested in have excess cash waiting to buy.... Just like me! It feels like I'm building up to a first kiss again!

Bye! jegan ;-)