Is the Market Turning Around?

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Includes: DIA, FXE, GS, QQQ, SPY
by: Jordan Kahn

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 (NYSE: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 (NYSEARCA: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.

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.

Disclosure: The author is long GS.