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Market Notes: Fixed Income Unraveling -- June 12

In regards to the recent bull/bear sparring match, it appears as if the bears are gaining the upperhand. Elevated negative VWAPs, an indication of institutional selling, are confirming the bearish shift as is the rise in the VIX. The only thing left to complete the victory for the bears would be a break in near-term support levels which are 620 on the Dow Transports (DTX), 1600 on the S&P (SPX), and 3400 on the Nasdaq. The Dow Industrials (DJIA) closed the day under their 15000 support level which is also another nail in the bulls' coffin.

It's no surprise that today's market action was fairly muted towards the upside. On the downside, strong selling continues in the fixed income space with bonds and preferred stocks plunging to new lows. I'm no expert in this area and cannot give you any fundamental reasons why this sell-off is so strong (other than that the investing public believes the Fed is going to be halting its QE policies sooner rather than later). But strong it is judging from a purely technical point of view. If you're a holder in this space, you may wish to lighten up your positions and/or find a way to protect them. There are inverse bond exchanged traded vehicles that you may wish to research as a way of insuring your portfolio. To get you started, check out direxionfunds.com and proshares.com for possible candidates. Note that levered funds are not designed to replicate the inverse (or double or triple inverse) of the underlying index over any period of more than a day, so please bear that in mind. In general, unleveraged funds are a lot less risky than their levered counterparts. The Direxions website is the most user friendly and provides a wealth of useful information in this area, FYI.

Subscriber Notes: Because of changing market conditions, there are no new recommendations. You bears should take a look at yesterday's blog (scroll down) to see some possible short plays in the coal mining space.