Downside Gains Momentum

The volatility the last two weeks accelerated today with the VIX index jumping to 14.5. The 35% rise in the index pushed VXX up 9.7% and that sparked some modest selling on the day. The news was worse morally, ethically and any other way you can describe it than the markets reaction. Horrific events create uncertainty in the markets short term, that in turn create knee-jerk reactions. Separating the events from the markets is a challenge emotionally for traders and investors, but in this case you have to address them separately and unfortunately my job it to address the market. This event will be temporary with the potential of being the catalyst to start the correction that many have been pontificating about. That is where the true challenge and timing of this action is comes into play. I believe tomorrow will lend some insight, but it may be into next week before we see how it all develops. Thus, patience is the key going forward.

See Trading Notes for July 18th tomorrow morning for further comments to what is moving.

Running the EGG Scans – First the daily winners…

VXX – last night we stated the SVXY trade had moved back into the upside move, but that ended abruptly today. The 9.7% gain in VXX was mirrored by a 9.5% decline in SVXY. Each will present a opportunity based on the progression of events moving forward.

SCO – long crude oil was in the scan today as the commodity bounces on supply data. That reignited the speculation on higher demand and supply shortages at the hands of the geopolitical issues in Russia and Iraq. Watching for a possible upside follow through and trade on the news.

BLV – yes, long term bonds were one of the leaders today. As yields dumped lower on the news bond prices rose back to previous highs. TLT, LQD, BND, etc. all benefited from the fear factor generated today.

RUSS – Short Russia was a position we had discussed all week and today it gapped higher on the 7% decline in the Russian markets. This will continue on the upside as long as the uncertainty continues.

GDXJ – Junior gold miners were up 7.3% as a result of gold rising 1.7% today. Silver and silver miners were higher on the day as well.

TZA – short Small Caps was in play as the sector broke key support level earlier today.

Short ETFs are showing up in the scans based on today’s activity. This is another component to watch as the trading day unfolds.

Current EGG:

We posted China (FXI) as the EGG potential to start the trading week. We did gap higher on Monday as noted, but just as importantly we held the move the last two days. With resistance at the $38.50 level (52 week moving average on weekly chart is resistance. The downtrend line is an issue as well just overhead. Considering make the adjustments on the entry at $38.60 for the entry on FXI if we follow through tomorrow on the upside. We got a test on the move higher instead based on the news and events of the day. We added the position early in the trading day before any plane events and thus, it reversed and moved lower into the close.

We will monitor this into tomorrows trading looking for a bounce, if it does not materialize we will exit the position early in the trading day to protect our principle from the uncertainty surrounding the data, news and events.