Low Volume Buying Creates Bounce Effect

Sluggish start found buyers after lunch time willing to step in a buy stocks. The low volume move got little in terms of resistance from the sellers and it created a calm trading environment with little in terms of interday volatility. The emotions were in check and everyone went about their business without much to say.

The S&P 500 index bounces 17 points to 1942 on Monday. Nice gain of 0.9%, but more importantly it bounced back from the selling last week. Looking at the chart below we can clearly see the support at the 1925 level and the test of that mark last Friday. It tested again today and managed to close higher as the buyers stepped end to put money to work. That said the volume was on the light side, but in the end the close near the 1941 mark was a positive sign for the investors. Reviewing the action among the ten sectors that make up the index we find that the leadership came from Energy up 1.8% on the day. XLE broke support at the $98.20 level and today close was $97.55 and below that level. Worth watching as this was one of the previous leaders and the outlook for demand is still flat to modestly higher. Technology, Consumer and Basic Materials were all higher on the day as well and a solid bounce for both the sectors and the index on the day. The words for tomorrow are follow through!

A bounce from the aggressive selling is to be expected, but the sustainability on the upside is what will matter going forward. If this is a one session wonder and the downside continues tomorrow the sellers maintain control and more downside is likely going forward.

SP500

The NASDAQ also was positive on the upside gaining 0.7% as the small caps were higher overall but still weighing on the broad index. The large cap NASDAQ 100 index was up equally on the day, but got help from the likes of Priceline (PCLN) up 4.3% and breaking from the consolidation range in play the last eight weeks. Again not overly convincing on volume and breadth of the move, but it still commands our attention looking forward. The technology sector was higher, but didn’t pack the desired punch on the upside. As always we will take what the market produces, but if we are going to buy long positions we will need some confirmation of the move today.

The volatility index (VIX) retreated from 17 to 14.8 today. Some of the anxiety was withdrawn from the index on the buying today. I am not convinced at this point the sellers and nervous sentiment are over, but today did plenty to calm the nerves for now. The economic data will resume tomorrow with the ISM Services numbers and other key data points as the week progresses. That leaves the question of how much impact will they have on the volatility of the markets going forward? SVXY (short volatility ETF),  as we posted in our trading notes this morning to watch for the upside trade, posted a solid 4% gain on the day. Watching to see how it unfolds moving forward.

Emerging markets posted a solid gain of 0.9% on the day and pushes back above the $44.30 level. Europe was up 0.5% along with the EAFE index. Due to the uncertainty in Europe the global markets have struggled of late. Watching Russia as a key catalyst for the outlook going forward. The more the rhetoric continues to hit the headlines relative to this issue the more the indexes struggle to maintain a positive outlook. RBL bounced 0.9% today as Russia managed to stay out of the headlines. The global markets were poised to take on a leadership role before this mess started and now it a lack of clarity keeping a lid on any growth for now.

The worries remain despite the gains to start the trading week. It is important to understand what trading environment you are in for the sake of risk and volatility relative to our money. For now the chop is still alive. The selling was stopped at least for today. The jury is still out on direction and confidence. Thus, we continue to take it one day at a time with a disciplined approach to managing our risk.