Markets turn in another downside day

Notes from Monday’s Trading: 

Downside starts the week, but the buyers step in late in the day to rally back to modest losses for the trading day. Volatility index rose 3.6% to 12.5 following a big decline on Friday’s buying. As we stated in the weekend update the day to day volatility is getting more apparent. After three month of essentially not volatility to speak of it is now back and could be around for the foreseeable future. Worries are the primary driver currently and they are not the type to dissipate without some help from  some hard headed leaders.

The downside leaders today were telecom, retail, consumer services and consumer staples. The challenges are in the data reports relative to growth looking forward. Throw in the geopolitical issues and the making of short term volatility. Small caps continued to struggle with the sector down 0.4% on the day. The upside was semiconductors, energy and the volatility index. Not a great day for putting money to work. We have to remain patient and respect the risk of the current environment.

Chart Notes:

The chart below is the small cap ETF IWM. We looked at this last week as the sector broke below the $116 support. Thus far we have tested the $112 level and held with an inside trading day on Monday. A bounce back above $115 would be a start of a bottom being established or a move below $112 would bring the previous low of $108 into play. The risk-off trade discussed in the media is using the index as the primary indicator near term. We continue to watch for indications of direction and impact on the broader indexes.


Notes to Note:

  • Treasury bonds continue to receive money flow as the yields fell to 3.26%. Bonds are showing the signs of strain from investors wanting to take risk off and protect principle. This trend has been in play for some time, but the recent rotation has pushed TLT to new 12 month high. If the VIX continues to rise watch for more rotation to bonds.
  • Volatility short term has surfaced again, pushing the VIX back 12.5 on Monday. VXX posted a gain of 2. 2% today.
  • Gold was up $3 to $1314 and holding near resistance. This is a pure speculation driven trade as the only driver is the geopolitical risk and inflation. Demand has not risen for some time. Thus, trade at your own risk.
  • Oil jumped again closing at the $104.60 level and gaining 1.4%. The short fall in inventory data on Wednesday started the rise last week, but the geopolitical issues facing production and shipping is putting pressure currently on the price. This is not good news for the consumer, but it is good news for those owning oil. USO has pushed higher on the news.
  • Natural gas fell another 2.1% on the day. Higher storage again is the issue. The levels are not equal to January. That has pushed the price lower and could remain this way for the foreseeable future. Short trades (KOLD) in the commodity have done nicely. FCG has now pushed back to the May levels of support. If price continues to decline this sector will struggle as well.
  • Tobacco stocks on the decline again after a Florida jury awarded a $23 billion settlement. Not likely to stand, but some downside pressure on the sector today. Watch for any opportunities as this unfolds.

Practice Patience and Protect Principle.