Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Daily Market Outlook until Sam Collins returns on June 27.
You wouldn’t know it by looking at the daily charts, but yesterday’s intraday trading action was actually volatile. The S&P 500 opened the day flat, but rallied hard after the dismal Philadelphia Fed numbers at 10 a.m. EST briefly pushed the market down to retest Wednesday’s trading lows. However, after losing steam around lunchtime, the market kept weakening until it finally broke the day’s lows mid-afternoon.
That swoosh lower and breakdown fake-down to the 200-day simple moving average (red line) was enough to at least get some buyers to step up to the plate and push the index to a flatish close for the day.
Sector-wise, defensives led the market higher again, although financials managed to hold some relative exposure despite closing mixed. Potentially more interesting, however, was that big beta stocks closed the day weak, while the S&P 500 closed fairly flat. Those are indications it was a futures-led market and someone was trying to prop up the tape via the futures.
The other thing to remember is that tomorrow’s quadruple-witching options expiration has caused volatility and bipolar market movements all week. Today was no exception, and tomorrow, it’s only expected to get worse.
In yesterday’s Daily Market Outlook, I showed a chart of the VIX and commented that a wash-out lower was not yet reflected in this fear index. Yesterday’s spike higher in the VIX, although still far away from the March highs, combined with the SPX bouncing off the 200-day SMA, gets us closer to a trading bottom.
Another interesting way of looking at how far we are in the most recent stock market correction is by looking at the CBOE S&P 500 Correlation Index. As the name implies, this index measures the average correlation of the stocks that make up the S&P 500.
Note that the index was at a recent low just when the S&P 500 started to sell off in early May, and yesterday, had an intraday spike higher. Stocks and risk assets in general tend to correlate more during sell-offs and diverge as risk aversion decreases.
And how about the sharp sell-off in the high-yield bond market as measured by the iShares iBoxx High Yield Corporate Bond Fund (NYSE: HYG) yesterday? It’s a further sign that the risk-off trade is in full gear at the moment. Whether that was a capitulatory move yesterday, I’m afraid I’m not smart enough to know, but I will point out that yesterday’s dump in the HYG came after an already extended sell-off run since the beginning of June.
Let’s face it, it’s a summer Friday and options are due to expire today. Volatility and predictability will most likely have an inverse relationship today. Given the above-mentioned factors, it feels like we may be getting closer to a trading bottom, but on an options expiration Friday, I will not feel comfortable making any bottom-fishing-type calls as the options gods can easily push this market below the 200-day SMA to trigger stops.
On another note, it’s supposed to be a beautiful weekend in the New York area, which does have the effect of luring traders out to the Hamptons early in the afternoon (if they’re not already there) and thinning volume in the market.
Today, I will operate with the theme of “less is more” with most of my attention focused toward weekend fun as the noon hour approaches.
For one stock you may want to go long here, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
