Market Expectations: Equities Momentum Weakness, Commodities Currencies and the VIX

HedgeFundLIVE.com — The equities markets have been showing subtle amounts of weakness lately. Here’s a few things to look at:

– Equities have been opening high and selling off all day. Sellers are very present.

– JP Morgan Chase posted good earnings today, beating expectations, but the stock went lower after opening very high. As analysts went through the report throughout the day problematic details were found, particularly with lending, and are looming as future problems. Trading revenues have also fallen off.

– Overall trading volume is down, in a big way. I read a few articles today about HFT firms wanting to switch to Russian and other markets outside of the US and Europe due to restrictions. If you look at intra-day volume it dies off steadily (more than usual) as the day continues. HFT firms account for more than half of typical trading volume. Without them watch for volatility in the markets to increase. Some analysts think they actually account for more than 70% of volume, so you can imagine the negative impact of a portion of them leaving.

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Declining RSI in SP500

– The momentum in the recent uptrend is not as strong as the last uptrend in the equities indexes. I use the RSI (14 period) to guage this. On a daily chart for the S+P500 (SPY) and NASDAQ (QQQ) you will see the RSI is significantly lower than it was for the high points from around February 18th. This is also present is stocks like AAPL, which lead the market and have a massive influence on market direction.

– The VIX is currently on a solid support zone between 16.2 and 17 (the 16.50 level was very interesting over the last two weeks).It will take a hugely positive move in the market to push the fear gauge lower, especially down to 15. Though the price of options insurance doesn’t effect the stock market, it is still a useful gauge for judging the ease with which stocks can move higher. There is currently an elevated overall price in options due to unexpected worldwide events i.e. Japan’s earthquake and nuclear problems, tension in the Middle East, and the European debt situation. None of these will go away easily or over night.

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VIX on support levels.

 

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