Another Slow Volume Day

Market Action:
As the market opened, sellers materialized and sold off the Dow for about 60 points in the first hour of trading.  This selling seemed to come out of thin air but we know there were some negative reports to justify some of the sell off.  Right after the 30 minute sell off, the buyers came back in as they usually seem to do on early sell offs.  The 60 point loss seemed to evaporate as quickly as it came and soon the Dow was sporting green managing to hold it into the close for about 20 points.

The turnaround in the NASDAQ stocks was even more dramatic as the Comp rallied to a new relative high.  The SP 500 managed a similar feat by pushing to another new relative high.  So, our three indexes have now broken to new highs, not including the NDX which did fail to make a new high.  After the close, HPQ announced their happy news but the market didn’t react very well and in the end sold HPQ.  This will be a question mark in Wednesday’s trading.

Opinion/ Analysis:
The best we can say is that the volume associated with this last few days has been very poor.  Maybe traders decided to take an extended weekend on both sides of the Presidents’ Day holiday.  Since the 12th of February (six trading days) the average daily volume on the NYSE has been less than 1.4 billion shares.  Maybe Wednesday, the traders will return.

At the moment, we are trying to decide whether to do a little soft shoe or sing Edelweiss as we exit the stage out the back door.  We are so tired of the extreme bullishness and the minor upside action we have seen for the past few months.  Now, the NASDAQ Comp has joined the party by showing it too can be at new relative highs.  

The market has to exhale at some point and we think that point is very near.  The price highs we are seeing are just barely showing any strength at all under the covers.  For example, the Dow’s four day record high streak has carried it 113 points above its previous high back on the first of February.  More important is the low volume.  

The bulls are tired after carrying this market for so long without much downside in that whole time.  Imagine yourself if you kept inhaling with only minor periods for rest and no full exhale.  When you finally decided to exhale it would be a very large gush of air.  That’s how we think this market will react once it starts to exhale.

Option Execution:
Thanks for the comment, Erick.  I know you might think the VIX would have dropped on a day like Tuesday but in fact as you can see in the table below it went up.  Your instinct that the call purchase would be easy is correct because the options traders did not believe the uptick in the VIX.  We decided to stick with the May 15s and picked some up at 1.25.  This is a long term play, at least in options terms (three month time horizon).  We will monitor only the Bid from here on in the table below, since that is what we can reasonably sell them for.  We are looking for at least 20 in the VIX before expiration.

Dow Industrials:  12,786.64  +19.07
VIX: 10.24  (up on the day)
VIXEC.X: 1.20 x 1.35 (in at 1.25)
HUI:  339.10
QQQQ:  45.03
RYVNX:   15.97
RYAIX:  20.82
RYCWX:  33.98
TLT:  88.84
BEGBX:  13.69