Tuesday, September 1, 2009

Change of tune? "First day..."


Often times on the desk we will talk about a "first day" scenario. We characterize this as a a day that breaks a trend and may be the beginning of something new. Over the past few weeks we have observed numerous days with sell offs in the morning, only to see the market catch support, and rebound throughout the day. Generally these morning lows have been either the dead low or the low range of the trading day.
Today, was a different scenario. While the S&P futures were able to rally ten handles off of the opening lows, the market was not able to sustain this and eventually sold off toward the 1000 level (on larger volume than the short term average).

A few of the signs that pointed that today there was something different occurring:

  • Shorting stocks after the sell off to the morning lows paid. Over the past couple of weeks, these were extremely unforgiving
  • The VOLD (an indicator of breadth as well as direction) was flat -up 36k- as the market made its way to the morning highs, while falling below -600k on the sell off
  • The VIX printed its highest level since July 13th AND was able to hold this level and close near its high (closed at 29.15)... see chart below.
  • The same sectors that had been leading the charge up were weakest (Financials, Reits, Insurance)

Is this the beginning of a shift in sentiment? Only the market will tell. But I have taken note that today something different was occurring, and if this continues I will be ready to capitalize on the information being disseminated by the market.

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