Another Oil Rise Keeps A Lid on Stocks

I keep hearing that there is not enough fear in the market because the volatility index (VIX) has not hit levels that it did during the Jan and March selloffs. But Merrill's technical analyst today said that it is normal for the VIX to make a lower high on the "retest" of the market lows.

Also, there are other indicators that are showing the same signs of fear. For one, the ProShares Ultrashort Financials ETF (SKF) traded 23M shares on March 17th. Yesterday, it traded 21.9M shares. Pretty close.

And take a look at the chart above. This is the Rydex Nova/Ursa ratio I write about a lot. It is a measure of the fund flows from Rydex's bullish market timing funds relative to its bearish funds.

The huge plunge in the indicator (in red) shows that money has come flying out of the bullish funds and moved into the bear funds in a hurry. This week, this indicator broke below its March lows.

The market couldn't get anything going on the upside today, as oil breaking above $140 stole the show. But there were a lot of stocks that worked today. The S&P 500 came close to breaking its March lows, but the number of stocks making new lows on the NYSE did not surpass March levels. This is what my colleague calls a positive divergence.

This was a terrible week for the market, and I was wrong in calling for a trading bounce. That said, we are now even more oversold, and next week could be the long awaited bounce. If you feel that you are not well positioned for this tough market, I would use any upcoming strength to reposition and adjust your exposure to something you can sleep with.