Charts of the Day: VIX and the Euro/Yen Cross

Today, the S&P 500 put together its first 3-day win streak since September 10th. Pretty surprising. I have still not put my cash to work, but if the market pulls back on light volume, without breaking back below the 800 level, I will likely begin to dip my toes in the water. Now to the charts--

I talk a lot about the Yen and the "yen carry-trade", and its effects on global markets. I harped on it back in March, the last time the Yen was really spiking. And lately I have been watching it again, as it has surpassed its March highs.

Today the Yen was higher, but the Euro was higher as well. You see, you can't really look at one currency in isolation. They all trade relative to other currencies. So the key metric right now that is correlating to global risk taking is the relationship of the Euro/Yen, known in the business as the "cross".

The chart below shows that although the Yen was higher today, the cross was still up, due to a big bounce in the euro. Looking further at the chart below, one could make a good case that the cross is tracing out a triple bottom, a bullish sign. I will continue to monitor this one, but if the cross continues higher, it means that global players have stopped selling assets across the board and may be putting "risk" (i.e. new investments) back on their books.



The next chart is for another indicator that I have talked about a lot lately, and that is the volatility index (VIX). The VIX declined another -6% today to a still high 61. But the picture is getting better.

The chart below shows the VIX made a lower high last week even though the market briefly touched new lows. That is a positive divergence. It now looks like it has technically made a double-top, and should soon test its 50-day average support (blue line).

A break below this support would provide a bullish backdrop for equities, although the VIX still needs to fall all the way back below 30 before we can say that the market has returned to somewhat "normal" levels of volatility. Until then, we can continue to expect big swings in both directions. Let's just hope the up days begin to outnumber the down days.