Wednesday, January 14, 2009

Sellers Flood The Market, Driving ARMS Index and VIX Higher

Selling pressure at the open is dwarfing buy orders by a huge margin. The retails sales report came in weaker than expected, and renewed concerns about banks are the main culprits for the weakness.

In early trading, the ARMS Index (which measures selling pressure) hit an extreme level of 4.40. Downside volume on the NYSE hit 98%, and the volatility index (VIX) spiked +18% to 51 as fear has resurfaces for the time being.

The last time we saw readings this high, the Dow was down some 600 points, so I guess the fact that it is down -250 now could be seen as a slight positive.

December retail sales dropped -2.7% month/month, which was more than the -1.2% economists were looking for. This reflects the sharp pullback by consumers in the current environment, as well as higher unemployment levels seen recently.

Banks are the weakest group this morning, after Deutsche Bank (DB) said it would post a 4th quarter loss of $6.3 billion. That has the stock down -10%. HSBC (HBC) is also getting hit on conerns about losses there, as well as Barclays (BCS).

On this side of the pond, Citi (C) announced the joint venture with Morgan Stanely (MS) about its brokerage unit, but that is doing little to ease investor concerns. Its stock is down -15% and struggling to hang on the the $5 level.

There were also profit warnings from Bunge (BG), UnderArmour (UA), and Tiffany (TIF).

The dollar is mixed so far, and oil is trading lower again to below $37. This is weighing on the energy stocks. The flight to safety is pushing investors back into Treasuries, driving the yield on the 10-year T-bond to 2.20%.

Trading comment: Pessimism is quickly coming back into this market, after a nice respit from mid-December into early January. The S&P 500 bounced +25% from its November lows to its January highs. I mentioned how sentiment had gotten too complacent and the market reached overbought levels. The market is still working off both of those conditions.

In the short-term, the market seems due for a bounce. But if it can't recapture its overhead 50-day average, it could be stuck in this lower end of the trading range for a bit. The December low was SPX 816. This is an important level to watch, imo.

long SSO


At 3:10 PM, Blogger Celal Birader said...

"The last time we saw readings this high, the Dow was down some 600 points,so I guess the fact that it is down -250 now could be seen as a slight positive."

don't worry, it might get there yet ... tomorrow is another trading day :-)

At 3:20 PM, Blogger J. Kahn said...

you could be right. ugh

At 1:49 AM, Blogger Celal Birader said...

it seems to me the market has no conception of how bad things are. i get that from the fact that folk greet the continuing bad news with "surprise". looks like it's time to short.


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