Volatility Creeps Lower Despite Down Day For Stocks

The chart above shows the Volatility Index, what I refer to on a daily basis as the VIX. The VIX is sometimes called the "fear index", for it spikes higher when there is fear amongst traders, and moves lower as complacency sets back in.

As such, it usually move inversely with the overall market. On a down day like today, it normally moves higher. That is why the VIX stood out to me today. Although it was higher in the early going, it reversed lower as the day wore on, and finished down -1.3% for the session.

First off, let me just say that a lower VIX is bullish for the overall market. Especially a move lower from the extremely high readings we have been stuck at for the last 6 months. I would like to see the VIX eventually get back down below the 30 level. This would be a good sign that the market was returning to some "normal" level of daily volatility.

But the move today could have been influenced by some news that could come as early as tomorrow from the SEC regarding the 'uptick rule'. If the SEC moves to modify the uptick rule, which I think is likely, it would equate to lower volatility at the margin, and have a downward influence on the VIX.

Here is a summary of today's market action:

• Stocks fell for a second day as the market confronted the beginning of first quarter earnings season.
• Wall Street anticipates a seventh straight quarter of declining profits. Today’s selling was orderly and appeared to fall under the umbrella of “normal profit-taking” following big gains in March.
• Investors had to deal with a number of troubling issues. Confidence among chief executives of American corporations dropped to a seven-year low in the first quarter. Moody’s Investors Service said the default rate for corporate bonds was the highest in March since the Great Depression.
• Emerson Electric delivered a bit of good news. The company cut its earnings forecast, but the end result was not as severe as many expected. The stock closed unchanged at 30.89.
• Managed health companies lifted after the government announced a bigger-than-expected rate increase for Medicare plans. Humana gained 1.61 to 27.92.
• The Dow closed down 186 at 7789.
• NYSE volume totaled about 1.26 billion shares.
• The S&P 500 was down 19 points. The Nasdaq fell 45.
• Declining issues beat advancers by nearly 4-1 on the NYSE and by 3-1 on the Nasdaq.
• The 10-year Treasury note was up 9/32 to yield 2.89%.