Volatility Index Dips Back Below 30

The market is nicely higher in early trading, following yesterday's late day strength. Of course, readers know that I am always skeptical of a market that is too strong, too early. That leaves too much time for the rally to fade. And it is how the market closes that is most important.

There were some solid economic reports this morning. Durable goods orders for April rose +2.9%, above estimates. And orders for the prior month (excluding transportation) were revised higher to +4.8%, the strongest climb since August 2005.

New home sales also rose more than expected in May, likely aided by the looming expiration of the new homebuyer tax credit. Nonetheless, new home sales hit their highest level since May 2008.

Last, the OECD raised its GDP forecast for 2010 and 2011, but indicated that volatile sovereign debt markets bring risk to their forecast.

The dollar is rising again vs. the euro, but that is not stopping commodities from bouncing. Oil is 3.5% higher to $71.15, while gold is up slightly near $1200.

Asian markets rose slightly overnight, while Europe was up nicely this morning; the 10-year yield is bouncing to 3.22%; and the VIX is down -7% to 32.25.

Trading comment: The markets are still very oversold, and sentiment in the options market is pointing to a trading bottom. The 10-day CBOE put/call and ISEE ratios are now at levels that haven't been seen in over 2 years. This combination should allow the markets to continue to lift, although we need a reprieve from the bad news coming out of Europe.

One of the most positive things I saw today was the VIX dropping all the way down below the 30 level. It has since bounced back above 32, but if it can get back below 30 it would provide a much more benign backdrop for stocks to work higher.

long GLD