As Max G. mentioned in his latest post, the market has been implying a rate hike and subsequent selloff. The ominous conditions have also been reflected in my own measures of money flow and market breadth. Despite the major market indices still relatively near their most recent highs, my long term indicator issued a sell signal as of yesterday's close. The last time this signal triggered was just days prior to the October 2014 correction.
Monday Perspective – The Trifecta Sell-off
It was a Monday Trifecta with Bonds, the US Dollar, and Stocks selling off to start the week. The market has endured countless headwinds since the market bottomed in March 2009, could a Triple Crown winner be what pushes stocks lower into the summer? Apparently horse racing and stocks go hand in hand.
If a Bankrupt Greece, war in Ukraine, crashing crude oil prices, a government shutdown, US Debt rating downgrade, Cyprus, Sequester, deflation, massive Global debt.... isn't going to crash stocks a horse winning the three biggest races of the year will. The market has bull and bears.. .but it will be one horse to take it all down. Cue the Mr. Ed Laugh.
Stocks closed right near their lows today as the market started off the week with a rather ominous performance. Bonds were stronger to start the day, but melted lower along with stocks at the closing bell. The U.S. dollar index has pulled back sharply from the initial jobs report highs of last week.
S&P500 futures came right to support from November 2014 and the $SPY crept into over sold territory.
Bearish Options Activity
Over the last few days, while there has not been a big S&P 500 move, there has been a lot of bearish options activity. Currently the S&P 500 is below 2100, a level that represents the uptrend line from February. It is concerning that we are below it because it could signal a short-term top in the market. What has come along with this break is a flurry of VIX call buying for June and July. Now while most call buying in the VIX tends to be for hedging these purchases were at the 17 and 18 strike. This leads me to believe that these speculators are betting that the Fed meeting next week will spark a sell-off. After Friday's strong job report it increases the likelihood of a hawkish statement.