We finally had the expected pullback, with indices losing about 1.5% across the board. We had encouraged our readers to be defensive over the last few days, and possibly consider going long volatility. That view proved a winner today but many of the majors now sit right at support so we shall see what tomorrow brings. As you can see below the SPX found support at its multi-month trend line and this will be an important level to watch tomorrow.
Our ugly duckling of the year, the small cap RUT index, resumed its pattern of underperformance today, Losing just over 2% to the 1.5% of the SPX. Adding to the ugliness today was a clean break under the 50 DMA. This one has some room to run before encountering next significant technical support and remains the ugliest of the bunch.
We also mentioned on Friday to look for the 400 level to act as support in the semiconductor index and that is indeed what we saw today. Whether it stays above that level or not is another story and one we will have to watch unfold.
Last, but most certainly not least we have the VIX below. Market Madness has been mentioning frequently (here, here, here)our view that the VIX has been forming a bottom over the last few weeks. Today saw a near 16% jump and one mean gap up. Our view is that volatility could further run up into the mid 20's fairly easy on a bad piece of news right now and we like a long position in TVIX (the 2x VIX short-term ETN).
See you next time and stay safe out there!
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