From the Trading Desk

Volatility Jumps as the Dow closes Green while Small Caps Lag

Positive housing data kicked off the trading day with Building permits jumping higher than expected. However, it was just after the 10 am hour the market dove as CNBC blame worries over the Cyprus bailout. Volume started the day off light despite the positive housing data. Institutions were jumping in the market buying up shares as volume suggested. It wasn’t until the hysteria over Cyprus did volume kick into another gear. The S&P 500 and NASDAQ did notch a distribution day, but they weren’t as bad as they could have been if the market closed at its lows. Volatility measured by the VIX jumped more than 8% as it appears traders and PMs alike are beginning to buy protection. We remain in an uptrend and with the Federal Reserve tomorrow we’d expect activity to pick up after the Fed releases its policy statement.

The Dow continues to be the leader among the major indexes. Today KO led the way for the index, but with the Dow leading it does give us pause if we’ll see this rally continue. At this point we do not have enough to say this rally is over as distribution simply isn’t piling up (YET). Leading stocks aren’t screaming higher suggesting we can continue. However, on the flip side they aren’t breaking down in droves saying we are about to crater. Stay disciplined here and do not rush in to be a hero.

Wednesday’s Federal Reserve meeting will certainly be something the financial media will savior. I am sure Ben Bernanke will try to calm any fears the Federal Reserve will withdraw “support” of the financial markets. We’ll kindly remind everyone the Fed has more than tripled its balance sheet since 2008 and provided Trillions in guarantees to the market. I suppose a few trillion more won’t hurt. We are in an uptrend and while this could change tomorrow there is no telling if it will. Those who tell you they know where it is heading are full of crap. No one can predict the future. Know your exits and let your winners ride!

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