The S&P 500 (SPX) moved up slightly towards the target level of 875 in yesterday's trading.

Just one comment about the newsflow and sentiment. There are many who find it hard to accept that equities should be rising when the economic news continues to be so negative. The simple answer that can be given to this apparent dichotomy is that markets are forward looking whereas economic data and earnings releases are necessarily backward looking.

There are definite signs of sector rotation taking place within the broader market where institutional funds are starting to dump defensive sectors - healthcare related, utilities, and consumer staples - and moving into the early cyclicals.

The volume indicators are not very substantial which suggests that the conviction level is far from confident but in some respects this could be a positive for the market. But I am still doubtful that this rally can break above the 1000 level.

Asked yesterday on CNBC's European Closing Bell for a longer term view of the S&P 500 I expressed my intuition that we may well be looking at a "W" shaped configuration which, of course, suggests that there is another downside surprise ahead.


The CBOE Volatility Index (VIX) closed yesterday near to its lowest levels seen this year and going beyond the time frame shown on the chart back to the summer of 2008.

There is an interesting discussion about volatility at SeekingAlpha and since it is relevant to this commentary I have included a part of my comments on the piece.

One query that I would have is when you suggest that we should expect "mean reversion" for volatility in coming years.

It could be that the risk landscape has been permanently changed by the more widely recognized fragility of the financial system and its pre-disposition towards moments of scary illiquidity.

While the magnitude of the "legacy" assets problem remains opaque I would doubt whether the VIX will return to the more subdued levels seen in the middle of this decade.


The Gold and Silver index (XAU) is revealing a rather clearly defined bearish flag formation.


In yesterday's comments I made the following suggestion:

Reviewing the hourly chart for Wells Fargo (WFC) and the recent pullback pattern it would seem that around $17.50 new buying interest may emerge.

Reviewing the 15-minute chart from yesterday, I was awfully close with a 17.62 print and a possible ten percent profit could have been made on the day by entering a long trade at $17.65.

 

Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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