PLUNGE IN BANK SHARES PULLS REST OF THE MARKET LOWER -- TODAY'S ONLY WINNERS ARE THE DOLLAR, YEN, AND GOLD -- A RISING VIX IS SOMETHING ELSE FOR STOCKS TO WORRY ABOUT
BANKS PLUNGE TO NEW LOWS... The plunge in European bank shares on Monday spilled over to U.S. trading today. Chart 1 shows the PHLX Bank Index falling near 15% to a new low. Financials and consumer discretionary are among the day's biggest losers. Other big losers include small caps and transportation. All U.S. stock in indexes are showing sizable losses. Chart 2 shows the S&P 500 trading -3.5% lower and close to a new 2009 low. All stock indexes crossed below their 50-day averages last week which signalled the end of recent rally attempt. A retest of the late November lows now appears likely.
Chart 1
Chart 2
SAFE HAVENS ARE THE DOLLAR, YEN, AND GOLD... An over-extended Treasury bond market is in retreat today. The only markets that are trading higher are the U.S. Dollar, the Japanese yen, and gold. I've pointed out before that strength in the dollar (Chart 3) and the yen (Chart 4) has recently been accompanied by selling in stocks and most commodities. That's the case again today with both of those currencies rising and most stocks and commodities falling. The only commodity exception is gold which is attracting some scared money (Chart 5).
Chart 3
Chart 4
Chart 5
THE VIX BOUNCES OFF SUPPORT ... On Friday January 9, I wrote a report showing that the CBOE Volatility (VIX) Index had reached chart support near its 200-day moving average and that any upturn from that level could spell trouble for stocks. Chart 6 shows the VIX jumping 16% today and challenging its 50-day moving average. A close over that resistance barrier would be another negative sign for stocks.
Chart 6
