NEW LOWS IN CRUDE OIL AND TREASURY YIELDS INCREASE DEFLATIONARY CONCERNS -- STOCKS SELLOFF IN AFTERNOON TRADING -- DOW HITS NEW JANUARY LOW -- NASDAQ AND S&P 500 MAY CHALLENGE THEIR JANUARY LOWS -- VIX JUMPS 18%
10-YEAR TREASURY TUMBLES AS OIL HITS NEW LOW... Deflationary forces continue to push commodity prices and bond yields lower. Most commodities fell again today, with most attention on oil. The black line in Chart 1 shows the United States Oil ETF (USO) falling to a new low today. So did the 10-Year Treasury Note yield which had the lowest close in 20 months. The 30-Year T-bond yield fell to another record low. The Fed today expressed concern about inflation being too low. It previously described the commodity price drop as "transitory". Apparently, not anymore. The dollar rose again today, which pushed the entire commodity complex lower, even gold. Energy shares tumbled nearly 4% to lead the rest of the stock market lower.
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Chart 1
DOW FALLS TO NEW JANUARY LOW... Stocks sold off in the afternoon. Chart 2 shows the Dow Industrials falling to a new January low. Next support is the December low and its 200-day average. Chart 3 shows the S&P 500 losing more than 1% and bearing down on its January low as well. Even the Nasdaq rolled over in the afternoon. Chart 4 shows the Nasdaq Composite ending lower after trading higher most of the day (thanks to a 5% jump in Apple). All three indexes are back below their 50-day lines. The key to short-term market direction will be their ability to stay above their December/January lows. Foreign stock ETFs sold off today as well. It will be interesting to see if foreign shares open lower tomorrow in a follow-through to afternoon trading here.
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Chart 2
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Chart 3
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Chart 4
VIX RISES 18%... When stocks fall, the CBOE Volatility (VIX) Index usually rises. And it did so today, to the tune of 18%. The daily bars in Chart 5 shows the VIX in the middle of a "triangular" shaped pattern starting in mid-December (converging trendlines). So far, it's still in that neutral pattern. A close above its January high, however, would be a bad sign for stocks.
