Thursday, April 2, 2009

04.02.09 - The Gap that Didn't Look Back?

The extreme gap this morning (SPY +2.5%) was a sign that follow-through strength was likely and the Advance - Decline line has been pegged in the 4,000+ range all day since.

We have seen nothing but higher lows and highs in every index except... the Financials! And curiously, the VIX has been on a mild advance along with price (subsequent to the initial dive).

The factors at work are apparently the Mark to Market rule changes and more promises of global stimulus by the G-20. Take a look at the Transports on that latter news -- biggest one day move since the late 1930s (IYT +9.8%) and that in spite of oil's equal advance (USO +7.9%)!

Strong volume suggests there is some real money behind this move. However, even as a confirmed trend day, the divergences above do have me mildly concerned and this thrust puts us nearly into overbought status ahead of jobs and the weekend. I suspect that more active managers may start looking for places to minimally get hedged soon. Indeed, demand for protection may explain the rising VIX, but I'll leave that analysis to the options experts as I'm not currently tracking open interest.

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