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May 19 Market Wrap

Posted on May 19, 2009 by Adam

The market traded sideways all day, bound between the 905-915 range. A ten point range! Snooze.

Stocks failed to make a directional move, and were mixed across the board. The VIX, on the other hand, paints a different picture. Breaking down below 30 today, volatility levels are the lowest they have been since before the panic set in last fall. This indicates that participation in stocks is broad. Fear has been removed from the market.

A VIX of 30 used to be extremely high, but this is a positive development nonetheless. Despite the move in volatility, stocks still couldn’t put together a decent rally. That signals divergence. I’m not really sure how to read into it, whether it be bullish or bearish.

On other fronts, energy continues to rally quietly. Crude oil finished the day better by more than 1%, easily outperforming equities. If you are having a hard time getting a read on stocks, consider playing an energy name to the upside.

The rest of this week should help sort out the murkiness of this market. A little bit of clarity should help to improve trading conditions a great deal. Until that happens, it makes sense to reduce risk and manage existing positions tightly.

Happy Trading

The breakdown in the VIX signals that fear has reached pre-crisis levels.