The stock market has been moving up strongly for the last couple of months, so it was only a matter of time before it had a correction. Take your pick this time around, the potential for higher interest rates in China or another bailout in Europe, no matter how you slice it, the news was bad for the stock market. The SP 500 went crashing through its upward trendline, while the VIX burst through its downward trendline. In addition to that, momentum confirmed the market reversal by making a lower high as stock prices were making a higher high last week. as the rollover of momentum from a lower high.

SP 500 Divergence

What made today’s fall different from most was that fact that oil and gold also took pretty big hits. It was also rather strange to see bonds go up and interest rates fall on a day when a major concern was higher interest rates overseas. I guess the money had to go somewhere, so US Treasuries and the US Dollar reversed their recent declines. It would not surprise me if we see 1130 once again on the SP 500 and 10,600 on the DJIA before we get another buying opportunity. In the mean time a Bear Put Spread or a Bear Call Spread might be a good way to play this market in the short term.

JD