Well yesterday was a nice change of pace, but we still have a rocky road in front of us. The ECB had their announcement this morning, which the futures are not responding very well to as I write this. It appears Draghi isn’t giving any hints the ECB will help European banks. Before the ECB announcement the futures were up nicely, likely due to the Australian GDP beat and continued enthusiasm from yesterday’s price advance. I continue to hold the believe that there are few reasons to take on an abundance of risk here with so much on the economic calendar between Greece, Bernanke, and the ECB.
I want to bring up an interesting chart of the Vix this morning, which had a healthy drop yesterday of around 5.5%. On Friday the Volatility Index closed above its EMA envelope (which I have previously discussed here), as well as right at resistance of the 38.2% Fibonacci retracement from the August ’11 high. When looking at momentum, we had a slight divergence on the RSI indicator between Friday’s close and the previous short-term high on the 18th. Seeing a security (or index in this case) hit resistance, close outside of an envelope, and have a divergence makes yesterday’s decline less of a surprise if you were able to watch it unfold this way. Do we go back down to $14? That’s not my call to make (and my compliance department wouldn’t want me making it even if it was!). This is just a great example of using various technical indicators and observations and seeing them come together in concert.
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