Mundane Monday Morning

A generally quiet start to today’s trading session.  Positive, though unimpressive earnings from Citigroup have buoyed the equity markets so far this morning, but will likely do little to sustain a rally through the day.  Interestingly, the slight bullish bias near the open is not being confirmed by the VIX.  As of 9:00 am CDT, the VIX was trading up 1.17 (6.15%) to 20.20.  While this index is volatile, the fact that we’re seeing a 6+% pop amidst this morning’s slight rally is suggesting that investors are largely discounting the sustainability of the rally.  This will definitely be something worth keeping an eye on; especially given the run the VIX has seen over the past week.  As I’ve suggested before, the VIX’s inability to continue lower is one sign that equities are prone to consolidation/reversal in the near term.

The U.S. Dollar appears to be holding support once again this morning as the Dollar Index is up 0.26% to 77.245.  The resiliency of the greenback over the past week is highly significant, in my mind, as there were so many reasons for the selling to continue.  And with Friday’s close above trend line support, the threat of a significant move lower is off the table for the time being, in my opinion.  Having acted as a significant tailwind for equity prices over the past two months, strength in the Dollar is signaling, like the VIX, that a correction is coming.  Furthermore, a bounce in the Dollar should help to cap gold’s advance, which was seen, to an extent, late last week.  With both gold and the Dollar now sitting at opposite extremes, the likelihood of reversal in each is growing by the day.  And after a tough week, Treasuries are bouncing a bit today with yields lower across the curve.  Thirty year bonds are currently yielding 3.9473%, down 3.87 basis points.  For now, this drop in yields is likely nothing more than a reaction to last week’s movements.  That said, with markets like the VIX, gold, and the U.S. Dollar primed for trend reversals, Treasuries should perform well when/if these movements occur as investors once again flee to the safety of Treasury debt.

Again, keeping an eye on the VIX and the U.S. Dollar will be my primary focus today.  So much of what’s likely to come in the equity markets will probably be foreshadowed in these markets.  Interestingly, the news that South Korea is considering purchases of gold as a means of diversifying their currency exposure has done little support prices this morning.  I dare say that a development like this may have sent the yellow metal soaring just a few weeks ago, so the fact that the response has been a bit muted is telling. 

Until later.....