Smart Investors, Keep an Eye on the VIX
For the first time ever, the Dow Jones Industrial Average closed above the 26,000 level, dismissing Tuesday’s intra-day selloff as if it never happened.
In the end, the Dow Jones gained 1.3%, the S&P 500 gained 0.9%, the Nasdaq Composite gained 1% and the Russell 2000 gained 0.9%. Gold fell slightly. Crude oil inched higher. And Treasury bonds weakened pushing up yields.
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Advancers outpaced decliners by a 2-to-1 ratio. Tire makers, casinos and semiconductors led the way, while coal miners, forest and paper stocks and apparel retailers were the laggards.
General Electric Company (NYSE:GE) fell 4.6% amid ongoing disappointment with a larger-than-expected write-off related to legacy business. Bank of America Corp (NYSE:BAC) fell 1% before trimming its losses after reporting results, with earnings beating estimates but revenue coming in soft on weakness in fixed income, currencies and commodities trading. Goldman Sachs Group Inc (NYSE:GS) fell 1.9% on a similar drag.
Overall, the result was the Dow’s biggest point gain since Election Day 2016; just one day after the worst peak-to-trough reversal since the summer of 2016. No wonder the CBOE Volatility Index actually finished the day higher.
Sentiment, investor positioning, relative strength. These are all off the charts extended, so I won’t repeat the situation here.
Conclusion
The most interesting moves of the day were in the U.S. dollar, which has been under serious pressure lately amid chatter out of China that purchases of U.S. Treasury bonds could be curtailed given growing tension on trade with the Trump Administration. But then around mid- day headlines crossed on repatriation plans from Apple Inc. (NASDAQ:AAPL), which put a bid under the greenback.
That hit commodities and precious metals hard and fueled animal spirits into the closing bell.
Keep an eye on the VIX, however, as it continues to become correlated with stock prices in a possible regime shift from recent trends; returning to the alignment volatility and stock prices demonstrated in the final stages of the 2000 and 2007 bull markets.
Check out Serge Berger’s Trade of the Day for Jan. 18.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
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