Above The 40 – More Stock Market Volatility And Fizzle

AT40 = 37.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 46.7% of stocks are trading above their respective 200DMAs
VIX = 11.7 (was as high as 14.3)
Short-term Trading Call: neutral

Commentary
North Korea launched a ballistic missile over northern Japan, bot no fire and fury ensued. What happened instead was more like volatility and fizzle.

The volatility index (the VIX) gapped higher by 26.7% but ended the day with a mere 3.4% gain.

The key tell going into U.S. trading was in the currency market. The Japanese yen (FXY) surged on the North Korea news but weakened throughout Asian and then European trading. For example, AUD/JPY plunged for about 75 minutes and then reversed from there. Indeed, the subsequent reversal and rally was so strong, AUD/JPY tested resistance at its 50-day moving average (DMA) by the close of U.S. trading and burst through after that. This breakout is bullish, but I decided to use AUD/JPY as a hedge by starting a fresh short position.

Initially, the Japanese yen (FXY) surged and pushed AUD/JPY as North Korea’s missile launch fired up risk aversion. The fear fizzled quickly into a AUD/JPY rally…

The Australian dollar (FXA) punched through 50DMA resistance against the Japanese yen (FXY) and placed AUD/JPY in a newly bullish position.

The yen’s weakness was so pronounced by the time the U.S. opened for trading, I was surprised volatility gapped so high and the stock market gapped as low as it did. The sharp move distracted me from making the “right” trade which was to fade volatility. Instead, I let my long volatility positions that I hold as on-going every-two-weeks hedges fade on the vine.

The S&P 500 rallied back to a flat close. The NASDAQ was able to close above its 50DMA and a 10-day high. The PowerShares QQQ Trust (QQQ) rebounded well above its 50DMA yet stopped cold at its declining 20DMA.