Volatility Report: VIX Hits High

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About the stock market, Ameritrade says:
Market observers have long debated whether the old “Sell in May and…” stock market adage is worth following to the letter. Or at all. That argument will live on. But for 2013, at least, sellers got itchy in May and certainly hung around in June. Strong year-to-date stock market gains held but they looked more vulnerable than during the cooler months when major indexes were notching all-time highs. The latest buzz kill? The Federal Reserve signals it’s getting closer to yanking its stimulus punch bowl, Chinese manufacturing data weakened, and anti-government protests from Brazil to Turkey nudged some investors to dump emerging market holdings.

These jitters made their way into the widely followed market sentiment indicators and to a few stats that fly under most investment radar. Market volatility picked up noticeably in the month since Ticker Tape’s last release in late May. The Dow Jones Industrial Average suffered at least three 200-plus point plunges during this short stretch. The S&P 500, alit for much of this year, shed 2.2% from mid-May to mid-June. The sentiment shift hit other market indicators. The CBOE Volatility Index (VIX), the so-called “fear gauge”, hit multi-month highs of 18.60 in mid-June (by comparison, it was trading below 13 early this year). The latest TD Ameritrade Investor Movement IndexSM (IMXSM) tells us that investors scaled back their equity exposure in May. Options statistics played along, too: the ratio of puts-to-calls spiked over the past few weeks, entering territory that some observers associate with bearishness. Remember, buying a put option gives the holder the right to sell at a future pre-determined time and price.

Without doubt, caution dominated in recent trading and while sentiment can certainly swing in the other direction, often without notice, some observers find the depth of selling across sectors and indicators has the makings of a trend. Others need more convincing.
The Red Sea

In percentage terms, the utility sector led the market in the first quarter, only to suffer the largest loss among sectors in the past month and underperform the broader market. Weakness hit the energy, consumer services and materials names. Technology and financials performed largely in-line with the broader market. Meanwhile, some healthcare names showed relative resilience. The sector shed 1% in the past month, slicing a sliver from its 21% year-to-date gain.

During the first five months of 2013, the Trade Architect Heat Map glowed green. But over the past month, the map, which tracks the S&P 500, bled red across nearly all sectors. Very few green boxes emerge (see Figures 1 and 2) and are almost nonexistent in the utility, telecom, and consumer services sectors.

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