CPI Hints Of Lingering Deflation, Not Inflation

The market is lower again in early trading. Asian markets were lower overnight, and European markets are lower this morning. The Euro is actually getting a bounce today, but so far it is not helping to put a bid under stocks.

One of the things that is a bit worrisome to me is that the market is very oversold, yet it can put together a bounce. The chart below is from my colleague Helene Meisler, and shows how the 10-day moving average of upside-to-downside volume on the Nasdaq is the most oversold its been since 2008. Unfortunately, in 2008 the market bounced, but then went considerably lower. I'm not predicting the same outcome, but the similarity is worth noting.

The next chart shows the relentless decline in the Euro. Yesterday, Germany made some silly comments about banning short selling of its banks. I don't think they figured that if big institutions worried that they couldn't hedge themselves in financials, then they would just short more Euros. This has to be a crowded trade, and I'm wondering when we will see a short-covering rally. If you squint, you can see the small bounce so far today.

The move lower in the S&P 500 (shown below) is pushing the index closer to its 200-day moving average. This is obviously important support levels. But its also worth noting that the slope of the 50-day is flattening out, and will soon begin to slope downward. That usually makes for stiffer resistance on any rallies back. Just another thing to note.

The CBOE put/call opened at an astounding 2.44 (if the data is correct), which makes me think that too many people are leaning the same way. Again, we need some sort of positive catalyst to spark a rally. But if we get one, we could see quite a bit of short covering.

This week is also expiration week, and the VIX is up another +8.8% today to 36.50. So don't discount the potential for some fireworks.