02.27.2012

The Risk Goes On

02.27.2012

Monday’s trading signaled a positive turn in U.S. equity trading as three key factors kicked into gear signaling that traders are ready to put on risk and allocate to equities.

Despite an initial triple-digit drop in the Dow Jones Industrial Average Monday morning, buy programs soon kicked into effect as stocks making up the big indices such as the Dow and S&P 500 turned positive with no catalysts whatsoever. The market was soon in positive territory with the Dow holding 13,000 despite some late afternoon fluctuations. Ultimately, it closed flat lower at 12,981.

Another key indicator, as always, is the CBOE Volatility Index (VIX). After a pop in the morning, the VIX headed even lower, dropping from around 19 to 17.6. The extremely low level indicates that investors are usually bullish and have no qualms about shifting money from other asset classes into equities.

Interestingly, investors did not shift money out of Treasurys and instead bought the 30-Year bond and 10-Year note. Normally, that sort of activity would signal risk off and a flight to safety but was not the case and more of a market anomaly if anything.

Perhaps Treasury Curve Senior Vice President Jeff Kilburg summed it up best in a tweet from his Twitter account today (@TheKillir): “#Treasuries creeping higher will Equities… #CatsAndDogsStillLivingTogether”

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