Equities were tripped up last Tuesday after finishing the previous week with some signs of weakness, but the sell-off only proved temporary as we rallied throughout the remainder of the week and closed Friday in the S&P 500 above the 1370 level, within shouting distance of the 1378.04 intraday high registered at the end of February.
What is likely an encouraging sign for equity bulls is the decoupling we noticed last week in the price of the Euro and the direction of equities. Market observers can look back just at last summer during the dark days of the August sell-off when as the Euro went, stocks went, but last week, this relationship was not intact.
On optimism about a resolution to the Greek debt situation, the Euro fell to one month lows, but equities in world markets continued to rally despite this fact. Recently, after a few months of relative silence in ETF options world in currencies, PowerShares U.S. Dollar Index Bullish (NYSEArca: UUP) call buying has resumed as has put buying in CurrencyShares Euro (NYSEArca: FXE) and call buying in ProShares UltraShort Euro (NYSEArca: EUO) and last week’s action in the Euro largely mirrored the sentiments of these options flows.
From a technical standpoint in the S&P 500, we see resistance at 1374-1375, which was nearly touched last Friday, and in the Nasdaq-100 overhead resistance sits at 2643 and 2650. Early in the week we saw pressure and large net inflows in the small cap space, specifically in iShares Russell 2000 (NYSEArca: IWM) where more than $1.2 billion flowed out of the fund via redemptions, but when Friday rolled around, nearly half of these assets re-appeared in the fund through creations.
Similarly, after a short and sudden spike in the VIX after Tuesday’s sell-off, recent large inflows in VIX products including iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) reversed course and we saw sizable outflows instead. The VIX itself followed a volatile path last week, rising steeply and suddenly from the $17s to as high as $21.24 last Tuesday, but closing the week at $17.11. [Volatility ETFs See Outflows as VIX Nears 1-Year Low]