Stocks Hit Ceiling, Fall Back, VIX Surges

Stocks hit yearly highs, run into significant resistance and fall back as VIX surges

The S&P 500 (NYSEARCA:SPY) hit levels last seen four years ago but then fell back, unable to breach significant resistance at current levels.

Current levels act like a ceiling and need to be broken for the uptrend to continue.

Fed President Dennis Lockhart came out against more monetary easing which is not a new position as he has been opposed to current policy for some time.

The Dow Jones Industrial Average (NYSEARCA:DIA) fell 0.5%, the S&P 500 (NYSEARCA:SPY) fell 0.4%, the Nasdaq 100 (NYSEARCA:QQQ) slipped 0.4% and the Russell 2000 (NYSEARCA:IWM) dropped -0.6%.

The Eurodollar (NYSEARCA:FXE) defied the trend with a jump of 1% to $124.72 on hopes for an upcoming resolution to the European debt crisis.

VIX, the CBOE S&P 500 Volatility Indicator, also known as the “fear index,” surged off recent lows to gain 7% and settle at 15.02, still below its long term average in the 20s and below its 50 and 200 day moving averages.

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX): +2.7%

VelocityShares Daily 2X VIX Short-Term ETN (NYSEARCA:TVIX): +4.4%

iPath S&P 500 VIX Mid-Term Futures ETN (NYSEARCA:VXZ): +1.6%

S&P 500 Dynamic VIX ETF (NYSEARCA:XVZ): +0.16%

Velocity Shares Daily Inverse VIX Short-Term ETN (NYSEARCA:XIV): -2.7%

VIX last week hit its lowest levels since 2007 last week and now has bounced sharply off that level as fear returned to markets today. Readings in the teens are typically viewed as levels of extreme complacency among investors and are oftentimes seen as precursors of higher volatility and lower equity prices ahead. VIX typically moves inversely to equity prices. Advertisement

Current levels of VIX are close to levels seen in previous turns south in the stock market, including periods in 2007, 2008 and 2010.

Bottom line: Global stock markets have rallied smartly t0 2012 and four year highs on hopes for more monetary easing from the Federal Reserve, bond buying by the European Central Bank and movement towards a resolution in the European debt crisis. On light trading volume and low volatility, we can expect moves based on the news flow of the day. Upward momentum is stalling and we can expect sideways movement or consolidation over the short term. But the big dog in the room is Fed Chairman Dr. Ben Bernanke. His “bark” at the upcoming Fed conclave in Jackson Hole, Wyoming, will bite either the bulls or the bears as we head into September.

Disclosure: Wall Street Sector Selector actively trades a wide range of exchange traded funds an positions can change at any time. Wall Street Sector Selector holds a position in (XIV)