Stocks finished the day little changed, with the S&P 500 index up higher by roughly 3 bps. The rotation seemed to be in perfect alignment again today as the technology sector had risen just enough to keep the declines in the reflation trade from pulling the index down.

If we take that one step further, we could say, Apple and Microsoft kept the S&P 500 in the green. Without those two, the index would have likely been down about 10 to 15 bps on the day.

Volatility levels are rising on the index and single stock level, indicating a turn lower is likely on the way.

Strength Is Being Sold

Despite the calm on the surface, what is happening underneath the surface is really amazing. Strength is being sold, especially in the reflation assets. It tells us how much the mood of the market may have changed in recent weeks. Sectors like the financial and housing started the day higher and were hammered and finishing off their highs.

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Volatility (VIX)

Additionally, we have again seen the VIX and VXN creep higher despite overall markets moving higher. It is highly unusual for this to happen, and in the past, this price action has preceded a sharp move lower in the equity markets. The rising volatility indexes suggest that investors are looking for protection, i.e., puts.

Why shouldn’t traders/investors buy protection ahead of the ISM and BLS Job report? The ISM manufacturing report will come on Thursday, with the BLS Job report on Friday.

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S&P 500 (SPX)

I am still sticking with the idea that we have a wave “C” in the S&P 500 coming, which should result in a pullback to 4,120, based on the S&P 500 future hourly chart.

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The advance/decline traded lower today, not confirming the move higher in the S&P 500 nor the recent move higher that started last week.

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Meanwhile, the percentage of stocks above their 50-day moving average also fell again, suggesting more momentum in the index has been lost.

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Apple (AAPL)

I know Apple has been rising, and it has surpassed the downtrend I thought might stand in its way. But when we look at the options, we can see the price has been rising on increasing call activity, and now implied volatility is rising. In the past, we have seen this happen when stocks are near the end of recent rallies.

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AMD (AMD)

AMD has also rocketed higher, moving to the upper end of the trading range we have been watching. But again, like Apple, we can see the implied volatility level really moving higher, suggesting this little rally is likely to reverse.

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