ECB

Well the good news, at least from the markets perspective, is that the ECB outlined some kind of plan for buying and supporting Euro area debt.  For the most part, it was the same assembly of loose promises and goodies, but that should be enough to get the animal spirits rolling in Europe until the end of the week.  Add to that a pretty decent ADP payroll report that seems to point to employers getting past the tumult of last year’s crisis.  The SPX cash closed over 2% for a big relief rally.  Here is where it gets weird. 

The market got to a point today where it looked over the wall and could not take the plunge one way or the other.  The S&P 500 E-mini could not hold onto the highs of the day and the VIX could not hold onto the lows of the day.  So, how did it end up, and what did it mean?

As you can see from my illiterate scrawl on the chart, the VIX made a new near term low and promptly decided that was low enough.  The rally in the VIX led the market to decline from its peak by about 30 min.

Charts from Think or Swim (www.thinkorswim.com)

I have to think that if I were an algorithm and a phase like “Central Bank Action” came across the tape, my electronic synapses would snap into action and start firing off the buy orders.   That is a call to action for most machine readable news trading.  The issue right now is one of liquidity.  There is volume going up for sure, but not what I call volume at a price, which is a sign of a healthy, liquid market.

In my short stint as a floor clerk (Ronald Reagan just left the White House), I learned an early lesson in liquidity.  One of the partners in the firm I worked for would use low liquidity as a partial definition of a Bear Market.  Sitting on a trading floor, clerking for a trader who was watching the paint dry was a visceral experience.  Watching every equity bid hit in the move up to Gulf War I (Dow around 2300), I could feel no one wanted to do anything.  Usually, in a liquid market, there is action between the bid and offer.  Not so for that stretch in 1990.  No trader would give a floor broker a break filling paper because of the dread overhang of uncertainty with the Iraq invasion.