Global stocks are in rally mode after EU summit failed to give any meaningful conclusion. Devil is in the detail and thats why EU leader didn't provide any detail about their plans. Now, the expectation of ECB cutting rate on Thrusday is high. ECB did carry LTRO on last Thursday ahead of conclusion of EU summit which was a surprise move. In other word, ECB wanted to clam down this market. Tomorrow, ECB is carrying Fine tuning operation. This year stocks have rallied on Tuesday because of ECB fine tuning operation. You can read more http://www.freefdawatchlist.com/2012/02/how-to-take-advantage-of-ecb-operation.html
In less then a month time, Dow has rallied 700 points and S&P500 80 points that too when the fear should have been highest right from Greece election to Spain yield over 7 or weak US GDP. But the opposite happened and VIX sold off along with volatility stocks like TVIX, UVXY. and both were down 60% in 1 month.
|Dow Daily chart|
Vix was expected to be down in a short holiday trading week. But, nobody expected Vix to sell off so badly. Vix is still in contango, so remember any rally in VIX is likely to sell off at the end of the day. Volatility stocks are not good for long term basis as there is constant decay. So becareful
|Dow 6 month chart|
Based on the chart, Dow is expected to be between 12925 and 12722 range before taking up or down direction. The chances of down direction is very high.
Any rally without consolidation is likely to sell off as it happened for the gains between Dec - April which was completely sold off in May. The way stock market is making move up and down, there is no doubt, we'll see flash crash again on the day when a big bank or big country fails.