Stock Markets Jump: VIX, Silver Crater

It was an impressive day for stocks and ETFs yesterday as markets reacted to good news on retail sales and then cheered the Federal Reserve statement which said nothing nothing new or unexpected but reconfirmed easy monetary policies until late 2014.

The Fed said that it sees the economy improving slowly while unemployment remains high.

The Fed was expected to keep interest rates unchanged and says that rising energy prices, particularly oil and gasoline, is a temporary phenomenon, leading to temporary price hikes but having no impact on long term inflation.

The VIX, the CBOE S&P 500 Volatility Index fell sharply again this morning, falling to 14.58, down 6.8%.

The index now has returned to levels seen in 2007, below the financial crisis and during a very powerful bull market.

So what is VIX telling us?

Markets are extremely complacent.

Volatility is at levels seen during times of extreme positive sentiment.

The “fear” indicator says there’s nothing to fear.

People are expecting equity prices to continue to rally, that the Federal Reserve has its “put” in place and seems ready to do whatever it takes to keep stock and ETF prices rising.

Retail sales climbed 1.1% to $407.8 billion last month and December’s and January’s numbers were revised upwards, as well.

The financial sector led the way higher yesterday on banks' announcements of dividends and optimism over the Federal Reserve stress tests.

ETF Summary:

SPDR S&P 500 Index ETF (NYSEARCA:SPY) +1.8% on retail sales and Fed, breaks resistance at 1380 level to close at 1395 and return to overbought territory.

Russell 2000 Index (NYSEARCA:IWM) +2% to challenge highs set in mid February

iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) VIX index drops to 14.80, lowest level seen since 2007 and indicative of extreme complacency and confidence in market.

iShares Silver Trust (NYSEARCA:SLV) -1.15% as spot silver declined to $33.42. Silver ETF is below its 200 day moving average.

It was a bad day for gold, as well, as SPDR Gold Trust (NYSEARCA:GLD) dropped 1.7% to close below its 200 day moving average.

Bottom line: Stocks rallied while commodities and bonds crumbled on good economic news and kind words from the Federal Reserve.  Resistance now becomes support and overbought conditions in the indexes and oversold conditions in VIX will make for interesting conditions going forward.

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.