Hopes over a new European Quantitative Easing program boosted US futures early. Bank earnings have been disappointing and MS followed the trend releasing earnings at 7am. The lone piece of economic data was the NAHB Housing Market Index and it disappointed by one point. Regardless, of what economic data has said over the last few sessions we continue to see intraday volatility. While the Dow did not swing 300 points today we still saw a swing nearly 242 points on the session. As the market was approaching the lows of the session prior to lunch time buyers found a way push prices above the morning highs. NYSE volume was lower on the session, but coming off a long weekend it really is not a surprise to see a lack in volume. This market remains volatile and one should be handled with caution or what we like to call risk management. Do not be a hero and stick with the process.

Today’s session was certainly a positive development. We would like to remind everyone on the 8^th of January it appeared the market was back on track for new highs. We still remain below the high set on the 8^th of this month, but given the support we have received above Dow 17,000 it has now become an important pivotal point. Over on the S&P 500 we see the 2000 level as a key psychological level, but more like 1988 and 1973 are areas we need to hold moving forward. The Russell 2000 looks like a complete mess and continues its lackluster trading behavior. We have key areas defined to the downside ti will be a matter of the market’s being able to hold and push higher.

An interesting note on this market is the continuation of the divergence between the S&P 500 and the CRY index (Reuters Commodity Index). The divergence begin at the end of 2011 when we the Federal Reserve stepped up its operations with its stimulus program and the divergence has not looked back since. Deflation has never been a friend to the stock market, but perhaps this time is different.

Bank earnings continue to disappoint with all 5 major banks failing to meet expectations. Financials were one of the weakest sectors in the S&P 500 today. The group was down 38bps on the day only the drop in Consumer Discretionary by 64bps. Seeing the weakness in banks begs the question can this market continue new highs in the market without financials?

This market is going to wait on what we hear from ECB. Then, we’ll wait and see what our Federal Reserve does the week after. Given the volatility position sizes should be shrinking to smooth out volatility. As this market evolves we will evolve with it. Cut your losses.