NDX holds up best, RUT getting hit

Again the RUT was weakest today. The index currently sits right on its five-day moving average. This index needs to lead higher if this rally will continue. Usually, the RUT leads in the second half of December, but with this year's huge rally in November and December it will take a lot of optimism to propel it further.

Today's FOMC meeting was initially met mildly, but Yellen's post meeting news conference that focused on low growth and high interest rates sent the market lower. The market internals showed signs of the weakness with market breadth negative and the number of stocks above their 20 day moving average falling substantially.

The SKEW jumped back to 125 - a moderate reading still. VIX and VXST both rose also, but not substantially.

As this is options expiration week, it should be bullish. So far, it has not been, so the next two days could save this week from negativity.

The start of an upside run?

Finally, a huge overnight down move and follow through selling put the SPX with a loss of over 3% from yesterday's close at one point today. This felt like a bit of capitulation. The VIX went as high as 32, but closed around 27.5 giving another VIX spike buy signal.  Today's candlestick as a classic hammer can offer a short-term bottom for the market, also.

Oversold conditions reached extreme levels lately. One of the rarest signs came from market breadth as discussed in a note from Larry McMillan. "Market breadth was poor [yesterday], and ... remain on sell signals, deeply into oversold territory. With the “stocks only” oscillator below –1,000, it’s in an area that is quite rare. There have only been 17 days of readings below –1,000 since we have been keeping this indicator (since 1994). Three of them have come this year, two were in August 2011, two were last August, nine were in 2008, and there was one in May 2012. All of those were major bottoms in the stock market, at least for a strong rally." Some other oversold conditions are outlined in Urban Camel's blog last week.

With short term measures of volatility still elevated compared to longer-term measures, the market is still not ready to rally. SKEW came in elevated again today at 134. We need these to mark significantly lower to fuel a longer term rally.

With VIX high and big down days like today, very short term trades are possible for easy profits. The 1760/1750 SPX put spread with two days until expiration sold at $1.40 for a good hour today. With the market rally, it was back down to 80 cents by the close. These low risk trades seem viable to pick up some cash by month end.