The proposed merger of DuPont and Dow Chemical sparked an early rally with the Dow up 205 points only to watch it reverse on the supply data from the EIA. The interesting part is crude supplies actually declined, but distillates rose in heating oil and gasoline. That news sent the markets lower as the same old rationale of demand impacting the outlook for crude oil and down we went. Rationale? Depends on your view! I can see the price destruction in the energy sector having a much deeper impact than it has so far. The reversal is almost expected in a market that is in the midst of understanding what lies ahead relative to the economic picture and earnings. I know you are tired of hearing about uncertainty, but I feel compelled to say it until we all understand this isn’t going to change any time soon… and that includes me!
The S&P 500 is a contradiction on the chart. Look below at the chart and note that 
the 50 DMA is approaching the 200 DMA on the upside… a Golden Cross or positive event for the index longer term. 
But, it is also flirting with breaking the 2045 support level and maybe testing the 2020 support or low from November. The RSI, Time Segmented Volume, and Money Flow all pointing lower. Short term divergence is raising plenty of question relative to the longer term view. Again this is another point we have to watch going forward.
Chart
Last night we discussed the VIX index and the potential move higher causing havoc for the index. The chart below shows the bump higher in the index today and a move above the 20.55 level could be a bigger negative for the index short term. 
Anxiety levels are rising as it relates to crude oil prices.
 Watching with interest if this is news or sustainable to the downside impact of the index going forward. VXX flirted with moving above the $20.62 level on the upside move.
Chart
The yield on ten-year bond jumped seven basis points early, but as the selling resumed the yield moved lower on the day. The ten-year bond recaptured all the losses intraday and it is back to the holding pattern of support. There is still a level of disbelief the Fed will take any action next week at the FOMC meeting. This is definitely a story line to watch going forward.
Banks continue to take abuse as KBE fell another 1.2% on the day and KRE fell 1.5% confirming the break of the uptrend off the August low. Financials (XLF) were lower as well and near support at $23.85. FAZ, Direxion Financial Bear ETF is in position to break higher and favoring the selling currently taking place in the index. Watching how this unfolds relative to the follow through for the sector.
Small Cap (IWM) Tested support at the $113.75 early and held the move. Watching the downside trade on this sector as well. Willing to add to our existing position on the downside.
The destruction in the energy sector continues to make headlines… FCX cut dividend completely to reduce overhead, Kinder Morgan cut dividend as well and may have more problems, IYR yield is still 3.7% and the price has fallen 12% since February, and there are rumblings of defaults on corporate bonds floated to finance the shale drilling. 
The downside risk in the sector is rising more than believed and the price of oil below $45 is keeping the pressure on the companies. 
 I expect this could look similar to the destruction in the financial sector. How much it disrupts the balance of the market is yet to be seen and that concern is what some of the speculation is over crude oil continuing to decline. Fear level is growing in the sector.
Tomorrow is another day and it will add to the drama that is currently. Don’t assume and protect your downside risk.