Averages Turn Decidedly South (SPY, QQQQ, VXX, UUP)

This market has been so unbelievably strong that any intra-day weakness these days comes as a surprise. That is how buoyant the averages have been over the last month or so. In the last half hour, the major averages have softened up after drifting around the flat line for much of morning trading. Currently, the Dow Jones Industrial Average has lost 58 points to 10,909. At one point the Dow was down by more than 70 points. The SPDR S&P 500 ETF SPY is currently down 0.52% at $115.44. The PowerShares QQQ Trust ETF QQQQ, which tracks the performance of the Nasdaq 100, has lost 0.28% after spending much of the trading session in positive territory. The iPath S&P 500 VIX Short-Term Futures ETN VXX shot into positive territory as the major averages began to fall. Currently, VXX is up 1.05% to $16.41. Market participants have been conditioned to buy any weakness in stocks over the last month. There is really no obvious reason to divert from this strategy, as it has worked tremendously well. With that being said, the violent nature of this rally would suggest that an equally large correction may be in the cards. Stocks looks very stretched on a near-term basis - but that could persist for a very long time, as many participants are likely surprised that some sort of correction has not already taken place. If a correction is imminent, the likely catalyst is going to be a move up in the U.S. Dollar. If you look at the PowerShares DB US Dollar Index Bullish ETF UUP chart, you can see that the ETF is trading in a range of long-term support in the low to mid $22 range. Right now these levels are holding and the dollar is bouncing on the session. Careful traders should look for the UUP to trade through the $22 level on the downside before getting more aggressively long stocks and commodities in the near term. More aggressive market participants may want to just go ahead and pick up some beta here as that strategy has worked beautifully of late, and there is no explicit reason to expect it won't continue to work, although a nasty correction is likely at some point.