While much of the financial media are focused on “Green Shoots” and the possibility of an economic recovery, the road ahead will certainly not be smooth sailing as many economic “weeds” still remain. However, the presence of these green shoots does indicate that the path to an anemic recovery is developing, which the markets are likely snuffing out.
There are statistical ‘turns’ in the economy and then there is the ‘real deal.’ The “real deal” is defined by an actual improvement in the economy on Mainstreet in terms of material job creation, better wages, higher productivity, etc. None of that is likely to happen for some time as the US economy is undergoing what will be a structural change likely to last five years or more.
In last week’s article, “Fixed on the VIX,” I highlighted how important the VIX is as a valuable technical as well as fundamental indicator as it shows a strong correlation to many other indicators (ISM reports, employment, S&P 500, bond spreads, etc…).
In last week's review, we spent some time looking at the equity market from a dispassionate stance, first dwelling on some of the more potentially negative outcomes. In this week's update, we are going to spend some time looking to set up some parameters for getting a better idea of precisely what a “better than expected” stock market outcome might be.
The absolute collapse in global financial markets post the Lehman bankruptcy and AIG bailout last year led to a selling panic that witnessed the Volatility Index (VIX) rise to record levels, peaking at 89.53 on October 24th of last year.
Down 200, up 200... clearly stock market volatility remains at lofty levels. Of course, anxiety on a number of fronts has eased in recent days as equities have stabilized and now turned in a strong recovery rally. Yet amidst the better days seen during the last few weeks, there are still many difficult questions to answer.
With the announcement from President Obama that GM is getting one last chance before bankruptcy, it is completely off of the most actively traded stocks today (top 25 across all US exchanges). Interestingly, there are six financial stocks and four financial ETFs that are on the most actively traded list.
With the markets up more than 20% off the early March lows, it’s hard not to get overly excited, but investors always need to keep their emotions grounded. While many of the fundamental and technical indicators I follow are far more constructive than they were heading into this year, suggesting the market is showing signs of “A” bottom, I still believe that those who jump head long into this market may find that the water is far shallower than they think.
The definition of a bull market is a market that is trending up. In technical analysis terms, an uptrend consists of a series of higher lows and higher highs. The current rally has run for 8 (practically) consecutive trading days so far.
Probably the biggest development in the commodity sector is the solid break of oil through its 50 day moving average (MA), which has acted as price resistance since crude’s peak last year.