A Couple of Quick Thoughts On Current Market Conditions

A Couple of Quick Thoughts On Current Market Conditions

As I write this, the market continues its decline for the week with the Dow being down nearly 250 points. Is it time to worry, or is this just a pullback in a rising market?

Well, I wanted to share a couple of items I am currently looking at:

Market Trend

The longer-term trend in the market is still up:

screengrab1

Until this upward trend is broken, we are experiencing normal volatility in a trending market.

Volatility levels have barely flinched:

screengrab2

 

Many look towards the “VIX” (aka the fear gauge) as a measurement of fear and worry in the markets. Typically levels below 20 are very anti-climatic.

 

Seasonal Strength

We are still in a period of strong seasonal strength. Historically, the markets perform well during late winter/early spring. The current, low levels in the “VIX” is an indication that most market-watchers feel that there is no reason for this historical trend to no continue.

sellinmay

 

The Fed Has Been Quiet

Since Janet Yellen took over for Ben Bernanke earlier this year, the Fed has been pretty quiet. The Fed’s “taper” program also seems to be sitting in the back of investors’ minds. Searches on Google related to the Fed’s tapering of bond purchases has dropped recently:

 

fedgoogle

 

source: Google

I should also point out that copper prices have been dropping:

2014 copper prices

 

In my 2012 outlook (see 2012 Outlook), I discussed how copper prices are a great indicator on the health of the global economy:

Copper is an amazingly conductive metal, AND a fantastic gauge of the overall health of the global economy. From September 2011′s Economist:

“Copper’s excellent conduction of electricity and heat means that it is used not only to cable and pipe the globe. An average car contains over 25kg of copper; electronic gadgets, from PCs to mobile phones, use copper for wiring and contacts. Its ubiquity means that rising demand should provide an early indication of an uptick in manufacturing and construction. Copper sagged in the early stages of the credit crisis, for example, and then started to pick up at the end of 2008, some months before the stock market began to rebound.”

 

Any worries about a slowdown in economic growth will keep the Fed quite.

 

Reallocation into Risk and Europe

Investors appetite is back as inflows in ProShares Ultra Russell 2000 ETF (“UWM”) have increased. This particular leveraged, ETF tracks the Russell 2000 performance multiplied by a factor of 2.

Proshare Ultra Russell 2000 inflows

Additionally, last year’s problem child – Europe – is back in favor with investors as well:

etf inflows 2014

At this point any selloffs in the market are just speed bumps – but keep and eye on VIX levels and the S&P 500’s 200 day moving average (a line in the sand for many investors) for indications of how the market crowd is feeling about the market as the weather gets warmer…

Cheers,

John

 

Have New Posts/Articles Emailed To You Automatically

 

Sign up for automatic updates of new blog posts

* indicates required

 

 

Comments are closed.