Couple of thoughts about the US equity market:
So far, the US stock market is not panicking in the same fashion as global markets. Over the weekend, Michael Covel posted this great chart showing the impact that Ben Bernanke and the Fed have had on the US stock market:
Investors are still under the assumption that the Fed will come to the rescue yet again with QE3.
Last week I mentioned that while the VIX level did rise significantly, it is still much lower than in past market drops. To me this indicates two important points:
1) Investors assume that there will be a QE3 – but are taking a “wait and see” approach.
2) If the Fed does not act, US equities will drop much lower to match their global counterparts.
In addition, it seems that (from a technical view point) bonds have run their course. Bond investors looking for returns will have to start looking elsewhere if this long term trend stays in place:
Lastly, the models that I use in the ARTAIS fund have allocated the portfolio to high levels of cash in recent weeks, however no buy signals in the inverse strategies have been generated yet. These models, which are based on historical trends and market volatility, are indicating a “wait and see” approach to the market as well.
Later this week, I will try to post a more detailed update on how (and why) the models are allocated in the ARTAIS strategy.