Some Quick Thoughts On The Market - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Some Quick Thoughts On The Market

Despite worries about the price decline in small cap stocks earlier this year and a poor 1st quarter GDP report, the equity markets are still continuing to rise in an orderly fashion.

S&P 500 – Still Trending

The S&P 500 index’s upward trend from its February low still remains in place. At this point, the price action is reflecting calm and orderly market behavior from investors.

Volatility still remains very, very low as investors seem to be hoping that continued mixed economic data reports will keep the Fed’s monetary policy in action for longer than expected.

Will there be a summer rally

spx weekly

The Weekly Chart Of The S&P 500 Shows Just How “Orderly” The Market Has Become

 

Russell 2000 Is Back On Track

Earlier this year, we started to watch the upward trend in small caps break down:

russell 2000 daily chartFears on how the Fed’s taper program would impact the markets hit small cap stocks first. The Russell 2000 index declined more than 10% earlier this year and volatility levels within the small cap universe hit a seven year high.

However, after hitting key technical support levels, investors flocked back into small caps. The decline was viewed as a buying opportunity for nimble investors after the S&P 500 index failed to follow the Russell 2000’s decline:

spx vs rus

Gold Is Starting To Wake Up

I haven’t had much to say about gold over the past year as it has remained an out-of-favor asset class for some time.

However, gold might be on the verge of a bounce.

Gold prices have declined to its long term rising trend line:

gold trend

As this is occurring, outflows into gold ETFs have declined as investors are starting to look for a resumption of gold’s long term, upward trend at these levels:

gld monthly inflow

Peak selling in gold may be over

 

Financial Stress Remains Low

Lastly, stress in the financial systems still remains at low levels:

Fred stress index

The Fed’s Financial Stress Index, which is used to measure financial stress in the markets, still remains well below zero. (Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.)

20140626-STLFSI-yearly-change

For those not familiar with The St Louis Fed Stress Index, below is a brief overview from the Federal Reserve Bank of St Louis:

 

St Louis Fed Stress Index by John Rothe


 

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