Also known as the fear gauge. In February (blog) we spoke about not getting too complacent and assume that this 2 year bull run would just continue to go without interruption. We also spoke about the VIX and how this widely followed index was trading well below 20 and as low as 15, which is an indication of how confident investors were back then. Fast forward to today, and now let’s take a look at the chart of the VIX chart. Clearly you can see that just in the past 3 weeks or so how much volatility has increased with the VIX index nearly doubling in price. So what does this mean? In hindsight it was obvious that the market was overdue for a correction and all it needed was a catalyst to correct.

Certainly the Middle Eastern crisis could of served as “the catalyst” and in fact volatility did indeed increase due to the Egyptian and Libyan crisis, but unfortunately it took the tragedy in Japan to enact the real catalyst for this current market correction we are in.

Once again history repeats itself as it pertains to the VIX index, and the lesson is that any extended period of time the VIX trades below 20 and in this case it was almost 4 months, the market usually is due for some type of correction.

All the best,

~George

Equities endured yet another day of selling as the Japan crisis takes hold. It’s hard for me to even write about the markets in the midst of one of the most serious global catastrophes in years. That said, in this type of market environment and with all of the uncertainty that exists overseas, it is probably a good idea to be as patient as possible and not panic. For now, the best thing we all should do is provide our support and prayers to all of the people that have been and are continuing to be affected by this calamitous tragedy.

~George

Although equities eked out gains on Friday, the bellwether indexes pulled back about 1% with the tech-heavy Nasdaq getting the brunt of it closing off over 2% chart. I think most market participants want to see what happens over the weekend pertaining to the Middle Eastern crises and how oil continues to fare. Recent economic data has provided some hope of a turn-around. For the most part, equities have performed exceptionally well considering all of the geopolicital concerns and economic headwinds occurring in Europe and now seemingly in China.

This coming week should be no exception to the recent volatility that the markets have been experiencing, especially when you add quadruple witching hour on Friday.

Have a safe and prosperous week 🙂

~George

Equities got walloped today as weak economic news hit the wire along with the continuing turmoil in the middle east. What’s more is the Dow chart, the S&P 500 chart and the Nasdaq chart all have broken through and closed below their 50 day moving averages. On Sunday’s blog we spoke about “the moving averages” and how this is a technical analysis tool utilized by many market technicians and institutional investors. For the better part of 6 months these leading indexes have managed to comfortably trade above their 50 day and significantly above their 200 day moving averages. So what does all this mean? Well the coming days will tell us whether or not this was a one day violation of the 50 day or if this is the beginning of a extended sell-off?

I think for now the markets will continue to be hyper-sensitive to the incessant data and news flow especially out of the middle east. Patience is key especially in an emotional market like the one we find ourselves in.

Have a good evening.

~George

Back in January we discussed technical analysis (blog) and in particular the Relative Strength Index also known as the RSI. There is another metric that market technicians use and even some institutional investors pay close attention to and that is “the moving averages“. The moving average is a technical analysis that measures the average price of a stock or index over a specific period of time. The actual time period that is plotted depends on the trading or investing style of the technician/investor. The most common time periods are the 20 day, 50 day and the 200 day, however, one can plot any other time period of their choice between the 20 and 200 day. So why is this important? As previously mentioned, some of the big institutional investors use this analysis (amongst other tools) to assist them in making entry and exit trades.

Let’s take a look at the most recent Nasdaq chart as a textbook example. You can see that when the Nasdaq had a sharp sell-0ff the week of February 22nd, it held the 50 day moving average. In fact, after it held support at the 50-day trend line on February 23rd and 24th, it proceeded to rally the next two days before another sharp one day sell-off. Once again the 50-day moving average provided the necessary support to keep the Nasdaq trading above its 50-day. It is clear to me that certain institutions and certain market technicians relied on this metric to deploy capital into the Nasdaq.

Once again this is a textbook example of how technical analysis can assist you in your trading or investment strategies. However, there are many times that the “moving averages” fail to hold their selected levels. Also, please note the keyword “assist” for there are many other factors and tools that market technicians consider. It is also important to remember that most market technicians prefer not to get too complicated with technical analysis and that is why I have highlighted two of the most popular indicators.

Have a healthy and prosperous week.

~George

Yesterday when the weekly unemployment claims were announced at nearly three year lows, the bellwether market indexes embraced the data by surging nearly 2%. Fast forward to this morning, the February jobs report was also very strong with the unemployment rate falling to 8.9%. This is the first reading below 9% since April 2009. In addition, the private sector added 192,000 jobs which was above market expectations of 185,000.

Okay so we continued to rally today, right? Not so fast thanks to 0il spiking to $104+ per barrel and the ever increasing prices at the gas pump. These two key economic factors weighed in on equities today with the Dow falling 88 points chart, the S&P 500 giving up almost 10 points chart and the Nasdaq retreating 14 points chart. These indexes did however come off their session lows.

I am still very impressed with how buoyant most equities have been considering the ongoing crises in the middle east. It is also encouraging to see stronger economic data coming out and hopefully this trend continues.

Have a wonderful weekend 🙂

~George

February was a month where we witnessed extreme geopolitical turmoil in Egypt, Libya and throughout the middle east. It was also a month in where oil spiked to over $100 a barrel, hence the markets experienced its first real pullback that many pundits had been anticipating. However, this micro-correction was met with the perennial support equities and indexes have been accustomed to over the past several months. For the month of February the Dow closed up over 2.8% chart, the S&P 500 closed the month up 3.2% chart and the Nasdaq finished February up over 3% chart.

Resilient is an understatment considering the economic and geopolitical environment we are in. That said, historically markets tend to be forward looking mechanisms and just maybe the markets are trying to tell us something? I am expecting that March will be somewhat of a volatile month especially with the ongoing developments in the middle east and the uncertainty of the price of oil.

Good luck to all.

~George

This week the markets gave what market technicians have been looking for, and that is, a pullback! After three days of a sell-off which was long overdue, equtites for the most part held true to form and closed the week on a high note. Let’s take a look at the chart of the S&P 500 Index chart. By looking at the candlesticks on the daily chart you can see from Tuesday through Thursday the retracement that occurred. I was paying closer attention to the RSI technical indicator at the top of the chart as it broke down through the 70 value(overbought) level. Notice how it approached the 50 or so value level and traded around there. Most technicians view this level as confirmation as to the continuing direction or a turning point, in fact they will use the 50 value level as the actual “trigger” to put on their position. So had the RSI continued through 50, certain traders and technicians might of put on some sort of short position(same principle applies to an oversold condition). The fact that it held and turned up certain traders and technicians might of put on some sort of long position. Please note this is technical analysis only and does not consider macro factors.

Time will tell whether today’s action was a head fake or not. I think that question will be answered over the coming weeks with all eyes on the geopolitical turmoil in the middle east and the future price of oil.

Have a great weekend 🙂

~George

When there is a market environment such as the one we find ourselves in, it is easy to get complacent and comfortable in the assumption that your portfolio will continue to climb uninterrupted. Who can blame you for thinking this way for that’s exactly what has been going on. Another metric which confirms how fearless the markets are is the Volatility Index, otherwise known as the VIX. This index measures the amount of fear or lack thereof as it pertains to investor sentiment looking out 30 days. For months now the VIX index chart has stayed below 20 which historically is a sign of a courageous and overwhelmingly confident marketplace.

Indeed this rally can continue and most probably will, point being it best to remember that historically equities, commodities and indexes whether they are in a bear or bull market, usually pause and or reconcile at some point and time. By no means is this a bearish call, just a friendly reminder of not getting too comfortable or complacent. 🙂

Have a safe and prosperous week.

~George

When stocks or indexes go parabolic it is like a freight train with no brakes. Yet another week of multi-year highs for the bellwether indexes with the S&P 500 now more than doubling from the crash of 2008. Take a look at the parabolic moves on the charts of the big three: Dow Jones Industrial Average chart – S&P 500 chart – Nasdaq chart. Now if you have been long this market there couldn’t be a prettier sight.

However, even the pros are finding it difficult to invest in this type of market. When equities or indexes have these types of parabolic moves, it’s hard to put new money to work because of the seemingly overbought conditions and expectations of a pullback. Also it’s hard to stay in cash for no one wants to miss out on this extraordinary bull run. And finally how in the heck could you ever short sell this kind of market?

So what in the world does one do? One thing I have learned through the years is that sometimes it’s better to be patient than to speculate on what’s next. This could be one of those periods in time where it’s best to simply do nothing and wait for some type of catalyst before you act.

Have a great weekend 🙂

~George