As Promised, Vol Is Back!

We knew it was only a matter of time. After trading in the most narrow range for the better part of the summer the VIX (see chart below) which is the ticker for the Chicago Board Options Exchange Volatility Index spiked this week over 60%!  This on fears that monetary policy changes are forthcoming here in the United States and abroad, especially as it pertains to interest rates. How is this a surprise though? There is not a day that goes by, in fact there is not an hour that goes by without headlines coming out pertaining to the Federal Reserve and what they will or will not do with interest rates.

Look my view is simple, count on it! Count on central banks changing their position on interest rates at some point in time. What amazes me is how much the markets and investors have become so reliant and seemingly make every investment decision based on whether interest rates remain near zero or begin to rise. How about this concept? Take a look at the premiums the markets have enjoyed over the past several years and minus that out. Then in my humble opinion we get back to fair value in stocks and markets. Although this has been one of the most profound bull markets in history, at some point in time equities are going to have to get off of the dependence on central bank accommodations. I look for ward to the day that we will be able to properly evaluate stocks and asset classes based on their respective fundamentals not on Federal Reserve policies.

Until then, the bulls can continue to enjoy the ride they have been on and I will continue to pay close attention to overbought and oversold conditions. With volatility back, this does create opportunity for the trader that is not too concerned with valuations. However, I expect that in the not so distant future, valuations will actually matter again. Good luck to all 🙂

~George

VIX chart George Mahfouz Jr

A Fresh Record High For The S&P 500!

It took a bit over a month since its last record closing high, but the S&P 500 (chart) on Friday indeed finished the week at a new record close of 2096.99. The Dow Jones Industrial Average (chart) closed above 18000 for the first time since the end of December as well. The tech-heavy Nasdaq (chart) now seems to be poised to go back through the 5000 mark, a level not seen since early 2000, and the small-cap Russell 2000 (chart) also closed at a record high at 1223.13.

Furthermore, both the S&P 500 (chart) and the Russell 2000 (chart) have technically broken out and could continue to notch further gains. This analysis is supported in part because both of these key indices have not yet reached overbought territory according to the Relative Strength Index/RSI. Remember, the RSI indicator signifies the 70 value level as an overbought condition for any given equity or index. The Relative Strength Index of the S&P (chart) and Russell (chart) are currently sitting around the 60 value level. So technically speaking and at least according the RSI, overbought conditions are not yet present.

With records being posted and breakouts occurring, is the economy or corporate profits really that good? Or is this a continuation of easy monetary policies worldwide? If I was a betting man, I would bet the latter. That said, how in the world can you go against the central bankers from around the world? I think the bulls will remain in charge for the foreseeable future, unless some unforseen catastrophic geopolitical event occurs.

Happy Presidents’ Day to all 🙂

~George